[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



 
                DEPARTMENTS  OF  VETERANS  AFFAIRS  AND
                 HOUSING  AND  URBAN  DEVELOPMENT,  AND
                  INDEPENDENT AGENCIES APPROPRIATIONS
                                FOR 1999

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

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION
                                ________

            SUBCOMMITTEE ON VA, HUD, AND INDEPENDENT AGENCIES

                    JERRY LEWIS, California, Chairman

TOM DeLAY, Texas                     LOUIS STOKES, Ohio
JAMES T. WALSH, New York             ALAN B. MOLLOHAN, West Virginia
DAVID L. HOBSON, Ohio                MARCY KAPTUR, Ohio
JOE KNOLLENBERG, Michigan            CARRIE P. MEEK, Florida
RODNEY P. FRELINGHUYSEN, New Jersey  DAVID E. PRICE, North Carolina
MARK W. NEUMANN, Wisconsin           
ROGER F. WICKER, Mississippi         

NOTE: Under Committee Rules, Mr. Livingston, as Chairman of the Full 
Committee, and Mr. Obey, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.

  Frank M. Cushing, Paul E. Thomson, Timothy L. Peterson, and  Valerie 
                      L. Baldwin, Staff Assistants
                                ________

                                 PART 2
                                                                   Page
 Chemical Safety and Hazard Investigation Board...................    1
 DOD--Civil, Cemeterial Expenses, Army............................   71
 Council on Environmental Quality.................................  119
 Neighborhood Reinvestment Corporation............................  243
 National Credit Union Administration.............................  473
 Consumer Product Safety Commission...............................  533
 Consumer Information Center......................................  751
 Court of Veterans Appeals........................................  811
 Selective Service System.........................................  861
 Community Development Financial Institution......................  911
 American Battle Monuments Commission............................. 1069
 Office of Inspector General, Federal Deposit 
InsurancePCorporation............................................. 1147
                                ________

         Printed for the use of the Committee on Appropriations
                                ________

                     U.S. GOVERNMENT PRINTING OFFICE
48-168                      WASHINGTON : 1998
------------------------------------------------------------------------

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











                       COMMITTEE ON APPROPRIATIONS                      

                   BOB LIVINGSTON, Louisiana, Chairman                  

JOSEPH M. McDADE, Pennsylvania         DAVID R. OBEY, Wisconsin            
C. W. BILL YOUNG, Florida              SIDNEY R. YATES, Illinois           
RALPH REGULA, Ohio                     LOUIS STOKES, Ohio                  
JERRY LEWIS, California                JOHN P. MURTHA, Pennsylvania        
JOHN EDWARD PORTER, Illinois           NORMAN D. DICKS, Washington         
HAROLD ROGERS, Kentucky                MARTIN OLAV SABO, Minnesota         
JOE SKEEN, New Mexico                  JULIAN C. DIXON, California         
FRANK R. WOLF, Virginia                VIC FAZIO, California               
TOM DeLAY, Texas                       W. G. (BILL) HEFNER, North Carolina 
JIM KOLBE, Arizona                     STENY H. HOYER, Maryland            
RON PACKARD, California                ALAN B. MOLLOHAN, West Virginia     
SONNY CALLAHAN, Alabama                MARCY KAPTUR, Ohio                  
JAMES T. WALSH, New York               DAVID E. SKAGGS, Colorado           
CHARLES H. TAYLOR, North Carolina      NANCY PELOSI, California            
DAVID L. HOBSON, Ohio                  PETER J. VISCLOSKY, Indiana         
ERNEST J. ISTOOK, Jr., Oklahoma        ESTEBAN EDWARD TORRES, California   
HENRY BONILLA, Texas                   NITA M. LOWEY, New York             
JOE KNOLLENBERG, Michigan              JOSE E. SERRANO, New York           
DAN MILLER, Florida                    ROSA L. DeLAURO, Connecticut        
JAY DICKEY, Arkansas                   JAMES P. MORAN, Virginia            
JACK KINGSTON, Georgia                 JOHN W. OLVER, Massachusetts        
MIKE PARKER, Mississippi               ED PASTOR, Arizona                  
RODNEY P. FRELINGHUYSEN, New Jersey    CARRIE P. MEEK, Florida             
ROGER F. WICKER, Mississippi           DAVID E. PRICE, North Carolina      
MICHAEL P. FORBES, New York            CHET EDWARDS, Texas                 
GEORGE R. NETHERCUTT, Jr., Washington  ROBERT E. (BUD) CRAMER, Jr., Alabama
MARK W. NEUMANN, Wisconsin             
RANDY ``DUKE'' CUNNINGHAM, California  
TODD TIAHRT, Kansas                    
ZACH WAMP, Tennessee                   
TOM LATHAM, Iowa                       
ANNE M. NORTHUP, Kentucky              
ROBERT B. ADERHOLT, Alabama            

                 James W. Dyer, Clerk and Staff Director










DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT, AND 
              INDEPENDENT AGENCIES APPROPRIATIONS FOR 1999

                              ----------                              

                                     Thursday, February 12, 1998.  

             CHEMICAL SAFETY AND HAZARD INVESTIGATION BOARD

                               WITNESSES

PAUL L. HILL, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
JERRY POJE, BOARD MEMBER

                           opening statements

    Mr. Lewis. We will call the meeting to order. Dr. Hill, I 
have an opening statement, and then we will hear from Mr. 
Stokes. Both of us probably briefly. And from there if you'll 
introduce your guests.
    Mr. Hill. Certainly.
    Mr. Lewis. Dr. Hill, this is the first hearing on the 
President's Fiscal Year 1999 Budget Submission for Departments, 
Agencies, Appropriations and Boards under the jurisdiction of 
the VA, HUD and Independent Agencies Subcommittee.
    Perhaps it is fitting that the first agency at our first 
hearing this year should be the first United States Chemical 
Safety and Hazard Investigation Board, which is appropriately 
testifying before the subcommittee for the first time.
    The Chemical Safety Board was created by Congress through 
Section 112 of the Clean Air Act amendments of 1990. Minimal 
funds were appropriated for beginning the operations of the 
Board in fiscal year 1995. Those funds were later rescinded.
    During portions of fiscal years 1996 and 1997 the 
administration has attempted to provide certain services meant 
to be the responsibility of the Board through an interagency 
agreement between OSHA and the Environmental Protection Agency.
    In part because of recognition that this EPA-OSHA 
alternative was not working satisfactorily, the Congress 
provided $4 million for beginning operations of the Board in 
fiscal year 1998, Public Law 105-65.
    And then for fiscal year 1999, the Board's initial request 
was for $7 million. However, that request has subsequently been 
modified upwards to $8,261,000. We hope to discuss this and 
other matters in some detail in a few minutes.
    Before introducing our witnesses formally for the record, I 
would like to recognize my friend, the former chairman of this 
Subcommittee, who is thinking seriously about not returning 
this next Congress. We may work on that.
    Mr. Stokes, it is my sincere pleasure to welcome you this 
morning for the beginning of what I truly hope will be a 
rewarding and meaningful year for you and me.
    Mr. Stokes. Thank you very much, Mr. Chairman. I do have 
just a few comments I would like to make. This hearing formally 
starts the Subcommittee's efforts to craft the annual VA, HUD, 
Independent Agencies appropriations bill.
    This fiscal year will mark the 24th annual bill that I have 
worked on in this Subcommittee. Of the 16 terms I will have 
served in the Congress by the end of this session, 12 of them 
include service on this Subcommittee.
    When I first joined the Subcommittee I sat way down at the 
end of the table where Mr. Wicker sits now.
    Mr. Lewis. Where?
    Mr. Stokes. No. Mr. Frelinghuysen, I guess, is in that spot 
now. I was further than Mr. Wicker.
    But I sometimes used to wonder how long it might take to 
reach the Chairman's seat, and serving under the able 
leadership of Eddie Boland of Massachusetts and Bob Traxler of 
Michigan, it never occurred to me that after attaining the 
chairman's gavel that I might continue moving down the table on 
the minority side. [Laughter.]
    Mr. Lewis. Never occurred to me either. [Laughter.]
    Mr. Stokes. And it looks like you don't have to worry about 
it.
    But I can say that there is no one that I enjoyed more 
giving the gavel to than Chairman Jerry Lewis.
    This year will be the 16th year that he and I have served 
together on the VA, HUD Subcommittee. So we have been through 
both thick and the thin. We have seen some partisan skirmishes, 
and bipartisan cooperation. We have seen agencies come and go, 
budgets rise and fall.
    We have seen great legislative victories in the Committee 
and on the Floor, and we have seen our share of defeats, too. 
Through it all there have been at least twomajor themes: 
constancy and change--change in the agencies, the people, the 
fascinating and complex issues with which we have had to deal with 
constantly, and the courtesy, the professionalism, dedication and 
loyalty to the Committee and the Congress demonstrated by the members 
of the staff of this Subcommittee.
    I look forward to this year's cycle for many reasons. If 
the economy continues at its present pace, we have the 
opportunity for a balanced budget for the first time in 30 
years.
    We have an opportunity to deal with many difficult and 
exciting issues, all the way from the Aeronautics and Space 
Administration's International Space Station to the Climate 
Change Technology Initiative, to adequate funding levels for 
our nation's veterans, to operations of the Chemical Safety and 
Hazard Investigation Board.
    I look forward to working closely with Chairman Lewis, and 
the other fine members of this Subcommittee this year.
    With that I will take this opportunity to welcome you, this 
being your first opportunity to appear before our Subcommittee. 
We want to welcome you and say that we look forward to working 
with you also.
    Thank you, Mr. Chairman.
    Mr. Lewis. Thank you, Mr. Stokes.
    Before we proceed from here, I would like to mention to 
those members who are present that in working with our staff we 
have developed a rather intensive schedule for our hearings 
between now and roughly the early part of June.
    We would hope, pending some possible interruption by other 
legislative matters, such as appropriations supplementals, et 
cetera, we would hope to complete our hearing process very 
early in the year in order to go to mark up some time in June, 
and perhaps have our work entirely completed on the fiscal year 
discussions before we recess in mid-summer.
    That is an ambitious schedule, and already on the horizon 
there is some indication of supplementals. But I would hope 
that we would try to work through regardless of supplementals 
and continue with our effort.
    So with that it is my pleasure to welcome Dr. Paul L. Hill, 
Jr., to the Committee as our first witness. Dr. Hill, if you 
could introduce our Board members and other guests who you 
might have brought with you.

                      Mr. Hill's Opening Statement

    Mr. Hill. Thank you, Mr. Chairman. It is certainly my 
pleasure to be here on this auspicious occasion of being the 
first, and having it be our first opportunity to speak to this 
Committee directly.
    We do appreciate what you have done for us in the past in 
initiating this agency.
    With me today is Dr. Jerry Poje, also one of the Board 
members. And behind me are several members of my initial, 
although fledgling staff, as this agency begins.
    Again, Mr. Chairman, and Mr. Stokes, thank you for the kind 
words that you have offered this morning. This is certainly an 
opportunity for us to provide to you some comments on our 
budget, and I'd like to just give you some of the highlights of 
what we have been doing in the short period we have been in 
operation.
    Indeed, I think we have a very positive story to tell. I 
think we have accomplished several things in a very short 
period of time. I would like to give you some of those 
highlights, and then ask your guidance on some of the 
additional issues, and any thoughts that you might have in 
those areas.
    First, as you are well aware, this agency received its 
first appropriation less than four months ago. On January 5th 
we opened our doors for business as an agency in temporary 
offices here in Washington.

                        Sparks, Nevada Explosion

    On Wednesday of that same week we had an explosion in 
Sparks, Nevada that took the lives of four individuals. By 
Friday of that week I had seven technical staff on site 
conducting an investigation of the cause of that tragedy.
    Out of this experience we have not only completed the site 
work investigation in 30 days, but we have also developed 
insights into fiscal, procedural, technical and logistical 
matters that will dictate much of the Board's future.
    Also out of this effort, working relationships with the 
State of Nevada, as well as Federal OSHA have been formed and 
are proceeding.
    In addition, we have pursued various statutory and non-
statutory relationships with NTSB, EPA, DOE, FEMA and many 
others. For example, the FEMA agreement to share accident 
reporting efforts will cost the Board a fraction of the cost 
that would have had we developed this capability internally.
    Also with the collaboration of other agencies, we have 
developed a first rate communications capacity, including a Web 
site. And I have copies of our Web site, which becomes 
operational today.
    This will allow public access to this Board, to its 
findings, and to its day to day functions that we hope to allow 
greater public access to the Board by all of the parties who 
are interested in this particular arena to access our 
functions.

                             Business Plan

    In essence, we have followed the business plan that we 
submitted to you last fall. That plan described a business 
philosophy with respect to our budget submission, responsible 
expenditure of our funds, effective and informative 
investigations and a flat organizational structure.
    Our goal is and will be an efficient, flat structure that 
builds on existing resources within the Federal system before 
suggesting that we might need to build additional capacity.
    The Congress has challenged us with the statutory authority 
to seek out opportunities within the government itself, and to 
make recommendations about how more effective and productive 
response to chemical accidents and their prevention may be 
made, encompassing the entire Federal effort.
    This is no simple challenge. A few modifications to our 
authority could make very real differences in our fiscal budget 
and corresponding capabilities.
    First, we have noted that the NTSB has specific authority 
to use volunteer assistance during the course of their accident 
investigations. This saves the agency untold millions of 
Federal dollars by enhancing its ability to conduct its 
activities.
    Similar language would assist the Board also if we are 
allowed to use volunteers, rather than paying for all the 
assistance that we gain at a site like Sparks or others around 
the country.
    A second opportunity may be realized in the reserve model 
that FEMA and the Forest Service and some other agencies use in 
having those types of expertise available as reserves to the 
agency, and used only, as FEMA does, when there is a disaster 
or a need to use those employees.
    That would be another cost saving opportunity that we would 
suggest should be considered.
    Finally, the mandatory requirements in the Act to 
investigate certain accidents is often difficult to budget. 
Various accident investigations vary widely in their complexity 
and their cost.
    A provision for no-year funds, or an emergency reserve fund 
to deal with this issue would greatly increase the Board's 
fiscal ability to respond to the unpredictable nature of our 
Congressional mandate.
    We intend to take up these issues with our oversight 
committee, but because they have fiscal ramifications to our 
budget we wanted to bring them to your attention today and ask 
you further guidance on those types of issues.
    Mr. Chairman, this concludes my brief remarks. I'll be 
pleased to respond to any questions that the committee may have 
on any of the material that is before you or anything that I 
said today.
    [The information follows:]


[Pages 6 - 33--The official Committee record contains additional material here.]



    Mr. Lewis. Thank you, Dr. Hill. I appreciate very much the 
summarization of your remarks, and I know there is more detail 
that will be added for the record.
    I note we have joining us Mr. Wicker and Mr. Frelinghuysen, 
and you probably should make special note of the fact that Mr. 
Mollohan, who does come from West Virginia--I am not sure you 
live in his District, but I know you are close by otherwise.
    Mr. Hill. Yes. Hello, Alan.

                         AMENDED BUDGET REQUEST

    Mr. Lewis. I was going to raise the question regarding that 
problem in Nevada, and so I am pleased that you highlighted 
that. Would you give us kind of a feel by way of discussion 
here what lessons you think you have learned that would be of 
interest to the committee in this first experience, in terms of 
the way you might respond to future events.
    And did any of these lessons have an impact on your 
decision to submit an amended 1999 budget request? And, if so, 
we would like to have you provide some specific budget details 
that impacted your decision in connection with that.
    Your original fiscal year budget, as I mentioned earlier, 
was for $7 million, and late Friday afternoon you submitted an 
amended budget including $8,216,000. I am aware, of course, 
that you are still in the very early stages. setting up your 
office and so on.
    But if you would relate a little bit more of that, and 
perhaps expand upon your experience working with FEMA. I am 
concerned that your agency could find itself in the same king 
of circumstances FEMA has over the years, where they have an 
established base budget and then an emergency arises and there 
are requests for supplementals that of late have been the whole 
budget for all intents and purposes.
    And the same thing, I think, could occur here, and careful 
coordination, of course, will be important with that prospect. 
Any response?

               SPARKS, NEVADA INVESTIGATION COORDINATION

    Mr. Hill. Yes. I appreciate your remarks, Mr. Lewis. The 
Sparks incident, I think, gave us first hand observation of an 
incident that required quick decision making in order to 
respond to what was otherwise a tragedy in the very early 
stages of our ability to do so.
    We called upon the U.S. Department of Energy and the fact 
that that agency has a cadre of existing investigators that are 
used only at DOE sites. So in the government, that was good 
place for us to find that kind of expertise.
    I called the Secretary's office, and we were able to, over 
the phone, decide on using those individuals to conduct this 
investigation.
    The other very positive thing about using the DOE personnel 
at the national laboratories is that, again, an existing 
capability. But they also have developed a defined technical 
protocol to how one goes about conducting an investigation.
    That was, indeed, one of the problems and one of the 
criticisms of the other fledgling program in this area that you 
mentioned in your opening comment, that there must be a very 
defined procedure for industry, for effective public, all to 
understand how these investigations will occur.
    Indeed, we gained a lot of insight, even using the DOE 
protocol, applying it to this site, because obviously it is a 
private site, it is an explosives manufacturer for the mining 
industry.
    In addition to conducting an investigation, we also 
assessed that protocol, and are using the information learned 
out of that to achieve a better understanding of what our 
overall protocol will be for the Chemical Safety Board.
    We have looked at the expense of the employees, what it 
takes to get a technical team organized on site at a command 
center, with phone lines, and equipment. That, we found, is 
more expensive than we probably estimated in our original 
budget.
    If you look back at our original budget, we had no history 
at all to base those budgets on, other than bits and pieces of 
information that we gathered from EPA and other agencies.
    So we felt that our original estimates were low, based on 
no experience. The Sparks experience gave us further insight, 
that indeed these situations can have costs that we have not 
identified at that point; and I think that is what we tried to 
explain in the budget amendment.
    Your question about the FEMA relationship, we simply were 
looking at FEMA. The thing that we really accomplished at this 
point is using their response notification system to cut our 
own costs.
    If we had to hire three employees, for instance, much less 
buy equipment to get those types of notifications, we felt that 
that was indeed a big cost savings at FEMA.
    We are still looking at those three items as far as which 
would be the most appropriate for us to respond to the variety 
of accidents, and not knowing the extent or cost of those.
    And I am not prepared today to make a recommendation as to 
which approach is best for us. I simply wanted to throw that 
out to ask your advice and consent and thoughts about how we 
might proceed in the future.
    But we are looking at all of those things as a means of 
trying to meet our mandate.
    Mr. Lewis. In this environment in which we are making a 
serious effort to examine existing programs and 
responsibilities, reduce the rate of growth of government, 
creating new agencies is a delicate business, to say the least.
    Mr. Hill. Yes.
    Mr. Lewis. And, indeed, there is great hesitancy on the 
part of the House in general to move in the direction of 
presuming that more is better, when the Committee has been 
stressing very strongly that we can do more with less 
effectively if we will.
    And so it is within that context, and recognizing we are 
dealing with a very delicate area that some of these initial 
questions are developed.

                     investigation process of cshib

    Last fall, the Congress determined to fund the Board, in 
part, because we were concerned with the process that was 
developed for EPA and OSHA in lieu of the Chemical Safety 
Board, to undertake accidental investigations.
    It has been stated that the independence of the National 
Transportation Safety Board in investigating transportation 
accidents was to be your model for chemical accidents. At the 
same time we might concur with the NTSB as a model in the 
context of how investigations might be accomplished, we 
certainly do not expect for you to view the NTSB as a model in 
context of how to grow a Federal bureaucracy.
    You may or may not be aware that there was a significant 
train accident in the San Bernardino Valley in California some 
months before.
    Mr. Hill. Yes.
    Mr. Lewis. That happened to occur not in my District, but 
in Congressman George Brown's District, which is adjacent to 
mine. A big part of the circumstance was about 200 yards from 
the home where I was raised, so I was somewhat interested in 
that problem.
    We cannot begin to provide you with the kind of financial 
resources, of course, that NTSB has experienced, over $40 
million. That has been provided over time. At the same time, I 
believe it is our responsibility to provide you with the 
resources that are necessary within reason to allow you to 
perform your statutory mission.

                    execution of the FY 1998 budget

    Having said this, we now find ourselves approximately four 
and a half months into the 1998 fiscal year for which you have 
been provided $4 million. Please give me a feeling generally 
where you are in the execution of your 1998 budget.
    Mr. Hill. We have provided some detail in the attached 
documents that we have provided today on our current 
expenditures.
    We have committed, of course, such items in the budget as 
our costs for personnel and rental. Many of those things will 
stay static throughout the year, and those funds are already 
committed.
    We see the expenditures going throughout the year, having 
many investigations which are likely to take our funds. We 
indicated that we would do up to ten investigations this year. 
That's what we budgeted for, and at the current rate we have 
indicated just from yesterday's calls to the National Response 
Center, and to the FEMA line, that there are many, many more 
investigations than we were likely to be able to get to.
    As far as staffing, we have brought on five staff at this 
point. As you know we have a total of 14 staff positions to 
fill this year that are non-Board members. So we are proceeding 
as expeditiously as possible in working with the existing 
budget--not trying to get ahead of ourselves, but trying to 
stay on track with our projected expenditures throughout the 
entire year.
    I would like to comment also on your reference to the NTSB. 
In my comments, we do compare ourselves to the NTSB. That is 
the easiest concept for most of the public sector to understand 
who we are and what we do through that comparison.
    But our philosophy, as described in the budget plan, is 
along the lines of what you indicated, Mr. Chairman, and that 
indeed is a flat organizational structure trying to take 
advantage of existing resources that are already in the Federal 
system, trying to use volunteers as I mentioned.
    We do not intend to grow this agency into just another 
bureaucracy. And our goal--and what I think we haveaccomplished 
in a very short period of time demonstrates that we are moving in that 
direction.
    Mr. Lewis. Thank you, Dr. Hill. Mr. Stokes?
    Mr. Stokes. Thank you, Mr. Chairman.
    Thank you, Dr. Hill, for your testimony. You mentioned this 
first incident which occurred in Reno, Nevada, which I guess 
occurred about two days after you had opened your doors.
    Mr. Hill. Yes.

                   staffing the sparks investigation

    Mr. Stokes. At that time how much staff did you have?
    Mr. Hill. We had two people on staff at that point.
    Mr. Stokes. And you went yourself.
    Mr. Hill. Yes. And Dr. Poje, as well.
    Mr. Stokes. And you mentioned that on January 9th you were 
leading a team of six individuals.
    Mr. Hill. Yes.
    Mr. Stokes. How did that come about?
    Mr. Hill. Those individuals were the DOE professionals that 
we pulled in from the Department of Energy.
    After I called the Secretary of Energy's Office, they 
agreed to let us use their personnel at the Federal 
laboratories. Those individuals came from Oak Ridge National 
Lab, and Pacific Northwest Laboratories. They were industrial 
hygienists. They were process engineers. One was an explosives 
chemist that we brought in to analyze the chemicals that were 
on site and what had occurred.
    They were a professional team that were from the national 
laboratories.
    Mr. Stokes. Have you hired a chief investigator yet?
    Mr. Hill. No, I have not. I am looking to hire a chief 
investigator. In fact, that is a difficult thing, where you've 
talked with several people--in fact we found one who is 
retiring from NTSB. But he is taking retirement, so we could 
not get him.
    He has offered to provide us some level of assistance, as 
has the agency. But we do not have a chief investigator at this 
point in time.

                           staffing the cshib

    Mr. Stokes. Now, your legislation calls for five Board 
members, I believe?
    Mr. Hill. Yes, sir.
    Mr. Stokes. How many are currently confirmed?
    Mr. Hill. We have three confirmed currently. And I just 
spoke with the White House last week about the potential 
nominations of two additional individuals whose names were put 
forward back in 1994 when ours were, but they were never 
officially nominated.
    The White House has indicated they are going to pick up 
that process, and have indicated that they would try to 
expedite getting those confirmations up here to Congress were 
that to occur.
    Mr. Stokes. In terms of a three member board as opposed to 
a five member board, what is your assessment?
    Mr. Hill. Five members are better, in that we need the 
broad expertise. As I look at the statute, I think the Congress 
fully intended that there be a variety of expertise as well as 
backgrounds, talents, interests in a variety of issues that 
could render the decisions of this Board.
    Certainly I have expressed to the White House that I am 
extremely supportive of a fully staffed Board.

                         amended budget request

    Mr. Stokes. Dr. Hill, let me ask you this: the formerly 
submitted budget request for the Safety Board was $7 million 
for fiscal year 1999. And then I guess about a week after 
submission of that request you modified it to $8.2 million. Is 
that correct?
    Mr. Hill. Correct.
    Mr. Stokes. Now, I guess the legislation for the Board does 
not permit any review of budget estimates by the Office of 
Management or any other government agency. In terms of your two 
budget submissions, is the modified submission the last 
submission by the Board?
    Mr. Hill. Yes, sir.

                            cshib personnel

    Mr. Stokes. Two elements, the personnel compensation and 
``other services'' make up more than 72 percent of the Board's 
budget. Proposed average salary of $100,000 is nearly 30 
percent higher than the average salary of NTSB employees of 
$77,000.
    Tell us why the salaries of Chemical Safety Board employees 
exceed those of the NTSB workers by $30,000.
    Mr. Hill. We looked at, again, with the flat organizational 
structure of not having a lot of middle management, and trying 
to take advantage of as much assistance at the site, if we were 
given the types of relief that we had talked about in getting 
volunteers, most of those salaries, the reason they are high, 
would be first of all that they are the prime management.
    It is a smaller number of people, if you look at the 
overall consistency of this Board. It is a small number of top 
managers, as well as being highly trained in the technical 
arena, as well as being managers.
    We also looked at the Defense Nuclear Board which asked for 
relief of the General Services Pay Scale simply because they 
felt they could not get the types of technical expertise to 
come to work for the government that those individuals could 
get working in private industry.
    Now, admittedly, we are not hiring nuclear engineers, but 
we are looking for very senior engineering individuals who may 
have had many, many years of service, both in the technical 
arena and in the managerial arena.
    Mr. Stokes. I would like to ask you to submit to us a 
detailed staffing plan, showing job titles, salaries, et 
cetera, and so forth. Would you do that for us?
    Mr. Hill. Yes, sir.
    [The information follows:]

          U.S. Chemical Safety and Hazard Investigation Board

    Congressman Stokes requested that the Board submit to the Committee 
a detailed staffing plan, showing job titles, salaries and other 
associated information. Included in the Board's business is a section 
describing the Board's projected organizational structure. Since the 
entire business plan has been provided to Committee staff, only select 
pages addressing the Congressman's request are appended.
    The Board is following its business plan to the maximum extent 
possible. As indicated therein, during the first year the majority of 
personnel will (and do) consist of Board members and senior staff. 
Consistent with the CEO's directions, the latter are charged with (1) 
establishing the policies, procedures and programs of the Board, (2) 
writing job descriptions for and hiring junior members of their 
respective functional areas, and (3) securing the external support 
needed to efficiently, effectively and economically perform the Board's 
mission. Accomplishment of the operational objectives set forth for the 
first year is directly dependent upon the senior Board staff.
    To date, the following positions have been or are scheduled to be 
written for FY98 in order to provide a skeleton staff. However, not all 
the positions have yet been classified (i.e., assigned an official 
title, series and pay-determining grade level) by GSA's personnel 
staffing specialist who is servicing the Board.
    Classified and Filled: GS-15--Program Manager; Public Affairs 
Specialist; Attorney Advisor. GS-13--Public Affairs Specialist. GS--11/
12--Program Analyst.
    Written But Not Yet Classified: Targeted at GS-15--Special 
Assistant (Research); Special Assistant (Investigations); Special 
Assistant (Technical Operations). Targeted at GS-14 (but may be 
approved for higher pay if OPM concurs with Board's request for special 
``pay band'' typically used in recruiting for hard-to-fill technical 
positions)--Accident Investigator (more than one job will be filled).
    NOT YET WRITTEN: Targeted at GS-12/13--Information Management 
Specialist. Targeted at GS-9/11--Administrative Assistant (more than 
one job will be filled).
    Ten additional positions have been requested for FY99, the second 
year of the Board's startup phase. This figure includes the six senior 
executive service positions which have been requested from but not yet 
approved by the Office of Personnel Management (which will replace the 
current GS-15 positions). It does not count the one position requested 
to provide dedicated support to four Board members (other than the 
Chairman/CEO). The job descriptions (which will dictate both job titles 
and grade-dependent salaries) will be written by the senior manager in 
each functional area and will reflect determinations of needed 
expertise. Nevertheless, based on the work to be performed and 
objectives to be accomplished, we anticipate assigning positions such 
that the resultant staffing pattern looks similar to that shown below. 
Note that the absence of significant numbers of lower graded staff 
reflects the Board's intent to outsource administrative operations, 
permitting it to focus more of its resources on mission-specific 
operations. The effect of this strategy is to have less (albeit higher 
paid) on-board staff and lower costs for support services, but a higher 
average salary structure due to the smaller personnel base on which to 
compute average pay.
    FUNCTIONAL AREA AND STAFFING: Office of the Chairman, Chairman, 2 
professionals and 1 support; Board Members, 4 members and one 
confidential assistant; Investigations, 4 professionals and 1 support; 
External Relations, 4 professionals and 1 support; Research, 3 
professionals and 1 support; Legal Operations, 2 professionals and 1 
support; Technical Operations, 2 professionals and 1 support.

    Mr. Stokes. Your justification material indicates that the 
$750,000 requested for personnel benefits was based on 25 
percent of salaries for people covered under the Civil Service 
Retirement System, which most Board employees are expected to 
be under.
    On what do you base this statement?
    Mr. Hill. The 25 percent on retirement system?
    Mr. Stokes. Under your justifications, you indicate that 
$750,000 is requested for personnel benefits----
    Mr. Hill. Yes.
    Mr. Stokes. You say that's based on 25 percent of salaries 
for people covered under the Civil Service Retirement System, 
quote, which most Board employees are expected to be.
    Mr. Hill. Yes.
    Mr. Stokes. Could you tell us what you base this statement 
on?
    Mr. Hill. I'm sorry, Mr. Stokes. I would need to assess how 
that figure was arrived at. Obviously it came from an 
assessment of looking at other agencies. Since indeed our 
history is so short, we no doubt pulled this information from 
some other example in the Federal Government.
    I would have to get back to you as far as where that came 
from, and we would be glad to give you details.
    Mr. Stokes. You can elaborate on that in the record for us.
    Mr. Hill. Yes, sir.
    [Response from Mr. Hill follows:]

          U.S. Chemical Safety and Hazard Investigation Board

    ``Mr. Stokes, to clarify that 25 per cent figure--that figure is 
the `load factor' which federal agencies use to estimate the cost of 
all federal employee benefits--for example health and life insurance--
plus the Government's contribution for employees' retirement. The 25 
per cent figure is used for Civil Service Retirement System--CSRS--
covered employees, versus 20 per cent for Federal Employee Retirement 
System--FERS employees. That's because typically CSRS employees are 
that much more expensive to Agencies than FERS employees, because 
Agencies must contribute more to a CSRS employee's retirement than to 
an employee covered under FERS. Our budget projections are based on 
CSRS costs because our more senior employees are--or will be--primarily 
covered under the more costly CSRS.''

                   accounting and financial controls

    Mr. Stokes. Dr. Hill, what accounting and financial 
controls does the Board have in place to insure that expenses 
do not exceed resources available to the Board?
    Mr. Hill. We fully intend, and have described in our 
business plan, operating with having an internal accounting as 
well as our General Services Administration agreement. In fact, 
they are handling most of our personnel and accounting 
capabilities right now, as they do uniformly with many other 
agencies.
    So General Services Administration is handling that on our 
behalf, and we have an agreement with them.

                  fy 1998 supplemental appropriations

    Mr. Stokes. Let me ask you this: in terms of the financial 
obligations incurred to date, does it appear to you that you 
are likely to submit a supplemental this year?
    Mr. Hill. No. We don't intend to do that. You never say 
never in the accident business, unfortunately, as we see with 
other agencies. But the reason we responded after speaking 
briefly with Committee staff last week is that we felt we could 
make some justification now, when we had the opportunity to 
speak directly with you, rather than coming back later.
    Mr. Stokes. Thank you, Dr. Hill. Thank you, Mr. Chairman.
    Mr. Lewis. Thank you, Mr. Stokes.
    Mr. Frelinghuysen.
    Mr. Frelinghuysen. Thank you, Mr. Chairman.
    Good morning, Dr. Hill. I come from the State of New 
Jersey, which by its industrial history probably has more 
chemical operations past and present than most States. And am 
certainly supportive of what you are doing.
    I would just like you to address the issue of expectations. 
I mean, to a certain extent, by our giving you these taxpayer 
dollars, we anticipate that you will have a full plate. From 
what I can gather you have a large plate now.

                       Expectations of the CSHIB

    Is there not a real potential here for raising expectations 
that may not be met? I am supportive of what you are doing, for 
selfish and parochial reasons, and I do have a specific site, 
the Lodi site in New Jersey.
    But there could be a hundred Lodi's. I am just wondering 
how you are dealing with the issue of raised expectations?
    Mr. Hill. I agree with you. I think that is indeed 
something that can occur. We are trying to deal with that 
issue, both in the information that we are putting out, as well 
as the initial plan.
    In fact, what we said was this first year we would 
investigate only those accidents where there was a death 
involved. As you are aware, the statute is very broad. It gives 
us authority to look at a lot of different situations.
    We are trying to exert some fiscal responsibility on that 
as well internally, and communicate that to many others, that 
we cannot investigate all these sites.
    The other language in the statute talks about cause to be 
investigated, if we do not investigate a site with our own 
staff employees.
    The incident last week in York, Pennsylvania, we followed 
that very closely. There was a death involved, but we made the 
decision, after about 30 hours of deliberation, and following 
all the information that was coming in about that particular 
incident, that it was being investigated at the local level.
    There was not a release in that particular situation, so we 
decided not to investigate it. I think there is a chance of 
raising the expectation, but we are trying to put forward the 
concept that in these first years, especially, we are trying to 
make assessments of what the actual needs are, and what should 
be, and we would like to bring that back in future years as 
further guidance.
    Mr. Frelinghuysen. We are here to wish you success. This is 
a beast that we created. Some good people like yourself are 
going to the mat for good purposes. But in reality you are in 
the court of public opinion. You have Congressional demands, 
and there is going to be an expectation that, you know, when I 
call Dr. Hill people over there are going to jump, at the 
Board.
    And I noted in your statement here that you put yourself 
down as a scientific investigatory organization.
    Mr. Hill. Yes.

                    Relations With Private Industry

    Mr. Frelinghuysen. You better have a full complement of 
public relations or you are going to have some sort of a public 
relations disaster.
    I would like to have a clearer idea as to--what your 
relationships are going to be with the Chemical Manufacturers 
Association, American Petroleum Institute, which is also 
referred to in your testimony.
    As I read your comments--and I don't want to read things in 
there that were not--we have had productive meetings and 
discussions with representatives of those groups.
    Mr. Hill. Yes.
    Mr. Frelinghuysen. To the lay person or somebody up here, I 
am not sure what that means, but I would think that you would 
have to heavily count on their knowledge of their industry. 
Obviously their need to get after members that in fact are not 
abiding by proper safety rules.
    Because the bottom line, by your own comments here, your 
motto is public safety is key.
    I would like to know what you literally are doing to cement 
those partnerships, because I would assume some of those 
corporate resources inevitably would have to be used in a lot 
of these investigations and solutions.
    Mr. Hill. Yes. In fact, we have worked very closely on 
those partnerships, and indeed one of the previous questions 
from Representative Stokes about members of the Board, one of 
the oncoming members is a former industry retiree who would 
bring another complement to the Board.
    The industry has expressed very strong support of that 
individual, in making sure that his concerns are noted in Board 
decisions, and we are hopeful that that will occur.
    There has been a lot of the discussion with the Chemical 
Manufacturers Association and API to this point, that those 
agencies, those organizations want to make sure that their 
interests are taken into account as you have indicated.
    I have spoken with them. I think the leadership of those 
associations, I think they feel very confident that this 
approach is one that is, because it is independent, it is a 
fair approach to these industrial tragedies.
    They have said to me privately, look, we want to know what 
goes wrong as well. In fact, the industry has wanted to know 
for a number of years, but because of liability purposes, which 
are dealt with in our statutory authority, they have not 
compiled the kinds of information to look at long range trends, 
except internally, in individual businesses. Not as an industry 
as a whole.
    So our relationships with them have been--they have been 
extremely supportive as well as discussing with them the 
eventual procedures, protocols and things that we would utilize 
in our day to day investigations.
    In fact, we said, look, we are developing a draft protocol; 
we would like not only the industry but other constituent 
groups to tell us, is it technically accurate, and have 
welcomed their participation in developing that.
    In fact, I think, very telling, the attorney for CR 
Chemical, the accident in Nevada, indicated that he felt that 
the Chemical Safety Board was the most fair and objective 
approach to dealing with an industrial tragedy.

                      funding with other agencies

    Mr. Frelinghuysen. And a comment, the other agencies that 
you contact, DOE, FEMA, are you making sure that they are not 
dumping some things into your lap? In other words, I know you 
used the term in your statement here, that you are the lead 
agency, but sometime people assume that if you are the lead 
agency, you have deep pockets.
    I assume you are putting up some barriers.
    Mr. Hill. Absolutely.
    Mr. Frelinghuysen. Besides the fact that if there is a 
death involved, putting up some to make sure that DOE is not 
shunting off all sorts of investigatory work that they perhaps 
should be funding?
    Mr. Hill. No, In fact, one of the first things we'll tell 
them is, look, we do not have a lot of resources. That is why 
we are calling you. In fact, we knew that DOE had this type of 
expertise.
    They already have their Congressional defined arena that 
they operate in, which we would not. We simply borrowed their 
expertise and applied it to the public sector, private 
facilities.
    But no, there is not a transfer in any way of authorities, 
and we are very mindful of that.

                       lodi, new jersey explosion

    Mr. Frelinghuysen. The chemical explosion in Lodi, New 
Jersey, is there somewhat might be anticipated relative to a 
report? Is that one of those areas you are looking at?
    Mr. Hill. Yes.
    Mr. Frelinghuysen. That's my local question.
    Mr. Hill. Yes indeed. In fact, one of the things that we 
want to do and are already building the information to be able 
to assess what has happened in the past few years, is accident 
reports are available, and the Lodi report has now been 
released by EPA and OSHA.
    But there are records and documents that we would like to 
review in building our own data bases, in building our own 
programs to say what should be done differently.
    Will we reinvestigate that site? No, I do not think we have 
the resources to do that. But that does it rule out that in 
reviewing the information we might not have recommendations 
coming out of it.
    Mr. Frelinghuysen. Good luck. Hold on tight.
    Mr. Hill. Thank you.
    Mr. Lewis. Thank you, Mr. Frelinghuysen.
    Mrs. Meek.
    Mrs. Meek. Thank you, Mr. Chairman.

                      working with other agencies

    Mr. Hill, I have listened with interest as you made your 
presentation and to the other members ask you questions. It 
appears from your business plan that you plan to hold all this 
together by what seems to be just the cooperation of a 
multiplicity of agencies helping you.
    And I am just wondering very strongly how you will be able 
to do that with the budget that you submitted here. And you 
have already said, by your own admission, you do not want to 
build a big mega-agency.
    But you do want the reputation of your agency to be 
accountable, I am sure. It appears to me that is going to be 
difficult to do.
    I have read your relationships with these assisting 
agencies, and the memorandum of understanding that you have 
with some of them. How much confidence do you have that you are 
going to be able to, in case things get tight, and they will 
get tighter, that you are going to be able to fulfill the 
obligations which you have promised this committee and the 
American public you are going to do. That's my question.

                           organization plan

    My second concern is that even though you have everything 
on paper planned here, you do not have any middle managers, 
anyone who is going to go out and really watch these people.
    What big master plan do you have in the back of your head 
that is going to help make all of this work? Because 
organization is ad enough when you have middle managers to help 
you.

                          developing m.o.u.'s

    Mr. Hill. To respond to you first question, Representative 
Meek, I do have confidence. I met directly with the OSHA 
Assistant Secretary, and spoke with him about developing this 
MOU.
    A lot of it is built on personnel relationships with those 
other agencies in describing a memoranda which will then be 
implemented about our relationship, about who will provide 
what.
    Much of what we will be doing at the site is also 
relationships. A lot of discussion has gone on about what 
happens at an accident site. EPA and OSHA already have 
enforcement capabilities. Those will not go away. Those 
agencies have their own Congressional mandate to be there todo 
certain things.
    What we have mostly indicated in those memoranda have been 
working relationships, where there is not a lot of transfer of 
resources or even individuals necessarily.
    In some cases, however, as you pointed out, we have found 
that we can take advantage of existing infrastructure, and as 
far as reporting accidents. Those agencies are already mandated 
to do that, and have been doing it for a number of years.
    That was the reason for trying to take advantage of it, and 
not build another agency which I think would cost us more and 
would be even, perhaps more nebulous in its early stages in its 
ability to respond for the American people as you indicated.
    Mrs. Meek. Good luck.
    Mr. Hill. Thank you.
    Mrs. Meek. Did you have something you wanted to add?
    Mr. Poje. I was just going to say, I think the issue of 
coordination at the Federal level is crucial.
    Mr. Lewis. Excuse me. Would you spell your last name? It's 
Poje?
    Mr. Poje. Poje. P-o-j-e.
    Mr. Lewis. Thank you. Excuse me for that.
    Mr. Poje. We are aiming to build a technical, scientific 
organization with full knowledge that there is technical, 
scientific aspects to the rest of the Federal Government.
    For example, on scene, we want to have some investigation 
capacity into medical related issues that might be associated 
with this. We have already begun discussions with the Assistant 
Administrator of the Agency for Toxic Substances and Disease 
Registry, the Director of the National Institute of 
Environmental Health Sciences, the Director of the National 
Institute for Occupational Safety and Health.
    All of those agencies have some great technical 
competencies, and some degree of relatedness to our mission. It 
is our belief that we can hone a memorandum of agreement with 
them that explicitly defines where the overlap of our agencies 
would be, and how best to apportion those responsibilities to 
assure that the end product of our investigations are the most 
technical competent that any Federal agency would be able to 
accomplish.
    Mrs. Meek. Thank you.
    Mr. Lewis. Thank you, Mrs. Meek.
    Mr. Wicker.
    Mr. Wicker. Thank you, Mr. Chairman.

                       lessons learned in nevada

    Dr. Hill, what did we learn on this first investigation in 
Nevada?
    Mr. Hill. Well, we have not--it is primarily procedural at 
this point. We have not concluded the investigation. This is, 
the report has not come to the Board for a final decision at 
this point.
    All the field work has been completed. The team left the 
site last Friday. They are now compiling an internal analysis 
of all of that data, and will be presenting a report to the 
Board members in the next few weeks.
    At that point, we would then disclose the findings of that 
investigation and make any recommendations about that 
particular type of operation.
    For instance, the Governor of Nevada put together a task 
force to look at regulatory controls within the State. They are 
very interested, because there are other similar facilities 
within, just within the State of Nevada, they may be using the 
same equipment, that may be using the same practices, that 
indeed we can make recommendations.
    But we are not at a point of making recommendations on the 
findings right now.

                     nature of the nevada explosion

    Mr. Wicker. But surely you can share with the Subcommittee 
what the nature of the accident was and what you preliminarily 
think caused it.
    Mr. Hill. Certainly. The nature of the accident, what 
occurred, this was a facility that used a material called PETN, 
which was shipped in from China. It is shipped wet, and it is a 
powder, and it is a highly explosive powder--the reason it is 
shipped wet.
    It is put in a drying building which used only to take the 
water out of it. Then it is mixed with TNT in large metal 
stainless steel vessels, which in this case, by the way, were 
purchased several years ago--they were ex-military equipment 
that this company bought.
    Those vessels then have a large stirring device. That 
powder is mixed with some other powdered chemicals heated to a 
certain level where it becomes liquid. And then in the bottom 
of the vat, the material is taken out as a liquid.
    These workers were pouring it into cardboard tubes such 
that it looks like sticks of dynamite. Then at the site, of 
course, it becomes explosive when a blasting cap is placed in 
that material.
    Now, what happened, there were 12 Hispanic workers there. 
There have been lots of allegations that there may have not 
been clear training. There may not have been proper instruction 
in their native language.
    There are lots of issues that have been raised. Now, we do 
not have any determination as to the full extent of those at 
this point in time. In fact, that will be many of the parts of 
the final assessment.
    But one body was recovered--actually two bodies were 
recovered, and then the other two, there was nothing to 
recover.

                      nevada on-site investigation

    ATF was at the site and helped the local 
sheriff'sdepartment recover the bodies, and after that portion was 
done, we took charge of the site to do this long range investigation.
    What we have found is that there is potential contamination 
of materials. There are a variety of things that we are looking 
at right now as to the causation of the explosion.
    ATF was able to determine that one of the mixing buildings 
blew first, and then the PETN building blew second. It measured 
2.2 on the Richter scale, and was heard twenty miles away.
    We have lots of photographs of the site, photographs of 
evidence, that indicates that indeed there was really nothing 
left at the site.
    We know there was some indication that the material, the 
initial explosion took place at a site within that first 
building. And we have isolated our investigations on that site. 
But I cannot go into any further detail subsequent to the 
actual report coming out.
    Mr. Poje. If I could just augment that, though, Mr. Wicker. 
I think the things that we are learning are several that relate 
to the functions of the Board, and building our own technical 
competency.
    The conduct of an investigation, the gathering of several 
different types of evidence, whether it is testamentary 
evidence, whether it is documentary evidence, or whether it is 
physical evidence of the facility and what had happended, we 
are learning from this experience the kinds of procedures that 
we will need to engage in the conduct of that.
    And in addition to the collection and the examination and 
the determination of the accuracy and the adequacy of the 
evidence, we are also attempting to evaluate multiple 
procedures of analysis.
    There is a well honed and developed technological basis to 
the conduct of investigations of chemical failures. That 
includes a number of different analytical techniques.
    We will be applying multiple techniques to a single 
incident as a way of verifying that we are getting to the best 
determination of the root and contributing causation to that 
incident, and from that will emanate the findings and 
recommendations of this investigatory body.

                        other agencies in nevada

    Mr. Wicker. How many agencies were involved in this Nevada 
investigation? You had some folks from DOE to help you in a 
tight spot.
    Mr. Hill. Yes.
    Mr. Wicker. Do you anticipate doing that again?
    Mr. Hill. In this interim stage, we very well may. In fact, 
we've developed from DOE a list of the investigators and their 
particular expertise, such as whether they are chemists or 
metallurgists or whatever.
    But in this interim period, until we have our own staff, we 
may well do that.
    Mr. Wicker. What other agencies showed up?
    Mr. Hill. The other agencies that were on the scene 
included the local sheriff's department, the Alcohol, Tobacco 
and Fire Arms, because in a situation like this where there is 
an explosion the presumption is that this may well be sabotage 
or some sort of the an intentional act, and until that is rule 
out--that has to be done, of course, first. So ATF was there.
    The State agencies. There was the State OSHA. We were 
assisted in working with them by Federal OSHA, although Federal 
OSHA did not have an on site presence.
    We also worked with even the county health department which 
was securing the site for environmental clean up after the 
fact.

                            m.o.u. with atf

    Mr. Wicker. So the only other Federal agency that was 
actually there on site was ATF?
    Mr. Hill. That is correct.
    Mr. Wicker. And are you going to need to develop one of 
these MOUs and ATF?
    Mr. Hill. Yes.
    Mr. Wicker. How is that coming?
    Mr. Hill. That, we have not gotten to it yet. We have two 
that are mandated by our statute--the one with OSHA and the one 
with NTSB. We are working on those first, and they are in draft 
right now.
    The one with ATF, in fact, as they were turning over the 
site to us at the press conference in Reno, they said here is a 
Federal agency that conducts the long range investigations. We 
are leaving. We are probably going to see more of the Chemical 
Safety Board, and we will probably need a memorandum with them. 
And indeed we agree.

                             m.o.u with epa

    Mr. Wicker. Okay. And the EPA, also. You are expecting to 
complete your memorandum of understanding when with EPA?
    Mr. Hill. We are beginning to work on the one with EPA. 
That is not required in the statute. But it is one that we 
thank is necessary. In fact, I wrote to Administrator Browner 
last week and told her I felt one would be very appropriate, 
and we needed to pursue that.
    In fact, we have met with EPA at different levels, and I am 
meeting with the Administrator next week to initiate that MOU. 
EPA was not at the Nevada site.
    Mr. Poje. and I have a meeting scheduled tomorrow with the 
Assistant Administrator for the Office of Solid Waste and 
Emergency Response at which this will be a topic of discussion.
    Mr. Wicker. Let me say I am sorry I have toleave and go to 
another hearing, since I have three subcommittee hearings scheduled on 
top of each other.

                    number of fy 1998 investigations

    Let me just ask, if I might, Mr. Chairman, you expect, Dr. 
Hill, to do ten investigations this year. Is that this calendar 
year?
    Mr. Hill. In essence it is.
    Mr. Wicker. I notice in your overview that that would 
investigate not even all of the accidents which you termed 
major catastrophic, which involved--well, what is the 
definition of a major catastrophic?
    Mr. Hill. Well, what we have indicated is that we would 
investigate those where there is a death. And the statute does 
not allow us to not investigate if the death is off site of a 
facility. What we would hope to do is those we could not cover, 
we would use the clause about causing to be investigated.
    In indeed there was a detailed capability within a State, 
for instance, that the investigation was occurring, we would 
probably work with them to insure that our information was 
gathered, but would no send our own team if we felt it was 
being appropriately handled.
    Mr. Wicker. And that statement also applies to the 6,500 
non-catastrophic annual accidents?
    Mr. Hill. There are many, many small ones that all come 
into the National Response Center. And what we try to do is 
screen through those to determine which ones constitute major 
catastrophes. That is, major property damage, off site impact, 
or death, as the statute outlines.
    We said this year in the first budget plan that we would 
only focus on those where there is a death in this first round, 
and it would move to others with the Congress's approval.
    Mr. Wicker. Well, I agree with Mrs. Meek and Mr. 
Frelinghuysen, that you're in for an interesting time.
    Mr. Lewis. Thank you, Mr. Wicker. Mr. Mollohan?
    Mr. Mollohan. Thank you, Mr. Chairman.
    Mr. Lewis. I might mention before Mr. Mollohan begins, 
members are going to other meetings were they have conflicts. 
Defense is meeting down the hall, et cetera. The bells begin to 
ring and we start having votes, and we are going to go through 
three agencies this morning.
    So there will be a number of questions that are submitted 
for the record, and we would appreciate your responding to 
those.
    Mr. Hill. We'd be glad to.
    Mr. Lewis. Mr. Mollohan.
    Mr. Mollohan. Thank you, Mr. Chairman.
    Dr. Hill, welcome to the hearing, and I join the Chairman 
and Ranking Member and the members of the Committee in 
welcoming you here. I hope that you are getting going on the 
right foot, and that we are able to provide you with the 
resources to enable you to do a good job.
    A couple of the members have explored the issue of industry 
cooperation which is kind of a basic principle with regard to 
this whole initiative.
    Mr. Hill. Yes
    Mr. Mollohan. You have undertaken one investigation.
    Mr. Hill. Yes.

                  investigating vs. not investigating

    Mr. Mollohan. And you have had the opportunity to undertake 
more than one, and you have looked at them and decided not to 
go in?
    Mr. Hill. That is correct.
    Mr. Mollohan. How did you discriminate between going in and 
not going in and investigating? What are one or two that you 
decided not to undertake?
    Mr. Hill. The most recent one, I think I mentioned earlier, 
was the York, Pennsylvania one that occurred just last week.
    That situation, we learned from the local officials who 
were on the scene, who we kept in touch with all day, the day 
of that event, that there was not a chemical release.
    And we felt that given our statutory mandate, we would need 
to look and see if the chemical was indeed the problem that 
caused the fatality at this site.
    There was a fatality, but we understand that that person 
was farther away, and it was not caused by the chemical itself.
    So we chose not to investigate that particular one. In 
addition, there was a level of investigation going on by the 
State of Pennsylvania that we thought was sufficient.
    Mr. Mollohan. So you are going to be investigating cases 
that you feel will establish some basis of knowledge that will 
be important as an example for industry, or as a case study for 
industry? Is that it?
    Mr. Hill. Yes, indeed.
    Mr. Mollohan. You are not investigating everything.
    Mr. Hill. I think that is what we are limited to in this 
early stage.

                          industry cooperation

    Mr. Mollohan. Industry cooperation, how do you secure it? I 
guess using the Nevada example. Did you have industry 
cooperation in the Nevada case?
    Mr. Hill. Yes, we did. We had very good cooperation with 
the company. They felt that they truly wanted to understand why 
this happened, why they lost four employees,why they lost their 
entire facility.
    Mr. Mollohan. Do you think you are in any better position 
to achieve that cooperation, and therefore get at the 
underlying cause than they say OSHA or BATF or any other 
investigative regulatory organization?
    Mr. Hill. Yes, indeed. In fact, as the industry has 
indicated, they had a problem with the last approach, with the 
EPA/OSHA approach simply because those agencies are enforcement 
by their very nature.
    And they felt how can you come in and do an objective 
causal analysis if you are also trying to enforce some section 
of a rule that may have been violated. That gets into some 
legal contention as well about those agencies perhaps exceeding 
their authority.
    So there are lots of problems, and the industry felt that 
it was an unworkable situation, is what they have said.
    Mr. Mollohan. But your investigation is going to uncover 
the same basic facts, are they not?
    Mr. Hill. It will uncover the facts of the case, and those 
facts, as in the Nevada case, will be shared with the agencies. 
The State of OSHA is there uncovering facts right alongside of 
our people, and sharing that information with ours.
    However, it is the Board's assessment, analysis of those 
facts, the assessment and the recommendations that you have 
provided in the statutory language that is protected. And I 
think the industry feels that that is a very positive 
initiative or influence for them to be more proactive in 
welcoming these investigations.

                         amended budget request

    Mr. Mollohan. You have amended your budget request, $1.2 
million. What is that for?
    Mr. Hill. That is primarily based on the information that 
we have gathered over the past four months that indicates that 
some of our estimates were low for some of the other budget 
items.
    We have simply increased those particular items.
    Mr. Mollohan. You need more people? You need more office 
space? You need more resources?
    Mr. Hill. We need more resources, and we need additional 
space for those individuals. We also need to increase the 
level, because we're finding that the types of expertise that 
we need to conduct these investigations are probably not people 
that we could find at very low salaries.
    Indeed, they are expensive to get.
    Mr. Mollohan. Thank you, Mr. Chairman.
    Mr. Lewis. Thank you, Mr. Mollohan.
    We, as I indicated, have a number of questions that we will 
be submitting for the record. Mr. Hobson normally asks a number 
of questions relatives to space and the square footage cost 
and----
    Mr. Hill. We have all that.
    Mr. Lewis. He would suggest that it is very important that 
we recognize that everybody wants to work downtown even though 
they live in Maryland or Virginia. For some reason they like to 
travel to the center of the city and get in traffic and 
otherwise, and of course the rental space is much higher there, 
et cetera.
    Mr. Hill. Yes.
    Mr. Lewis. Those questions will be a part of the record.

                          cshib hiring issues

    Mr. Lewis. You indicated earlier that attracting people of 
high quality when you have a tight ship can be difficult. There 
is not any question that GS limitations are very real.
    I note that you are talking about looking to a potential 
personnel pool as a source for people, who are a part of CSRS, 
which would indicate that many of those people are 15 or 20 
year employees.
    Reaching out and finding excellence is a difficult process. 
And I would hope that especially the Board members are looking 
very closely at whether we are actually performing a new and 
important service, versus redoing what is already being done 
elsewhere.
    The reason I raise this point for your consideration beyond 
this meeting is that this Subcommittee involves many an agency 
and commission. It involves fundamental needs that involve the 
lives of children, housing for the poor, et cetera, and every 
dollar that goes to one location takes away from another, 
because we only have so much in our total pool.
    And it is very important that you help us with that, and a 
tight ship, of course, is critical. I understand that some of 
the challenges you face also are critical.
    So we welcome you to this first hearing. We tried to be 
relatively light and soft in this go round, but this is only 
the first time. And so we appreciate your being with us.
    We have a vote on, by the way, and then we will come back 
and start hearings on the DOD Civil Cemetary expenditures. 
Essentially that's Arlington Cemetary.
    Mr. Hill. Thank you, Mr. Chairman.
    Mr. Lewis. We will be in recess. [Recess]


[Pages 52 - 70--The official Committee record contains additional material here.]



                                       Thursday, February 12, 1998.

              CEMETERIAL EXPENSES, DEPARTMENT OF THE ARMY

                               WITNESSES

JOHN ZIRSCHKY, ACTING ASSISTANT SECRETARY OF THE ARMY, CIVIL WORKS
CLAUDIA TORNBLOM, ACTING DEPUTY ASSISTANT SECRETARY, MANAGEMENT AND 
    BUDGET, OFFICE OF THE ASSISTANT SECRETARY OF THE ARMY, CIVIL WORKS
JOHN C. METZLER, JR., DIRECTOR, ARLINGTON NATIONAL CEMETERY
RORY D. SMITH, BUDGET OFFICER, ARLINGTON NATIONAL CEMETERY
    Mr. Lewis. Mr. Zirschky, appreciate your being with us. We 
will call upon you after a brief outline that I will provide on 
the pattern of your request to introduce your guests with you 
and then, after you summarize your statement, we will try to go 
to questions and move along as quickly as possible.
    It is my pleasure to welcome John Zirschky, the Acting 
Assistant Secretary of the Army for Civil Works, to present 
your proposal for the year ahead of us.
    The 1997 actual appropriations for your expenditures were 
$11.6 million and 121 FTEs. 1998 appropriations were $11.815 
million with 117 FTE. The 1999 request is for $11.666 million 
and 112 FTEs, a decrease of $149,000, and 5 FTE.
    A lot of discussion in the public media has swirled around 
your agency. I want you to know that this is the Appropriations 
Committee and while we are very concerned about oversight of 
the way funds are used, while I will have some questions for 
the record, and may lightly touch on some questions regarding 
the way we make some of these decisions, this is not going to 
be a forum for a media consumption kind of discussion, I would 
hope.
    You have had plenty of that and you will have plenty ahead 
of you, I am sure. In the meantime, we are talking about the 
dollars, and I want to see them used to serve those people who 
served us by their past work for all of us.
    So in the meantime, Mr. Zirschky, we would appreciate it if 
you would give us your statement, with summary, and we will 
proceed from there.
    Mr. Zirschky. Thank you, Mr. Chairman, and members of the 
Subcommittee. Thank you for the opportunity to testify on the 
Arlington budget. Working with Arlington has been probably one 
of the greatest honors that I have had in my career.
    It is a very special place, and it is very special to be 
associated with America's premier military cemetery.
    With me today is Jack Metzler, the superintendent of the 
Cemetery, Rory Smith, the budget officer for the Cemetery, and 
a new person, Claudia Tornblom. Steve Dola, who was our Deputy 
Assistant Secretary for Management and Budget retired after 
more than 30 years with the Army at the end of December.
    Mr. Lewis. I intended to mention his retirement. I hope you 
will communicate to Mr. Dola and express our appreciation for 
his service, and we will miss him. And there is little doubt 
that his able replacement establishes goals early, and they are 
probably the right goals.

                               expansion

    Mr. Zirschky. There are two things I would like to talk 
about today: expansion of the Cemetery and the budget request. 
First I will briefly hit on the expansion.
    Space in the Cemetery has been a big issue of late, and 
unless we take action, today's heroes by the time they pass 
away, will not be able to be buried in Arlington Cemetery.
    The Cemetery is projected to close for new burials in the 
year 2025, which may sound like it is a long time away, but for 
example, we still have Medal of Honor winners serving in the 
military today, from the Vietnam era, and if they live to the 
average life expectancy, the Cemetery will close before they 
pass away, and they will not be able to be buried in the 
Cemetery.
    We have worked hard in my office and with Jack to expand 
the Cemetery and develop a new master plan, going back to the 
early 90s, to give us the chance to, for the first time, expand 
the Cemetery.
    We believe we can keep the Cemetery open through the entire 
next century, but we need your help. There are three ways we 
will need your help: first, the budget request includes a half 
million dollars for a concept plan for expansion. We have 
identified three areas where we would like to expand the 
Cemetery, and now we need to go the next step and analyze how 
we would use those sites, whether it would be for columbariums, 
or internments, in other words, grave burials.
    So we have asked for a half million dollars to initiate 
that study in fiscal year 1999.
    Secondly, I would like to offer an invitation to you, Mr. 
Chairman, and your committee to come visit Arlington Cemetery. 
I would like to show you the three areas that we are talking 
about. Some have misrepresented that we are going to destroy 
the Custis-Lee Mansion because some of the lands are associated 
with what we call Section 29, which includes the Mansion. The 
specific lands we want, however, are not actually near the 
Mansion.
    So we would like to take you there and show you the actual 
property. In many cases much of it is on the other side of a 
maintenance area and not located near the Lee Mansion at all.
    You would also be welcome to lay a wreath at the Cemetery 
in honor of the veterans and the men and women who are buried 
there. Any of you would be welcome, at your convenience, to 
come over.
    Third, after you have seen the land, we are going to need 
your support to make the land transfers that we are talking 
about a reality. The Administration supports expanding the 
Cemetery, but you know sometimes bureaucratic resistance can be 
a bit of a problem.
    We believe legislative help would insure that future of the 
Cemetery.

                           budget highlights

    To talk about the budget, as you mentioned, Mr. Chairman, 
we have asked for $11.6 million for fiscal year 1999. In 
addition, they have done a thorough review of our books for the 
past decade. We found about $633,000 of unobligated money that 
we would like to recover and propose to use in fiscal year 
1999.
    That gives us a total request of about $12.3 million, or a 
total budget for the Cemetery of about $12.3 million. We want 
to use $9.4 million of that for operation and maintenance, the 
grounds keeping, mowing, general maintenance activities; for 
the administration of the Cemetery, will need about $914,000; 
and for construction about $1.985 million.
    Some of the new construction we are proposing is $800,000 
for a new wash stand/fuel island, to wash and fuel our vehicles 
in full compliance with environmental regulations. We want to 
expand our maintenance work done by contract by about $253,000.
    We would like another $250,000 to restore Old Memorial 
Amphitheater. Last, we are also asking for about $80,000 to 
fund, by contract, an environmental manager for the Cemetery.
    Briefly, Mr. Chairman, those are the highlights of our 
budget request. Last, we have submitted a strategic plan for 
the Cemetery as required by the Government Performance and 
Results Act. One of our primary goals is to maintain the 
dignity of the Cemetery and to keep the Cemetery open through 
the next century, and we won't be able to do that without the 
help of this committee.
    [The information follows:]


[Pages 74 - 82--The official Committee record contains additional material here.]



                             Introductions

    Mr. Lewis. Ms. Zirschky, would you care to introduce your 
colleagues who are with you?
    Mr. Zirschky. The ones behind, sir?
    Mr. Lewis. Yes.
    Mr. Zirschky. Okay. We have Colonel Sharon Volgyi, who 
works with the Military District of Washington, Steve Grames, 
and chief of program and budget is Sue Pfeiffer.
    Mr. Zirschky. And Stacey Brown is with my office.
    Mr. Lewis. Okay. Thank you.
    Mr. Zirschky. General Foley, the Military District 
Commander of Washington and , for example, a Medal of Honor 
winner that I mentioned has unfortunately been required to 
accompany a head of state. So he could not be here.
    Mr. Lewis. We welcome you all. And I must say it is a part 
of our understanding of our responsibility here, but often 
times not stated directly that there are men and women who 
served the country very well who happen to be getting older and 
older.
    And in our work, the reality is that one piece of the 
commitment we have made involves interment and cemetery use, 
here as well as across the country. And that is a piece of our 
budget that in the future we will be adjusting upward for a 
period of time, at any rate.
    And I think we have to deal with that as it is, and deal 
with the authorizing committee realistically in connection with 
that.
    Nonetheless, the pressure is on in terms of budgetary 
requirements, and I hope that we can work together in a 
positive way.
    I may very well want to take up your suggestion that some 
of us come to the Cemetery and look at the specific property 
that your are talking about. Lots of questions about the 
environment and other issues that do affect all elements of 
change within our society, including government agency 
proposals for change.
    So we will deal with that as we move forward, and hope to 
work closely with you.
    I think I will submit a number of these questions for the 
record.
    It is important to me that we have some feeling from you, 
Mr. Zirschky, relative to proposals that are out there that 
involve some changes in the guidelines relative to those who 
might use the services of the Cemetery.

                      policy and guideline review

    Do you feel that there is a need for you to review past 
policies and implement new guidelines? Would you discuss that 
with the committee for the record?
    Mr. Zirschky. With respect to----
    Mr. Lewis. With respect to those who are qualified for 
burial or for other services.
    Mr. Zirschky. I believe we just finished a master plan that 
we have discussed with the Committee for many years, and it is 
currently before the National Capital Planning Commission.
    And in that master plan we recommend that every five years 
a review of the eligibility requirements be conducted, so that 
if we are not able to expand the Cemetery, and we want to keep 
it open, we will need to restrict even more who is eligible to 
be buried there.
    So my office recommended that every five years such a 
review be conducted.

                          eligibility criteria

    Mr. Lewis. Okay. So you are suggesting that there may be a 
need for tightening criteria, and that very much is linked to 
your proposals for expansion and attempting to find a guideline 
in terms of space available and otherwise that seems to make 
sense and works?
    Mr. Zirschky. Yes, sir. Our goal is to keep that Cemetery 
open as long as is possible. And with our expansion we can keep 
it open for another hundred years. If we are not successful, 
and we still want to maintain the ability to keep the Cemetery 
open, because it is a very special place, we will have to 
restrict who is eligible to a much smaller group of people.
    Mr. Lewis. The House Veterans Affairs Committee has held a 
hearing on this matter recently, and this is an area of their 
responsibility from the authorization perspective. The 
Appropriations Committee is very sensitive to that and I 
appreciate the work that they are about, and we hope we will 
have their cooperation and exchanges at a staff level that 
reflect all of our interests in connection with those matters.
    I am going to submit the balance of my questions for the 
record. If you would respond, I would appreciate that.
    Mr. Lewis. Mrs. Meek.
    Mrs. Meek. Thank you, Mr. Chairman. I don't have any 
questions. Thank you. Good to see you.
    Mr. Lewis. Mr. Frelinghuysen?

                         wash stand/fuel island

    Mr. Frelinghuysen. Not too many questions. You have a wash 
stand fuel island? I remember last year the National Park 
Service took a lot of heat up in New Jersey because they spent 
$900,000 on some sort of toilet facility.
    I would suggest that you reconfigure the wording there, for 
what it's worth. Or just make it clear what you are doing. I'm 
not sure I need to know the answer.
    Mr. Metzler. I would just answer a little bit about what 
the wash island and fuel bay is all about.
    Currently, we do not have an approved facility to wash our 
vehicles. We are just washing them in the street, and the water 
is going into the storm system. This fuel island wash bay will 
allow us to have a closed loop system so that the water will be 
captured and then properly filtrated.
    Mr.  Frelinghuysen. It's vehicles?
    Mr.  Metzler. It is vehicles. Yes. And then of course, this 
also gives us a modern gas station, if you will, where we are 
able to dispense our fuel for our vehicles.

                             visitor study

    Mr. Frelinghuysen. And last year you requested $35,000 for 
the study of a more accurate method of counting visitors?
    Mr. Metzler. That is correct.
    Mr. Frelinghuysen. You are continuing that study? And what 
does it all mean?
    Mr. Metzler. Well, we have not actually proceeded with that 
study yet. We are in the process of getting ready to do that. 
We have been consulting with some other government agencies 
about the process.
    We have been requested to get a better understanding about 
what are the demographics of the visitors who visit Arlington 
Cemetery and come to visit from around the country.
    That will be tied into our strategic plan as well. This 
will be the first of a number of requests that we will have 
over the year to continue looking at the demographics of our 
visitors.
    Mr. Zirschky. It is the second most visited site in 
Washington, D.C. About 4 million visitors a year, which is 
difficult because it is also a place where we would like to 
maintain not a tourist atmosphere for those who are burying 
their loved ones.
    So that is one of the challenges we are facing.

                         congressional cemetery

    Mr. Frelinghuysen. Understood. And this may not be an 
appropriate question, but have any of you ever visited the 
Congressional Cemetery along the Anacostia?
    Mr. Metzler. I have.
    Mr. Frelinghuysen. You have. In many ways the people who 
are buried there have probably served their country every bit 
as well and with distinction as many of the people buried at 
Arlington.
    But some of you have been there to see that site?
    Mr. Metzler. Yes.
    Mr. Frelinghuysen. Thank you, Mr. Chairman.
    Mr. Zirschky. I understand that a church or someone was 
interested in operating that cemetery.
    Mr. Metzler. It is a church owned facility. It is not a 
government facility.
    Mr. Frelinghuysen. I'll bet in the old days it was probably 
cleared by the Army Civil Works.
    Mr. Lewis. As a matter of fact from time to time there is 
interest in the House, and those people who surround the House, 
past members and otherwise, express interest in that Cemetery. 
It is a church-owned location, and there is a conflict there in 
terms of our ability to impact that facility. Sometimes there 
are serious problems with care and otherwise.
    Perhaps separate from this meeting we might have a 
discussion regarding that to try to figure out how we can make 
sense out of a long-term plan in connection with that cemetery, 
which is a pretty important national location.
    Mr. Mollohan.

                          Deferred Maintenance

    Mr. Mollohan. Mr. Chairman, I just have a couple of 
questions here with regard to deferred maintenance.
    I am just wondering if I might ask one question, a bottom 
line question. Has your budget in the past reflected a 
deference of maintenance to say within an overall OMB total so 
you can fund your administration accounts and other accounts?
    Mr. Metzler. We have not actually listed a deferred 
maintenance column, if you will.
    Mr. Mollohan. I am not asking that.
    Mr. Metzler. Okay.
    Mr. Mollohan. I am asking you have you deferred 
maintenance.
    Mr. Metzler. Yes. We have deferred maintenance.
    Mr. Mollohan. What kind of problem is that creating? You 
are going to have to address it sometime.
    Mr. Metzler. Well, we are addressing it right now on a 
priority basis. The most needed items in the Cemetery are 
getting corrected.
    Mr. Mollohan. In this budget you are addressing it?
    Mr. Metzler. This budget, for instance, the Old 
Amphitheater, this structure is over 100 years old, and we were 
finally able to partially fund it last year, and we are going 
to fund the rest of it this year.
    Mr. Mollohan. That is one structure.
    Mr. Metzler. That is one structure.
    Mr. Mollohan. Overall.
    Mr. Metzler. Our master plan has identified a great need 
for the infrastructure to be looked at at the Cemetery, and the 
process of the master plan was to give us a logical process to 
repair the Cemetery on a long-term basis.
    Mr. Mollohan. To ask for increased budgets?
    Mr. Metzler. That is correct.
    Mr. Mollohan. And does this budget request reflect that at 
all?
    Mr. Metzler. This request only reflects the study for the 
additional lands.
    Mr. Mollohan. So you are still not asking for enough money 
to keep up with maintenance in this budget?
    Mr. Metzler. That's correct.
    Mr. Mollohan. Thank you, Mr. Chairman.

                    quality and level of maintenance

    Mr. Lewis. Thank you, Mr. Mollohan. To supplement Mr. 
Mollohan's question, I presume, you indicated there may be a 
request for reprogramming coming forward, and I assume that is 
a piece of your effort to try to maintain the quality and level 
of maintenance that we expected in the past.
    Mr. Metzler, with the 1999 Budget request, I will submit 
this for the record, but I would like to have you be very 
specific when you respond. We are attempting to maintain the 
Cemetery in as good or better condition than in 1992, and there 
are more people being interned, et cetera. In shrinking budget 
circumstances, even reprogrammings don't last forever.
    So I would like us to really be as specific to the 
committee in terms of our priority problems as you can be.
    Mr. Metzler. We will. We will take a real close look at 
that.
    [The information follows:]

           Specific Maintenance Items Addressed and Deferred

    Establishment of a graveliner program and headstone cleaning 
program are relatively new, expansion of the tree and shrub maintenance 
contract and headstone raising and realigning are also currently 
underway. The graveliner program prevents significant maintenance 
problems of sunken graves in the future. Cleaning headstones enhances 
the overall appearance of Arlington National Cemetery. Our goal is to 
clean at least one third of all the government marble headstones each 
year and our level of funding was doubled from 1997 to 1998, the second 
year of the program, to attain that goal. We are increasing the amount 
provided in this budget for aligning headstones which is another 
overall appearance enhancer. In 1996 we began to contract tree and 
shrub maintenance that was previously performed by civil service staff, 
since that contracting effort began we have added additional work that 
we had always wanted to perform but did not have the manpower to 
complete. We have recently started an annual maintenance fund for the 
eternal flame at the Kennedy gravesite and have upgraded the old 
electrical system there and throughout the northern portion of the 
cemetery. We recently completed a significant clean up of Section 27 
and installed upright headstones in that section that was the only area 
of the cemetery that had flat grave markers. The repair of rainwater 
leaks at the Memorial Amphitheater and replacement of marble that had 
deteriorated there has also recently been accomplished. Repair of the 
McClellan gate to restore it has also just been done. A reprogramming 
request is forthcoming that will request funds to repair a broken 
stormwater sewer line in section 33 and we hope to be able to proceed 
soon with the much needed replacement of the historic Custis Walk.
    The 1999 budget request includes $100,000 to repair roads and 
$50,000 to repair flagstone walkways. Roof repairs are planned for the 
ceremonial shelter at the Columbarium, the lodge at the Soldiers' and 
Airmen's Home cemetery and the reception building at the Memorial 
Amphitheater. Replacement of old and worn carpet is scheduled for 
several areas. $50,000 for repair of the irrigation system in the 
parking facility is funded. Restoration of the Logan Mausoleum is 
planned for $28,000 and upgrade of the kitchen and bathroom at the 
Soldiers' and Airmen's Home cemetery is planned. The electrical system 
at the Memorial Amphitheater will be upgraded for $50,000 and $10,000 
is planned for replacement of shrubs. The restoration of the Old 
Memorial Amphitheater has proceeded for $175,000 and an additional 
$250,000 is included to complete this maintenance project.
    While more funds could always be utilized at Arlington we have 
received more than the initial guidance level over the recent years and 
have made conscious decisions on what to defer. A careful effort in 
developing the new master plan categorizes the specific maintenance 
needs in a logical order instead of taking a band-aid approach. We will 
continue to expand contract efforts where they make sense and enhance 
the appearance of Arlington. We will also do our part to remain within 
the overall caps established by the Congress and Administration.

                        planning level estimate

    Mr. Lewis. And as an indication of concern that gets very 
specific on our part, I note with interest your testimony about 
a $500,000 figure relative to the planning for the expansion. I 
found over the years that, kind of like members of 
subcommittees, planning will take up as much time as we have 
available regardless of the subject, that architects will spend 
as much money as there possibly is available regardless of the 
real need.
    I would be interested in some detail for the record on how 
well you might do on $300,000 rather than $500,000 and let us 
use that as a base for some discussion.
    Mr. Metzler. Okay.
    Mr. Lewis. Do members have any additional questions?
    [No response.]
    Mr. Lewis. If not, we have CEQ up ahead of us, and I know 
how much time we want to spend with the gentle lady.
    So with that, Mr. Zirschky, Mr. Metzler, I appreciate your 
being here, and ladies and gentlemen, it's a pleasure to be 
with you. Look forward to working with you.We are all in this 
together.
    Mr. Zirschky. Thank you, Mr. Chairman.
    Mr. Lewis. We will be in recess for a few minutes as we 
change subjects.
    [Recess.]


[Pages 89 - 118--The official Committee record contains additional material here.]



                                       Thursday, February 12, 1998.

                    COUNCIL ON ENVIRONMENTAL QUALITY

                                WITNESS

KATHLEEN A. McGINTY, CHAIR

                           Opening Statements

    Mr. Lewis. If we can come back to order.
    I am very, very appreciative of a witness who comes to us. 
She has written out her notes last night, rather than having 
staff prepare it three days ahead of time. That's very 
interesting. I am sometimes better off the top. [Laughter.]
    Ms. McGinty. This was in the cab on the way here.
    Mr. Lewis. Very important. Before I begin my own 
introductory statement, Ms. McGinty, as you may know, the 
Chairman, among other things, comes from the West.
    Ms. McGinty. Yes.
    Mr. Lewis. And there is a group of people out there, 
members who are concerned about Western issues that sometimes 
have environmental implications. And they were concerned that 
sometimes when they communicate directly to you that you may or 
may not--sometimes staff gets in the way and they do not let 
you see those wonderful and important communications.
    And so they asked me to present this to you personally. And 
since they had me sign it last, they were afraid I might not 
sign it. I told them I would do that.
    Ms. McGinty. Thank you very much.
    Mr. Lewis. And I would like you to examine that carefully 
on the way back in the cab.
    So we are now going to turn to the Council on Environmental 
Quality and the Office of Environmental Quality, whose fiscal 
year 1999 budget request is $3,020,000. This figure represents 
an increase of $520,000 over the 1998 appropriated level, and 
is identical to the President's fiscal year 1998 request.
    Testifying on behalf of the Council is the able Chairwoman, 
Kathleen McGinty, with the Office of Environmental Quality.
    Ms. McGinty, we welcome you again this year. It is a 
delight working with you and yours. As in previous years we 
would invite you to summarize your opening statement as you see 
fit. Your written statement will, of course, be included in the 
record, and members would like to spend time in personal 
exchange and questions.
    Ms. McGinty. Terrific.
    Mr. Lewis. So, Mr. Stokes very likely has an opening----
    Mrs. Meek. He has a Subcommittee meeting.
    Mr. Lewis. I'm just thinking he probably has a statement 
that we will make sure is in the record. I know you will pay 
very careful attention to Mr. Stokes' questions as well.
    Ms. McGinty. Always do. Yes.
    Mr. Lewis. Ms. McGinty.
    Ms. McGinty. Thank you, Mr. Chairman. I am particularly 
happy that I did the following. Since I didn't know I was going 
to receive a gift today, let the record show an official bribe 
for the Chairman, the ``I Love NEPA'' Valentine's gift for you.
    Mr. Lewis. I love NEPA. Let me say, you realize we are 
under severe restrictions regarding gifts. Is this edible?
    Ms. McGinty. You better have Frank take a bite first.
    Mr. Lewis. Frankly, I was thinking about making it a 
bipartisan bite. [Laughter.]
    Nonetheless the gift is welcomed. We do accept things from 
California, if they are made in California. Otherwise only if 
they are edible. [Laughter.]
    Ms. McGinty. I think it is Whitman's Chocolates from New 
Jersey.
    Mr. Frelinghuysen. Ah.
    Mr. Lewis. Frank tells me, quickly, that it is government 
to government so it is okay.
    Ms. McGinty. Oh, so it is okay.
    Mr. Lewis. We'll have to examine what is okay government to 
government.
    Ms. McGinty. I was just going to say, just imagine then the 
reciprocity there could be.
    Mr. Lewis. Almost endless, as a matter of fact. Do you 
scuba dive, by the way?
    Ms. McGinty. I do.
    Mr. Lewis. I thought you probably would.
    Ms. McGinty. Dangerously.
    Mr. Lewis. Ms. McGinty.

                    Ms. McGinty's Opening Statement

    Mr. McGinty. Thank you, Mr. Chairman, members of the 
Committee. Thank you for the opportunity to spend some time 
with you today. I wanted to share with you a little of what we 
have done in the last year.
    We have been busy. For better or for worse we have been 
busy. And I think we have accomplished a lot. Also I would like 
to share with you some of the things we would like to 
accomplish in the year to come.
    To place in some context in terms of what we have tried to 
accomplish, I wanted to go back to what is our charge, and our 
charge is the National Environmental Policy Act. I want to 
start there, because I think the charge of NEPA actually states 
as succinctly as can be stated that we have been trying to do.
    As the Committee, I think is aware, NEPA, the National 
Environmental Policy Act, actually does not charge us with 
protecting the environment per se. Rather, in a much more 
creative and poetic stroke, it charges us with creating 
productive harmony among our environmental, economic and social 
objectives.
    Now, especially in Washington, D.C., the idea of harmony is 
a bit of a challenging thing to have to shoot for, but I think 
it is exactly right. The reason I think it is exactly right, 
Mr. Chairman, and we've discussed it before, it does seem to me 
that for far too long we have made something which is a common 
ground among us all, and that is our care and commitment to the 
environment, into a battle ground.
    So what have we done towards this achievement of productive 
harmony? We have tried, first and foremost, to try to build 
partnerships, to try to serve as mediators of disputes, to try 
to create win/win approaches that reflect and respect the 
variety of our values--not just the environment, no just the 
economy, not just social concerns--but the multiplicity of 
those taken together, and to try to create the space for us to 
move forward together.

                      public/private partnerships

    So some examples of what we tried to do in that regard: 
First, public/private partnerships. We have now set the stage 
to launch a major new clean water initiative. Last year was the 
25th anniversary of the Clean Water Act. We have tried to build 
a new partnership to set the course for the next generation of 
clean water.
    That partnership will bring together the agricultural 
community and State and local and Federal Government in a new 
initiative that on the one hand sets new standards for things 
like nitrogen and phosphorous that were implicated in the 
pfiesteria outbreak in the Chesapeake, but also provides new 
money, new tools, new resources for the agricultural community 
and for urban communities to get at that next major stage of 
clean water issues, which is non-point sources of pollution.

                 successful public/private partnerships

    Second, we have seen the fruits of one of our earlier 
public/private partnerships. This one is particular with the 
Big Three automakers. Instead of just rewaging the battles over 
CAFE, the Corporate Average Fuel Economy standards, we said 
isn't there a way for us to move forward together?
    And what we have done, primarily, is to open the doors of 
our national laboratories, and have our researchers working in 
partnership with the Big Three. A lot of folks thought it 
couldn't be done when we in 1994 set a goal that by the year 
2003 the automakers would produce a car that achieved three 
times the fuel efficiency of current vehicles with no 
compromise of safety and performance.
    And lo and behold, just this last year, in December, we saw 
the Big Three come forward and announce that they will do it 
not in 2003, but in fact in 2001. That research, that 
productivity resulted from this partnership that the Congress 
has supported and that we launched in 1994.

                    environmental technology market

    Third, in terms of public/private partnerships, each of you 
in your Districts has an endless number, almost, of 
environmental technology companies. Across the board nationwide 
environmental technology is an $180 billion market employing 
1.2 million people.
    The problem is that most of the most innovative companies, 
they are small companies who are having a very hard time in 
accessing Federal resources, accessing technology programs, 
and, importantly, accessing export opportunities abroad, 
because of how small they are.
    In my office is housed an inter-agency task force to 
promote environmental technologies. We are beginning to see the 
benchmarks of progress there. By last year we had increased the 
exports of environmental technologies by more than 50 percent 
since 1993.
    We also hosted an event where we brought companies from 
Europe to the United States and partnered those companies with 
small U.S. companies so that joint ventures could be formed.
    So we are moving forward in public/private partnerships.

                           breaking gridlock

    Second, in terms of achieving this productive harmony, we 
have been trying to break gridlock over issues that have been 
in gridlock for a long time. Just last month we worked with the 
EPA, the Federal Department of Transportation and the Georgia 
State Department of Transportation who were atsignificant 
loggerhead about five pending highway projects that had been proposed.
    EPA was poised to prohibit all five of those projects. We 
jumped into the equation, brought the parties together with the 
upshot that three of the five were approved to go forward 
immediately.
    The remaining two are conditionally approved, the condition 
being that we will finally insist that Atlanta, which is far 
behind in its Clean Air Act requirements, to in 18 months time 
put together a Clean Air Act conformity plan.
    Broke the gridlock. Allowed that to move forward.
    Dredging in the ports of New York and New Jersey. 
Congressman Frelinghuysen can certainly speak to this. he has 
had this as one of his concerns. We have worked very hard 
there, where environmentalists, the courts, State and local 
government at loggerheads in terms of keeping those ports 
competitive, which means dredging them and deepening the 
channels, but also not seeing additional contaminated dredge 
spoils go into the ocean.
    The upshot of that work is that last year we permitted more 
dredging activities than had been permitted to go forward in 
three years time before that. And, on the environmental side of 
that equation, we closed what was known as the Mud Dump Site, 
which was an ocean dumping ground for contaminated dredge 
spoils, and the public had spoken loudly that they didn't want 
contaminated materials being dumped in the oceans.
    But by bringing the parties together, we enabled the 
dredging to go forward, while attending to that ocean pollution 
concern.
    In the budget this year, CEQ also made sure that we had a 
new initiative. The next piece of insuring the competitiveness 
of that port is to dredge to the port's main antery to 45 foot 
draft. And with the budget initiative that we have launched, it 
is a $10 million commitment to start that work and to get the 
dredging done.
    Along with that comes a new Federal commitment to support 
that dredging project.

                     inter-governmental cooperation

    The third area that I wanted to highlight, Mr. Chairman, is 
in addition to the breaking gridlock, and in trying to form 
public/private partnerships, we also work assiduously to try to 
insure inter-agency coordination and inter-governmental 
cooperation.
    Inter-agency coordination, I think that Everglades 
Restoration is a terrific example of that, where we have five, 
six, seven different Federal agencies. They have come together 
with one coordinated vision of how Everglades Restoration 
should proceed.
    We now have the full backing of the State, the local water 
management district in working with us on that.
    Further, to insuring inter-agency coordination, CEQ co-
chairs, the Administration's effort to put forward our policies 
on reauthorities of the highway bill, the ISTEA bill, which we 
have sent to the Congress for your consideration, and also now 
co-chairing with the National Economic Council, the 
Administration's efforts on electricity restructuring, and to 
put forward a proposal there.
    Finally, in terms of insuring inter-governmental 
cooperation, I share especially with the Chairman something I 
am sure you will be interested in. We have been working very 
hard on new arrangements under the Endangered Species Act, and 
hopefully within two weeks we will be able to announce a new 
partnership with the State of California, as we have previously 
done with the State of Oregon, which in the case of steelhead 
salmon will avoid a Federal listing.
    I do not want to prejudge the conclusion of that but that 
is where we are heading. And just months ago we entered into a 
similar partnership with the State of Oregon on both coho and 
shortly on steelhead salmon as well.
    With some of these accomplishments, Mr. Chairman, we have 
also had some disappointments, areas where we are not above to 
move forward as productively as we would like.
    There are specific instances of that. Certainly 
Congresswoman Meek has been a leader in looking at the 
Homestead Air Force Base situation, and there we are working 
together, because we did not accomplish all that we would like 
to have accomplished there last year.

                            nepa reinvention

    But overall the largest area of disappointment for us is in 
our comprehensive NEPA reinvention effort. Last year, with your 
support, we started that effort, built a collaboration with the 
Western Governor Association, the Western States Foundation, 
Duke University, the University of Montana, the University of 
Wyoming, and launched a major reinvention effort.
    That effort began to deliver results and produce very 
significant products. One, we agreed to reemphasize that there 
should be time limits on how long EIS's take.
    Two, we issued guidance in changing those documents from 
impenetrable scientific documents into documents that would be 
written in plain English. Third, we reminded the agencies that 
they have page limits they should be working within, so that 
EIS's are not more than 150 pages, unless there is some reason 
why they need to be longer, and for EA's 15 pages was the 
recommendation.
    Finally, we came up with performance measures. We want to 
start to be able to quantify how the agencies are performing in 
executing their NEPA responsibilities. All of this was under 
way. All of its beginning to bear very important and productive 
fruit.
    However, we did not receive the funding last year thatwe 
had requested to continue this initiative, and that meant in the very 
first day of this fiscal year I had to suspend the reinvention effort.
    It is my top priority. If I cannot do it systematically, an 
overall, comprehensive reinvention of NEPA, to take it on on a 
case by case basis. We are working right now--Mr. Chairman, you 
would be interested to know, I think--with FEMA to change their 
hazard mitigation environmental requirements so that they will 
be much shorter and much more cost effective, so that FEMA can 
respond, for example, to flood situations in a timely fashion.
    We have just finished working with the Army, the Air Force, 
in revising their NEPA regulations. But we would like to do 
this in a systematic way across the board, and it would be our 
top priority, to try to resuscitate that effort this year.
    And I hope to work with the committee towards that end. 
Thank you very much, Mr. Chairman.
    [The information follows:]


[Pages 125 - 135--The official Committee record contains additional material here.]



    Mr. Lewis. Thank you very much, Ms. McGinty.
    Beginning my own questions, I am going to go off staff's 
line of priority to some of my own. Some recent occurrences 
have helped to crystalize in my mind's eye perhaps a function 
of your work, as apparent in terms of its potential value to 
anybody who would but look.
    And there are two instances that I would point to and ask 
for your brief response, and I will proceed to other questions.

                               salton sea

    In the late 1960s and early 1970s the District that I 
presently represent was held by Congressman Jerry Pettis. It 
included San Bernardino County, a very big part of it, and also 
much of Riverside County, including the Salton Sea.
    You have referred to the Salton Sea in your formal 
testimony. But Jerry Pettis' service here was shortened by a 
tragic airplane accident. He was killed and his seat was filled 
by his wife, Shirley Pettis.
    Following her coming to the Congress, she placed as her 
number-one priority doing something about the Salton Sea. That 
was in 1974. There was kind of a natural competition in the 
House for dear dollars that oftentimes are not available in the 
volume we would like.
    And there was also a competition in the House that involved 
kind of partisan credit stuff--who gets the credit for being 
most concerned about the environment. Oftentimes it seems to me 
that the environment and the concerns about it are very, very 
important.
    We have left the real discussion to the people on the 
fringes, either no environmental work at all, or everything. 
Perfection or nothing. And in the meantime the important center 
is left out of that discussion, because people seem to be busy 
with their lives doing other things.
    Nonetheless, 1974 it was Mrs. Pettis' highest priority and 
almost nothing happened except a lot more money spent on a lot 
more studies. Tragically 25 years later we have a special 
election in the same territory--Sonny Bono killed in a tragic 
accident. And his number one priority was the Salton Sea.
    Recent studies have led to solutions to the problems around 
the Sea, that probably are of the narrowest form, the lowest 
possible cost, and perhaps will serve to stop the final killing 
of the sea, in short term, but certainly will not restore it to 
its potential.
    I mean, if there ever was an illustration of the need for 
coordination and cooperation, insuring that no more money is 
spent on studies, and that we recognize this as an 
environmental asset of huge proportions, that can be restored 
without outrageous cost, but which has very complex overlapping 
jurisdiction.
    The country of Mexico is involved. The farming community is 
involved, et cetera, et cetera. But think about it--1974, Mrs. 
Pettis comes to Congress, and her number one priority. Clearly 
we had room for the Bay Delta and its problems and the Salton 
Sea.
    In the meantime, that asset is all but in a handbasket. 
Now, ahead of us will be a whole set of other studies. NEPA 
would be a piece of that, of course.
    I would think that experts could show us that in past 
studies, by quick review and short reference, we could probably 
with very low cost could say, these seem to be the 
alternatives.
    Like, maybe, in three days, we might be able to do that. 
For if we wait 18 months for a study we are shortening the 
five-year time frame in which people say the sea will be dead. 
And the recovery time may be beyond us because we have got all 
these conflicting interests that would appear when everybody 
knows it is a life or death environmental problem.
    Now, I just cannot find an illustration around that causes 
my imagination to figure out how better we could demonstrate 
that your agency actually might work. And, so, kind of in a 
formal way, I am asking you to get in the middle of this and 
coordinate between the departments, between the 
Administration's expressed interest, and now, bipartisan 
interest. The difference between 1974 and 1998 is that inrecent 
years George Brown and I have been working on the Salton Sea project. 
He was born in Imperial County, he has a great interest in it. I wish 
that he had been talking to Mr. Miller in 1974.
    But, in the meantime, we do not have much time left. I 
would kind of look to the year ahead to look for a 
demonstration, if you will. You have a great opportunity here.

                               salton sea

    Ms. McGinty. Well, thank you, Mr. Chairman.
    We have recently gotten involved in this issue. In fact, at 
an earlier request of Speaker Gingrich who called right after 
the tragic death of Mr. Bono and said, we really would like to 
have a bipartisan effort here, can you help facilitate it?
    So, we did get involved. I think that there is some 
progress. For example, it would be our intention not to try to 
recreate the wheel in terms of the very good working 
relationship that has been put together with the Salton Sea 
Authority, a relationship that has the State and local 
machinery, I think, working together well.

                          NEPA AND SALTON SEA

    In the NEPA process, I would also anticipate that that 
should not be, as I think you are suggesting, about new studies 
necessarily but--and this speaks to a fundamental 
misapplication of NEPA, which is--that it is not supposed to be 
the excuse for generating more paperwork. It is supposed to be 
the framework for decision making so that the economic analysis 
is on the table, the social analysis is on the table, the 
environmental analysis is on the table and you have a structure 
through which those various analyses are brought together into 
a comprehensive and coherent whole.
    And, second, what NEPA is supposed to do is to say before 
the Federal agencies at any rate make any decisions, the public 
needs to be involved. So, it would be our hope to use NEPA as 
the framework to ensure that we have that coordination in the 
Federal participation and use it also as an opportunity to 
enhance public participation with the Salton Sea Authority.
    Mr. Lewis. It strikes me that the reality in and around the 
Salton Sea is that we are dealing with an emergency. And the 
Seretary has certain authority that certainly could be applied 
in emergency circumstances. It also strikes me that the local 
authority, because they have been told you only have got X 
number of dollars available and it has been a very limited 
number of dollars, that their conclusions are to take us to the 
least possible solution rather than restoring the asset.
    In the middle of that, if the Secretary has any kind of 
interpretative emergency authority, it seems to me that almost 
the total environmental community has to recognize that those 
thousands of dying birds every day these days, et certera, et 
cetera, creates a circumstance of real opportunity to show that 
even the Federal Government can move quickly, especially when 
we have had all these years of opportunity for study and a lot 
of money spent on those studies.
    So, I urge you to raise this right up to the top of list. I 
think it is the most important critical environmental issue in 
the entire West. And, indeed, if there is credit to go around, 
there is credit for everybody. But more importantly, the 
environment is fundamentally involved.

                    seven oaks dam--santa ana river

    Another illustration of a similar circumstance that I bring 
to your attention for it, too, raises to the highest level a 
potential difficulty for the environment. The Seven Oaks Dam is 
a part of the Santa Ana River project. It is the largest line 
of water, potential water flow in the country where lives and 
property are involved and it is unprotected. We currently are 
in the midst of a billion and a half dollar project to protect 
the Santa Ana.

                       endangered species issues

    Within that environment, two years ago the Secretary of the 
Interior, by way of press release, indicated that the San 
Bernadino Kangaroo Rat was not an item that was likely to be 
listed because there are all kinds of listings. And I gather 
that at any rate would not be listed, not to be of concern.
    Recently, apparently, it is alleged at least, as a result 
of a conflict between the agency and a relatively small 
developer who was proposing development of like 240 acres, the 
San Bernadino Kangaroo Rat was listed on an emergency basis and 
it affected the whole basin, including the Seven Oaks Dam. They 
stopped their work, et cetera. And you are talking about 
potentially tens of thousands--and in the meantime, the rain is 
falling. It does cause our credibility, at least, to be 
challenged.
    It strikes me that, if indeed, there is that kind of one-
upmanship at the local level, which is totally oblivious to a 
broader problem, that there is a need for somebody in the 
middle of that to kind of say, hey, friends, let us take a look 
at what this is all about.
    When George Brown and I came together and raised some of 
these questions publicly and pointed to this press release, 
suddenly there were meetings taking place in Los Angeles that 
said, maybe we can temporarily suspend any impact upon the 
dam's work. Now, wait a minute, that ain't the way it is 
supposed to work.
    Now, it seems to me that if, over the next several years, 
we are valuating the real value of coordination and cooperation 
between agencies, we have got a couple of test possibilities 
here that might deserve your attention.
    Ms. McGinty. Mr. Chairman, on the latter example, I mean I 
certainly will look into it. Two other examples come to mind 
that seem relevant to this that we have been involvedin and 
have been able to figure out some solutions.
    Congressman Cal Dooley came to me about a year and a half 
or so ago. He was concerned about the Willow Fly Catcher and 
not being able to keep Lake Isabella at flood stage levels and 
it seemed like there was going to be a crisis there. But we 
were able to figure it out by bringing the various agencies 
together, we were able to find habitats that could be developed 
for the Willow Fly Catcher outside of the Lake perimeter, and, 
anyway, achieve a win-win by not having flooding in the area 
but still not flooding out the Willow Fly Catcher in the lake 
basin, itself.
    So, there may be similar opportunity here and we would be 
happy at your invitation to look into it.
    Consider myself invited.
    Mr. Lewis. Yes, you are invited. We are looking for the 
value of all of our agencies and commissions and especially 
those who coordinate between interests that really are all the 
same but sometimes exercise themselves differently.
    Mr. McGinty. They do not realize it.
    Mr. Lewis. Good.
    Mrs. Meek.
    Mrs. Meek. Thank you, Mr. Chairman.
    It is good to see you again.
    Ms. McGinty has mentioned the fact that we have been 
working together trying to resolve some situations in my 
county. And I thought that I would talk just a little bit about 
them today and see if I can get some answers. And I am 
certainly hopefully they will be a little bit more definitive 
than some answers I received in the past.

                        homestead air force base

    I had a chance to review the testimony from last year and I 
also remember it very well. I have to say that my folks back 
home are not pleased at all with the progress that has been 
made between then and now. First of all, there was a 
discrepancy in what you thought would happen at Homestead Air 
Force Base then and what is happening there now. And I guess my 
end conclusion is that there is really nothing happening there 
now, very little.
    Last year, you were reviewing the Environmental Impact 
Statement on the Base to determine if it was adequate to allow 
the transfer of the Base to Dade County and allow the County to 
begin development there. I was every optimistic about the 
comments you made at that time. You said you were confident 
that in four months to a year the Base would be transferred.
    Certainly I told that to my constituents and the people in 
Dade County. I think if anyone knows what happened there in 
1992 this Base and, subsequently, that whole area was almost 
wiped out by Hurricane Andrew. We were very optimistic; but now 
because of the decisions that CEQ was involved in, that 
decision is several years down the road.
    The original supplemental EIS, the original EIS statement 
gave us confidence that in a year the Base would be 
transferred. But a lot of things have happened since then. We 
have lost the confidence of the public; that is, the Federal 
Government lost the confidence of the public.
    And listening to my chairman I think there is some 
precedent for communities losing confidence in the Federal 
Government, because of the delayed implementation of certain 
things that were promised by agencies of the Government.
    And I think that it is high time we stopped some of that. 
It undermines the credibility of those of us who are elected 
officials, and, number two, it undermines the public's trust in 
Government.
    So, the people in Dade County feel that they have been 
betrayed because of any number of things that have happened 
since then. For an example, I understand there was no choice in 
selecting the baseline for comparing before and after, 
comparing the noise, the traffic, pollution and all, with the 
Base development plan which was originally developed.
    I think, and I am sure you do too, that there is some room 
for us to make some judgment calls there. But if you chose a 
day before the Hurricane Andrew struck, the baselines would be 
a fully active Air Force Base, as all of you know, Homestead 
Air Force Base; if you chose the day after the hurricane 
struck, then the baseline would be essentially a decision based 
on a wiped out, desolate airstrip with no buildings and no 
human activity at all.

             homestead's environmental sensitivity baseline

    Can you tell me what baseline was chosen for the 
environmental sensitivity analysis at Homestead? Who made this 
decision? Did you concur in it, and why?
    Ms. McGinty. Thank you, Congresswoman.
    First of all, I just want to acknowledge your very hard 
work in this regard and I have appreciated the patience that 
you have shown, the tremendous number of hours that you have 
put into this. I want to acknowledge that we did not accomplish 
all that I had hoped we would be able to accomplish last year. 
And I suppose a little irrational exuberance comes into play 
sometimes.
    The fact is that we do wrestle with tremendously difficult 
challenges and what I have tried to share with you today is our 
success in figuring those out and getting some win-win 
solutions. I thought that we would be able to do that in 
Homestead as well, but despite how hard we all might try, we 
cannot just wipe away mistakes that had been made in the past 
and those mistakes proved insurmountable.

                         No-Action Alternative

    Where we are right now is hopefully in a place where we can 
start on a cleaner slate and move forward and you have my 
commitment that we will try to do that as expeditiously as 
possible. To answer your specific question about the baseline, 
when an agency is to undertake a significant action like the 
transfer of an Air Force Base, for example, they look at 
various alternatives. One alternative that it required them to 
look at is what is called the no-action alternative and this 
gets to your baseline question.
    The no-action alternative starts from the baseline, if you 
will, of what does the world look like today? That is the 
premise on which, then, if the agency is going to build a 
bridge or transfer an Air Force Base, the comparison is to what 
does the world look like today before I effectuate this 
decision that I want to effectuate?
    The reason why that is an important principle in the NEPA 
kinds of analyses is that the alternative that, frankly had 
been pressed for decades, for two decades, the two and a half 
decades of NEPA's existence by the environmental community and 
others, is that no, no, no, the baseline, if you will, the no-
action alternative, should not let us take the world as it 
exists today, but in the case of Florida, you know, let us take 
the world as it existed before Ponce de Leon set foot in South 
Florida. And there were lawsuits after lawsuits where 
environmentalists tried to have that be the baseline.
    And, over the course of two decades, the result was that 
the court did not agree with that and said, no, it does not 
make sense to try and go back to the forest primeval and make 
decisions on that basis. Take the world as it exists at the 
time you are making your decision and compare the world as it 
would exist after you made your decision to as it exists right 
now today.
    That is standard NEPA practice, long fought through the 
courts and that is the practice that the Air Force and the FAA, 
who were the agencies that made the decisions in this case--
which you asked that question, too--that is what they did in 
this case as is standard practice.
    Mrs. Meek. I do not think you answered my question. I 
wanted to know what baseline was chosen?
    Ms. McGinty. The baseline would be the world as it exists 
today, the day that the agencies, the Air Force and the FAA, 
are preparing to make their decision.
    Mrs. Meek. See, that is our problem. We could go on and on 
with this discourse. But the bottom line is that in spite of 
all of the amalgamation of agencies that have been involved 
here, we still have not come up to the place where we have an 
environmental impact study that gives us clearance to get the 
land.
    Ms. McGinty. Right.
    Mrs. Meek. If I may go a little bit further?
    Ms. McGinty. Please.
    Mrs. Meek. The people back home are ragging me and calling 
me and meeting with me about this. There are several questions 
that I need to ask you. And I do not want to take up all the 
time of the Committee but I would like----
    Mr. Lewis. We will give you full opportunity to submit any 
others for the record, if you would like.

                            SEIS Contractor

    Mrs. Meek. If I may go a little bit further, you have 
already chosen a contractor to do the SEIS.
    Ms. McGinty. The Air Force has, yes.
    Mrs. Meek. That is right. And my constituents are 
questioning me as to how or what process was chosen. What 
process was initiated to hire this contractor? Just how did 
this happen? Who chose this and was it an open bidding kind of 
contract? They seem to have the feeling that someone from that 
area perhaps would know more about this. I do not know who was 
chosen but I wanted to ask you that question. Those are 
questions that are being asked of me.
    Ms. McGinty. Yes. Well, I think on this one, Congresswoman, 
I will need to respond for the record.
    [The information follows:]
                        Homestead Air Force Base
    The contractor chosen by the Air Force to do the SEIS is Science 
Applications International Corporation (SAIC). The Air Force and the 
Air National Guard periodically select a number of different 
environmental and planning contractors through competitive bidding 
processes. Those contractors, having already been selected 
competitively, are then available to be put to work quickly as the need 
arises. SAIC is an experienced EIS contractor and was available under 
that process. They were put on contract within 30 days of the 
announcement of the SEIS. Going through a new competitive process would 
have required significantly more time.

    Ms. McGinty. But the Air Force and the FAA chose the 
contractor, I think, through their normal contracting 
provisions and I do not know what that all entails.
    Mrs. Meek. Okay. Most of all, the time element, Ms. 
McGinty, is so important to the people back home. That is some 
of the correspondence I have seen dedicated to all of this 
process and the fact that now we have another SEIS coming up.
    It seems to be a very protracted process. And it might take 
years because right now, after that, there will be other 
studies that the county must do and the State of Florida must 
do. So, you can imagine our frustration.

                          Homestead Time-Line

    My main question to you is, as the person over this entire, 
I guess, joint venture, agency-type situation, there is no way 
you can estimate how long this is going to take, not with any 
degree of definite times.
    Ms. McGinty. What is currently planned is that after the 
scoping process as it is called and the public hearings, so 
that the public has input, is had in April. In May, the 
agencies will negotiate a schedule with the county and with 
members of Congress, who want to participate in that, for how 
long the processes that have to follow from those public 
hearings will take.

                      Costs of Homestead Decisions

    Mrs. Meek. I will end with this question and I willsubmit 
the rest for the record. How much money has been spent up to this date 
and how much do you anticipate to be spend before the SEIS in 
concluded?
    Ms. McGinty. I would need to respond for the record on that 
and I would be happy to try to get you that information.
    [The information follows:]
                        Homestead Air Force Base
    The 1994 EIS cost $950,000. The draft Earth Tech report cost 
$354,000. The SEIS will cost the Air Force $3 million. SEIS-related 
studies being undertaken by the Federal Aviation Administration are 
anticipated to cost between $750,000 to $1 million.

    Mrs. Meek. Thank you very much.
    Ms. McGinty. Thank you.
    Mr. Lewis. Thank you, Mrs. Meek.
    Mr. Mollohan.
    Mr. Mollohan. Thank you, Mr. Chairman.

                        american heritage rivers

    Ms. McGinty, you are in the process of designating some or 
we are in the process of designating some ten American Heritage 
Rivers. And you have initiated that and we are certainly 
interested in it. I am interested specifically in the financing 
part of it. Are the departments and agencies that are supposed 
to participate in this stepping up to their funding 
responsibilities? If so, are they a part of the President's 
budget request?
    Ms. McGinty. Congressman, there are 13 different agencies 
who are involved in this. Because the program is about a 
reinvention of the way they otherwise do their activities--and 
the reinvention primarily being rather than have the agencies, 
top-down, decide how to spend their resources, that local 
communities would say that these are the resources we need, 
that would be bottom-up--there is not an additional funding 
request that has been made because the point of this is not to 
create a new program but to integrate the programs that already 
exist and make them more accessible to local communities.
    Mr. Mollohan. So the money is going to come out of----
    Ms. McGinty. Existing programs and budgets, yes.
    Mr. Mollohan. Have those been identified where this money 
is going to come from?

                   american heritage rivers programs

    Ms. McGinty. The programs that are involved have been 
identified. Again it is 13 different agencies. It is programs 
from the Park Services' programs where they advise communities 
on how to receive preferable tax treatment for historic 
properties, to the Department of Commerce which has a program 
where they provide experts to communities in community design 
so that some communities want to put amphitheaters and 
greenways on the sides of their rivers and try to attract 
economic activities along the river-front.
    Mr. Mollohan. So, they are just offering up current 
programs as participants in this overall American Heritage 
Rivers initiative?
    Ms. McGinty. Yes, that is correct.
    In fact, there is one example of a program which exists and 
monies that have been expended but hopefully through this 
program will achieve greater, will be more available to the 
public. The Department of Defense has what is considered the 
most sophisticated computer analyzing technology to help 
identify what are the best economic investments a community can 
make when they are trying to diversify their economic base.
    That data, that computer software right now is only made 
available to communities experiencing base closures and 
realignments. And the point of this is to say, why should we 
have----
    Mr. Lewis. It must be a computer capability that is only 
shy of the capability demonstrated by the IRS. [Laughter.]
    Ms. McGinty. Well, in the year 2000 it is all going to be 
kaflooy anyway. But anyway, the point, for example, would be to 
have communities across the country be able to have access to 
that and that would be one part of what we had hoped 
communities would be able to resource and access through this 
initiative.
    Mr. Mollohan. I am asking the follow-up questions for the 
record. Thank you.
    Ms. McGinty. Thank you.
    Mr. Mollohan. Thank you, Mr. Chairman.
    Mr. Lewis. Thank you, Mr. Mollohan.
    Ms. McGinty, another problem that I would put on your plate 
that relates to this Santa Ana thing, just because it 
illustrates the need for coordination between agencies and 
short cutting difficulties, apparently in regions in the 
country, it is especially true in the Santa Ana River Basin, 
there is a small little crop called the Arundo which is, the 
handle it receives from others is, ``the weed from hell.'' And 
apparently it is a bamboo-like weed that grows in our channels.
    Ms. McGinty. Yes.

                         flood control channels

    Mr. Lewis. And in more than one instance this weed, when 
high-water flows come into those channels, that were developed 
in the first place for flood control, this weed is in the way 
and when it is swept up roots and all comes out, and it clogs 
up the pipelines and bridges have collapsed as a result of it, 
et cetera.
    And yet, there appears to be some serious difficulty in our 
ability to go in and make sure that those channels are open. 
Apparently the study time to clear the channels is longer than 
we can wait between floods. And the reason I point to the Santa 
Ana River Basin is only because it has been since 1938 since we 
have really been in-depth challenged at the 200-plus flood-year 
level. You would not remember this but I was quite young.
    I dropped a ping-pong ball out my window in the back yard 
and it dropped 18 inches and hit the water and floated out the 
back fence. That was the real time of the Santa Ana River. The 
Lord has blessed us since then. We have had serious floods but 
nothing quite like that in Southern California inland. Should 
we have it, now there are tens of thousands of homes in that 
flood channel and there are multi-billion dollars of property. 
Yet, much of the channeling is clogged.
    Ms. McGinty. Right.
    Mr. Lewis. And to wait until after the fact and say, hey, 
that is a problem. And one more time I think your agencies are 
very--and it was five or six years back the person can do all 
that and I think you got more than that.
    Ms. McGinty. Well, I----
    Mr. Lewis. I know that is why you are here.
    Ms. McGinty. Well, just think how much more we could do.
    Mr. Lewis. Frank said you might say that. [Laughter.]
    Ms. McGinty. Does that make you sleep better at night. 
[Laughter.]
    I have not heard of this particular invasive species but I 
have heard of the problem overall in terms of being able to 
clear drainage channels and things like that.
    Mr. Lewis. Yes.

                  endangered species in flood channels

    Ms. McGinty. Sometimes there is an endangered species 
issued that seems to be involved that if it is habitat there 
seems to be restrictions there. When that seemed to be the 
locus of the concern last year, we did issue a new policy, had 
the Department of Interior issue a new policy which declared it 
to be an emergency activity to clear those channels when there 
was a flood situation.
    Mr. Lewis. We actually have those kinds of emergency 
authorities?
    Ms. McGinty. There are those kinds of emergency authorities 
and----
    Mr. Lewis. We might even affect the Salton Sea situation.
    Ms. McGinty. Indeed, I have that as my first item to 
investigate. But to your specific point, and I would have to 
respond further to see how exactly relevant this is, but even 
as we speak right now, we are working with FEMA to do a 
programmatic EIS program for them so that they do not have to 
do a separate environmental analysis for each activity that 
they might pursue in terms of hazard mitigation or avoidance.
    Mr. Lewis. It is just that kind of thing that we have been 
addressing.
    Ms. McGinty. That is what we are trying to do on a 
programmatic basis.
    Mr. Lewis. Yes. I would very much appreciate being kept 
apprised of that sort of effort where there is real value to be 
had there.
    Ms. McGinty. Sure.

                            nepa reinvention

    Mr. Lewis. Let me briefly before I turn to Mr. Stokes, ask 
a few questions that are of very high priority within our 
committee. I could not help but notice that NEPA reinvention 
was the first item listed within your justification.
    Ms. McGinty. Yes.
    Mr. Lewis. Let us see, your program highlights involve some 
28 pages and that was the number one. On a scale of one to 10 
and if one is very, very import, how important is this effort 
to reinvent NEPA?
    Ms. McGinty. I think it is a top priority.
    Mr. Lewis. In your mind, how does it compare in importance 
to the other activities performed by CEQ and OEQ?
    Ms. McGinty. It is of a different nature than the other 
activities. The other activities become driven bycase-by-case 
problems that Atlanta cannot build its highways, the governor of 
California is going to face huge restrictions if we list steelhead and, 
so, we jump into those issues with this idea that we should integrate 
environmental, economic and social concerns but it is on a case-by-case 
basis.
    The NEPA reinvention effort is an attempt to get out of the 
fire-fights and understand programmatically and systematically 
how the entire implementation of the Act should be changed. 
That is what we had launched with tremendous public 
participation and that is the program now on a systematic basis 
we have not been able to continue.

                          Other CEQ Priorities

    Mr. Lewis. And does it have a higher priority though than 
activities such as dispute resolution and policy coordination?
    Ms. McGinty. No. I think it has all been equal priority and 
sometimes those other issues of an emergency nature. The 
Atlanta situation, just to harken back to that for a second, we 
got called into that literally days before the Georgia 
Department of Transportation's plan that it had accepted was 
set to expire and either they were going to get these highways 
approved or they were not. And it was almost a 48-hour kind of 
turn-around that we had to respond to.
    So, again, I think these things are of equal priority, it 
is just that the urgent nature of some of the case-by-case 
fire-fights seem to take precedence in terms of where your time 
and attention is.

              Reinvention vs. Resolution and Coordination

    Mr. Lewis. Well, I can understand that but for the record I 
am very interested in getting a more detailed evaluation for 
products that are number one on your list. It does seem to take 
a back seat to some of these other fire-fights that you 
describe and I am interested in whether or not some of the 
dispute resolution and coordination actions listed among your 
program highlights were of higher importance for staff 
assignment and tax dollars and program dollars than 
reinvention.
    Ms. McGinty. Hmm-hmm. Well, I would be happy to go through 
them but whether it is Speaker Gingrich calling on behalf of 
the Salton Sea or actually Speaker Gingrich calling on behalf 
of Atlanta highways, we respond.
    Mr. Lewis. Before we actually follow-on with any more 
detail, let me ask a number of items that relate to kind of a 
bottom line question.
    Ms. McGinty. Please.
    Mr. Lewis. First, you listed only program highlights not 
necessarily everything your office has or hoped to accomplish.
    Ms. McGinty. Yes, sir.
    Mr. Lewis. Second, your offices have not resolved all 
outstanding disputes among the Federal agencies nor have they 
coordinated all of the policy that awaits to be coordinated.
    Third, you have not discovered all the new ways to do 
business that you would like to discover and implement, both at 
CEQ and OEQ----
    Ms. McGinty. Oh, for sure.
    Mr. Lewis [continuing]. As well as other Federal agencies.
    Fourth, that politics plays a very large role in these 
things, if not a majority part, in the choices that your office 
makes in terms of where you put their financial and staffing 
resources. All of that is a part of the decision making 
process.
    In the final analysis, I am interested in knowing, Ms. 
McGinty, is not your decision whether or not to fund NEPA 
reinvention a matter of setting priorities, high priorities, 
both political and national in scope, within the context of 
limited financial resources and the stated goal of the White 
House and the Congress to limit the growth of government?
    Ms. McGinty. Well, as I said, it is a priority and we do 
continue the reinvention effort as best we can. For example, we 
are going to work with FEMA to change their regulation. We have 
worked with the Army, the Air Force, FDA and saved FDA $15 
million in revising theirs.
    But what I would like to be able to support is an effort 
which is not just about our staff doing work but which is a 
very publicly engaged effort, as we previously had launched it 
with universities across the country engaged, with the Western 
governors engaged, but takes a tremendous amount of 
coordination, a tremendous amount of bringing not only the 
agencies together but all kinds of entities across the country 
and that is something that we have not been able to support 
with just having 19 people in addition to all of the other 
responsibilities that we have to carry out on a day-to-day 
basis.

                       FY 1999 Budget Priorities

    Mr. Lewis. In the years that you and I have now have had a 
chance to deal with one another, I have noted that reinvention 
was an item, you know, first for discussion and then a high 
priority and then otherwise, but somewhere along the line the 
squeaky wheel kind of gets in the way of all of that. So, I 
anticipate, I guess, that by the time we are together next year 
we will have done the reinventing and----
    Ms. McGinty. I do not know, sir, that we would be able to 
do the reinvention project because it was not funded in last 
year's budget.
    Mr. Lewis. With a staff of 19, let us put six over there.
    Ms. McGinty. Well, there are other things that we would not 
be able to do.
    Mr. Lewis. No, this is correct, in a shrinking budgetary 
circumstance that is right.
    Ms. McGinty. Including many of the things maybe wehave 
talked about today. And I do want to underscore that every one of these 
initiatives or issues or problems that we take on are, we handle them 
in the spirit that NEPA lays out which is to bring those environmental 
concerns together with economic and social considerations. It is not--
we have worked assiduously to move away from the polarized, black hat, 
white hat kinds of approaches. So, in everything we do, and in some of 
the initial conversations we had, Mr. Chairman, yes, we were talking 
about reinvention, but where CEQ at that time had focused a lot of its 
resources was, for example, in reinventing the way the Endangered 
Species Act is implemented. And the product of that is we now have more 
than 300 habitat conservation plans, voluntary partnerships with 
private industry and State and local government.

                       epa reinvention priorities

    We focused our attention on the problems in some of EPA's 
programs. So, now we have Project XL, the Common Sense 
Initiative, things that are trying to forge different ways to 
get the job done.
    Everything we have done, I would like to think and I 
believe strongly, is about reinvention because I do not believe 
in the polarized kinds of approaches we have had before. I 
genuinely think, I have not a small number of disagreements 
with friends in the environmental community about this, that 
approaches that say that either the environment wins or the 
economy wins is a formula that means no one wins in my 
estimation.
    And certainly as we face the larger environmental 
challenges--climate change, and some of the things of a global 
nature--if we think we are going to meet those challenges with 
these narrow-minded, polarizing kinds of approaches, I think 
that that is short-sighted, indeed.
    Mr. Lewis. Okay.
    Just a comment. The Fiscal Year 1997 NEPA Reinvention work 
was done with a smaller budget than we provided in 1998. It was 
$2.4 million versus $2.5 million.
    Ms. McGinty. Yes, sir, and it was done with the help of 
agency detailees which we were prohibited in our budget from 
continuing last year and we had to fire our NEPA director 
because our budget last year told us we could not have agency 
detailees.
    Mr. Lewis. It is all a matter of priority.
    Ms. McGinty. In all of them, yes.
    Mr. Lewis. And I understand the squeaky wheel is really a 
big problem but, you know, the number one, two and three 
problems in the country that relate to environment and the need 
for coordination kind of somewhere rise to the top. NEPA 
reinvention is among your highest priorities?
    Ms. McGinty. It is one of my highest priorities, that is 
right.
    Mr. Lewis. So, we are just pushing just a little bit.
    Ms. McGinty. I understand, fair enough.
    Mr. Lewis. Mr. Stokes.
    Mr. Stokes. Thank you, Mr. Chairman.
    Well, since, Mr. Chairman, you were nice enough to invite 
Ms. McGinty to be here today I thought I could at least attend 
and once again welcome her before our subcommittee.
    Ms. McGinty. Thank you.
    Mr. Stokes. And I apologize for not being here for your 
formal presentation. As the Chairman said, I am sort of 
shuttling between two subcommittees today trying to do my job 
in both areas.
    I have read your testimony, however, and I do have a couple 
of questions, Mr. Chairman, to pose to Ms. McGinty.
    Mr. Lewis. Sure.

                  climate change technology initiative

    Mr. Stokes. Ms. McGinty, one of the major controversial 
environmental issues will undoubtedly be the Administration's 
Climate Change Technology Initiative. This week's Congressional 
Quarterly has an article entitled, ``Clinton's Global Warming 
Plan Meets a Wall of Opposition.''
    There are several other articles I think that have 
indicated that many businesses are opposed to this initiative. 
The House Ways and Means Chairman appears to be opposed to the 
Administration's proposed tax credit. Some opponents, both in 
Congress and elsewhere, believe that the Administration's 1999 
budget request amounts to an effort to implement the 
international treaty resulting from Kyoto sessions before the 
treaty is even submitted to the Senate for ratification.
    These are just some of the concerns that have come to my 
attention. Can you address some of these issues for us 
indicating what the council's role is and is expected to be 
relative to this whole issue?
    Ms. McGinty. Sure. Thank you, Mr. Stokes.
    And I think your statement quite accurately portrays some 
of the real challenges and concerns there are on all sides 
about the climate change issue. You asked about our role. I co-
chair the policy development process in the White House on 
climate change and my co-chair is Gene Sperling, the 
President's economic policy advisor.

                             goals in kyoto

    What we have tried to set forward is a plan that is built 
on three major pillars. One is to say that we have to have 
realistic and achievable emissions reductions goals. That 
meant, sir, in the international arena we said, no, to folks 
like the European Community who wanted to go much further and 
insist on much more drastic cuts. We said we cannot do that. 
That is not realistic and achievable.
    The upshot of the conference in Kyoto was that we achieved 
the target essentially that the President had laid out.
    The second major pillar was that in moving forward to 
achieve that target, whatever the emissions reduction goal is, 
that we ought to do it in a way that harnesses market forces, 
that gives our industries as much flexibility as possible to 
get the job done in the cheapest way possible.
    We worked hard in the international arena to secure the 
flexibility that we asked for in the treaty. And this, again, 
was in the face of opposition from many countries including the 
European community who wanted to say, no, no flexibility, we 
are going to have an international command and control type of 
approach where everyone agrees to the same measure to implement 
in every country. We said, every country is different. We ought 
to be able to have the opportunity to use as much flexibility 
here domestically and to use partnerships to achieve emissions 
reductions, if it is cheaper to reduce those emissions in 
another country.
    The third pillar was that we needed to secure the 
participation of all countries, including developing countries 
in the effort to reduce greenhouse gas emissions. Now, it is on 
this score, this third score, that while we have gotten 
important tools in the Kyoto treaty to achieve that goal, we 
did not fully achieve it in the Kyoto Protocol. And that is why 
to the other point that you made about ratification, we would 
not proceed towards ratification until and, therefore, would 
not proceed to take on binding obligations here in the United 
States until we more effectively secure the participation of 
key developing countries. And that is what we will be working 
on diplomatically and internationally this year to try to get 
done.

                       kyoto treaty ratification

    Mr. Stokes. So, then the whole question of the President 
submitting the treaty for ratification is highly unpredictable?
    Ms. McGinty. The exact timing of when we would submit the 
treaty for ratification is not certain until we secure that 
participation of the developing countries but what the 
President has said is that in the interim we will not subject 
ourselves to binding obligations of any kind until we secure 
that meaningful participation.
    What we are trying to do in the interim is not to do 
anything that is of a binding nature but to work with industry 
to set up opportunities where industry voluntarily can secure 
or pursue emissions reductions. And before you came in, sir, I 
had mentioned our partnership, for example, with the automobile 
industry where we now have the automobile industry saying 
voluntarily that they can significantly reduce their emissions 
and it is those kinds of approaches we are trying to pursue.

                       superfund reauthorization

    Mr. Stokes. Okay. Let me ask you about another 
controversial environmental issue and that is Superfund 
reauthorization.
    Ms. McGinty. Yes.
    Mr. Stokes. As you know, the program's authorization 
started several years ago. Various attempts since then to 
reauthorize the program have gone nowhere. This subcommittee 
has done the best job it could to fund Superfund but our hands 
have largely been tied. Tell us what has and what is the 
Council doing to get Superfund reauthorized and fulfill the 
promises made by President Clinton in the Kalamazoo Initiative.
    Ms. McGinty. Yes. Thank you.
    Well, our role, again, is we get together with the 
President's economic advisor, I co-chair the Administration's 
effort to put a Superfund proposal and policy together. And 
that resulted several years ago in our submitting legislation 
to the Hill, legislation that was supported by all the major 
chemical companies and large industries as well as people like 
the Sierra Club and environmental groups who really had pulled 
a coalition together.
    Unfortunately, that legislation did not pass on the Hill. 
So, we are still in a place where we have not secured 
reauthorization.
    We are gearing up again this year to try to build on some 
progress that was made last year. In the Senate, Senator Chafee 
and Senator Smith did host some negotiations that we thought 
were productive and we hope will be resumed to the end of 
reauthorizing Superfund.
    But in the meantime, we are working on things like the 
activities you have been very much involved in on Brownfields. 
And, in fact, I visited some Brownfield sites, yes, with your 
staff in your district where we see if we can provide some 
initial start-up funds the ability to bring those properties 
back into productive and healthy economic use is something that 
we have seen as a productive way to bring people together and 
move forward. And, so, there is additional money in the 
President's budget to accomplish that objective, accelerating 
our work on Brownfields and there also is additional money, 
overall, in the President's budget to accelerate Superfund 
clean-ups, as you noted, the President called for in the 
Kalamazoo Initiative.

                              brownfields

    It was very impressive, by the way, the work that was being 
done in your district, bringing back this whole strip of 
properties that had been abandoned.
    Mr. Stokes. I appreciate the fact that you took the time to 
go out and look at what we are doing there. We, too, are very 
proud of what we are doing. Cleveland has been a sort of a 
pilot in the area of Brownfields.
    Ms. McGinty. Yes.
    Mr. Stokes. And, so, I appreciate that.
    Ms. McGinty. One of the things, pardon me----
    Mr. Stokes. Sure, go ahead.
    Ms. McGinty [continuing]. That I think is an important 
piece of this that we learned from the Cleveland experience is 
the importance of having a local partner in doing Brownfields 
because a lot of businesses came and said, all right, we are 
willing to go back and redevelop that Brownfield, but if you 
have got something that is essentially 20 X 20, it is not bit 
enough. We need contiguous pieces of property so that we can 
put our Walmart in or whatever it is. And there we had, with 
your office's assistance, the local zoning authorities working 
with us to put that whole strip of property together which 
businesses said they needed in order to have an economical 
presence, they needed more space.
    That is a critical piece to making the Brownfields work.

                   superfund reauthorization in 1998

    Mr. Stokes. I agree. And I guess my final question under 
this Superfund situation, because it has led to a great deal of 
frustration, I think, on the part of the Chairman, myself and 
others on this subcommittee that we have not been able to get 
reauthorization from the authorizing side.
    Ms. McGinty. Right.
    Mr. Stokes. In your professional opinion, do you see 
reauthorization taking place this year?
    Ms. McGinty. Well, I say honestly that I think it will be 
difficult and for a good reason and for bad. The good reason is 
that in the Senate side, anyway, I think one of the first 
priorities will be the Endangered Species Act reauthorization. 
That will consume the committee for some period of time.
    But the good news is, I think, there is hope there we can 
actually get that done. The bad news is it may mean that 
Superfund does not get taken up until later in the session and 
maybe too late in the session to get it done.
    On the House side, here, just the week before last, I spoke 
with Mr. Boehlert to see what we might be able to do. He was 
going to try to speak with Mr. Bliley and see if there was any 
way that they could come up with a united front on this, if 
there was any hope of that. And we are just not sure where 
those conversations will lead.
    Mr. Stokes. Well, thank you very much, Ms. McGinty. It is 
always a pleasure to have you before us.
    Ms. McGinty. The same, thank you.
    Mr. Stokes. Thank you, Mr. Chairman.
    Mr. Lewis. Mr. Stokes.
    Mr. Knollenberg.
    Mr. Knollenberg. Thank you, Mr. Chairman.
    Ms. McGinty, it is good to see you.
    Ms. McGinty. It is good to see you.
    Mr. Knollenberg. The last time I saw you we were in Kyoto.
    Ms. McGinty. That is right, with dark rings under our eyes.
    Mr. Knollenberg. I know all of you went through a battle 
for several days and I commend you for your durability because 
that was not easy.
    Ms. McGinty. Thank you.

                         three goals for kyoto

    Mr. Knollenberg. I want to talk to you about a couple of 
things. You mentioned there were three basic goals.
    Ms. McGinty. Kyoto, yes.
    Mr. Knollenberg. Yes. and I think you said that in your 
opinion two of those goals have been met in the short-term. 
What do you mean by short-term?
    Ms. McGinty. The first two which have to do with a 
realistic and achievable target and then flexibility, we were 
able to secure in the Kyoto agreement a target that was 
reflective of the President's target rather than the European 
Community.
    And on the flexibility piece, we were able to secure 
agreement on things like emission trading, joint implementation 
and those kinds so initiatives. but the third prong is the 
question of securing the meaningful participation of developing 
countries and there, while we got some tools we can work with 
towards that end, the clean development mechanism, for example, 
the ability of developing countries to opt into the treaty, 
those things were secured but we did not actually get those 
countries to opt in and to sign up and to secure their 
participation.
    Mr. Knollenberg. Well, I am going to address that in just a 
second. In regards to the second goal, developed countries are 
expected to play a large part in reducing emissions. For 
example, the automotive industry will have a large part of this 
burden.
    In fact, unlike the Kyoto agreement that was drafted 
beforehand, we actually signed--I say, we--the signatories 
signed a document that required 7 percent less carbon dioxide 
or emissions that were 7 percent lower than 1990.

                   kyoto treaty and the auto industry

    Now, what this, I think, says is that it puts a tremendous 
burden on the auto industry to meet some of the goal that you 
and others have outlined. For example, I drive a late model Geo 
Prism, 1996, and I get 40 miles to a gallon if I am lucky, 
very, very lucky. For the automotive industry to do their part 
to meet these requirements it looks to me like we are going to 
have to do something in the way of twice the CAFE standard, 
three times the CAFE standard--and with the introduction of the 
hybrid vehicle they are talking about now, which by the way, 
will not hit the roads until the year 2001, I think it puts a 
tremendous amount of weight on the automotive industry. You 
know, the battery powered vehicles have not been exactly hot 
items. Ithink they sold 400 in California and Arizona. There is 
a tax credit, obviously, that is the lure to bring people into that. 
But it just has not been very popular. And my concern is that when, I 
know we are talking about the 3rd goal which pertains to the way, I 
think you know the answer I do not have to ask you, what's China's 
obligation on this whole thing, (Kyoto) it is zero.
    Ms. McGinty. Right.
    Mr. Knollenberg. Brazil is zero, Mexico is zero, India is 
zero. The U.S., of course, has to meet a target well below the 
1990 numbers.
    So, I am trying to find out--one is, these goals that have 
been set to produce cars, it is almost like putting the cart in 
front of the horse, are saying that to do your part, America, 
to do your part automotive industry, you are going to have to 
produce cars that are getting two or three times what they are 
currently getting. Unless there is some breakthrough, some 
monumental breakthrough I do not see that happening.

                             nuclear energy

    You can address it if you will, but the other thing that 
bothers me about Kyoto, and try as I may I could not get 
anybody, anybody to even talk about nuclear. One of the 
problems that is not a problem, in Japan because they can 
practically meet, I believe and you can correct me if I am 
wrong, their targets with their nuclear capacity because they 
are growing their nuclear power as a part of Kyoto. It is up 
over 40 percent and I cannot tell you how many more they are 
building but they continue to build more and more nuclear power 
plants. France is up to 75 percent. Not a problem for them. 
They can literally meet their targets with nuclear power.
    What I did not hear over there and maybe you can speak to 
this, what better power source, of energy than nuclear power? 
And, yet, no one in the Administration, the President has not 
talked about it, we could not get anybody that we talked to in 
our deliberations with all the signatories, the delegates, no 
one wanted to talk about nuclear power. Why?
    Ms. McGinty. Shall I start with that one and work 
backwards?
    Mr. Knollenberg. You sure can.
    Ms. McGinty. On nuclear energy, I mean clearly that is an 
essential part of our fuel mix today and 20 percent or more of 
our energy provided by nuclear energy and hopefully will be for 
more than the foreseeable future. One of the initiatives that 
we have launched in this regard is that in the climate 
initiative that the President has proposed as a part of his 
budget submission to the Congress it calls for a diversified 
energy portfolio, for sure, with additional investments in 
solar energy and renewable energy and things like that, energy 
efficiency.
    But there also is a new initiative on the nuclear side to 
try to extend the life of the nuclear facilities that we have 
currently operating and to look into whether it is 10 years or 
20 years how the life of those facilities could be extended. 
And that is one of the initiatives that is included in the 
President's climate plan.
    Mr. Knollenberg. But just to keep the nuclear plants we 
have right?
    Ms. McGinty. Well, that is the piece that is spoken to in 
the initiative but it is on top of the general investments we 
make in nuclear energy research every year. This is just a new 
initiative inspired by the reality that many of these plants 
are 20, 25 years old at the moment and the reality that for the 
variety of reasons that you perhaps know better than I, we have 
not had new nuclear facilities sited or build since 1978 or 
whatever.
    So, it is just to say that we know that that is a reality. 
Is there any way we can address that specific problem?

                         climate change formula

    To go back to some of the other points that you had made. I 
will start with just a technical point and if it would be 
helpful to you I would provide this in writing for you. But the 
complicated formulas that were talked about in Kyoto, while 
they resulted in a number on paper that says it is 7 percent 
below 1990 levels by the years 2008 to 2012 for the United 
States, when you account for the fact that we have these six 
gases instead of three, and when you account for our 
insistence, which we secured, that SINCS be in there as well, 
the math actually comes out to about a 2 to 3 percent reduction 
from 1990 levels, so, closer to what the President had called 
for which was a flat, meet 1990 levels. And it is a complicated 
formula. I would be happy to provide it for you if you want to 
see.
    Mr. Knollenberg. I would want that.
    [The information follows:]
                         Climate Change Formula
    The 7% target represents at most a 3% real reduction below the 
President's initial proposal of reducing greenhouse gases to 1990 
levels by 2008-2012. The remaining 4 percentage points result from 
certain changes in the way gases and sinks are calculated and do not 
reflect any increase in effort as compared to the President's original 
proposal.
    Changing the baseline for the three synthetic greenhouse gases from 
1990 to 1995 accounts for about 1% of the 7% reduction. Use of these 
three gases has grown since 1990, so that permitting a 1995 baseline 
allows for a higher overall baseline than the Administration assumed 
last October when the President announced his goal of reaching 1990 
levels by 2008-2012. Making reductions to meet a higher baseline is of 
course easier than making reductions to meet a lower baseline. Had the 
United States maintained the same level of effort assumed by the 
President in October, and no other factors had changed, the shift to a 
1995 baseline for the three synthetic gases would, alone, have 
transformed the President's goal of 1990 levels into a goal equivalent 
to 1% below 1990 levels.
    Altering the accounting method of carbon-absorbing activities, such 
as planting trees, accounts for about 3% of the 7% reduction. The 
President's original goal assumed that the 1990 baseline would be 
lowered by carbon-absorbing activities, but under the method agreed in 
Kyoto, such activities do not lower the 1990 baseline. Because the 1990 
level baseline is thus higher under the Kyoto agreement, the U.S. 
target becomes somewhat less stringent. Specifically, had the U.S. 
maintained the same level of effort assumed by the President in 
October, and no other factors had changed, the shift in the accounting 
method for carbon-absorbing activities would, alone, have transformed 
the President's goal of 1990 levels into a goal equivalent to at least 
3% below 1990 levels. (As noted above, certain carbon-absorbing 
activities will count again emission reduction commitments in the 
budget period.)

    Mr. Knollenberg. It is troubling to me that I know about 
the basket of gases and if that does come down to that number 
that is closer to what we had originally expected but it is 
still not on the mark.

              partnership for a new generation of vehicles

    Ms. McGinty. No, no. It is on the order of 2 to 3 percent 
below 1990 levels. The last thing I would say is in response to 
your specific concerns about the automotive industry. As is 
reflected in our testimony, CEQ does chair the effort for the 
Administration on the Partnership For a New Generation of 
Vehicles. And I guess what I wanted to say is that the spirit 
that brought us to that kind of approach rather than continuing 
the battles over the traditional regulatory approaches that had 
been taken in the past, is the spirit we will take with us when 
we think about how the automotive sector can contribute to the 
climate initiative.
    And we were very pleased to actually see in December the 
Big Three able to announce that, as you rightly note, 2001, to 
have production vehicles that achieve 80 miles to the gallon. 
And even today we have an event with the auto manufacturers 
celebrating their commitment to produce now the cleanest cars 
in the world as they have through this 49-State car initiative. 
But the point I just leave with you is that that kind of 
working together in partnership that we have tried to forge 
over the last five years is what we will bring to this issue as 
we move forward on climate, as well.

           partnership for a new generation of vehicles goals

    Mr. Knollenberg. So, I guess I see that program, that 
partnership, almost too optimistic. It is classically 
optimistic and it suggests some things. For example, this 
partnership agreement which you have just discussed said that 
vehicles, within 10 years, they will be three times as fuel 
efficient as today's cars with no loss of performance, no loss 
of amenities, nothing to change the performance or the size or 
the safety.
    Now, that is--this is 1998, so in the year 2008, are we 
talking, 2010?
    Ms. McGinty. Well, this partnership was launched in 1993 so 
the goal is for 2003.
    That is when it would be----
    Mr. Knollenberg. You mean that is when it would start, 
2003?
    Ms. McGinty. Yes, it would start in 2003. And what the 
December announcement was, was the auto makers saying we can 
beat that. We will have your production ready vehicles in 2001 
instead of 2003.
    Mr. Knollenberg. But even in saying that, the automotive 
industry knows, too, that it will not have but a few models in 
the showroom in five years.
    Ms. McGinty. And it takes a long time to penetrate the 
market place.
    Mr. Knollenberg. You have to penetrate the market, you are 
talking about 15 million annual sales in cars and what are you 
going to get? Maybe a pinch. Now, is that really going to get 
you to where you want to go if these targets are legally 
binding and that is what bothers me.
    Ms. McGinty. Yes, sir.
    Mr. Knollenberg. Because legally binding targets say that 
there is every reason to believe that they should reach some 
closure on this that is close to what the estimate is and I 
just have to wonder how we are going to do that.
    Ms. McGinty. I think you are absolutely right in saying 
this is an ambitious target and it is and as the 
environmentalists have said, boy, we sold out and we did not do 
enough. No. This is a very ambitious target, indeed.

                       climate change flexibility

    But the one thing I would say is related to the flexibility 
piece. We said no to some of the European proposals, for 
example, that would have said, your automobiles have to achieve 
X, Y, Z miles to the gallon. We will decide as a nation where 
we can achieve reductions, and where it is going to take longer 
to achieve reductions and try to offer that kind of flexibility 
to get the job done in a way that makes sense. And that might 
mean that it takes longer for the automotive industry to be 
able to have products that sufficiently penetrate the market.
    Mr. Knollenberg. And if I could, Mr. Chairman, one final 
question. Is there a way that we can induce the developing 
countries to come on board? That was the original part of the 
Byrd Amendment insisted in the Senate.
    Ms. McGinty. Insisting on it, yes.
    Mr. Knollenberg. And, in fact, I think it should be 
acceptable to insist that still be the case. So, how do we 
bring them on board?

                     developing countries and kyoto

    Ms. McGinty. Well, first, we agree absolutely with the 
point that the developing countries have to be part of this and 
we would not, as the President said, we will not assume binding 
obligation ourselves until we secure the participation of those 
countries.
    Just a short comment on it, in my mind the job with regard 
to developing countries is in some respects much harder now 
that we are post-Kyoto, in some respects easier now that we are 
post-Kyoto. It is harder post-Kyoto because we do not have the 
pressure of 160 nations coming together all of whom need to 
give something so that a deal, if you will, gets reached. It is 
easier because one of the upshots of Kyoto, as you well know, 
is that the Berlin mandate which said that the developing 
countries do not have to do anything is QED now. Now, the 
Berlin mandate is done and we move on.
    The second reason I think it is a little bit easier is that 
the G-7 is very interesting, always interesting to work with 
but there is an interesting dynamic within the G-7. It is not a 
monolith, as you know. And when you get out of having to deal 
with the G-7, as a whole, and now move forward maybe with one-
on-one diplomacy there are the Koreas, the Mexicos of the world 
who have been much more forthcoming and at least showing some 
degree of interest in participating.
    Mr. Knollenberg. Ms. McGinty, thank you very much.
    Ms. McGinty. Thank you.
    Mr. Knollenberg. Mr.Chairman, thank you.
    Mr. Lewis. Thank you, Mr. Knollenberg.
    The chair has run out of time but before we actually closed 
down this session, I do want you to know that I appreciate your 
responses to Mr. Knollenberg's questions.
    I personally over the years have watched the benefit from 
keeping pressure on Detroit and, at the same time, recognizing 
that we have got very serious work dealing with our 
constituents, the consumers, out there, who when they start to 
revolt our whole program may fall apart as a result of what 
they perceive to be credibility. At the same time, the 
developing world should be a very real part of our target.

                         welcome to mr. bevill

    I want to take just a moment to welcome Tom Bevill to our 
subcommittee who is one of the great members of the House and 
Mr. Bevill, I want to just take a moment to share with those 
who are present one of the really phenomenal items that have 
developed over time as a result of your leadership and work. 
You will recall the proton beam treatment facility that was 
developed in Loma Linde, California, directly as a result of 
your leadership in your subcommittee.
    Mr. Chairman, you will be interested to know that that work 
is truly revolutionary in terms of non-invasive surgery for 
cancer treatment, having fantastic impact upon treatment 
without invasive surgery for small tumors, for prostate cancer, 
and the committee has just moved forward with broadening that 
protocol where serious impact is going to be made on treatment 
of breast cancer in the very near term. It is really an 
phenomenal and revolutionary process that would not have taken 
place without a public and private partnership that you very 
much were at the point of and we appreciate very much the 
results we are seeing there.
    Mr. Bevill. Thank you very much and I am glad that Mr. 
Stokes heard that because he never did give me credit for 
anything. [Laughter.]
    Mr. Stokes. Tom, you spoke too quick. I was just going to 
ask the Chairman to allow me to have a beautiful biomedical 
science building that will be at Case Western Reserve 
University in Ohio thanks to Tom Bevill. [Laughter.]
    Mr. Bevill. These two, I really do not think they have room 
for any more public works projects. [Laughter.]
    Mr. Mollohan. Mr. Chairman, I just wanted to say I am very 
appreciative for my share of Tom Bevill's----
    [Laughter.]
    And if you are expressing thanks, I must do, too.
    Mr. Lewis. Ms. McGinty, Mr. Price has a couple of questions 
and unfortunately the Chair must run down the road for I have 
got a commitment that is very, very serious.
    And we will close down the meeting from there but it has 
been a delight and it is always a delight, Ms. McGinty, and we 
appreciate your responsiveness to our formal questions as well 
as those that have taken place here.
    Ms. McGinty. Thank you.
    Mr. Price [presiding]. Thank you, Mr. Chairman.
    I apologize for my delayed arrival.
    Ms. McGinty, let me just add one question here and if you 
could maybe answer briefly and then supply a fuller answer for 
the record.
    Ms. McGinty. That is fine.

                          pfiesteria research

    Mr. Price. I did not want to raise the question of this 
pfiesteria research because it has been a major environmental 
issue in North Carolina where it was first identified and, of 
course, the Chesapeake Bay region, as well. Could you just tell 
us briefly about the role that CEQ played in following the 
outbreak of pfiesteria last year and what you are doing now to 
address this problem and how this work relates to the Clean 
Water Initiative?
    Ms. McGinty. Well, first I want to thank you for your good 
offices enabling us to conduct the work that we have done on 
this in your backyard at Research Triangle and those 
facilities.
    What CEQ has tried to do is to bring all of them various 
agencies that have a piece of this--EPA, USDA, the Corps of 
Engineers, the Fish and Wildlife Service--there are any number 
of agencies that are doing research, that is research that is 
relevant to this, but to bring that research together so that 
it is focused in a laser beam kind of fashion as best we can on 
trying to figure out some of the answers to the pfiesteria 
problem.

              clean water initiative impact on pfiesteria

    We had moved from just coordinating the research to 
launching now two initiatives that we hope can be part of the 
solution to the problem that has been identified. The first is 
the one that you referred to which is the Clean Water 
initiative and the initiative will represent hopefully when it 
is fully launched a public/private partnership between the 
public side, State and Federal Government, and the private 
side, the agricultural community, farming interests, in a joint 
effort both to reduce nitrogen and phosphorous loading into 
watersheds, and we will set new standards to that end. And also 
a new $570 million set of initiatives to put resources at the 
disposal of, for example, the agricultural community to help us 
get the job done.

            conservation reserve enhancement and pfiesteria

    The second initiative I will just mention very briefly is 
the conservation reserve enhancement program where we most 
recently worked with the State of Maryland at $200 million-odd 
initiative to look at the State as a whole and be able to put 
initiatives in place, again, working with farmers to protect 
all of the critical watersheds which feed into the Chesapeake 
Bay. We are working on similar initiatives with Oregon, 
Washington, Illinois, I believe, and I think Wisconsin, states 
that see the benefit of taking a comprehensive approach to 
these issues, realizing really everything is linked together. 
If we look at the problem as a whole we probably have a better 
chance of solving it.
    Mr. Price. Well, we do have serious research efforts now 
going on in various settings. I think the coordination of that 
is important to make certain that the labor is divided in an 
effective and efficient way.
    Ms. McGinty. Right.
    Mr. Price. And then I think it is important to look at 
these new initiatives so that maximum attention is paid to the 
pfiesteria affected areas participating in these new efforts. 
So, we look forward to working with you on that and we 
appreciate your testimony.
    Ms. McGinty. Thank you. We had the diversity of 
agricultural interests in yesterday and they very much feel 
that we have got some of the seeds here of a very good 
initiative that will help them in the effort they want to 
undertake which is better to protect key watersheds. So, they 
are very much a partner with us.
    Mr. Price. Thank you very much.
    Ms. McGinty. Thank you.
    Mr. Price. With that, we will adjourn the hearing.


[Pages 160 - 242--The official Committee record contains additional material here.]



                                        Tuesday, February 24, 1998.

                 NEIGHBORHOOD REINVESTMENT CORPORATION

                               WITNESSES

GEORGE KNIGHT, EXECUTIVE DIRECTOR
CLARENCE SNUGGS, DEPUTY EXECUTIVE DIRECTOR/TREASURER
MARY LEE WIDENER, PRESIDENT, NEIGHBORHOOD HOUSING SERVICES OF AMERICA, 
    INC., [NHSA]
ROY DAVIS, DIRECTOR, FINANCE, ADMINISTRATION TRAINING, HUMAN RESOURCES 
    & RESEARCH
JULIA HUNTER GALDO, DIRECTOR, COMMUNICATIONS AND INFORMATION SERVICES
MARGARET KELLY, DIRECTOR, FIELD OPERATIONS
CARLOS PORRATA, DIRECTOR, INFORMATION TECHNOLOGY, PROGRAM REVIEW & 
    INTERNAL CONSULTING
JEFFREY BRYSON, GENERAL COUNSEL

                           Opening Statements

    Mr. Lewis. The meeting comes to order. It is my pleasure to 
bring this meeting to order to welcome one of my favorite 
Federal organizations who delivers services in ways that if we 
would do it across the government, we would all be better off.
    I wanted to mention at the beginning of this hearing for 
the record, Mr. Knight, that I know that you are aware that 
Neighborhood Reinvestment has, among other things, become an 
active partner in the House that Congress Built and our efforts 
to try to symbolize the values of making homes available to 
working Americans across the country.
    Just this last weekend, we kicked off the Houses that 
Congress Built in the West by a groundbreaking in Apple Valley, 
California, where neighbors are coming together. In that 
process, a total of $60,000 was presented for the partnership 
that is taking place in this relatively small community; very, 
very exciting stuff.
    Now, I must tell you that that day the Lord wasn't exactly 
with us. The wind was blowing at 50 miles an hour, and it was 
about 40 degrees, and people talked longer than they should, 
but, nonetheless, the partnership was working.
    Today, we welcome George Knight from the Neighborhood 
Reinvestment Corporation to testify before the Subcommittee on 
the matter of the NRC's fiscal year 1999 budget request. The 
NRC is an organization that does just what it sets out to do, 
providing affordable housing options for low income families 
and helping us all rebuild neighborhoods.
    The NRC is a true, good investment for the American 
taxpayer. From the appropriations they receive, the NRC 
leverages those dollars and many more from the private sector. 
For example, in 1997, Congress appropriated $49.9 million to 
Neighborhood Reinvestment. With that appropriations, the NRC 
brought in investments of $544 million, a ratio of 11 private 
dollars to one public dollar.
    Besides helping people into homes, the work of the NRC has 
a positive ripple effect on the neighborhoods in which they 
participate. Block by block, new home owners and newly 
renovated homes revitalize communities. As a community becomes 
stronger, the tax base increases and attracts more private 
investment.
    While the NRC's accomplishments are high, their operating 
expenses and FTE numbers remain low. Operating expenses shown 
in 1998 to the 1999 core budget represent only a nine percent 
increase, and FTEs increased by five. The NRC seeks $90 million 
in 1999; $65 million for the core program and $25 million for a 
new home ownership pilot.
    Mr. Knight, I look forward to your testimony today and to 
hear more about the accomplishments of the NRC and what you 
have planned for the future. If you would introduce your guests 
who are with us, friends of the family, we would appreciate it.

                     Mr. Knight's Opening Statement

    Mr. Knight. Thank you for your kind remarks. I believe you 
remember Roy Davis, who is our Director of Finance; Jeff 
Bryson, who is our General Counsel; our Controller, Allan 
Martin; Margaret Kelly, who is Director of Field Operations and 
responsible for all of our field work; Mary Lee Widener, who is 
President of Neighborhood Housing Services of America, a 
critical ingredient to our work; and actually a special treat, 
her board chair, Dan Dixon, is in the back corner hiding--
Senior Executive of World Savings--who as a volunteer serves as 
the board chair of NHSA; and Julia Galdo, our Communications 
Director; and a brand new face--Hugh Guest, our Deputy last 
year who you knew retired during the year, and this is Clarence 
Snuggs's second day on the job.
    Mr. Lewis. That is why you are not smiling, Clarence.
    Mr. Knight. It is good to have him. He brings a wonderful 
background and was the Chairman-Elect of the Baltimore 
Neighborhood Housing Services after a 20-year history with 
Maryland National Bank; and Carlos Porrata, our Technology 
Chief.
    Mr. Lewis. Carlos, welcome.
    Mr. Knight. Mr. Chairman, I am delighted to be here and 
appreciate deeply your support and comments and the committee's 
support of the NeighborWorks' network over the years 
and Neighborhood Reinvestment. As you pointed out----
    Mr. Lewis. Before you start, George, Valerie tells me that 
one more time if we don't recognize Mr. Stokes, he may really 
be unhappy with her, and rarely is he unhappy with her.
    Mr. Stokes. Well, I am not going to ever be unhappy with 
Valerie.
    Mr. Lewis. Louis Stokes, as you all know, is my Chairman, 
and it is my pleasure to recognize him for any comments he 
might have.

                     Mr. Stokes' Opening Statement

    Mr. Stokes. Thank you very much, Mr. Chairman. I would 
appreciate the opportunity to just make a brief statement. I 
would like to join you, Mr. Chairman, in welcoming Mr. Knight 
and all of his colleagues to our subcommittee this morning.
    While there are many Federal programs involved in housing 
and urban development, the Neighborhood Reinvestment 
Corporation occupies a special and important niche. The 
Corporation's focus is on mobilizing public and private 
resources to bring back deteriorating neighborhoods or to 
prevent them from deteriorating in the first place. It operates 
with small scale local affiliates and seeks to use modest 
public funding to leverage larger amounts of private 
investment.
    The work of Neighborhood Housing Services of Cleveland 
provides a good illustration of the achievements of your 
network of organizations. From January 1, 1993, to June 30 of 
1997 the Cleveland organization was able to leverage grants of 
$434,612 from the Neighborhood Reinvestment Corporation to a 
total investment of $6,513,900, a healthy 12-to-1 ratio. And 
this kind of ability to leverage other public and private 
capital is one of the keys to the success of the 
NeighborWorks' concept.
    I understand further that the Neighborhood Reinvestment 
Corporation recently completed a five-year campaign to increase 
home ownership among low-income people, and the success of the 
campaign has surpassed the goals set forth. I want to 
congratulate all of you on that success. I look forward to 
hearing more about that campaign and your plans for a follow-on 
effort, as well as about the rest of your budget proposal. And 
with that, I look forward, Mr. Knight, to your testimony this 
morning.
    Mr. Knight. Thank you.
    Mr. Lewis. With that, George, you are on. Go right ahead.
    Mr. Knight. Well, given your comments on the Houses that 
Congress Built, I think the last time Mr. Stokes and I were 
together, we were in T-shirts in southeast----
    Mr. Stokes. That is right.
    Mr. Knight [continuing]. Putting some nails into one of 
those houses.
    Mr. Stokes. I was leaning upon my chairman for leadership 
in how to put those nails in.
    Mr. Lewis. You know, I just might interrupt by saying that 
one of the things I have never forgotten and never will forget 
was Louis Stokes coming to the microphone that day and saying 
that this was the most fantastic experience that he had ever 
had in terms of community cooperation. I had the same 
impression, but it was really an inspiration.
    Mr. Stokes. It really was. It really was a great occasion.
    Mr. Lewis. Go ahead. Sorry, George.

                     Mr. Knight's Opening Statement

    Mr. Knight. 1997, as you have remarked, was a banner year, 
and I thought in preparing these remarks it would be a fair 
question for you to ask me, in 1997 an additional $10 million 
was appropriated and what did we get for it?
    Mr. Lewis. Right.

         Neighborhood reinvestment corporation accomplishments

    Mr. Knight. And I am pleased to tell you that you have 
already reported the headlines, if you will, that the 177 
NeighborWorks organizations increased their direct and indirect 
lending by $124 million. It was about a 29 percent increase.
    They substantially improved--created new--put homeowners in 
11,257 units. That was a 22 percent increase. And they worked 
on their clean-up and fix-up efforts--they paint and repair 
homes--on a minor basis at 10,700 units, and that was, I 
believe, a 57 percent increase.
    Mary Lee and the secondary market had their second highest 
year ever in terms of purchasing $37.5 million worth of loans. 
And, as you know, the NeighborWorks' organizations 
themselves own mutual housing units and affordable rental 
units, and that base expanded from a little more than 13,000 to 
a little more than 15,000, about a 13 percent increase.
    Training increased by 10 percent. We added five additional 
programs. A hundred new communities were served through the 
existing network, and we joined the modern age by coming live 
on the World Wide Web.
    I think the base that was laid in 1997 is one we are 
building on now. Many of the funds that went into the revolving 
loan funds will be lent and relent through NHSA's process. The 
training--the 3,000 plus folks who were trained--those skills 
don't go away. They stay serving their communities. And we 
think the electronic age will provide a great vehicle for 
getting more information out to more people in a very cost-
effective way. So I want to thank you for your support in 1997.

                      Campaign for Home Ownership

    As Mr. Stokes mentioned, the Campaign for Home Ownership 
ended December 31. It had begun five years earlier with a drop 
in interest rates, a rise in employment. A group of 20 
innovative programs came together and said, you know, we would 
really like to capitalize on a proven strategy for neighborhood 
revitalization, home ownership, and they set ambitious goals.
    They set a goal of 10,000 new homeowners. They, at the 
time, were doing less than 1,000 units, annually. We have ended 
up putting 14,000 families into home ownership. Eleven percent 
of those families earn less than $15,000, and remarkably five 
percent of those families earn less than $10,000. They set a 
goal of investing $650 million in their neighborhoods. It 
turned out to be an underestimate by a lot. It turned out to be 
closer to a billion dollars.
    But, most importantly, they set out to serve people who 
were renters in their neighborhood, who looked like the 
families of their neighborhood, and on that goal they achieved 
a tremendous success. Ninety-five percent are first-time 
buyers. Seventy percent of them are low or very low income.
    Sixty-one percent are minority. Forty-two percent are 
female heads of household, and 37 percent of these folks are 
paying less or just a little bit more to own than they had been 
paying to rent. So we were very delighted with this outcome.
    We learned the lessons--the tried and true lesson that if 
you own something and you have the pride of paying back your 
mortgage, you have a larger sense of control and influence in 
your neighborhood, and you exercise that. We learned that 
capital is available, lots of private capital is available. It 
can be mixed and used to reach people who otherwise you might 
not think could be reached if you used some innovation and some 
nonconventional capital.
    We learned the full-cycle approach. Time with people up 
front during the process and afterwards is really critical to 
having them stay in the home. And, most importantly, we learned 
that these clients are good risks. The delinquency rates on 
them are tracking about a point and a half above conventional 
and about three points below VA-FHA. So while the book is 
young, we think this is a good indication of the future.
    As the campaign came to an end, a number of our private 
partners and many NeighborWorks' organizations which 
had grown from 20 to over 100; said we have got to do it again. 
And last September, individuals such as Leland Brensel, 
Chairman, Freddie Mac and Rhonda Woodward from Allstate and 
Barry Zigas from Fannie Mae challenged the network to triple 
its goals, to put on a campaign through the year 2002.
    And they have set goals--preliminary goals of 25,000 new 
homeowners and about $1.8 billion in investment. It will be 
launched formally on May 5, and I would invite each and every 
one of you to come and join us on that day.

                        Community Revitalization

    But revitalization, as you know, is much, much more than 
just home ownership. Many, many of our homes are reaching that 
certain age. Forty-two percent nationally are more than 40 
years old, and in central cities, it rises to more than 54 
percent. We have got to continue the effort to rehabilitate 
those homes, to work with existing homeowners, to make those 
also places of pride in the neighborhood.
    Community revitalization, as you well know, means building 
social capital, creating opportunities, assets, and hope. It 
also means deploying the financial resources of loans and new 
construction and insurance products. We are proud that for 20 
years the network has been doing that, and now we are 
experiencing a large set of requests to expand it.
    We have NeighborWorks' organizations that are 
expanding from their city operations out into the inner 
suburbs. We have got organizations that are being requested to 
serve towns that lie hundreds of miles from where they serve--a 
long way from their base of operations. And we have many, many 
organizations who are not currently affiliated with the network 
who want to become a NeighborWorks organization.

                         Computer System Needs

    I would have to tell you that the conventional lending 
industry, as you know, is undergoing a computer revolution. In 
'95, probably there were almost no computer automated 
originations. And by the time we finish the refinance boom in 
'98, it may be 75 percent. We have got to bring the 
neighborhood based groups up in their computer skills to be 
able to participate in this, or their neighborhoods will be 
left behind. With that, I look forward to your questions, and 
thank you once again for your support and encouragement.
    [The information follows:]


[Pages 249 - 256--The official Committee record contains additional material here.]



    Mr. Lewis. Thank you very much, Mr. Knight. As you can see, 
my Committee is being very responsive to those programs at 
work. And because of the turnout this morning, I would like to 
have my colleagues begin to participate as early as possible. 
So let me turn for initial questions to my colleague, Mr. 
Stokes.

               neighborworks' in inner cities

    Mr. Stokes. Thank you very much, Mr. Chairman. Mr. Knight, 
it might be helpful to the Committee if you might sort of just 
briefly describe for us the kinds of things that a 
NeighborWorks' organization does to assist an inner 
city neighborhood faced with deteriorating housing and a 
growing number of vacant units. Just give us an idea of how 
their function works.
    Mr. Knight. The basics are simple, and the operation is all 
local, and the strategies are all set locally. But the basics 
are to create a partnership between the residents of that 
community and the private sector and the public sector; to have 
every group have a set of funds--revolving loan fund--that they 
can use to extend credit to any (responsible family who owns a 
home or wants to own a home) to make that home be a place of 
pride in the neighborhood; to work with their neighbors to 
organize other activities that may be needed and locally 
designed to change that neighborhood, whether it is working 
with the youth to turn them from a negative to a positive 
force, whether it is dealing with crime, clean up, fix up, 
whatever it takes--certainly Habitat, Christmas in April, those 
kinds of activities. Those are the basics.
    How it is carried out locally is determined locally, set 
locally, and the strategies vary. In your community, as you 
know, two years ago, one of the neighborhoods was afflicted 
with a huge number of vacants, and so the Cleveland NHS 
purchased a number of them and conducted an auction so that on 
a single day I think it was 20 plus units were purchased with 
the confidence that it wasn't just me purchasing but my 
neighbors were all purchasing together. We were all going to 
take care of the vacants in this small area. Frankly, that 
couldn't have been done without first the local effort and 
second the (line of credit) extended by NHSA. Because this was 
a risky, innovative approach they would not have found a lender 
willing to do it. And so NHSA's $600,000--I can't remember----
    Ms. Widener. $650,000 line of credit for 25 units.
    Mr. Knight. I knew Mary would know the numbers--helped make 
the difference.
    Ms. Widener. And all 25 units have been rehabilitated. So 
the first thing is 25 vacant units are now 25 solid units owned 
or to be owned by the homeowners.
    Mr. Stokes. By new homeowners?
    Ms. Widener. Yes.

           neighborhood reinvestment corporation filling gaps

    Mr. Stokes. Are there other ways in which you have filled 
the gaps that are left open by the manner in which the private 
sector and government agencies operate home ownership?
    Mr. Knight. Well, there are a lot of gaps, and multifamily 
is one gap. But on home ownership specifically, the first five-
year campaign showed us that for every dollar available in 
downpayment assistance and closing cost assistance and second 
mortgages, there were about $12 in conventional first 
mortgages. And that $12 of conventional firsts really to some 
extent only flows because you have the $1.
    As you move down the income scale and you get down to those 
families I mentioned earlier, who earn below $10,000 annually, 
and five percent of the purchasers were below $10,000, you need 
a little more on the second mortgage side to make a first 
mortgage work.
    For every dollar in the second capital, there is $6--$6.30 
in conventional first mortgage money. If you think of the cost 
of subsidizing someone at $10,000 over a long term in a rental 
apartment versus helping them purchase a home, we think home 
ownership has a lot of other benefits as well. And still of the 
$7 spent, you are only putting up $1. $6 is coming through the 
conventional sector.
    So I am not sure whether that is a gap. It wouldn't exist 
if you didn't have both parties. You couldn't take $7 in public 
funds and achieve very much. I mean, you could but you would 
have only 14 percent of the total. If you add those $6 from the 
private sector, you expand your pie and your impact by a whole 
lot. So I guess that is filling a gap. It is achieving a whole 
lot that otherwise just wouldn't be done.

               neighborworks' risk mitigation

    Mr. Stokes. Mr. Chairman, I am just going to pose one more 
question, and then I will yield back because you do have a 
number of members present today, and I know you want to give 
them a chance to participate. Mr. Knight, your budget 
justifications include some very impressive statistics. 
Regarding the amount of private-sector funding that you and 
your affiliates are able to leverage; tell us what makes this 
possible, and, in particular, what is it about the involvement 
of a NeighborWorks organization that makes investment more 
attractive to private lenders?
    Mr. Knight. Well, not to sound too much like a banker, Mr. 
Stokes, but basically it mitigates risk. The NeighborWorks 
organization mitigates risk. It mitigates risks by providing 
seconds, by providing quality counseling to the purchaser, by 
providing quality rehab counseling to the family if they are 
undergoing rehab, and being able to deal with the other issues 
in the neighborhood; the lack of insurance, a vacant lot next 
door that needs to be taken care of. It mitigates those risks, 
and that makes it attractive for a private lender or insurer or 
other financial source to risk their capital.
    Ms. Widener. I would like to add to that answer----
    Mr. Stokes. Sure.
    Ms. Widener [continuing]. By saying that clearly one of the 
types of private investment that would not occur is the 
investments in the secondary market program, which have 
represented more than $250 million of capital that is at a 
below market rate. These investments serve unconventional 
special purpose credit needs that wouldn't meet normal credit 
standards in any event.
    And in addition to the fact that the 
NeighborWorks' organization is there and represents 
in itself a credit enhancement, the support of this committee, 
of the Neighborhood Reinvestment Corporation, has made it 
feasible for us to provide credit enhancements and facilitate 
the use of that social investment money in a manner that makes 
the investors comfortable. So they feel it is efficient.
    They are able to serve, actually back, over 500 communities 
by making a single investment in NHSA. That is very efficient; 
and in addition they have our operational expertise, as well as 
the loan loss reserves and credit enhancement reserves that 
make them comfortable that their investments will be repaid as 
promised. And over a 20-year history, thathas been the case.
    Mr. Knight. If you want to electrify a crowd, Rhonda 
Woodward, Senior Vice President of Allstate and Board Member of 
NHSA stood up last as September part of the celebration of the 
end of the campaign committed $100 million of NHSA purchases. 
And Allstate, for public good reasons, not under CRA or 
anything, has been a long-term investor in NHSA. These funds 
are secured by seconds and firsts that otherwise don't meet 
conventional standards.
    Mr. Stokes. Thank you very much. Thank you, Mr. Chairman.
    Mr. Lewis. Thank you, Mr. Stokes. Mr. Wicker.
    Mr. Wicker. Thank you, Mr. Chairman. And, Mr. Knight, I too 
was out at Southeast when we were wearing T-shirts and driving 
nails. It was a wonderful experience, and I am glad to have 
been a part of it. We are planning to do that at several 
locations this year in my congressional district.
    Mr. Knight. Terrific.

                 nrc and the house that congress built

    Mr. Wicker. Specifically, what was your agency's role? I 
know that several governmental entities were there that day, 
but what did the Neighborhood Reinvestment Corporation do for 
that project that----
    Mr. Knight. On that particular day?
    Mr. Wicker. Well, throughout the----
    Mr. Knight. Well, not judging the competence of some of our 
staff who were there driving nails, including myself by all 
means----
    Mr. Wicker. Most of us were amateurs on that.
    Mr. Knight. We provided the film crew that documented that 
day, and working with the Habitat folks recorded the event on 
film. And so in terms of that particular day, that is what we 
committed. We serve on the steering committee and are working 
under Habitat's guidance on the whole roll-out of this effort 
across the country.
    This is a natural fit for us, if you will. Many, many, many 
NeighborWorks' organizations and Habitat chapters 
already work hand-in-glove and have for a long, long time, so 
that this comes quite naturally.
    Mr. Wicker. I see. You didn't expend any funds on that 
particular project other than to help publicize it around the 
nation. Is that correct?
    Mr. Knight. We shot some footage. We shot some film, and we 
have dedicated some staff energy, including the weekend----
    Mr. Wicker. I am just trying to understand----
    Mr. Knight [continuing]. Saturday.
    Mr. Wicker. Fine. I am just trying to understand your 
agency's role in that time line. I noticed on page three of 
your testimony you list lessons learned, and they are all 
positive. What mistakes were made? What things don't work? Can 
you give us any insight there, or was everything positive?

                           full-cycle lending

    Mr. Knight. Yes. I put mistakes in a positive way. We 
certainly learned that families need what we call full-cycle 
lending. If you counsel a family up to a certain point, 
particularly a first generation buyer--and by first generation 
buyer, I mean somebody whose family--who grew up in a household 
that they did not own--if you counsel them just up to the 
closing point on the mortgage, you really have missed 
something. And so we found very early on that you really have 
to stick with that family through the first six months or year 
of owning, providing continued budget counseling.
    When you purchase a home, if any of you have done recently, 
you know you are flooded by every credit extending offer in the 
world--furniture dealers, credit card dealers, everything. So 
helping that family through that first six months or year when 
they are in, we learned that that is critical. You must do 
that.
    Mr. Lewis. 125 percent of equity is the case.
    Mr. Wicker. Right.
    Mr. Lewis. The minute you own----
    Mr. Knight. Well, we are very conservative. I mean, the 
front-end ratio in most cases is 20 or 25 percent. These are 
very low-income families. They don't have much room for error. 
So that was clearly a lesson learned.
    Secondly, a lesson learned was that home maintenance 
tasks--if you have been a renter your whole life, you are used 
to picking up the phone and calling for the repair. As a 
homeowner, we all know if we have ever called in a plumber, 
that it can be an extremely expensive lesson if you don't know 
how to change those washers. And so early on, we found families 
in trouble and we realized some of those maintenance things 
they haven't adjusted to. So many organizations now run home-
maintenance training.
    And the third lesson which we will apply big time to the 
second campaign is creating what we call a home ownership 
center, that is a one-stop place where families can come, not 
only the families being helped by the campaign, but any 
family--an existing owner, a middle income owner can come and 
find out about insurance or maintenance or how to finance or 
how to refinance a home.
    And this grew out of experiences in Vermont, a rural state 
that was struggling to reach out into far corners and pockets 
that weren't so easy to reach, and help families who may be in 
early delinquency trouble and do it in a setting that is 
nonpunitive; do it in a setting where they can explore the 
realistic options for themselves. So we plan to set up a lot of 
home ownership centers.
    Mr. Lewis. Thank you, Mr. Wicker.
    Ms. Widener. Could I answer----
    Mr. Lewis. Sure. Please.

                          mistakes and lessons

    Ms. Widener [continuing]. In relation to what mistakes were 
made--because I think that is a fair question. And I would like 
to acknowledge on the secondary market side that we 
underestimated. We really underestimated the pace of activity 
that the programs would experience and realized that we must 
raise money one to two years out so that we can have a 
certainty of funds available for the groups so that there are 
not programmatic starts and stops. We didn't realize that when 
we showed an interruption of funds it really jangled the groups 
across the network, and we don't want that to happen again.
    Mr. Lewis. Okay.
    Mr. Knight. The campaign took off so successfully in fiscal 
year '95, the sales of the secondary market hit $52 million. 
And we had to close the window in December, and that was a huge 
jar across the network. And then as you know, last year it was 
about $18 million as we rebuilt reserves, and that is why we 
are so excited this year to be back to $37.5 million.
    Mr. Lewis. Yes. Very, very good.
    Mr. Knight. Yes. That is good. Thank you, Mary.
    Mr. Lewis. Very good testimony. Thank you. Ms. Meek.
    Mrs. Meek. Thank you very much; good to see all of you 
again.
    Mr. Knight. It is good to see you again.

                     nrc's low administrative costs

    Mrs. Meek. It appears to me as I look at your budget that 
success hasn't spoiled you in that you are operating your FTEs 
almost as low as they were when you were making this money. I 
am looking at your sheet----
    Mr. Knight. That is correct.
    Mrs. Meek [continuing]. On sources of all funds. Explain 
that to me.
    Mr. Knight. Well, I am cheap? No.
    Mr. Wicker. Or you could say, ``I am terrific.''
    Mr. Knight. No, I can't say that. Yes. The action is at the 
local level, and so we are really trying to get as much of our 
funding out at the local level as we can. I would have to say 
particularly since Margaret Kelly, our Director of Field 
Operations, is sitting right behind me with a sharp object in 
her hand, that we do have to add some staff.
    The growth of activity has really put a strain on us, and 
so we really do need at this level of activity grow. Otherwise, 
I think, unfortunately, I could find myself back here telling 
you that we were having some disasters that we didn't know 
about because we weren't ahead of them and we weren't watching. 
And I don't want to ever be in that position with you or the 
committee. We think the funds at the local level is where you 
get the spin and the impact.

                      local support and local need

    Mrs. Meek. All right. That leads to my second question. 
What happens when you have local affiliates who are very well 
conducted and very well run--I happen to have one in Miami--and 
the needs of the community are overwhelming, but they aren't 
able to raise the money that they used to raise?
    When I was in the Senate years ago, my Neighborhood Housing 
Service was able to raise a lot of money from the banks and 
from the people in the community. That well is running dry now. 
So what does your corporation do when you find those kinds of 
situations? What kind of disposition do you make, if you do 
make any?
    Mr. Knight. Well, philosophically, we have never felt that 
we should be in a position of being the continuing funder of an 
organization, that if it is not locally supported, then there 
is a real question there. But we recognize that from time to 
time the economy has changed, the state law has changed, 
circumstances change and organizations run into rough spots.
    And so we do assist organizations through those rough 
spots. But it usually means we sit down with the organization 
and try and analyze what had happened before, what is happening 
now, what can the future hold. As you know, the last time I 
think you and I were together in your state was announcing the 
effort following Hurricane Andrew to reach the many people who 
did not have insurance and were struggling and to put funds in 
there.
    And that was, I think, very successful in reaching people 
who otherwise probably would have lost their homes. Actually, a 
lot of people ended up purchasing homes out of that. But times 
have changed since then, and so we would work with an 
organization to analyze what is going on now and what are the 
services needed, what is the need in the community.
    These are frail organizations. As the Chairman knows, the 
typical budget--the median budget is only about $440,000. So if 
you have a $50,000 or $100,000 contributor drop out one year, 
that is trouble big time. And so we recognize that, and we do 
work with organizations through those rough spots.
    Mrs. Meek. All right. Thank you. Thank you, Mr. Chairman.

                       house that congress built

    Mr. Lewis. Thank you, Ms. Meek. I wanted to follow up just 
briefly on Mr. Wicker's comment relative to our bill together. 
It might be interesting for all of us to know that as of this 
moment there are 173 members of Congress who have committed to 
participate in the House that Congress Built across the country 
out of 435. We are making very rapid progress. At this table, 
there is--I can only find one exception, and I think it is 
probably because in our rush to move forward, I haven't 
informed that particular individual about this program. But the 
committee is participating very actively as well. I am pleased 
with that and look forward to continued expansion in the 
Congress. Let us see. Let me call on Mr. Frelinghuysen.
    Mr. Frelinghuysen. I think Mr. Mollohan was here first, if 
you don't mind.
    Mr. Lewis. I am not going to call on Mr. Mollohan because 
that is my exception.
    Mr. Frelinghuysen. Mr. Mollohan, I figured that you were 
here earlier. Could you give me just a brief overview as to 
your success in New Jersey?

          neighborhood reinvestment corporation in new jersey

    Mr. Knight. New Jersey is tough and has been tough for us. 
We have worked with the state for a number of years, 
particularly on the multifamily side, to assist in a number of 
communities. But in terms of active organizations in New 
Jersey, I regret to say at this time we are down to two. We are 
working to locate other organizations and work with them.
    Mr. Frelinghuysen. I am not happy to hear about it because 
my general question was, you know, where have you had successes 
and where have you not had success. We have Christmas in April. 
We have a fairly active Habitat. I am working on one. They are 
still trying to get it through the planning board in my town--
get all those neighbors to approve, Mr. Chairman.
    Mr. Knight. Not atypical of your state.
    Mr. Frelinghuysen. We are not alone, with some really 
serious housing problems--a lot of people in need--I think it 
is incumbent that I use whatever you are suggesting to me. It 
is somewhat of a hammer to get better New Jersey participation 
where the state government needs to be active. And even in our 
own corporate world, I mean, many of the main players 
nationally in terms of insurance have some sort of a New Jersey 
headquarters or base. And, you know, it would be pretty 
appalling if they weren't participating in some way. I don't 
know whether you can add anything more to what you said but--
    Mr. Knight. Well, I am sure Margaret Kelly can as our 
Director of Field Operations. Why don't you stand up, Margaret?

                    new organizations in new jersey

    Ms. Kelly. Well, let me just add that we are not yet--have 
not yet been enormously successful in northern New Jersey, 
although we are doing a significant outreach there now, and 
there are some very interesting prospects.
    In addition to the two organizations we currently have, we 
are adding two new affiliates; one in Elizabeth and one in 
Orange. And, interestingly, Fleet Bank has indicated to us that 
they are willing to join hands with us in New Jersey--anyplace 
in their service area. So that gives us an additional leverage 
that we didn't have a year ago. So we are more optimistic than 
perhaps----
    Mr. Frelinghuysen. Well, things are occurring--just to make 
sure that the rest of my colleagues don't think we are a 
backwater. There is a lot of good work being done in terms 
ofproviding low-income housing and assistance in New Jersey. A lot of 
it is church-based.
    And I am thrilled by some of the things that have occurred 
in our largest city, Newark, where they really have grown 
neighborhoods where at one point there was incredible blight 
and desolation. So to have you not there in some presence does 
irritate me, and I will be happy to work with your staff to see 
that you are given whatever access you need and hopefully 
cooperation. Thank you.
    Mr. Knight. Well, New Communities is a terrific 
organization, and I will take you up on your offer. Father 
Linder and I have talked, and it is a question of whether we 
can bring value added. And, frankly, I am not sure that we have 
much to teach them, and they have a lot to teach us and others. 
But there are certainly many parts of your state where I think 
we can bring value added, and that is what we are working on to 
achieve.
    Mr. Frelinghuysen. Well, I will be happy to work with your 
staff in----
    Mr. Knight. Terrific. I will take you up on that.
    Mr. Frelinghuysen [continuing]. Identifying areas where 
your reception will be more warmly taken.
    Mr. Knight. I will take you up on that offer.
    Mr. Frelinghuysen. Thank you. Thank you, Mr. Chairman.
    Ms. Widener. It might be important for you to know that a 
lot of the network dollars are still at work in New Jersey from 
the time that we were very intensively involved. NHSA opened an 
office in Newark, and we led a $200 million drive to get 
special social investment dollars into multifamily housing and 
received a $12.5 million social investment from Prudential, $5 
million of which went into Newark.
    And we even put staff in to do hands-on work to develop 
that. We are still working with those families, and as recently 
as last week, we think we are in legal documents for a new $5 
million commitment from Prudential which will help us to 
continue to work with families in the state.
    So I don't want you to think there hasn't been a presence 
and there isn't a significant presence. It is just that the 
need is so great that when the state pulls back, it makes it 
very hard for us to continue with the fervor that we did in the 
past. And when we did the $200 million of activity, the state 
was the partner with NHSA, providing the operating funds for us 
to raise that money and package those loans.
    Mr. Frelinghuysen. Thank you for giving me the heads up; 
appreciate it. Thank you, Mr. Chairman.

                    examples of local contributions

    Mr. Lewis. Thank you, Mr. Frelinghuysen. I might mention, 
Mr. Frelinghuysen, that by way of participation, the Town of 
Apple Valley was kind enough in our most recent venture out 
there expanding that House that Congress Built, they involved 
themselves to the extent of waiving local permit fees to allow 
their contribution to be understood up front. In the meantime, 
I understand that in Newark the Housing Authority has made 
tremendous strides in terms of their meeting the challenge of 
local needs, and we ought to recognize that for the record.
    Mr. Frelinghuysen. Indeed. Thank you for doing that.
    Mr. Lewis. Mr. Mollohan.
    Mr. Mollohan. Thank you, Mr. Chairman. I sincerely 
appreciate the opportunity to even be here today, but I also 
appreciate your extending the invitation to me in this forum, 
which gives me an opportunity to publicly accept your 
invitation. I would be very pleased to participate in the 
program.
    Mr. Wicker. There may be no housing needs in West Virginia.
    Mr. Mollohan. Well, the Neighborhood Reinvestment 
Corporation is doing a great job in addressing some of those, 
which we greatly appreciate, and I want to congratulate Mr. 
Knight on your accomplishments during this last year. I know 
that is why the Subcommittee has, as the members have 
expressed, a lot of support for your programs and your efforts. 
We certainly appreciate it in West Virginia.

                        nrc technical assistance

    Representing mostly what we consider the rural country, in 
addition to your supplying capital need, you all supply a lot 
of good technical advice and support and hands-on help. I would 
like for you to address how you are going to continue that or 
increase it to complement the capital availability that you 
have described here and that exists in this coming year, 
particularly in rural areas? But generally do you have 
initiatives to expand your ability to provide technical 
assistance to communities?
    Mr. Knight. Yes. I think that providing technical 
assistance is one of the critical components to making capital 
work. So we will continue to do that and--
    Mr. Mollohan. Is that part of a strategic plan for this 
year?
    Mr. Knight. Absolutely.
    Mr. Mollohan. Describe it a little bit for us, if you will.

               technical assistance in rural communities

    Mr. Knight. In most situations, as we were talking about, 
an organization seeks assistance, we put out a catalog in the 
spring that asks organizations to tell us their needs, 
including their technical assistance needs, in addition to 
capital and secondary market needs.
    One of the things that we found most effective in the rural 
communities, because they are different in some ways than 
heavily urban communities, is peer assistance. And so several 
years back, we organized a rural alliance among all the rural 
Neighbor-Works' organizations. They get together, 
and this year we will pull all of them together.
    As you know, in your state there are so many small 
organizations that are served through the statewide group. We 
also hold a separate training statewide in your state, and in a 
couple of other states where this is the case, to provide 
information. Out of those meetings we follow up with particular 
consultants or assistance that the local group identifies and 
needs. I understand with your leadership there is finally 
control of that one large building--the white monster on----
    Mr. Mollohan. You found that in Fairmont?
    Mr. Knight. Yes, in Fairmont.
    Mr. Mollohan. Yes. We are moving in the right direction on 
this program.
    Mr. Knight. It has been a long, long, slow----
    Mr. Mollohan. Well, it has but I think that organization 
has really gotten a good base built, both financial and 
technical base. And if we step out in the direction of the 
original mission, I feel good about it, and I think they are 
really poised to move forward. The rural 
NeighborWorks' alliance program--update us on the 
progress a little bit more on that.
    Mr. Knight. Doing very well. We capitalized a peer-to-peer 
lending fund, and I am pleased to report that the Fannie Mae 
Foundation has put in $250,000 into that fund.And there are 
several other requests out to foundations for like sums of money.
    They, in Mr. Wicker's tradition, had the learning 
experience of one of their early loans go in default, and out 
of that I think they became much stronger at evaluating 
requests because peer-to-peer lending can be very effective 
when people hold each other's feet to the fire. When this first 
loan, fortunately, it was very small, went under, and it cost 
them all money it sharpened their underwriting and their 
evaluation process. And it is going very well. I expect by this 
time next year that maybe they may have grown from 14 or 15 
groups to over 20 groups.

                      home ownership pilot program

    Mr. Mollohan. And, finally, Mr. Chairman, you are 
requesting $25 million for the home-ownership pilot program----
    Mr. Knight. Yes.
    Mr. Mollohan [continuing]. And you are estimating that that 
will generate about 10,000 new ownerships?
    Mr. Knight. We believe that is correct.
    Mr. Mollohan. Can you discuss that a little bit in terms of 
how it might benefit rural areas?
    Mr. Knight. Well, as I mentioned earlier, one of the 
exciting learnings out of the first campaign was this ability 
to reach families below $15,000. And lower incomes tend to be 
frequent in rural areas. Small towns tend to have folks at 
lower incomes, so we think that these learnings will be 
enormously valuable going forward in rural areas.
    The funds, if the Committee is so disposed, and I 
acknowledge your difficult budget balancing question, would be 
principally used for the most difficult pieces; on one side, 
the financial side, are second mortgages and downpayment 
closing assistance, and on the other side loan counselors.
    And this is where we are very excited with some of the 
recent breakthroughs in rural areas such as Great Falls. The 
executive director of Great Falls recently began to reach out 
to one of the rural clusters. They cluster their counties in 
Montana in seven rural clusters.
    And it has gone so well that the state is now asking them 
to expand from the one cluster to all seven clusters. Having 
access to the downpayment assistance fund and a loan counselor 
in each of those will make all the difference in the world 
because the lending capital is there, but increasingly it is 
only accessible over a phone line or computer lines.

                    definition of the pilot program

    Mr. Mollohan. Well, let me ask you a question. In what 
sense is this a pilot program?
    Mr. Knight. I think it is a pilot--anytime you have----
    Mr. Mollohan. You are standing it up. You are just starting 
to stand it up?
    Mr. Knight. You are just starting to----
    Mr. Mollohan. A pilot program to me suggests that you are 
going around, and you are going to identify--kind of 
prototyping areas so that you get an experience in different 
circumstances that allow you if it is successful in the next 
year to expand the program into a full-blown program. Is that 
fair? Is that your intention, and, if so, what areas are you 
identifying to conduct your pilots?
    Mr. Knight. Pilot is a tough word in terms of whether it is 
a brand new pilot or----
    Mr. Mollohan. Well, you chose it here so----
    Mr. Knight. Yes. There will be some brand new things. They 
will come out of the network. They will teach us lessons, and 
we will spread those. I can't identify them now because they 
are going to be brand new. But we are going to take some things 
that we are just seeing glimpses of that we think will work, 
like the home-ownership center that I discussed earlier. We 
think that will work.
    We don't really know so we are going to try that in a 
number of places. We don't really know whether the systems that 
have been built to reach the very low-income people can be 
thickened enough to be adopted and taken over by other 
organizations and other people. We view ourselves as sort of a 
large pilot. We don't see meeting the needs of the entire 
United States in terms of home ownership, but we do see 
demonstrating projects and ideas that can be taken over and 
used more widely.
    Let me give you an example from the first campaign. We 
devised with Freddie and Fannie on a mortgage product. It was 
cutting edge in 1993. It is commonplace today. We think that is 
a terrific way to pilot activities out into the broader world, 
and we think by concentrating on 10,000 families over a two-
year period, there will be a lot of those kinds of things.

                           goals of new pilot

    Ms. Kelly. George, can I just jump in in response to--out 
of order? I think what is really wonderful about this pilot is 
in the last five years in the campaign we had the opportunity 
to build infrastructure in our network. What we now have is an 
infrastructure that is established and is sound and gives us a 
chance to take this to various markets, to various locales, to 
test things like automated underwriting, which is going to be 
the next scale that our network needs to reach, and to give us 
a chance to see one-stop shopping at home-ownership centers.
    We now currently have only two home-ownership centers. Part 
of our goal is to make sure we have 25 home-ownership centers. 
So it is giving us a chance to really use the momentum that we 
built in the first five years to really test some of the 
strategies much more broadly in the range of markets. So in 
that sense, I think we do view it as a pilot program.
    Mr. Mollohan. Thank you, Mr. Chairman.
    Mr. Lewis. Mr. Price.

                      role of the secondary market

    Mr. Price. Thank you, Mr. Chairman. Welcome, Mr. Knight; 
glad to have you and your colleagues here. First, I want to 
thank you for your assistance last year. I know you worked with 
my staff in drafting what ultimately became the Secondary 
Market Demonstration Program that we added to the HOME budget. 
Your input was very valuable on that, and we do appreciate your 
help. And we will look forward to hearing your views on how we 
are going with the implementation of that program once it moves 
forward within HUD.
    Of course, you have lots of experience in promoting the 
growth of a national secondary loan market through your 
Neighborhood Housing Services of America, as you call it. I 
wonder if you could briefly describe exactly how that secondary 
market operation works, perhaps with particular reference to 
your level of activity and your funding needs?
    Mr. Knight. Let me start and then I would be remiss if I 
didn't have the president of the secondary market describe it. 
It is premised on the NeighborWorks' network making 
loans to families tailored to their ability to pay, so that 
these loans are unconventional in the sense that this family 
hasnot been able to get credit elsewhere.
    They have credit extended to them on terms that are figured 
backward, if you will. If they can afford to pay $75 a month, 
and you figure backward to four percent or seven percent or 
whatever, and the terms are set locally, the underwriting is 
all local.
    Given that, the secondary market, because it is serving 
this unusual population and was premised on Neighborhood 
Reinvestment's covering the administrative costs, seeks private 
sector capital to invest in NHSA notes. And that is, if you 
will, stripped to its bones, the essence of the secondary 
market. Mary Lee.
    Ms. Widener. Adding the detail on the types of dollars, the 
key to all of this is the willingness of social investors to 
invest at the magnitude needed to convince the network that we 
are going to be there. And so large numbers such as the $100 
million that you heard from Allstate are becoming important. 
World Savings represented by Dan Dixon, our chairman here, has 
already exceeded an investment of $100 million into the 
secondary market program.
    So the first point is adequate levels of social investment 
funds. But to draw those funds down, we have to have reserves. 
Our board requires a minimum of eight percent in reserve funds 
to back those social investments, and then in addition to that, 
loan loss reserves and adequate operating capital to meet the 
servicing requirements of a growing portfolio.
    Mr. Price. And that is where the public funds come in?
    Ms. Widener. Yes. And that is where the public funds come 
in.

             neighborhood reinvestment corporation capacity

    Mr. Price. What level of activity in terms of the numbers 
of loans purchased have you been able to engage in, and are you 
operating at capacity as far as you are concerned?
    Ms. Widener. I don't see us operating at our capacity. We 
try to stay out ahead of our capacity in terms of staff and 
infrastructure. But we are now averaging $36 million a year, 
and last year was at $37.5 million. We are anticipating 
reaching $42.5 million this year. And we see the direction of 
the network rising--the activity rising at such a level that we 
are preparing our board of directors and trustees to support a 
$50 million to $60 million a year activity level.
    And we don't see the resources available from the 
Neighborhood Reinvestment Corporation on the public fund side 
in adequate amounts to support that. So we are working very 
hard to supplement those funds through the Affordable Housing 
Program of the Federal Home Loan Banks, which is an important 
additional resource to the community development field.
    But that source of funds, I really should alert all of you 
because I think you would want to know, is uncertain because 
the nature of what we do is considered revolving loan fund-type 
activity. And the finance board is considering whether or not 
they want the Affordable Housing Program to continue to support 
revolving loan fund-type activity.
    So we see ourselves with a major challenge this year to 
convince them that it has been a good thing in the past, and we 
hope that they will continue because in order for us to reach 
$50 million and $60 million levels, you know, the subsidy has 
to come from somewhere.

                            loan performance

    Mr. Price. What kind of data do you have on the performance 
of these loans?
    Ms. Widener. Oh, lots.
    Mr. Price. Can you quickly generalize?
    Mr. Knight. Yes. On the seconds, the loans must be 
repurchased by the local--by the originating organization if 
they go delinquent for 90 days. And last year, that 
substitution rate was 2.3 percent, which means that 2.3 percent 
of all of the seconds that they hold went 90 days delinquent 
and went back. On the firsts, I think it has been much, much 
lower than that, and I----
    Ms. Widener. I would say the average--our delinquency on 
the total portfolio is running at about three percent. And I am 
sorry I didn't break out, you know, where that is exactly, but 
we----
    Mr. Knight. With multifamily being the highest.
    Ms. Widener. Right.
    Mr. Knight. That is the major contributor to the 
delinquency.
    Mr. Price. Well, I know our time is limited here. I wonder 
if you could just quickly indicate the lessons we are learning 
from this and how widely applicable they might be? I assume 
that what you are doing with this program is not only providing 
direct access to loans for low-income buyers directly, but also 
providing a demonstration that this can work on a broader 
scale.
    Mr. Knight. We believe so.

                        reasons for low default

    Mr. Price. How do you account for the successes that you 
have enjoyed in terms of the low default rates and so forth, 
and also what is the potential of this kind of program to be 
picked up by other agencies and other organizations?
    Ms. Widener. You know, I really would like all of the 
supports that back that low delinquency rate with NHSA to be 
fully recognized, meaning that in every local community there 
is the NeighborWorks' organization. There is the 
Neighborhood Reinvestment Corporation that does the training 
and technical assistance, monitoring, oversight. There is the 
strong volunteer board made up of residents and lenders and 
local government officials----
    Mr. Price. Counseling programs in most places?
    Ms. Widener. Counseling programs and the governance. There 
is huge infrastructure that requires private support, as well 
as public support, to keep those families in those homes. 
Because if the loans were just left to normal, conventional 
patterns, the families wouldn't have the support, and the 
delinquency rates would be higher.
    So I really don't want to mislead anyone that this 
represents lending that the private sector could have done, and 
it all would have been fine. There are a lot of supports there, 
and we see those supports as essential. But that activity 
strengthens the whole neighborhood and then lets the 
conventional lending that could flourish flourish in ways that 
couldn't happen otherwise.
    Mr. Price. Thank you. Thank you, Mr. Chairman.
    Mr. Lewis. Thank you very much, Mr. Price.
    Mr. Knight. We would be delighted to share with you any and 
all information that we have and assist in whatever way.
    Mr. Price. Good. I am particularly interested in where we 
go from here, having demonstrated the feasibility of this kind 
of program, what its possible applications are with other 
agencies, other areas of activity.
    Mr. Lewis. I certainly wouldn't want this moment to go by 
without our emphasizing a very special element of all of this; 
that is the special sacrifices that families seem to be willing 
to commit themselves to when it comes to 
individualhomeownership. Infrastructure is very, very important, but 
there is a spirit here that is pretty special.
    Ms. Widener. Absolutely. You are absolutely right. And I 
think that spirit is nourished because they know their 
neighbors are with them. You know, they are given the 
psychological support to make the investment and take the 
chance. And I think we fully recognize that for almost every 
family--I mean, they are throwing the dice for their life 
savings.
    I mean, they get one shot, and to take that one chance in a 
neighborhood that isn't perfect--far less than perfect--is 
taking a big chance. So their neighbors have to be there. These 
programs have to be there to support them, and that, I think, 
helps them to have the enormous commitment and make the 
enormous sacrifices they do have to make. It is a sacrifice. 
You are absolutely right.
    Mr. Lewis. Mr. Mollohan, I wanted you to be aware of the 
fact that not everything is perfect at the table, and that our 
information sources, you know, ebb and flow. We are attempting 
to communicate to all of our colleagues. I do intend to have a 
similar discussion with Mr. Walsh's staff that we will follow 
through on after this meeting. But, in the meantime--Mr. Walsh?
    Mr. Mollohan. Well, misery loves company, Mr. Chairman, so 
I appreciate your bringing Mr. Walsh into this.
    Mr. Lewis. He doesn't know what I am talking about, but 
that is fine.
    Mr. Mollohan. That is all right.
    Mr. Lewis. Mr. Walsh.
    Mr. Walsh. I was preparing my questions. I am afraid I 
missed something very important.
    Mr. Mollohan. Be very careful here today.
    Mr. Walsh. Would you restate----
    Mr. Lewis. That is all right. Please proceed.

            success of neighborhood reinvestment corporation

    Mr. Walsh. All right. Well, I won't commit to anything at 
this point. And I just agree with all of my colleagues in 
congratulating you all for the fine job and important job that 
you are doing for your testimony and for the program that I, as 
a former city councilman--district councilman representing a 
certain quadrant of the city--had a very close working 
relationship with Syracuse Model Neighborhood Corporation, 
Syracuse Neighborhood Housing Services, and witnessed and 
participated in the work that they did, and it is essential.
    The key to any neighborhood's intrinsic strength is the 
percent of homeownership. The higher the percent of 
homeownership, the stronger the neighborhood. It is an absolute 
golden rule. And what those programs do--and I love the way you 
summed it up, Ms. Widener--you know, people are--when you buy a 
house, you stretch as far as you can, and you roll the dice, 
and you want to make it as secure and as sound a decision as 
you can make it for your family.
    And to roll the dice in a neighborhood that is not perfect 
is a good way to say it, but to know that they have the support 
of those organizations--they have their own neighbors who are 
essential to organizing these organizations. I really admire 
what you do.
    And the statistics, looking at the profile of the people 
that you work with, reminded me of something. First of all, 61 
percent are minorities. You know, that is so important because 
for so many years minorities just haven't had that opportunity 
because of varying cultural factors, and so that is essential. 
Ninety-five percent first-time homebuyers. That is your market, 
and you are meeting the market.
    The thing that struck me was 37 percent are paying less or 
only marginally more for homeownership than they paid for rent. 
That is what I remember about the programs, and I remember 
there was a huge housing development that was going in within a 
mile of where Syracuse Neighborhood Housing Services was doing 
its work.
    And they--we were qualifying people for homeownership who 
had lower incomes than people who were qualifying for 
subsidized housing. And it just always struck me how important 
it is that we reach out, working with banks and insurance 
companies, to do this sort of work. You know, my city is very 
important to me, and the more homeowners we can provide, the 
better. I am sure you don't like to hear all of this, but I 
just thought I would say it anyway.
    Ms. Widener. We love hearing it.
    Mr. Lewis. They love hearing it.

           neighborhood reinvestment corporation's obstacles

    Mr. Walsh. Just a couple of questions. And you were just in 
Syracuse, and you organized a tour. And I had staff come up, 
and they said it was a good opportunity for them. What is your 
biggest obstacle to this sort of work in cities across the 
country? And apparently you do it in rural areas too. I am more 
familiar with what you do in the cities. What is the biggest 
obstacle?
    Mr. Knight. Our biggest obstacle--Ms. Meek pointed out 
earlier--is just that we have 220 staff and limited resources, 
and it is tough to get to all the places we would like to get 
to. The biggest obstacle I think for the local organization is 
also, frankly, the funds for the downpayment assistance, the 
second mortgage money, and to find strong staff people. Your 
city has been blessed in stable leadership with Tom Francis and 
his crew for a long----
    Mr. Walsh. Tom was there when I was a city councilman.
    Mr. Knight. I think he founded the city but----
    Mr. Walsh. He is taking good care of it, whether he founded 
it or not.
    Mr. Knight. That is a real blessing for it. Because this is 
a long-term effort, you have got to hang in and stick at it and 
go at it because you don't always get the critical issues dealt 
with in the first year or two. Sometimes it takes building up 
to them. So I think that those are the principal limitations at 
this point.

                    funding the home ownership pilot

    Mr. Walsh. Addressing that, I saw there was an increase 
requested by the President for your budget of is it 10 million?
    Mr. Knight. 10,000 new homeowners. The dollars would be 25 
million.
    Mr. Walsh. Okay. So the----
    Mr. Knight. Spread over two years. Yes.
    Mr. Walsh. Okay. And how would those funds be put to use?
    Mr. Knight. Well, we would put 92 percent of them out as 
grants to existing or new organizations that we were working 
with. And we would use the rest to provide technical assistance 
to have a handful of people be able to make sure those dollars 
were used well.
    Mr. Walsh. The banks that you work with----
    Mr. Knight. A few of those dollars would go to NHSA 
reserves but----
    Ms. Widener. Absolutely.
    Mr. Walsh. Okay. The banks that you work with, are there 
banks in certain parts of the country, in certain cities who 
are more creative and willing to work with you than others, and 
are there programs that you have developed in those cities that 
could be used in models in other cities?

                           bank participation

    Mr. Knight. I would have to say wherever the banking, which 
right now is everywhere--wherever the banking structures are 
stable, where, you know, you don't have banks in financial 
trouble, they are willing and able partners and excited to work 
with us. The degrees of creativity that they will go to is just 
amazing.
    Mary earlier mentioned Fleet. Fleet is not atypical of an 
institution that was initially operating a small area, now a 
large geographical area. They are an investor in NHSA. They are 
a contributor to local budgets, and they added a new wrinkle 
last year.
    They have extended lines of credit--$100,000 lines of 
credit to individual organizations to enable them to make the 
second off the line of credit, season it for a number of 
months, and then sell the second to NHSA, where it is backed by 
their buying a security.
    This was an incredibly complex deal to put together with 21 
organizations and a bank that was in the process of acquiring 
other banks. They have operated for--it was announced in 
August, six months, and they recently indicated it is going so 
well for them that they are willing to double their 
commitments.
    So on the private side, I can't tell you how wonderful the 
partnership is, and folks are really willing to do those kinds 
of things. It is a question of taking the time to structure it, 
to make it work, to make it happen in a very responsible 
manner.
    One of our heritages in many places that we have to 
overcome is the sense of giveaway and not pay back, and you 
have got to really come in and work with folks and say, no, 
these are funds that are available to this community to use for 
all time. Use them wisely. Lend them, capture them back, reuse 
them, reinvest them.

                        operating budget funding

    Ms. Widener. Another major obstacle I would like the record 
to show very clearly for the network is certainty of operating 
budget funds. They are very hard to raise, and the Neighborhood 
Reinvestment grand funds don't go right into operating budget. 
As you well know, that has been a principle over the years. The 
operating budgets are raised locally.
    And so we have worked to see what we could do at a national 
level to help bring certainty to that; working to see whether 
or not there could be any kind of pattern of fees that they 
might get in relation to activity. But basically the operating 
budget issue is a very hard issue.
    Mr. Walsh. I don't know what the prohibition would be, but 
would CDBG funds be available?
    Mr. Knight. It frequently is used that way. Private funds 
are often used that way. Typically, the budgets are put 
together between private contributions, increasingly earned 
income through the fees or if they own property, and then 
public funds.

                                  fha

    Mr. Walsh. My last question is one of the things that you 
see when you take a tour like we had last week is a boarded-up 
FHA foreclosure. How do you relate with FHA, and how do their 
policies and procedures affect what you do?
    Mr. Knight. We work at the national level, but then we work 
also locally with FHA wherever there is foreclosed property and 
try and get ahold of them, recapture them, pull them back into 
the community. Valuation of foreclosed property with whoever 
owns foreclosed property is always a challenge.
    Valuation of foreclosed property is almost inevitably in 
the eye of the owner higher than in the eye of the buyer. That 
is not new economic ground. But that is the nub of the question 
often in acquiring it. And then when you are working with a 
large organization, imeliness is a major issue.
    I would say thank you for extending your city to us last 
week. It was very exciting, Mr. Chairman. They created what I 
would describe as a homegrown homeownership center, and they 
were reporting their results. And for the first just 18 months, 
they have worked with 173 first-time buyers. Nineteen banks are 
lendering. And the average income was $24,000. It is sort of 
interesting. They are tracking the real estate commissions, and 
it was $520,000, and attorney fees for closing at $130,000. So 
it was a very impressive presentation of how everybody wins.
    Mr. Walsh. We have had a very depressed housing market----
    Mr. Knight. Yes, you have.
    Mr. Walsh [continuing]. In the Northeast; in particular, in 
upstate New York. It is starting to change now, but with rates 
low, property value is low. It is time to strike because as 
soon as those people make that investment, they are going to 
start to get a return on it. Thank you very much.
    Mr. Knight. I have not seen South Salina for probably six 
or seven years, and it has really made considerable progress.
    Mr. Walsh. Yes.
    Mr. Lewis. Thank you, Mr. Walsh. Mr. Hobson.

      neighborhood reinvestment corporation and small communities

    Mr. Hobson. I just have three questions. I am an old real 
estate guy so it is nice to see your program doing well. 
Homeownership is, valuable in every community. Do you have any 
criteria on the size of the towns? Because the largest town I 
have in my district, Springfield, is about 65-70,000. And I 
don't think (the Neighborhood Reinvestment Corp.) program is 
there.
    Mr. Knight. There isn't that I can recall in your area. No, 
we have no criteria in size of towns. They range from very 
rural spaces to lots of middle-size towns, to the larger towns.
    Mr. Hobson. Because the housing stock is going down in a 
community like Springfield, and we need a program like that. So 
I would be interested in knowing how to get it going there; 
that is, when you get the time. I have two other questions, and 
one of them the Chairman says----
    Mr. Lewis. I am interested in hearing him respond to that.
    Mr. Knight. There was for many years an affiliate in 
Springfield. They ran into----
    Mr. Hobson. They had some problems.
    Mr. Knight. They ran into very hard times and went out of 
existence. And so we would be delighted to work with you in 
looking at Springfield. I have some very fond memories. At the 
time, I was one of the most junior members of the organization 
and spent many terrific nights in Springfield as a field 
service officer and really enjoyed it.
    Mr. Hobson. I am glad to hear somebody did.
    Mr. Knight. It is terrific.
    Mr. Hobson. Good. Well, it didn't have a very good history 
there at the time, and, I think, with what you are doing now, 
it could have a better history.
    Mr. Knight. I would hope so.
    Mr. Hobson. Because our housing stock is in need of some 
help, and this would help, especially in older communities. 
Probably a lot like Syracuse in the way that it is an old 
industrial base. And, we sit near some large, major centers 
like Dayton and Columbus who tend to have all the things, and 
so some people will migrate out, and what is left is very 
difficult to deal with. So, I would like to see you come back 
in and try again.
    Mr. Knight. It was a very difficult situation. They had 
tremendous support from both the city and the residents and the 
lenders, and there was, as I recall, two unfortunate hires in a 
row.
    Mr. Hobson. Right.
    Mr. Knight. And we----
    Mr. Hobson. Well, I am going through that with another 
program right now.
    Mr. Knight. We have learned some things on that front since 
then but----

               neighborhood reinvestment corporation rent

    Mr. Hobson. Well, I think it would be a good place to come 
back, and we would like to work with you. The other thing is I 
would like to talk about rent for your facilities. It is a 
question we have been asking for a couple of years to try to 
get agencies' office rents in line. Mr. Lewis seems to think 
that you guys might have a positive statement. Do you want to 
make a statement about the rent for your facilities?
    Mr. Knight. Well, Roy can get the historical numbers. I 
believe five years ago it was about $1.6 million for the year, 
and I believe if you look this year, it is about $1.77 million, 
including extensive renovations over the last year in our 
office space. I think we have held our rent quite flat over 
time.
    Mr. Hobson. Who is your landlord?
    Mr. Knight. Well, we have many landlords because we have 
nine district offices scattered throughout the country and----
    Mr. Hobson. Do you rent in the private sector? Is it with 
the GSA?
    Mr. Knight. No. It is almost all the private sector. We are 
in a lot of B quality space across the country, and it serves 
us quite well, although we got evicted in Boston. I can't 
remember what the----
    Mr. Hobson. Not for nonpayment of rent?
    Mr. Knight. No. We weren't holding our rental costs down 
that way, although that would be tempting at times.
    Mr. Davis. A few years ago, recognizing rent costs were 
going up, we decided, at least in our Washington office, to 
extend our lease at a very good rate. And we consolidated some 
of our spaces here, which reduce our rental about $100,000 a 
year.
    Mr. Hobson. Good.
    Mr. Knight. I underlined the two relevant dates, from '93 
to '98. Obviously, if we added staff next year, our rental 
costs would go up.
    Mr. Hobson. Well, one of the messages that we want to send 
to agencies--and, obviously, some people have gotten it here--
is that you can negotiate on rent, and you should negotiate on 
rent. Some of these rents have been atrocious. Obviously, you 
have done a better job, and we want to congratulate you and 
hope that other agencies are getting the message out there that 
this is the kind of thing that the committee is going to 
evaluate.
    Mr. Knight. Well, if we could get a cut on reduced 
negotiating skills, maybe I could lend Roy to some folks that 
have much bigger budgets and raise some funds.
    Mr. Hobson. Congratulations. That is good foresight too.
    Mr. Lewis. I think it should be said that we do encourage 
looking at the marketplace. Mr. Hobson has been very much in 
the middle of this, but, Roy, the B location sometimes serves 
just as well and recognizing that the more dollars that are 
shipped across the street and go to the people we are trying to 
assist in those communities, the better.
    Mr. Knight. We are half a block off Metro Center.
    Mr. Hobson. Yes. Well, we found some rents that are just 
atrocious at some of these agencies, and nobody looked at the 
problem. The money should be going back in the program, not in 
the rent.
    Mr. Knight. Absolutely.

                         YEAR 2000 PREPARATION

    Mr. Hobson. And not necessarily to landlords in high rent 
areas where nobody cares. And so I think that is an important 
message to send. The other question I started asking agencies 
is about the year 2000 computer hardware programs, do you 
anticipate a problem? And if you do, how are you going to 
address it, and how much is it going to cost you? Because that 
is going to be a big problem for a lot of agencies, and I am 
starting to ask this so that agencies start thinking about it. 
It usually takes a couple of years for a message to begin to 
sink into these agencies, but hopefully you will be out front 
on this matter.
    Mr. Knight. Well, I believe we are. I wonder if you have 
been talking with Acting FDIC Chairman Hove, who is our Audit 
Committee chairman. Our Audit Committee has been very focused 
on this for the last couple of years. We, I don't believe, have 
any problem, although we are going to complete an extensive 
testing program this spring. All of our software is 
contemporary software. We had to go through several years back 
a complete redo of our financial system. We bought a package 
that is on the market. We use principally industry product, 
Microsoft Word Access, Solomon software----
    Mr. Hobson. But a lot of those programs that were 
commercially available have problems that somebody has got to 
look at.
    Mr. Knight. We understand and we are going to do a testing 
program of all of our software. We have recently--we had been 
in the Stone Ages. We upgraded starting about a year and a half 
ago, and all of our software is quite, quite new. So we are 
checking. We are being careful. Our Audit Committee has 
required it, and I will give the Committee the results of the 
test.
    Mr. Hobson. I think we need to know the results because you 
can expect us to be asking this question again.
    Mr. Davis. I just want to add, George, that when we 
upgraded the software, we did get certification from the 
manufacturers that it did meet the 2000 criteria.
    Mr. Lewis. The new millennia standard.
    Mr. Davis. We are going to do some testing this fall to 
make sure--I mean, this spring to make sure.
    Mr. Hobson. Okay. Will you let us know----
    Mr. Knight. Yes, absolutely. We will send the Committee the 
report as soon as we receive it and our committee looks it 
over.
    Mr. Lewis. George, the expression of interest on the part 
of the Committee of your work is a compliment, not to be taken 
otherwise. We have a number of questions for the record. It 
will allow us to get to some of those questions that you were 
interested in making sure on the record, Mary Lee. Knowing 
where the dollars come from and making sure they get out there 
to where people are being served is most important to us.
    I would hope that as you respond to those questions, Mr. 
Knight, that we will look specifically at those areas that we 
discussed last year that relate to critical mass, to make sure, 
assuming that we are able to meet some of the challenges of 
your budget request, that we are able to multiply those dollars 
in a similar leveraged fashion that have been demonstrated by 
your past activities. But from there, I do have questions for 
the record. I will submit them and hope that you will respond 
in writing.
    Mr. Knight. Thank you. We certainly will. I should 
acknowledge that while we were discussing, one of the members 
of our board of directors, Chairman D'Amours, came in the room, 
and I want to acknowledge his stewardship of the corporation 
from a board point of view.
    Mr. Lewis. The reason we are moving this along is because 
he is up next.
    Mr. Knight. I don't want to stand in the way of a board 
member.
    Mr. Lewis. It was good to be with you. Thank you very much.
    Mr. Knight. You could ask him about our training. He 
recently participated in our training in Atlanta.
    Mr. Lewis. We will let him respond in his time, but he has 
got to use it carefully. Thank you for being with us.
    Mr. Knight. Thank you.


[Pages 278 - 471--The official Committee record contains additional material here.]



                                        Tuesday, February 24, 1998.

                  NATIONAL CREDIT UNION ADMINISTRATION

                               WITNESSES

NORMAN E. D'AMOURS, CHAIRMAN, THE NATIONAL CREDIT UNION ADMINISTRATION
STEVE AUSTIN, DIRECTOR, DIVISION OF SUPERVISION, OFFICE OF EXAMINATION 
    AND INSURANCE
HERBERT S. YOLLES, PRESIDENT, CENTRAL LIQUIDITY FACILITY
JAMES J. ENGEL, DEPUTY GENERAL COUNSEL
WILLIAM C. POLING, BUDGET OFFICER

                           Opening Statements

    Mr. Lewis. It is my pleasure today to recognize Mr. Norm 
D'Amours, Chairman of the National Credit Union Administration. 
I am also pleased to welcome colleagues from beautiful downtown 
Redlands, among them Maurice Calderon who--you know, I don't 
have constituents often, Maurice, but this is a living, 
breathing constituent, very important. A dear friend from my 
district, he is the Senior Vice President of the Arrowhead 
Credit Union in San Bernardino, California. He is accompanied 
by--I haven't seen Larry. There is Larry. Accompanied by Larry 
Sharp and Marie Conzo.
    Ms. Alonzo. Alonzo.
    Mr. Lewis. Alonzo.
    Ms. Alonzo. Yes.
    Mr. Lewis. Somebody printed that in. I didn't. It looked 
like an H.
    Ms. Alonzo. I have been called a lot of things.
    Mr. Lewis. I would like to extend my very best wishes to 
all of you and appreciate your being with us today. It is a 
very important time of our committee and to have you with us is 
special to me.
    Mr. D'Amours, the budget request for the NCUA consists of a 
limitation of new loans of up to $6 million and a limitation on 
administrative expenses of $177,000. The limitation on 
administrative expenses is a reduction of 26 million and is due 
in large part to streamlining the Central Liquidity Fund, the 
CLF. This is the second year that administrative costs have 
decreased at CLF. We would like to thank you and your staff for 
those efforts.
    Today there are several issues the Subcommittee plans to 
explore with you, including the Community Development Revolving 
Loan Program, the maximum CLF loan authority and a field of 
membership questions, one of which could very well be before 
the court today, I understand.
    As you know, Mr. D'Amours, you may summarize your 
testimony. We will, however, include it in entirety in the 
record. And the membership, I know, has questions for you. So 
please proceed.
    Mr. Stokes. Mr. Chairman, I would just like to take a 
moment and explain to your constituents from San Bernardino 
County how fortunate they are to have a chairman of your 
stature and esteem, a person for whom all of us on the 
Subcommittee enjoy serving under his leadership. And it is just 
an honor to have you here with us today. And you should be 
very, very proud of this gentleman because those of us who 
serve with him in this body are extremely proud to serve with 
him.
    Mr. Lewis. Thank you, Louis.
    Mr. Stokes. Thank you. I mean that.
    Mr. Lewis. Now all of you will understand why I was so 
disappointed that Mr. Stokes has indicated he is not going to 
be standing for re-election next year. There are more reasons 
than just one.
    Mr. Stokes. But I also want to take a moment, Mr. Chairman, 
to welcome back before us one of our former colleagues, Mr. 
Norm D'Amours, with whom I have served. During the ten-year 
period that he served here, I served with him all that time, 
and he has done an outstanding job in the capacity in which he 
is now serving. It is always a pleasure to welcome him back to 
our committee.
    Mr. D'Amours. Thank you, Congressman.
    Mr. Stokes. Mr. Chairman.

                    Mr. D'Amours' Opening Statement

    Mr. D'Amours. Chairman Lewis and Ranking Member Stokes and 
members of this committee, I thank you for the opportunity to 
appear here before you, and I will briefly summarize my 
testimony, a good part of which you gave in your introduction, 
Mr. Chairman.
    Mr. Lewis. You don't have to mention it. We wouldn't want 
to put it on the record, but you should at least let people 
know that we have even discussed these questions in the gym.
    Mr. D'Amours. That is true.
    Mr. Lewis. It wasn't lobbying. It was just light 
discussion.
    Mr. D'Amours. If I may, I will avoid that. I would like to 
say it is a pleasure appearing before you, Mr. Chairman, 
because you have been truly a stalwart of the credit union 
issues and credit unionism. And I appreciate that very much. 
You have been a supporter of NCUA, of the industry and have 
been very gracious in your dealing with us in your official 
capacity.
    And if I may, I would just like to say this is the last 
time I am going to appear before Mr. Stokes. And he is one of--
I know everybody in this committee will agree--one of the class 
acts in this venerable body. And we are going to miss having 
him on this committee, working with him. And I would just like 
to take this opportunity, Mr. Ranking Member Stokes, to say it 
has been good working with you.
    Mr. Stokes. Thank you very much.
    Mr. D'Amours. I am pleased to be here today to present the 
National Credit Union Administration's request for funding 
limits, as you have said, Mr. Chairman, on the NCUA Central 
Liquidity Facility. Appearing with me today are Herb Yolles, 
the President of the Central Liquidity Facility; Jim Engel, our 
Deputy General Counsel; Steve Austin, Director of Supervision 
in our Office of Examinationand Insurance; and William Poling 
to my far right, our Budget Officer.

                    central liquidity facility (clf)

    And as you know, the Central Liquidity Facility is a 
liquidity source for credit unions. And it is funded by members 
and may borrow from the Federal Financing Bank, although no 
such borrowing has occurred in the past year. And as you also 
know, Mr. Chairman, NCUA is not requesting an appropriation for 
the CLF, merely a limit on the CLF's borrowing authority. The 
loan limit has remained at $600 million for the past 18 years. 
The budget submitted by the OMB requests a $600 million limit 
on borrowing and a $177,000 limit on administrative 
expenditures for Fiscal Year 1999.
    And I am pleased to report, as you have just said, that we 
continue to streamline the CLF at NCUA, and that has resulted 
in cost savings for credit unions. Our Fiscal Year 1997 
expenses were $174,000, significantly below the budget 
limitation you gave us then of $203,000. And our Fiscal Year 
1996 expenses are $346,000. So the savings are in relative 
terms significant. Between Fiscal Years 1993 and 1998 our CLF 
expenses declined 76 percent, from $767,000 to $177,000. In 
1997 all of the CLF's net income was returned to member credit 
unions in the form of capital stock dividends.

               community development revolving loan fund

    On another subject that you mentioned, Mr. Chairman, I 
would like to thank you and this subcommittee, the members of 
this subcommittee, for their efforts in providing an additional 
$1 million for the Community Development Revolving Loan Fund in 
Fiscal Year 1998. As you know, the Fund makes loans to low-
income credit unions. Since 1987, when the NCUA began 
administering the fund, we have revolved our $8 million 
appropriation into 125 loans totaling $16.6 million. In 1997 
alone we approved 12 loans to ten credit unions for a total of 
$2.2 million. As of January 31, 1998, our pending applications 
total $1.7 million. We appreciate this subcommittee's support 
of our efforts to provide assistance to these low-income credit 
unions.

               national credit union share insurance fund

    Finally, I would like to briefly summarize the current 
condition of credit unions and the National Credit Union Share 
Insurance Fund, the NCUSIF. Overall, the credit union system 
continues to be in excellent health. Once again, credit unions 
had a banner year in 1997. Their assets and their capital are 
up to record levels and the number of problem credit unions 
remains very low.
    The credit union insurance fund also remains strong. For 
the third consecutive year and the fourth time in its history, 
the National Credit Union Share Insurance Fund returned a 
dividend to credit unions on their deposit in the fund.
    Mr. Chairman, that concludes a summary of my printed 
testimony. I thank you for allowing me to testify. And I will 
be pleased to try to answer any questions.
    [The information follows:]


[Pages 476 - 481--The official Committee record contains additional material here.]



                  clf purpose and borrowing authority

    Mr. Lewis. Thank you, Mr. D'Amours. Your entire statement, 
as I indicated, will be included in the record. And we 
appreciate your summary. Would you, for the record, please 
explain the concept of liquidity in relationship to the assets 
of credit unions and how the $600 million borrowing limitation 
was determined.
    Mr. D'Amours. Well, originally, Mr. Chairman, back in 1981 
when the limit was imposed, the $600 million amounted to about 
one percent of credit union assets. If that proportion were 
maintained, it would require a limitation today of 
approximately $3.2 billion.
    And of course, as you know, the fund works mostly through 
the corporate credit union system so that it provides many 
benefits, one of which is it gives us an early warning of any 
possible problems or liquidity needs or drains occurring in any 
sector of the country. And it is a backup liquidity source 
only. We don't--we haven't used it at all in the past year, but 
there have been periods where significant amounts of liquidity 
were needed, particularly 1995 when we had the failure of a 
corporate credit union.
    It is like an insurance policy. It is important to have a 
significant liquidity source backup in the event of any credit 
union problems, but as I have said earlier, credit unions are 
healthier now than at any time in their history and no such 
problems are anticipated. But it is still good to have a 
backup, a source of liquidity both to serve as an early warning 
to the NCUA and to provide a very quick means of distributing 
liquidity where it might be needed, especially when you 
consider the corporate credit union system has total assets of 
about $51 billion. So this fund is necessary. It is needed.
    Mr. Lewis. You are anticipating and answering some of my 
other questions, but we will get them on the record at any 
rate. When did the borrowing limitation last change?
    Mr. D'Amours. It has never changed.
    Mr. Lewis. It has not changed.
    Mr. D'Amours. It has never changed.
    Mr. Lewis. Is the limitation adequate in light of the 
tremendous growth of the credit union system over the last 17 
years?
    Mr. D'Amours. Well, again, credit unions are healthier now 
than they have been at any time in their history, but I see it 
as an insurance fund, in a sense, a backup liquidity fund. And 
as I just said, there are 37 corporate credit unions which are 
affiliated with the CLF, and many of those have assets 
exceeding $1 billion. And the total of all 37 has assets of $51 
billion.
    Mr. Chairman, the very nature of corporate credit unions as 
wholesale financial institutions makes them subject to 
potential rapid swings in liquidity. A regional economic 
downturn, even of a short duration, could severely impact one 
of the larger corporate credit unions, which could result in a 
demand of more than $600 million from the CLF.

                        past utilization of clf

    Mr. Lewis. You have discussed briefly the expansion of the 
credit unions in terms of their assets. To what extent has the 
borrowing authority been utilized in the past?
    Mr. D'Amours. I think very little, but I think I would let 
the President of the CLF answer that question. Mr. Yolles.
    Mr. Yolles. Thank you. Mr. Chairman, member credit unions 
of the CLF purchase stock as a condition of membership. And 
most of our lending activity is made from the proceeds of those 
stock purchases. So borrowing activity from the CLF has been 
very minimal in recent years. In prior years there was some 
borrowing, but it didn't approach the $600 million limitation. 
But as a cautionary note, I would tell you that we have never 
experienced the type of systemic liquidity problem that was 
envisioned when the CLF was created. And if we were to 
experience that type of a problem, the $600 million would go 
very quickly and probably would interfere with the ability of 
the CLF to function.
    Mr. Lewis. Has the fund been tapped in the last year?
    Mr. Yolles. Our last lending was in 1995, 1994 and 1995, as 
the Chairman mentioned, due to the failure of one of the 
corporate credit unions. Credit union liquidity right now is 
very high. Credit union capital levels are at all-time record 
highs. So quite predictably the CLF, being the backup liquidity 
source, is not doing any lending right now.
    Mr. Lewis. Okay, for the record, what type of problem do 
you envision that would result in the CLF needing to borrow 
more than $600 million for new loans?
    Mr. D'Amours. I think, Mr. Chairman, as I have just said, a 
regional economic downturn could have severe impact on, say, a 
single large corporate credit union. And many of these credit 
unions are at or over a billion dollars in total and the system 
is $51 billion. So under that--although we don't anticipate 
that and although credit unions are one of the healthiest 
financial institution sectors in the country, in terms of its 
backup insurance liquidity, such an economic regional downturn, 
even of a very short duration, could result in more--in a need 
for liquidity that would exceed the $600 million limit. And as 
I said and as you pointed out, Mr. Chairman, that limit has not 
been changed since 1981.

                     need for new borrowing limits

    Mr. Lewis. Right. These questions are to try to touch the 
edges of the caution that you suggest. You indicate that we 
don't anticipate any need for the CLF to borrow more than $600 
million for new loans. Nonetheless, in the current economy do 
you anticipate this extra need for caution?
    Mr. D'Amours. Not because of anything that I can identify 
in our current economy. The last--I think one has to properly 
view the Central Liquidity Facility as it was intended as a 
backup liquidity source. Corporate--I mean credit union capital 
today overall is 11.7 percent.
    Mr. Lewis. Relative to assets?
    Mr. D'Amours. Yes, relative to assets. That is a very high 
level for a financial intermediary. That is a very high level 
of capital, which is available in case of any kind of a 
systemic problem. This is only a backup system.
    On the other hand, it would seem that if one is willing to 
have insurance, a backup insurance policy as it were, that 
insurance level should be--should somehow be commensurate in 
size to a possible problem that might occur. And given the size 
of the corporate credit union assets, $51 billion that belong 
to the CLF, and the fact that this number has not been changed 
since 1981, one could wonder whether or not some 
proportionality should be restored.
    Mr. Lewis. Mr. Chairman, moving quickly, as I am inclined 
to, then should Congress consider increasing the borrowing 
limitation?
    Mr. D'Amours. Well, we--the OMB has requested a limitation 
of $600 million, and we----
    Mr. Lewis. I know that, with interest.
    Mr. D'Amours. Pardon?
    Mr. Lewis. I know.
    Mr. D'Amours. Yes, and of course we are constrained by that 
fact. On the other hand, having been a member of this body, I 
know that this committee in Congress can act irrespective of 
authorizations or authorization requests, but I can only lay 
out the issues as I see them. I would not want to run afoul of 
our relationship with the OMB.
    Mr. Lewis. On the record or off the record? Certainly not 
on the record.
    Mr. D'Amours. See you in the gym, Mr. Chairman.

                           clf authorization

    Mr. Lewis. That is appropriate. When does the authorization 
of the Central Liquidity Fund expire?
    Mr. Yolles. Well, the limitation that we are talking about 
on new loans is an annual appropriations limit--
    Mr. Lewis. Correct.
    Mr. Yolles [continuing]. Which expires at the end of the 
government's fiscal year. Absent that, the authorization for 
the CLF to operate is continuous.
    Mr. Lewis. You have got an ongoing authorization for 
operation with a limitation as a result of language that puts a 
limitation on the annual appropriations bill.
    Do you know whether the authorization committee intends to 
have hearings regarding reauthorization?
    Mr. Yolles. I am not aware of any.
    Mr. D'Amours. I am not aware of the answer to that question 
either. The person who might be is engaged in conversation with 
somebody else.
    Mr. Lewis. We were asking if you have any information that 
would indicate that the authorization committee is going to 
have hearings regarding reauthorization.
    Mr. Engel. My understanding is--Mr. Loftus was just 
pointing out that the authorization is permanent. It is that 
the limitation is not.
    Mr. Lewis. Well, but from time to time authorization or 
reauthorization can be subject to public hearing of the 
authorizing committee, and I am curious as to whether you know 
if any such authorization has been scheduled.
    Mr. Engel. We have no plans that we know of.
    Mr. Lewis. Mr. Stokes.

               credit union presence in low-income areas

    Mr. Stokes. Thank you, Mr. Chairman. Chairman D'Amours, let 
me refer back to part of your testimony where you made some 
reference to low-income credit unions.
    Mr. D'Amours. Yes, sir.
    Mr. Stokes. I would be particularly interested in you 
sharing with us something about the role that credit unions 
play in providing financial services in low-income or intercity 
areas, those type of areas that are poorly served by banks and 
other financial institutions.
    Mr. D'Amours. Well, I would say, Congressman Stokes, that 
the credit unions play an excellent role in filling that need. 
In fact, it is very common for credit unions to either move 
into through branching or to start up in charter form in areas 
that banks have abandoned. We see it over and over again where 
a bank will--a bank or a bank branch will abandon or leave an 
inner city or an isolated rural area and soon following in its 
wake is a credit union branch or a new start-up credit union.
    Credit unions were created, as you very well know, 
Congressman, to fill unmet needs and to provide American 
consumers with a choice to belong to a financial institution 
that they can participate in as members rather than as 
customers. And they have met that need magnificently, I think, 
since their founding. And they continue to do so, and 
especially they are active in inner cities in part with help 
that this committee and its chairman have given us in adding to 
the revolving loan fund authorization.
    We have created at NCUA an office of community development 
credit unions which focuses full time on these kinds of issues. 
And they are the ones who distribute the revolving loan funds 
that Congress provided us and that this committee, thanks to 
Chairman Lewis and the members, have increased in the past two 
years by $1 million.

         community development credit union revolving loan fund

    Mr. Stokes. Let me just follow up on that area in terms of 
the Community Development Credit Union Revolving Loan Fund. 
What size and type of loans are made under that fund?
    Mr. D'Amours. Well, any number of sizes and types. They 
tend to be relatively small loans and also they consist 
sometimes of technical assistance grants to the credit union to 
allow them to improve their technical operations. So they are 
either loans or technical assistance grants. They tend to be 
relatively small, but always badly needed. And there is an 
enormous demand for both technical assistance and for lending 
at this time.
    Mr. Stokes. What type of credit unions generally benefit 
from that type of loan?
    Mr. D'Amours. Community development small credit unions and 
most community development credit unions, Congressman Stokes. 
And that means credit unions over half of whose membership fall 
below 80 percent of the national poverty standards.

            supreme court ruling on credit union membership

    Mr. Stokes. Now, currently, there is a Supreme Court case 
involving the NCUA policy which would limit the range of 
members eligible to affiliate with a single credit union, is 
that correct?
    Mr. D'Amours. That is correct. And I understand that we 
were thinking the Supreme Court might have released that 
decision today, but they did not. That doesn't mean they won't 
tomorrow. Mr. Chairman, you referred to that, but they did not 
today. And we don't know, of course, and we are hoping that the 
Supreme Court will do what we think is the right thing and 
allow our current NCUA field of membership policies to 
continue. If they don't, we will have to turn to the Congress, 
but the key to the restriction that the bankers have been 
trying to impose upon NCUA and the credit union system would 
prevent them from effectively serving smaller groups of people 
who have no other access to traditional banking services.
    To operate a credit union effectively you need at least 500 
members. And many people in small businesses today--in fact 
most small businesses today have many fewer than 500 people. So 
that would stop all of these people, deprive all of these 
people of the opportunity of forming a credit union and joining 
a credit union. They couldn't form one because they are too 
small, they don't have the sufficient mass, the sufficient size 
to support a credit union, and they couldn't join one because 
the restriction on our field of membership policies that 
bankers are trying to impose would make that an illegal act.
    Mr. Stokes. And, I suppose the fact remains that their 
needs still would not be met by any financial institutions in 
that community?
    Mr. D'Amours. Well, they may or may not be. The point is 
that credit unions have traditionally served people whom the 
more traditional banking sector has not sought to serve. And 
that would be closing down an avenue for many people to empower 
themselves by joining a credit union and becoming part of the 
American financial mainstream. Whether or not the members of 
any given occupation smaller than 500 employees, for instance, 
have access to banking services is a question that would have 
to be determined by other considerations of time, place, 
circumstance and the like.
    But the fact is that most Americans like the freedom of 
choice that they have to join a bank or a credit union or 
whatever other financial service provider they seek to deal 
with. This would deprive hundreds, millions of Americans of 
that choice.

                             ncua personnel

    Mr. Stokes. I was looking at your personnel. You have, 
what, about 101 employees, permanent employees?
    Mr. D'Amours. No, we have----
    Mr. Stokes. The number of your permanent----
    Mr. D'Amours. At NCUA, no, we have nearly 1000, 900 and 
some odd employees.
    Mr. Stokes. Okay, and----
    Mr. D'Amours. I am talking about the NCUA, the entire 
agency.
    Mr. Stokes. NCUA, okay.
    Mr. D'Amours. We have less than 200 here in Washington, 
D.C., and the others scattered amongst six regions nationally.
    Mr. Stokes. Okay, and so it amounts to a total of about how 
many?
    Mr. D'Amours. Nine hundred and I don't know what----
    Mr. Austin. FY '97 was 954. Our new FY '98 budget has 1006 
in it.
    Mr. Stokes. And let me ask you this, Mr. Chairman. In terms 
of considering what many of the credit unions mean to women, 
minorities, low-income people, how does your employment record 
reflect in terms of women and minorities?
    Mr. D'Amours. Not as well as we would like it to, Mr. 
Stokes.
    Mr. Stokes. Can you, for the record, supply us with a table 
of what the breakdown is in terms of your employment?
    Mr. D'Amours. I would be pleased to do that. I don't have 
those numbers with me, but I would pleased to get you that 
information when I get back, as soon as I get back to the 
office. I will provide it to the staff.
    [The information follows:]


[Page 488--The official Committee record contains additional material here.]



                          ncua youth programs

    Mr. Stokes. Okay. Mr. Chairman, before I yield back I just 
want to tell a little story. I spoke this past year to a credit 
union convention out in Cleveland. For part of the program, 
they brought some youngsters in there for a program they have 
set up in the high schools, the elementary schools too. And 
they brought some young people up on stage who introduced 
themselves. And I asked one youngster, I said what do you do? 
He said ``I am Chairman of the Board.'' I asked another ``What 
do you do?'' ``I am Treasurer.'' I asked another one, said 
``What do you do, young lady?'' She said, ``I am a portfolio 
manager.'' And it went on from there. I am telling you to show 
that seeing these young people who are learning the whole 
process of finance and investment, was something really 
encouraging. And I think it is just something I wanted to put 
on the record because I think they are doing a great job to 
teach our young people that.
    Mr. Lewis. It is just an ongoing service of their local 
credit union.
    Mr. D'Amours. And several credit unions, Mr. Chairman and 
members of the Committee, several credit unions are engaged in 
similar type activities. That is not an isolated incident that 
he witnessed.
    Mr. Stokes. Thank you, Mr. Chairman.

                legislation for credit union membership

    Mr. Lewis. Thank you, Mr. Stokes. Mr. D'Amours, I wanted to 
mention in following up on Mr. Stokes' question that related to 
some of the what if around here, there is a bill, as I 
understand it, in the process that has some 150 co-sponsors 
that would address itself to any reauthorization concerns that 
you might have depending upon not only what happens with this 
committee's work but also with the courts. I presume your 
membership understands that going through the legislative 
process can be a complex process, that is you go to an 
authorizing committee like the Banking Committee. In spite of 
the fact that the Chairman on this side seems to be very 
positively inclined towards some of your concerns, there is 
another body and we have to go by way of the President's desk. 
And that question raised--some of those questions raised by OMB 
are very pertinent to what that authorization might include, so 
it is--this could be a very important year for credit unions.
    Mr. D'Amours. Yes, sir. I don't know if the Chairman's 
referring to H.R. 1151, of which the Chairman is a co-sponsor 
and Mr. Stokes is----
    Mr. Lewis. Is a cosponsor.
    Mr. D'Amours [continuing]. Is a co-sponsor. But, yes, we 
are aware that this is a big year and that depending on what 
the Supreme Court does we may be back very soon.
    Mr. Lewis. We look forward to working with you.
    Mr. Hobson.

          credit union start-ups vs. mergers and acquisitions

    Mr. Hobson. I have a couple questions I would like to ask. 
Please forgive me. I am from a state where we had a lot of 
small savings and loans, and I happened to be in the 
legislature when they had solvency problems. Since then the 
savings and loans have changed their way of doing business.
    I like the small credit union. Can you tell me how many new 
start up credit unions you have versus mergers or acquisitions? 
What happened in my state was one institution became dominant 
and went bad and it killed all the little ones. And I am 
worried about that and I am worried about changing who we serve 
and how we serve. I am worried about the credit union changing 
what has made it so good and how it has helped a lot of people 
that can't get help elsewhere. That is what I want to preserve.
    Mr. D'Amours. Congressman Hobson, I understand. I was--you 
were in the legislature when the S&L crisis occurred. I was in 
Congress. I just left Congress----
    Mr. Hobson. We solved ours at the time without any federal 
help, by the way.
    Mr. D'Amours. I was on the Banking Committee when part of 
it was created, so I am extremely sensitive to that very fact 
and I understand and I am very sensitive to your question and 
to its implications. We had in 1997 ten new charters. We had 12 
new charters in 1996. There was a--we had in 1997 11,238 credit 
unions, in 1996 11,328. There was a fallout. That fallout is 
happening all over the financial sector because there is 
consolidation occurring. Sometimes credit unions, smaller 
credit unions, although not since this recent injunction that 
we are operating under, would be merged voluntarily into larger 
credit unions to take advantage of better services. But I 
understand what you are saying.
    Mr. Hobson. Now when you say better services, let me stop 
you right there.
    Mr. D'Amours. Yes, sir.

                    quality of credit union services

    Mr. Hobson. All the banks went through this deal and said 
consumers receive better services and cheaper services when 
they merged. And I will differ with you. My bills have gone up 
for services since all the banks merged. The difficulty in the 
small towns that I represent decreased services since all the 
mergers occurred. Little local banks take care of their people, 
in my opinion, better than the big, huge organizations where 
everybody becomes a number and becomes impersonal. I like the 
local community aspects. I don't like the big organizations. So 
if that gives you some idea from where I am coming.
    Mr. D'Amours. Congressman, it does. And I have got to tell 
you that I am coming from the same place. I think anybody who 
has worked with credit unions will tell you that I have gotten 
myself in a little bit of trouble for insisting and stressing 
the importance of preserving smaller credit unions and 
stressing the original function and missions of credit unions. 
So I could not agree with you more. And I think the safest path 
to credit unions' future is that they remain focused on the 
fundamentals. But I would like to point out one thing that 
sometimes, if I may, Congressman----
    Mr. Hobson. Sure, that is fine.
    Mr. D'Amours [continuing]. Sometimes people miss. Even the 
largest credit unions, given the way credit unions operate 
cooperatively, unlike banks, amongst themselves, even the 
largest credit union serving relatively more affluent members 
is somehow participating in the effort of providing liquidity 
so that the person in the inner city or the isolated rural area 
who doesn't have access to bank or traditional financial 
services has access to that liquidity.
    Credit unions, unlike banks, are cooperatives, Congressman. 
That is a act that sometimes people overlook.
    Mr. Hobson. See, I think credit unions serve a market in 
many respects today that banks don't want to deal with.
    Mr. D'Amours. Yes, sir.
    Mr. Hobson. And I think the banks are worried that credit 
unions are expanding into other areas which creates competition 
with them. But you have got a whole population that needs you, 
and I just don't want to see them abandoned and I don't want to 
see what happened in the savings and loan industry or the bank 
industry where suddenly there are no locally owned banks.
    Mr. D'Amours. Yes, sir.
    Mr. Hobson. I can already see it happening in my community. 
With all due respect to the communities around me, they are not 
in my district, but already the Dayton, Ohio, banks are coming 
over and the Springfield banks are being--you know, some of 
them are being bought or merged. They aren't bought. I guess 
they are merged. And suddenly over a period of time, the local 
people lose out. Suddenly, there isn't enough mass in 
Springfield to service so you have got to go to Dayton or you 
have got to go to Columbus, which is 50 miles away or 40 miles 
away.

                          credit union mission

    But I am concerned because this industry has grown so well 
and done so well by servicing the people that you have been 
serving. I hope credit unions don't lose the mission for 
ordinary people. I don't know if I want to use this word but 
country club credit unions. That is not what they were designed 
to be. These were designed to help ordinary citizens who can't 
get the help from their local institutions, from the banking 
institutions, in a cooperative way.
    And I am preaching to you a little bit, but I want you to 
know where I am coming from on this, because I am very 
concerned. I can see the trend happening as the bigger 
organizations begin to take over and branch out into these 
smaller communities. That is exactly what happened with the 
banks when they came into my town. There is one locally owned 
bank in the community I live anymore. It happens to be making 
more money than the rest of them, but you can get an answer 
there. I just want to preach to you for a minute on that.
    Mr. Lewis. Then you have two other questions.
    Mr. Hobson. I have two other questions, very quickly, one 
on your rent. Do you have a figure on--you say you have 200 
employees in D.C.?
    Mr. D'Amours. Approximately in the D.C. central office. 
Some of those work in a regional office that also----

                               ncua rent

    Mr. Hobson. Do you know what your annual rental figure is? 
Because I couldn't break it out from what you had.
    Mr. D'Amours. Well, we own the building.
    Mr. Hobson. You own the building?
    Mr. D'Amours. The credit union community bought the 
building. There is no tax money involved. There is no 
appropriated money involved. It was bought before I got there, 
so our costs are absorbed by the credit union community that we 
regulate. And I don't know----
    Mr. Hobson. That is all right.
    Mr. D'Amours [continuing]. Our yearly advertised cost----
    Mr. Hobson. I couldn't figure out----
    Mr. D'Amours [continuing]. Would be right off the top of my 
head.
    Mr. Hobson. Well, I couldn't figure out from looking 
through the numbers how it was done.
    Mr. Lewis. Actually, it would be helpful if you would help 
us break that out so that we know whether your credit union 
community is paying a relatively fair rate compared to the rest 
of the rate.
    Mr. Hobson. You don't have to do it now, but if you can get 
it back to us.
    Mr. Poling. Appreciation on the building is $840,000 a 
year. Now also the building takes in $35,000 a month retail 
income and roughly $24,000 parking income a month.
    Mr. Hobson. Off of----
    Mr. Poling. Offsetting the payment to the insurance fund 
for the note on the building, which we pay based on U.S. 
security overnight rates.
    Mr. Hobson. So you have funded the building through a loan 
from the----
    Mr. Poling. Insurance fund.
    Mr. Hobson [continuing]. From the insurance fund?
    Mr. Poling. Which we are paying back based on an interest 
level of U.S. securities overnight.
    Mr. Lewis. That is a pretty good deal. I wish I could get 
that. It sounds like a pretty good deal, but would you follow 
up for the record on the question of the relative rent per 
square foot?
    Mr. D'Amours. We will, Mr. Chairman. We will.
    [The information follows:]

        Cost of NCUA Building, 1775 Duke Street, Alexandria, VA

                    cost per square foot at purchase

    Year purchased: 1993.
    Purchase price: $36.6 million.
    Square feet: 167,848.
    Cost per square foot: $217.82.

                       current cost of occupancy

    Square feet (non-retail): 146,800.
    Annual Budget (less depreciation): $2.4 million.
    Cost per square foot: $16.

    Mr. Hobson. And is that kind of loan allowed? I mean, it 
must be.
    Mr. D'Amours. It sure is.
    Mr. Hobson. It is surprising to me that you can make that 
kind of loan.
    Mr. Yolles. Roughly 50 percent of our operation is devoted 
to the management of the insurance fund. And the loan is 
matched at the lost investment yield of the insurance fund. 
Whatever the insurance fund's portfolio is making, that is the 
interest that is paid on the loan. So it is a wash for the 
insurance fund and it is a good deal for credit unions because 
that was the cheapest source of financing we could obtain.

                         year 2000 preparation

    Mr. Hobson. Okay, the last question is on the year 2000 
problem that everybody is facing, have you guys looked at that? 
Because you are going to have some real computer problems, I 
would imagine.
    Mr. D'Amours. We have, Mr. Chairman. We have. Most of our 
equipment was purchased in the--most of our hardware was 
purchased just over the past few years, so it is--we have no 
real problems there, most of the same with our software. We are 
doing a lot of work with our constituencies, of course, with 
credit unions that we regulate and to assure that they are, as 
we are, making every possible effort to test and to become 
compliant within acceptable time frames.
    Mr. Hobson. Do you see any big dollar costs to you or 
your--what about your membership?
    Mr. D'Amours. Well, it is--I don't think anybody can 
quantify that, Congressman. It is a matter of testing. It is a 
matter of credit unions doing their own--doing work on their 
own hardware and software programs and then working with their 
vendors to see that the vendors that they are dealing with are 
also compliant. And the critical part is early testing to see 
that when you run everything through the system it comes out 
the way it is supposed to. And we are giving them time lines to 
complete that testing.
    Mr. Hobson. Well, I am going to say what is your authority 
to say to somebody who says well, you know, I don't want to do 
this if it is going to cost me a lot of money, I will just wait 
it out till the end?

                ensuring membership year 2000 compliance

    Mr. D'Amours. We have cease and desist orders, everything 
at our disposal. We could take them over. We could do anything 
that----
    Mr. Hobson. Do you have a technical staff that can say to--
I mean there is a lot of consultants. What worries me if people 
go out to hire consultants and some guy says yeah, this is 
fine, go ahead and then all of a sudden you wake up the next 
morning and say well, that consultant wasn't very good.
    Let me tell you why. I went through the computerization in 
the mortgage banking business many years ago to the point where 
we didn't tell the chief, the owner of the company, that the 
computer system wasn't working. He would take everybody down 
and show everybody how it was running great. We had people down 
there still doing it by hand because nobody trusted it. This is 
back in the '60s. Nobody trusted the computer systems to be 
right, and they weren't right. And we had all these New York 
guys come in and tell us how to set it up and it didn't work.
    Now I know everybody is much more sophisticated today, but 
also the mistakes are bigger today than they were then. And I 
worry about, you know, the smaller guy who says well, I am 
going to put this off, I really can't afford to make 
improvements this year, we are not going to mess with it.
    Mr. D'Amours. We would not allow that to happen. We are in 
touch with these people, large and small, and we are requiring 
them to meet time lines. We are going into their credit unions 
to see that they are doing so. In fact, we have been successful 
to the extent that we are hearing an awful lot of complaints 
about our being overbearing in this regard.
    Mr. Hobson. Good, that means that you are working on it.
    Mr. Lewis. Mr. Chairman, let me suggest that Mr. Hobson is 
asking this series of questions of all the people coming before 
us for no small reason. Hardware is important, but software is 
critical.
    Mr. D'Amours. Yes.
    Mr. Lewis. And when I look at my own office during this 
last month, there were not quite seven days that we were closed 
down because the consultant couldn't quite figure out why our 
software wasn't working. And as we approach the year 2000, I 
mean, I can just see it happening. Probably the IRS will be 
straightened out by then. You can count on that, but otherwise 
I can see the whole roof falling in. And, you know, literally 
all of us----
    Mr. Hobson. Maybe we will get rid of them by then.
    Mr. Lewis. All of us have to be on top of this. And that is 
why Mr. Hobson is emphasizing it the way he is.
    Mr. D'Amours. I understand. And I would like to assure the 
members of this committee and Congressman Hobson we share your 
concern very much. It worries the blazes out of me, quite 
frankly. And I enjoy it when I run into credit union people who 
say they are also scared, too. It is the ones who are confident 
that I feel concerned about.

                ncua affirmative action hiring practices

    Mr. Lewis. Norm, I must say to you that I was not totally 
satisfied with your response to Mr. Stokes' question. Those 
questions that relate to the whole subject of affirmative 
action these days has a different kind of shade over it within 
many a circle, but it doesn't have that kind of shade in this 
office. And I would have anticipated an immediate response with 
numbers, data, otherwise regarding what is happening relative 
to affirmative action within your organization. It is an 
important priority in this committee, and I am interested in 
looking very closely at that for the record.
    Mr. D'Amours. Well, I have to presume this committee is 
aware of the fact that we are under--we are working with the 
OPM on this matter and under strict orders from OPM to do all 
of our hiring through them because of some irregularities that 
occurred in the past, that were discovered in the past year. We 
are highly sensitive to the question, and I could furnish this 
committee with numbers of who we employ and what their gender, 
ethnic, racial characteristics might be, if that is what you 
are suggesting. We are very sensitive to the matter. And quite 
frankly, I think that we, the Agency, could be and should be 
doing much better, should be at a better place now. And we are 
hoping we will get to a better place in the future.
    Mr. Lewis. It is kind of under the thesis if Uncle Sam 
can't do it, who can. And we have raised these questions over a 
number of years and it is not a question that is going to 
disappear in the short or the long term.
    Mr. D'Amours. Well, I can tell you, Congressman Lewis and 
Congressman Stokes, that ever since I have been there we 
havebeen working very hard to try to have a work force that is 
reflective of society at large. We are not nearly there, but we are 
making efforts to get there.
    Mr. Stokes. I would appreciate, Mr. Chairman, if you would 
just yield to me for a moment.
    Mr. Lewis. Surely.
    Mr. Stokes. I appreciate the Chairman making that inquiry 
to this matter. And I know the Chairman feels as strongly as I 
do about this and has made it clear to every agency appearing 
before us. But what happens to us, Mr. D'Amours, is that when 
an agency like the Neighborhood Reinvestment Corporation, who 
just appeared before us, appears here and the people they bring 
with them reflect sensitivity to these type of concerns and it 
shows without them saying a word that they are committed to 
this type of an organization. And then when your organization 
comes in and we see no reflection whatsoever of it, it doesn't 
look good to members of Congress sitting here providing federal 
funds for agencies to employ on a equal employment basis.

                     opm and recent hiring practice

    Mr. D'Amours. I understand that, Mr. Stokes, and it is 
certainly somewhat embarrassing to me to sit here and hear you 
say that and to know that what you are saying is true. I happen 
to be on the Board of Directors for Neighborhood Reinvestment 
Corporation, and there is an enormous difference in the way 
that agency is populated and the way our agency is populated. 
We have recently been accused of excessively seeking to make--
to take the corrective actions that would improve that 
situation. That is one of the reasons some people believe that 
we got in trouble and are under the Office of Personnel 
Management supervision right now.
    Mr. Stokes. What does that mean, excessively?
    Mr. D'Amours. Well, some people would say this matter--this 
whole matter is under investigation by the Office of Special 
Counsel. We are working with the Office of Personnel Management 
to rectify what some people saw as an excessive amount of zeal 
in trying to too quickly correct the situation that you have 
just identified. But I would suggest if the Congress wants--
well, that is all I will say right now. I would be glad to get 
into it more if you would like. But that is the--I am 
recounting very recent history. It is something that occurred. 
And I am--without trying to be conclusive. I don't want to draw 
conclusions. This matter is under investigation. But I am 
telling you that the point you identified is a very important 
one.
    I would like to ask this Congress and this committee or 
anybody who can participate that maybe somebody should look at 
the entire--the big picture to see whether there might be in 
law or statute or regulation certain things that make it 
difficult to move expeditiously into a work force that is more 
reflective of the diversity in America today. There are laws on 
the books that make it difficult to move in this direction, 
preferences that have been around for years and they have big 
lobbies behind them and the like, federal regulations on 
removing people, for instance, and the like. It can take years 
to move sometimes where in the private sector you could move 
much more quickly.
    It is a very complicated issue, Congressman Stokes and 
Chairman Lewis, and it is one that I am particularly very, very 
sensitive to. But to state the problem is not to solve the 
problem, and the solution to the problem is not as easy as it 
sometimes sounds. And as I said, our agency has come under 
great scrutiny recently because of what some people see as an 
excessive amount of zeal in attempting to remedy the situation 
that you say you see before you.

                    commitment to affirmative action

    Mr. Lewis. I think the points that you make are apparent to 
those of us who are struggling with this difficulty. At the 
same time, there is little doubt that, as you know, in this 
place chairmanships come and go, but our interest in this 
subject is not likely to wane. In the meantime, I am encouraged 
by the fact that there has been movement, particularly in terms 
of opportunity for women within your institution and other 
institutions like your own.
    The issue of affirmative action in my own state has become 
a very controversial issue, and yet I feel very, very strongly 
that there is plenty of evidence that an awful lot of women in 
our society, while they are getting positions, are not 
necessarily being paid for the positions they carry forward. 
And in turn, there are difficulties in turnover processes, job 
guarantees and otherwise that are long established. But as you 
can tell, at least insofar as this committee is concerned, the 
issue is not one that is going to go away, and we intend to 
continue to pursue it over time.

                        ncua workforce diversity

    Mr. D'Amours. I would hope that it wouldn't go away, 
Chairman Lewis. And I can't give you big numbers right now, and 
sometimes individual cases don't prove a point, but I would 
like to say that over the past two or three years there are 
people in positions of great authority at the NCUA, people who 
add racial and gender diversity who were not there just three 
or four years ago. I think we are making strides, but to do the 
job overall is very difficult and takes time.
    Mr. Lewis. We appreciate your candor as well as your 
sensitivity to this matter.
    Mr. D'Amours. Thank you.
    Mr. Lewis. And a member of our committee who may or may not 
from time to time have her voice heard on the part of small 
people in our society, those who are climbing the ladder, Mrs. 
Meek.
    Mrs. Meek. Thank you, Mr. Chairman. And thank you, Mr. 
D'Amours. I would first of all like to associate myself very 
strongly with the remarks of Mr. Stokes and our Chairman. I am 
not quite as diplomatic as they are. I would like to be, and I 
am learning, but it is very obvious to me that, in spite of 
what you have said in your testimony regarding the gender and 
the racial situation in your agency, that it doesn't really 
take a long time to determine your progress when you look back 
behind this table at your staff that is already working with 
you.

                             women at ncua

    I don't see any women here represented in your 
decisionmaking. I assume the people up here at the table are 
more or less in your top managerial positions or they are 
aspiring to be there. And I am sure it wouldn't be so difficult 
to reach back and hire one of those women or promote them. They 
are already there. I don't think you are going to have to look 
for them because you do have a record of them, don't you? You 
have them in your organization. It would be very easy to train 
them and to put them in a managerial position without beating a 
dead horse, and I assume it is a little dead at the point, I 
will move to my next question hoping that you will fulfill 
everything that you promised the Chairman. And I am sure you 
will in terms of the managerial piece which you can do 
something about. You may not be able to do very much about the 
general population, but you can about the management in your 
agency.
    My question is I find some paradoxical things in your 
presentation on Community Development Revolving Loan Fund.
    Mr. D'Amours. Yes, ma'am.

                    community development loan fund

    Mrs. Meek. It would appear to me that the very people that 
you really should serve or help to serve, you can't because of 
the limitations in the CDRL Loan Fund. This loan fund is set 
aside to assist low-income credit unions as well as you have 
other needs, and here you are constituted to help those people. 
And the banks aren't doing anything. I know, because I am out 
there. They aren't doing that much. You are pretty much, sort 
of, organized through this fund to help those groups. The 
problem out there is capitalization in the rural and the urban 
areas where we have low-income people. Yet in the very program 
that could help them through your agency you only have an $8 
million appropriation limit. So to me that is prohibitive.
    You only have 125 loans, and the need is so very, very big. 
And I am just wondering when you ask for $1.7 million you have 
some pending applications. My question is how can you meet the 
need, the great need out there, with the limited amount of 
monies you have relegated in the Community Development 
Revolving Loan Fund?
    Mr. D'Amours. We can't. And we certainly could make use of 
a great deal more, Congresswoman Meek, but these are monies 
that are given to us by Congress, and----
    Mrs. Meek. Excuse me, I don't want to cut you off.
    Mr. D'Amours. We are limited in--we are limited to these 
amounts of money.
    Mrs. Meek. But don't they give you that from your budget 
request?
    Mr. D'Amours. Well----
    Mrs. Meek. Someone had to ask for this money or you 
wouldn't have gotten a dime.

          office of management and budget (omb) funding limits

    Mr. D'Amours. Yes, as a matter of fact, we have been 
limited to this amount. And the only reason we have $8 million 
that has been appropriated by Congress is because this 
subcommittee in the past two years has added a million dollars 
in each of the past two years to the original $600--I am sorry, 
to the original $6 million appropriation. So all I can tell you 
is that if this Congress wanted to give us more, we could make 
use of it. But we are limited by the OMB positions in these 
matters and by Congressional appropriations.
    Mrs. Meek. Let us see if I can rephrase my question. What I 
am trying to say is that a budget request comes from your 
agency regardless of how long you have been there. You have 
been there three years.
    Mr. D'Amours. No, it comes from OMB, Congresswoman.
    Mrs. Meek. So you don't make a request to OMB for your 
budget? How do they know what your agency needs?
    Mr. D'Amours. We make a request to OMB, but they decide 
what the----
    Mrs. Meek. I understand that.
    Mr. D'Amours [continuing]. Authorization is going to be. It 
is not our decision.
    Mrs. Meek. And I want to go back now. What comes first, the 
chicken or the egg?
    Mr. D'Amours. Okay.
    Mrs. Meek. What comes first is your request. You send your 
budget to OMB, am I correct?
    Mr. D'Amours. Well, I think that is basically the way it 
works.
    Mrs. Meek. All right, so then someone within your agency, 
yourself included, would have had to take some kind of 
affirmation toward a request for this fund before it went to 
OMB. Now OMB may have said this is too much or we don't agree, 
but at least they would have had a frame of reference.
    Mr. D'Amours. OMB----
    Mrs. Meek. If I may finish.
    Mr. D'Amours. Oh, I am sorry.
    Mrs. Meek. I understand what their function is very well. 
It is very delimiting and it doesn't always give the agency 
what it wants, but I am saying to you that the sensitivity that 
you are talking about should be shown in the amount of monies 
that you have been able to get wherever you get it for this 
loan fund. The bottom line of what I am saying is I certainly 
would like to see your agency look into this problem of the 
Community Development Revolving Loan Fund. It is a problem. You 
have very little money in it and you are only serving 125 
loans. But on the other end, when your people come to me, and 
they come to me by the thousands because they are in all the 
money, and they want me to fight the banks. Well, the banks 
aren't doing anything so I am not with them. I am trying to be 
with you, but I don't see where I can leap forward with this 
big quantum leap unless I see some commitment on the part of 
the credit unions to help this audience or this group that we 
all serve. And I am not the only one that serves that group.
    Mr. D'Amours. Congresswoman, I have been fighting the 
battle you just outlined for a number of years and have gotten 
into some dutch for doing so, quite frankly. But the question 
that you are asking about the----
    Mrs. Meek. How do you get in so much dutch?

                        omb authorization limits

    Mr. D'Amours. Because for some reason there is resistance 
in some quarters to make maximum effort along these lines. But 
credit unions do a wonderful job in getting into these areas to 
help people and to help to start and nurture low-income or 
community development credit unions as we call them. But the 
question you are identifying is what we are allowed to do 
through the Revolving Loan Fund. And we have had our 
disagreements with OMB about that when we meet with them, but 
we are bound to carry out the Administration--their policies 
when it comes to the authorization process or even to some 
extent the appropriations process. This committee has the 
authority and has in the past few years, under the leadership 
of Chairman Lewis, has in fact added to that amount of money by 
a million dollars each year. But this is all based on an 
original bill passed by Congress several years ago.
    Mrs. Meek. Would you--and this is my last stab at this. 
Would you mind for my information and for the record providing 
me with the rationale behind your budget request for the last 
five years.
    Mr. D'Amours. Yes, ma'am, I will.
    Mrs. Meek. Particularly the one that deals with community 
development.
    Mr. D'Amours. I will be happy to provide that, 
Congresswoman.
    [The information follows:]

    NCUA has not requested any money from OMB for the Revolving 
Loan fund for the last five years. The program has only been 
authorized for the last three years, and during that time it 
became clear to us through informal discussions that OMB would 
not support appropriations for the program. We were, however, 
pleased to work with the VA-HUD Subcommittee and its Chairman 
and Ranking Member in order to secure some funding for the 
program in the last two years.

    Mrs. Meek. Thank you.
    Mr. D'Amours. Thank you.
    Mr. Lewis. It will be included in the record.
    Mr. Frelinghuysen.

               ethnic representation of all credit unions

    Mr. Frelinghuysen. Thank you, Mr. Chairman. Mr. D'Amours, 
good morning. It still is morning. It may feel like the 
afternoon to you, I don't know. I have had a relationship with 
credit unions going back to elective office in the mid 1970s 
and I have always viewed them as sort of bastions of democracy 
in terms of providing access to money that other banks, other 
financial institutions wouldn't provide, a very positive view. 
And I find it somewhat troubling that--if credit unions 
represent the best of democracy--the composition of your board 
is in question. What does the landscape look like in terms of 
credit union leadership of the 11,000 credit unions nationwide? 
What is the composition there?
    Mr. D'Amours. You mean----
    Mr. Frelinghuysen. In other words, putting aside what you 
are referring to, and you haven't gone into it a great----
    Mr. D'Amours. You mean by income?
    Mr. Frelinghuysen. No, in terms of women, minorities, 
racial composition, ethnic background. One of the things that 
is a positive view for me is that in my own back yard there 
appear to be a number of individuals of all different 
backgrounds who are active in credit unions. What does the 
overall nationwide picture look like?
    Mr. D'Amours. I don't have any standards by which to 
measure that except four years of experience, Congressman. And 
I would think that the makeup and membership of credit unions 
across America is reflective----
    Mr. Frelinghuysen. You think or you know? I mean, I think 
it is a fair question.
    Mr. D'Amours. I have seen. I can tell you what I have seen. 
I don't know that I can--I have any numbers or that the credit 
union community sitting behind me has any numbers that can 
quantify by ethnic or gender----
    Mr. Frelinghuysen. When you go----
    Mr. D'Amours [continuing]. The membership of what their 
membership is. But I can tell you that I have been across the 
length and breadth of this country and been to hundreds of 
credit unions in the past few years and I think that they are 
very reflective of the diversity one sees in America.
    Mr. Frelinghuysen. If they are reflective, I think it would 
be----
    Mr. D'Amours. Now are you referring to credit union 
membership, Congressman?
    Mr. Frelinghuysen. No, I am talking about credit union 
leadership, the individual credit unions.
    Mr. D'Amours. I am sorry. I thought you were talking 
about----
    Mr. Frelinghuysen. Oh, I know the credit union composition 
in my back yard is extremely diverse with shareholders. I am 
just wondering--I think it would be a very good idea to have a 
handle on what the composition of the leadership of the various 
credit unions--very much in line with what Mr. Stokes and 
Chairman Lewis are talking about, because I think if you have a 
positive story to sell this is a good way to sell it.
    Mr. D'Amours. I want to apologize, Congressman. I thought 
you were talking about the membership of credit unions across 
America. I have absolutely no way of getting to what the 
leadership profile----
    Mr. Frelinghuysen. I would strongly suggest that some time 
might be spent in getting an idea as to----
    Mr. D'Amours. I think that question--we could certainly 
work with you in that regard, Congressman, but I think that 
might be a question better addressed to the trade groups and to 
the industry.

           ethnic composition of all credit union leadership

    Mr. Frelinghuysen. You don't need to work with me. I just 
think the committee might be interested in knowing what the 
general composition is of the leadership of the 11,000 credit 
unions in the nation. I assume there would be a very positive 
story to tell.
    Mr. D'Amours. I would guess, again, without having any hard 
scientific evidence, that the leadership of individual credit 
unions is reflective of the membership. The leadership of the 
credit union movement is another matter. And I think that is a 
question that you would best address to those people who do 
that rather than to the agency.
    Mr. Lewis. Mr. D'Amours, I believe that Mr. Frelinghuysen 
is trying to be helpful. We were asking you some difficult 
questions earlier that were somewhat sensitive relative to the 
mix reflected in this room, and we talked about difficulties, 
job guarantees, et cetera, et cetera. But frankly, I think if 
there were a way of providing some data that reflects what is 
going on out there, where the credit unions really are, it is a 
much different picture. And frankly, you might very well find 
yourself being a model picture rather than a negative picture.
    Mr. D'Amours. I hope so.
    Mr. Lewis. And I am not sure how you could help us----
    Mr. Frelinghuysen. It is probably a better model than most 
bank boards.
    Mr. Lewis. That is right. And frankly, that is a piece of 
the story that probably ought to be told. And I know that you 
just don't automatically have that available, but it is an item 
that would be worthy of somebody focusing on a little bit.
    Mr. D'Amours. Yes, well, again, from what I have observed I 
think that that is what it would show in terms of the credit 
union, individual credit unions, but we have--I don't think we 
keep any such statistics. But I will be glad to get you 
anything I can.
    Mr. Frelinghuysen. I am not suggesting we need to invent a 
new bureaucracy, but I do know that there are equal opportunity 
responsibilities of every organization in the U.S., and I would 
assume that there must be some data that is out there.
    Mr. Lewis. They could probably give you the data.
    Mr. D'Amours. Well, credit unions elect their leadership, 
so one has to assume that you are going to naturally have a 
reflection of the membership of a credit union on the board.
    Mr. Frelinghuysen. I am all for assumptions. I am all for 
guessing, but I would just love to have a better handle on it. 
We don't need to resolve it at this moment.
    [The information follows:]

    Credit Union National Association was kind enough to supply the 
following data.

       ETHNICITY OF CREDIT UNION EMPLOYEES AND BOARD MEMBERS, 1992      
                              [In percent]                              
------------------------------------------------------------------------
                                          Employees       Board members 
------------------------------------------------------------------------
White...............................              85.0             89.08
African-American....................              7.39              6.29
Hispanic............................              5.06              2.60
Asian/Pacific Islander..............              1.73              1.24
American Indian/Alaskan Native......               .37              0.80
------------------------------------------------------------------------
Source: 1992 CUNA sample survey.                                        


  GENDER OF CREDIT UNION SENIOR MANAGEMENT EMPLOYEES \1\ BY ASSET SIZE, 
                                  1997                                  
------------------------------------------------------------------------
             Asset size                 Percent male     Percent female 
------------------------------------------------------------------------
Overall.............................                25                75
Less than $2 million................                 7                93
$2-$5 million.......................                 8                92
$5-$10 million......................                 4                96
$10-$20 million.....................                 3                97
$20-$50 million.....................                 2                98
$50-$100 million....................                 4                96
$100-$200 million...................                 5                95
$200-$300 million...................                11                89
$300-$400 million...................                29                71
$400-$600 million...................                31                69
More than $600 million..............                20                80
------------------------------------------------------------------------
\1\ Includes 14 senior management positions.                            
                                                                        
Source: Credit Union Magazine, 1997 Complete Staff Salary Survey.       


    A few other questions if I could, Mr. Chairman.
    Mr. Lewis. Sure.

                         problem credit unions

    Mr. Frelinghuysen. Relative to the issue in your statement 
of the number of problem credit unions, the figure--that is 
page 4 of your remarks. The number of problem credit unions 
remains low, up slightly to 330 from 298 at year end 1996. Can 
you comment a little more on the problem credit unions and 
specifically how your administration addresses those problems? 
I don't need a treatise, but I was just wondering if you could 
tell me if there are problem credit unions. And obviously on a 
day where image is everything, how do you actually address 
those problem credit unions?
    Mr. D'Amours. Well, everything from going in to working 
with the credit union leadership and board to sending them 
letters requiring them to perform certain tasks. We can do 
conservatorships where we actually would take over the credit 
union and try to restore it to health and return it to the 
membership. Smaller credit unions we try to spend more time 
working with them to help. We have any number of regulatory 
tools that allow us to deal with these, and we think we are.
    Mr. Frelinghuysen. So it is fair to say that of the 330 
problem credit unions, that somebody is working with those 
credit unions right now?
    Mr. D'Amours. Absolutely, absolutely. And again, I would 
like to point out that even though 330 sounds like a relatively 
large number, it only represents one percent, less than one 
percent of the----
    Mr. Frelinghuysen. I understand that. But the bottom line 
of credit unions is----
     Mr. D'Amours. We are doing it.
    Mr. Frelinghuysen [continuing]. Protection of individual 
shareholders. With all due respect to the number, there are 
some people there who, you know, who might not have their own 
personal interests protected. And relative to that, how are 
individual shareholders protected if there is a problem of 
management in a specific credit unions?
    Mr. D'Amours. Well, we have--beyond what I have just said, 
let me turn it over to Mr. Yolles, who works specifically in 
this area. He might be able to give you the kind of detail you 
are looking for.

                      fixing problem credit unions

    Mr. Yolles. Congressman, in each of NCUA's six regional 
offices we have a group of specialists who are known as problem 
case officers. These are our most experienced senior field 
examiners. Every one of these troubled credit unions, code four 
or five, is assigned to a problem case officer. And these 
credit unions receive from us what we call intense supervision. 
Each credit union works out with their problem case officer a 
resolution plan that calls for a workout of whatever the 
problem is within 24 months. And these credit unions receive 
throughout this period close if not full-time supervision from 
an assigned problem case officer. This is one of the reasons we 
have such a low number of troubled institutions today.
    Mr. Frelinghuysen. So all those shareholders are protected 
absolutely as you go through that process?
    Mr. Yolles. They are protected and they are given our 
fullest, undivided attention by our most qualified personnel.
    Mr. Frelinghuysen. And my last question, Mr. Chairman. How 
many of the problem credit unions are low income?
    Mr. Yolles. I don't have a number for you, but I can tell 
you we have looked at the statistics and the percentage of 
troubled low-income credit unions mirrors their relative 
proportion of all credit unions. They do not make up a higher 
percentage than they make up of the total.
    Mr. Lewis. Perhaps you could elucidate your response for 
the record.
    [The information follows:]

Low Income Problem CUs v. All Problem Credit Unions

Number of limited income credit unions........................       408
Number of problem (CAMEL Code 4/5) limited income credit 
    unions....................................................        59
Percentage limited income credit unions with CAMEL Rating 4/5.      14.5
Number of federally insured credit unions.....................    11,238
Number of problem (CAMEL 4/5) credit unions...................       323
Percentage of credit unions with CAMEL Rating 4/5.............      2.87

    Mr. Frelinghuysen. Thank you, Mr. Chairman.
    Mr. Lewis. Thank you, Mr. Frelinghuysen. Ms. Kaptur. If you 
saw a vacancy of some of those who are participating by way of 
the audience, it is largely because I believe the luncheon has 
begun and people are departing not because we are still here 
but because I guess they want to eat. Ms. Kaptur.
    Ms. Kaptur. Thank you, Mr. Chairman, very much. I am sorry 
I wasn't able to be here for Chairman D'Amours' testimony, but 
I was flying in. And I have read it and have had the 
opportunity to hear some of the other questioning. And I can 
remember when Norm and I served on the Banking Committee 
together. And I have watched your career with great interest 
and I have a deep, deep, deep interest and dedication to the 
credit union movement of this country and the world, in fact. 
So I am interested in your testimony and do have several 
questions.

                          decline in expenses

    I want to congratulate you for trying to move this industry 
into the 21st Century and am really amazed at the expense 
figures listed on pages 1 and 2 of your testimony indicating a 
decline from $767,000 to $177,000. I can't think of too many 
agencies that come before us that actually have a decline in 
their expenses.
    Could you explain how that has been achieved, please.
    Mr. D'Amours. Well, frankly, we have achieved it by cutting 
back on bodies on bureaucratic overlay. We are doing the job 
with fewer people. And as a matter of fact, you are looking at 
the--in the person of Mr. Yolles, at the staff of--I don't 
remember what it was when I got to the agency four years ago, 
but I think we had four people, am I not correct, doing the job 
that now Mr. Yolles is doing by himself as he works in the 
Office of Examination and Insurance. So that has been a good 
saving there. We have given nothing up in that process. The job 
is being done as well as it was back then.
    Ms. Kaptur. That is quite a remarkable drop. Have you 
shifted some of these functions to other personnel or are you 
more computerized or what exactly has accounted for----
    Mr. D'Amours. Mr. Yolles is the President of the agency. I 
think he better be the one to answer that.

                       clf staffing requirements

    Mr. Yolles. Congresswoman, the CLF is a backup liquidity 
source. It is a contingency plan for credit union liquidity 
needs. Credit union liquidity is very high right now, so the 
CLF is very inactive. That is the Central Liquidity Facility, 
excuse me. We have scaled back the staffing requirements and 
the operating expenses of the CLF in accordance with that level 
of activity. Now that does not mean we don't stand ready to 
serve credit unions if called upon, but the NCUA board that 
serves as the board of the Central Liquidity Facility has made 
these adjustments over the years. In fact, only part of my 
salary goes through the Central Liquidity Facility. As the 
Chairman alluded to a minute ago, I also serve as our director 
of risk management dealing with troubled credit unions. So 
right now we are kind of down to rock bottom as far as the 
minimal operating requirements to keep the Central Liquidity 
Facility in place and ready to be activated if it is needed.
    Ms. Kaptur. But this in no way diminishes your ability to 
examine, to audit, to----
    Mr. Yolles. No, the functions that you are mentioning are 
part of NCUA's overall operating budget, which does not come 
before this committee. It is not an appropriation. And that is 
a much larger figure.
    Ms. Kaptur. All right, I thank you for that clarification. 
Let me ask--I remember when we used to serve on the Banking 
Committee, Norm, we used to get these great charts that would 
show us in terms of numbers of financial institutions, assets 
of financial institutions, and their safety and soundness and 
their fault rates of their depositors. Serving on this 
committee, we don't get that sort of helpful information, and 
so I have to ask these questions.

                     bank customer dissatisfaction

    It seems to me when we served on banking there were over 
30,000 credit unions in this country. The contraction in all of 
our financial institutions has been meteoric, and based on a 
recent survey I just did in my Congressional district where 
thousands of constituents are responding, I think there is a 
great future for credit unions because the banks I have I can't 
believe--I can believe, that is why I ask the question on my 
survey, but the banks in this country, I think, are going to 
have a rude awakening with public disdain of their practices.
    So I am very interested in how credit unions operate in 
this world where this is a lot of dissatisfaction on the part 
of consumers. And but I am curious about the numbers of credit 
unions now compared to other financial institutions. You do 
list an asset figure in here about $350 billion. Does that 
still represent about one to two percent of all financial 
assets in the United States?
    Mr. D'Amours. About two percent, Congresswoman.

                               soundness

    Ms. Kaptur. About two percent. And how does your safety and 
soundness compare to the banks? It used to really be sterling 
and we used to get these charts that showed how much better you 
were in terms of the default, in terms of actual 
capitalization. How does that compare now?
    Mr. D'Amours. I think it continues--I don't have those 
numbers with me now, but I think it compares extremely 
favorably to--for instance, our delinquency rate is one 
percent. There is only one percent charge offs. It is very low. 
By all standards, credit unions are extremely safe and sound. 
The capital is higher by quite a bit than it is in banking. 
Asset bearing capital is, after all, the first buttress against 
problems. Liquidity is high. By all standards I think we are 
doing extremely well.
    Ms. Kaptur. If you could provide some comparative 
information for the record, I would be very, very interested in 
that. I like to use it in my speeches and I like to keep tabs 
on it.
    [The information follows:]

                                       BANKS VS. CREDIT UNIONS COMPARISON                                       
----------------------------------------------------------------------------------------------------------------
                                                                 June 1997 FDIC Insured    December 1997 NCUSIF 
                                                                         Banks            Insured Credit Unions 
----------------------------------------------------------------------------------------------------------------
Number........................................................                   11,160                   11,238
Assets........................................................       $5,801,236,000,000         $351,211,000,000
Total capital.................................................         $552,006,000,000          $41,225,000,000
Problem institutions..........................................                      103                      309
Number failed/assisted........................................  .......................                       16
----------------------------------------------------------------------------------------------------------------

    Mr. D'Amours. Well, one measure that I was just reminded 
of, Congresswoman, is that you are familiar with the Camel 
Coding System, of course.
    Ms. Kaptur. Yes.
    Mr. D'Amours. It pervades the financial intermediation 
sector. Ninety three percent of all of the assets of credit 
unions are in code one and two credit unions, which is an 
outstanding record.
    Ms. Kaptur. That type of information, I think, would be 
important to put on record in this committee. And I certainly--
--
    Mr. D'Amours. It is, ma'am. I will ask my staff to contact 
you to see exactly what it is you are looking for. We will 
furnish it to you and to the Committee at the first available 
time.
    Mr. Lewis. If you put it in the record, I might suggest 
that maybe next year bring some special charts for Ms. Kaptur, 
because she remembers these things and it is very helpful to 
you. It helps you. It doesn't hurt you.

         state-chartered vs. federally-chartered credit unions

    Ms. Kaptur. Yes, you have got to get it in your mind, 
because of what is happening out there in the industry. I also 
wanted to ask you on the state-chartered versus federally-
chartered credit unions, the figure of 11,000 plus would be 
federally chartered?
    Mr. D'Amours. No, that is a combination. There are about 
11,200 credit unions. Out of that 11,000, roughly it breaks 
down to 7000 federal and 4000 state charters.

                trust and certificate of deposit service

    Ms. Kaptur. Oh, all right. Let us see, why does the law 
prohibit credit unions from offering certificates of deposit 
and serving as a trust----
    Mr. D'Amours. Trust office?
    Ms. Kaptur. Yes, why is that?
    Mr. D'Amours. Well, the laws strictly--I almost got into 
this in my conversation with Congressman Hobson. One of the 
factors that is overlooked in this dialogue that bankers raise 
about our ability to compete with--the credit unions' ability, 
rather, to compete with them is that the credit unions are 
strictly limited on several fronts on the power side. 
Commercial lending, for instance, and on the investment side 
they are limited virtually to insured financial institutions. 
Credit unions, Congress decided years ago, were going to have 
very limited powers on the both investment and lending side. 
And that is just the way it is. If somebody wanted to suggest 
changing that and expanding those powers here or there, of 
course, our agency, the agency that I chair, would be delighted 
to work with you.
    Ms. Kaptur. I will tell you what, I am very interested. And 
I want to tell you an experience I just had personally, and I 
still haven't had my questions answered and I am as angry as my 
constituents are, because I hold certificates of deposit at 
several local financial institutions. And I went in the other 
day to withdraw some money that had been accruing. I hadn't 
been back there for quite a long while. I said well, I will 
take some interest out. They said you can only take $263 out. I 
said $263? I said, how is that possible? I said what happened 
to all the other interest over the last several years. They 
said oh, that is rolled into your principal. I said wait a 
minute. I said what do you mean. I said I never had a CD that 
the interest rolled into the principal and I can't have access 
down to the principal of the interest that had accrued. I said 
where is what I signed, where is this? Well, they have been 
looking. It is three weeks now. I am calling tomorrow. They 
still can't find what I signed that caused this to happen. I 
have never heard of that. And I am so angry.
    Then what happened with our trust account as a family with 
all these mergers, now the trust account is owned by some place 
that I don't want to own our trust account. And I thought I 
want to put this in my church credit union. I am so angry. I 
can't do it. I can't move my CD and I can't move my trust to a 
credit union. So I am hot to trot on this one. And I know I am 
not the only citizen of our country that feels that way. And I 
said this to the bankers who are presidents of these 
institutions in my community, who are all absentee and, by the 
way, have their headquarters in Mr. Stokes' district, which is 
two and a half hours away.
    But I share with Mr. Hobson the Buckeye, Ohio, love of 
small places, and I don't like this absentee banking that is 
going on at all. And I want to grab a taste of credit unions. 
And therefore I am very interested in that.
    Mr. D'Amours. I would just like to say I don't know what 
the contractual terms of your certificate of deposit is, but 
the credit unions could help you on that side. They can't help 
you on the trust side, however, but on the CD side they--
depending on the terms of the contract of your deposit, the 
credit union can take certificates of deposit. They can't do 
the trust part of it.
    Ms. Kaptur. Okay, my local credit unions tell me they don't 
have power to do that, so they may just not know, but----

                    credit union share certificates

    Mr. D'Amours. I would suggest you might want to ask that 
question again. I don't know why they--what would prevent them 
from doing that on the certificate of deposit side.
    Mr. Engel. If I may clarify, in the normal terminology, a 
certificate of deposit are what banks utilize. Credit unions 
use what is called share certificates. And normally a credit 
union can offer a share certificate, and it is up to the board 
of directors to determine what the dividend rate and what the 
terms are going to be. And the difference is that, of course, 
dividends can't be guaranteed as in the case of a CD that a 
bank issues because when you buy a CD the bank is borrowing 
money from you. When you purchase a share certificate in the 
credit union, you are investing in the shares of the credit 
union and you earn dividends. My understanding is it is really 
up to the credit union to determine whether or not to allow you 
to withdraw dividends periodically or whether they will be paid 
to you on a monthly basis or you could have them rolled in. But 
that is dependent upon the individual credit union's policy on 
how they want to establish and instruct their share certificate 
program. They may have several different types.
    Ms. Kaptur. I thank you for that, and I appreciate the 
Committee's forbearance. I just wanted to get some of that on 
the record because I think that the banks in this country are 
due for a long review.

                        authorizing limitations

    Mr. Lewis. The record should note that the gentle lady has 
raised a number of authorizing questions that the Committee, 
while we are often asked to, can't really move forward very 
extensively on. We can put language in a bill that will last 
for a year, but it doesn't last much longer than that.
    Ms. Kaptur. That is why I appreciate the Chairman's 
forbearance on those questions. I have a hunch some of that 
commentary will make its way out of this room.

    community development revolving loan fund (cdrlf) authorization

    I wanted to--I will end with these questions, because they 
relate to the community development credit unions. And I know 
that in the Revolving Loan Fund--and I want to especially thank 
Chairman Lewis for working with us last year to assure that 
there was proper capitalization in that fund. I am concerned 
that the authorization for this lapses in 1998. And this is a 
particular interest of my district, of myself, and it has been 
since I was first elected to Congress. And I am wondering how 
you see this loan fund, either you personally or any staff 
member that has accompanied you, Mr. Chairman, changing if that 
authorization is not renewed. Will this threaten this Community 
Development Revolving Loan Fund in any way or the services you 
offer?
    Mr. D'Amours. We have turned over, as I said in my 
testimony, we have turned over the original $6 million and then 
the $2 million that you added several times to the tune of some 
$20 million. I forget exactly----
    Mr. Lewis. $16.6 million.
    Mr. D'Amours. $16 million in lending. We would continue to 
generate income from these loans and that fund would continue 
to operate unless or until it is abolished. It would take some 
act abolishing it, not simply not reauthorizing it.
    Ms. Kaptur. Could you tell me how many credit unions have 
been authorized in the CDCU area prior to last year and then 
over the last year how many might have been added? Do you have 
those figures with you?
    Mr. D'Amours. I don't have them with me, and I wish I did 
because if I had them with me that would mean that I would be 
accompanied by Joyce Jackson, who runs our office of community 
development credit unions, who is an African-American woman and 
might help me a little bit by sitting up here with me today. 
But Joyce has those numbers and she is the one in charge of 
that program.
    Ms. Kaptur. I would very much appreciate----

                 number of credit unions in cdrlf areas

    Mr. D'Amours. Well, one of my staff just pointed out that 
at year end there were 346 low-income designated credit unions 
in '96, up from 263 in 1995. And their members include, consist 
of 820,000 people.
    Ms. Kaptur. And what would you expect that to be at the 
current date? Is the trend line still upward?
    Mr. D'Amours. The trend line is upward. It is not growing 
rapidly, but the trend line, yes, ma'am, the trend line is 
upward.

                ability to provide technical assistance

    Ms. Kaptur. What will happen with your ability to render 
technical assistance off the interest from that fund in years 
hence? Do you see that being capped? Do you see that being 
increased as a result of the earnings?
    Mr. D'Amours. We are--yes, we are limited. It would take 
legislation. We are limited to the interest we earn from the 
funds to provide technical assistance.
    Ms. Kaptur. I would be very interested in seeing how much 
that is, please.
    Mr. D'Amours. Yes, Congresswoman, we would be glad to.
    Ms. Kaptur. And what the trend has been since the mid '90s.
    Mr. D'Amours. Yes, we will get that. I will talk to Joyce 
as soon as I get back and we will make sure we get it added to 
the record.
    [The information follows:]

                   CDRLF technical Assistance Program

    The income generated from the repayment of loans is used to 
make technical assistance grants for improving the operations 
of small credit unions. The CDRLP began making technical 
assistance grants in 1993. To date, the program has made grants 
totaling $693,000.
    During 1996, the CDRLP received 99 technical assistance 
requests totaling $593,865, but due to availability of income, 
could only approve 78 requests totaling $151,846--or 25.6% of 
the amount requested.
    During 1997, the CDRLP received 94 requests totaling 
$566,123, but could only approve 73 requests totaling 
$215,461--or 38.1% of the amount requested.
    For 1998, the CDRLP expects small credit unions to need 
even more assistance in addressing Y2K compliance issues. The 
CDRLP projects $250,000 in income for use in the 1998 technical 
assistance program.

    Ms. Kaptur. All right, I thank you very much. I thank the 
members of the committee. It is always a pleasure to hear from 
this agency.

                           cdrlf default rate

    Mr. Lewis. Thank you, Ms. Kaptur. Mr. Stokes, a couple of 
questions following up, if I could, on the line that Ms. Kaptur 
was following. Could you give us now or for the record what is 
the default rate of the Revolving Loan Fund that is resultant 
from the Capital Revolving Loan Program?
    Mr. D'Amours. The last time I had looked, we had no 
defaults. I don't know if that has changed, but the last time 
we checked that--one of my staff is saying that we had one 
default. All right, the last time I looked we had none. 
Apparently we have since----
    Mr. Lewis. You have had one default, but before that there 
were none?
    Mr. D'Amours. Zero, zero defaults.
    Mr. Lewis. What is the amount of the loss to the fund? Can 
you tell me that?
    Mr. D'Amours. $40,000.
    Mr. Lewis. $40,000. Does that mean that the rest of the 
loans have been repaid? The answer is yes.
    Mr. D'Amours. That means they are--yes, they are repaying 
the loans.

         cdrlf vs. community development financial institutions

    Mr. Lewis. Could you compare and contrast the Revolving 
Loan Fund with the Community Development Financial 
Institution's program, CDFI?
    Mr. D'Amours. I could and I will, Mr. Chairman, but I can't 
do it unless one of my staff has the numbers right here. I 
don't think we are prepared to do that now. But I will be glad 
to get that.
    Mr. Lewis. I do want you to know that in asking that 
question I am halfway inclined to getting you into trouble, so 
you probably ought to know that that is the case.
    Mr. D'Amours. We will do our best.
    Mr. Lewis. I am curious, are there differences in the 
clientele that is served by these two programs, that is CDFI 
versus that which is the Community Development Revolving Loan 
Program?
    Mr. D'Amours. Well, there are different requirements in the 
two. There are different requirements. We serve much smaller 
credit unions than they do and they have matching fund 
requirements, as you well know.
    Mr. Lewis. I guess the point I want to highlight is that 
you are serving a clientele there that is a borrower that 
normally has less access to credit and yet you have a loan 
design pattern in which the default rate is as close to zip as 
we can get. And yet as of this moment we are suggesting maybe 
favoring CDFI versus this loan program. And the difference is 
in terms of the requirements on the borrowers is very 
significant.
    [The information follows:]


[Page 511--The official Committee record contains additional material here.]



    Ms. Kaptur. Mr. Chairman, if the gentleman would be kind 
enough to yield.
    Mr. Lewis. Happy to yield.

                    credit union and cdfi redundancy

    Ms. Kaptur. I would love to give you the testimony that I 
rendered before the Banking Committee on CDFI back before it 
was originally established. And there was quite a strong 
section in there regarding the use of the credit union 
mechanism, particularly community development credit unions 
rather than reinventing the wheel when we already had wheels 
functioning out here that merely needed larger tires. And it 
has always interested me--and this happens on almost every 
administration that comes in. They always try to create a new 
set of financial institutions. I guess it is part of posterity, 
but the point is you can make a lot of mistakes. And when you 
have a story to tell, and I really think there is a story to 
tell here that works, it is part of our responsibility to make 
sure that we tell that story.
    Mr. Lewis. And frankly, Mr. D'Amours, I believe it is in no 
small part your responsibility to help us in telling that story 
for the requirements of CDFI ofttimes on these relatively small 
borrowers are very onerous. It cuts off credit lines that might 
otherwise be available except for those requirements. The 
question is relative to are there really differences in the 
clientele served by these two programs that ought to be on our 
record. And if you could help us with that so that we can maybe 
deliver in another form the same testimony that Ms. Kaptur 
would be delivering to the Banking Committee if they were 
listening to our testimony.

                   administration's request for cdrlf

    I would like to place one more question on the record that 
you may not want to respond to here, but you certainly can if 
you wish, but otherwise for the record. The question is why 
didn't the President request any appropriations for this loan 
program?
    Mr. D'Amours. Which program, the revolving----
    Mr. Lewis. The Community Development Revolving Loan 
Program.
    Mr. D'Amours. There is no authorization until----
    Mr. Lewis. Well, let me ask the question one more----
    Mr. D'Amours. Which doesn't answer----
    Mr. Lewis. Let me ask the question one more time. Why 
didn't the President request authorization or funding for it?
    Mr. D'Amours. It is--I am very limited in my ability to 
influence the OMB or other people, but I would like to say that 
I completely agree with the statement that Ms. Kaptur just 
made. And again, I wish Joyce Jackson were here with us, 
because she has worked specifically along the lines you have 
just suggested, Congresswoman Kaptur. And it is--you are 
absolutely correct. We are reinventing the wheel here, and 
there is a mechanism in place to do it. We have communicated 
that, Chairman Lewis, to people, and I just wish I had Joyce 
here because she could give you much more detail.
    Mr. Lewis. Well, certainly feel free to have Joyce expand 
on this for the record, but I also mention for the record that 
the funding requests for HUD across the board are all 
unauthorized, you know, and that is kind of our problem. Our 
whole program sits unauthorized. So in the meantime we are 
trying to serve people. And you are a mechanism that has 
delivered a service, a credit line, that is very important and 
yet we are kind of washing right over that by creating a new 
wheel. And I appreciate your questions very much, Ms. Kaptur.
    Ms. Kaptur. Mr. Chairman, I appreciate your questions. And 
I apologize for leaving, because I am vitally interested in 
this topic, however I have to. I am ranking member on 
Agriculture, and Joe Skeen is waiting.
    Mr. Lewis. All right, thank you, Ms. Kaptur. Mr. Stokes, do 
you have additional questions?

     director of the office of community development credit unions

    Mr. Stokes. Just one or two more, Mr. Chairman. Mr. 
D'Amours, you mentioned Joyce several times. What is her 
position at the agency?
    Mr. D'Amours. She is the Director of our Office of 
Community Development Credit Unions.
    Mr. Stokes. Okay, what level of----
    Mr. D'Amours. I appointed her to that three years ago. She 
is an SSP. She is one of our top----
    Mr. Lewis. Political----
    Mr. D'Amours. Political appointee--no, she is not 
political. She is SSP. That is career executive service.
    Mr. Stokes. Comparable to SES?
    Mr. D'Amours. Yes.
    Mr. Stokes. Her level is what?
    Mr. D'Amours. Her job, Director.
    Mr. Stokes. Her level.
    Mr. D'Amours. One, SSP-1.
    Mr. Stokes. Okay.
    Mr. D'Amours. Yes.
    Mr. Stokes. I thought we ought to put that on the record 
since you mentioned you wished that she was here.
    Mr. D'Amours. Yes, sir.
    Mr. Stokes. It should be good, in light of our previous 
conversation, that she is----
    Mr. D'Amours. Next year she will be.
    Mr. Stokes. I am sure of that. Unfortunately, I won't be 
here.
    Mr. D'Amours. Unfortunately you won't be.
    Mr. Stokes. The Chairman will be here.
    Mr. Lewis. May or may not be. You never can tell.
    Mr. D'Amours. I devoutly hope so.
    Mr. Lewis. I don't intend to stay too much longer than Mr. 
Stokes, I can tell you.
    Mr. Stokes. You have got to get to 30 here first.
    Mr. Lewis. I said not too much longer.

                   requests for technical assistance

    Mr. Stokes. Let me ask you one other question. Are you able 
to accommodate all of the requests for technical assistance 
that you receive from community development credit unions?
    Mr. D'Amours. I understand we are not, Congressman.
    Mr. Stokes. Can you give us some idea what level of 
resources would be needed to take care of at least the highest 
priority requests?
    Mr. D'Amours. I would be glad to get that.
    Mr. Stokes. Would you get us that for the record?
    Mr. D'Amours. Yes, sir, I would be happy to.
    [The information follows:]

        Amount Needed To Fill All Technical Assistance Requests

    The CDRLP would minimally need $20 million in income 
producing assets to fully fund (100%) the 1997 technical 
assistance request level.

                       cdrlf technical assistance

    Mr. Stokes. It might be good, too, in light of that to put 
on the record the technical assistance that is provided through 
the Revolving Loan Fund. How much is being furnished this year? 
And if you will tell us in general terms who are the recipients 
and what is the level of technical assistance that is provided 
by the NCUA staff or others. So if you would put all of that on 
the record, I would appreciate it.
    Mr. D'Amours. We have all of that and we will get it for 
you, sir.
    [The information follows:]


[Pages 515 - 516--The official Committee record contains additional material here.]



    Mr. Stokes. Okay, good.
    Mr. Lewis. Thank you very much.
    Mr. D'Amours. I thank you, Congressman Stokes.
    Mr. Stokes. Thank you, Mr. Chairman.
    Mr. Lewis. Chairman D'Amours, we appreciate your being with 
us today. The questioning took lines that we don't always 
follow when you are before us, but I would be very interested 
in your elaborating on the record if you find it to be 
beneficial following the court's action, if we do hear from the 
court in the next several days, if there is any reason for you 
to want to add something to the record, it will be open for 
that purpose.
    Mr. D'Amours. I appreciate that, and I thank you for it, 
Congressman Lewis--Chairman Lewis.
    Mr. Lewis. Mr. Stokes, thank you.
    Mr. Stokes. Thank you.
    Mr. Lewis. We thank you very much.


[Pages 518 - 531--The official Committee record contains additional material here.]



                                      Wednesday, February 25, 1998.

                U.S. CONSUMER PRODUCT SAFETY COMMISSION

                               WITNESSES

ANN BROWN, CHAIRMAN
HON. THOMAS H. MOORE, COMMISSIONER
MARY SHEILA GALL, VICE CHAIRMAN
    Mr. Wicker [presiding]. Our first hearing this afternoon is 
with the Consumer Product Safety Commission. The Commission's 
budget request for fiscal year 1999 is $46,500,000, which is an 
increase of only $1.5 million compared to the fiscal year 1998 
appropriation.
    We'd like to welcome the chair of the Commission, Ms. Ann 
Brown, as well as the other members of the Commission, Ms. Mary 
Sheila Gall and Mr. Thomas Moore.
    I am Roger Wicker from the 1st District of Mississippi, and 
I have been given permission to ask questions out of order. 
Certainly, our witnesses will be asked to give their 
introductory statements, but I am to preside over the House at 
around 3:00 this afternoon, and I wanted to ask a few 
questions, if I might, Madam Chair, about the furniture 
flammability issue.
    Ms. Brown. Yes, sir. You will promise me to read my 
statement. You'll read it at some point. You'll make a promise?
    Mr. Wicker. Your statement will be given every----
    Ms. Brown. Okay.
    Mr. Wicker [continuing]. Attention.
    Ms. Brown. Thank you.
    Mr. Wicker. And certainly, I believe you will be given an 
opportunity to----
    Ms. Brown. Oh, that's fine.
    Mr. Wicker [continuing]. Offer the statement.
    Ms. Brown. I was just being light.

                     upholstered furniture project

    Mr. Wicker. Yes. In my district, a substantial part of the 
population is engaged in the manufacture of upholstered 
furniture. As a matter of fact, several years ago my state 
became first in the nation in the manufacture of upholstered 
furniture. I think North Carolina may still have the lead on us 
in the case goods.
    But as far as upholstery, we are very proud of our 
accomplishments there--opportunity, good jobs, and a sense of 
pride that our quality products are shipped all over the world. 
I am concerned, as you know, about the Commission's furniture 
flammability initiative, and I hope we can make sure it is 
reasonable and does not jeopardize jobs or our accomplishments 
in northeast Mississippi.
    At last year's hearing, we discussed the Commission's 
investigation of the UFAL voluntary program to reduce 
upholstered furniture fires. Mr. Medford, who is here today----
    Ms. Brown. Yes.
    Mr. Wicker [continuing]. Noted at the hearing that the 
Commission was poised to finish its work on upholstered 
furniture. He stated that the first issue to be resolved would 
be whether to grant the petition on smoldering ignition.
    Now, I understand that there are three aspects of furniture 
flammability--large flames, small flames, and smoldering 
ignition, which is----
    Ms. Brown. Cigarettes.
    Mr. Wicker [continuing]. Primarily cigarettes.
    Ms. Brown. Right.

                              ufac program

    Mr. Wicker. With regard to smoldering ignition, Mr. Medford 
had this to say. ``The decision the Commission will make next 
with respect to these two issues is whether to grant the 
petition on smoldering ignition, which would depend entirely on 
the degree to which the voluntary program is working and being 
conformed with by the manufacturers.''
    Since that time, the Commission staff has compiled a great 
deal of information about the UFAC Program. Reading over the 
transcript of a recent Commission briefing here, there appears 
to be a consensus on two points, and I have the transcript of 
the Commission briefing here, Madam Chair.
    Number one, the effectiveness of the voluntary UFAC 
Program. I quote--``The UFAC Program has done basically what 
the Commission has asked it to do.'' The UFAC Program has gone 
above and beyond the targets set by the Commission for the 
previous years. For example, 92 percent of individual 
cigarettes placed on UFAC-complying chairs did not ignite the 
chairs, again exceeding the targets of the Commission.
    And number two, compliance by the industry with their 
voluntary UFAC Program. Again, ``Results support the industry 
claim that about 90 percent of the dollar value of currently 
manufactured furniture conforms to UFAC's test criteria.''
    Based on that briefing, and on Mr. Medford's statement last 
year that the decision would be based entirely on the degree to 
which the voluntary program is working and being conformed, why 
is the Commission still focusing on the issue of the smoldering 
ignition?
    Ms. Brown. There are actually two parts to the furniture 
flammability work that we're doing, and let me express to you 
that so far the staff has not made a recommendation to the 
Commission. We are not at that stage yet. So we are open-minded 
in the work that we are doing.
    But we are pursuing the work, and the UFAC Program has been 
very helpful in reducing the number of deaths and injuries 
related to upholstered furniture due to cigarette ignition, and 
that's what you're talking about--during cigarette ignitions. 
That has been rather successful.
    There still, however, are a large number of people who are 
killed each year in cigarette-ignited fires. In fact, it is 500 
people in 1995, the last year that we had any statistics. But 
our project is focusing not on cigarette ignition but is 
focusing on small open flame fires, which is another area of 
the upholstered furniture fires. And those are fires from 
lighters, matches, and candles.
    So you have UFAC being very successful in the cigarette-
ignited fires, although there still are 500 deaths a year. We 
really want to reduce the deaths and injuries, the whole total, 
from the small open flame. And it turns out that we've made a 
very pleasant discovery that reducing the deaths and injuries 
from the small open flames will also help us reduce the toll 
from the remaining cigarette-ignited fires.
    Mr. Wicker. All right. Is it correct that we've made 
tremendous progress in both of these areas over the past 15 
years?
    Ms. Brown. We've made special progress in cigarette-ignited 
fires, although as I say, there are still 500 deaths--last year 
of our counting, 1995, the last year that statistics are 
available--which is still a large number.
    Mr. Wicker. Is it your understanding that these statistics 
are correct; that, indeed, 500 deaths ocurred from cigarette 
smoldering ignition in 1995----
    Ms. Brown. Right. Cigarette-ignited fires.
    Mr. Wicker [continuing]. But that is down----
    Ms. Brown. Absolutely.
    Mr. Wicker [continuing]. From 1,300 deaths----
    Ms. Brown. Correct.
    Mr. Wicker [continuing]. Per year in 1980, a substantial--
--
    Ms. Brown. Substantial reduction, as I said to you.
    Mr. Wicker. Right. So in the absence of a regulation by the 
Commission, and with the use of voluntary industry efforts, 
we've made excellent progress.
    Ms. Brown. In cigarette-ignited fires.
    Mr. Wicker. Now, am I correct that there were 80 deaths 
from open flame in 1995?
    Ms. Brown. Is that small open flames?
    Mr. Wicker. Small----
    Mr. Medford. Yes. That was small open flames, in the 
neighborhood of 80 to 90.
    Mr. Wicker. Now, of course the Commission has abandoned, 
for the moment, any effort to----
    Ms. Brown. The larger----
    Mr. Wicker [continuing]. Address large open flame.
    Ms. Brown. Correct.
    Mr. Medford. That's right.
    Mr. Wicker. So we're talking about cigarette lighters and 
matches.
    Ms. Brown. Cigarette lighters, candles, and----
    Mr. Wicker. Candles, cigarette lighters, and matches. And 
so in that area, certainly, one death is too many. But the 
number has been reduced from 170 deaths for small open flame--
no, I want to correct myself. My information says small and 
large. Let me turn to my trusty assistant. Is it both?
    If you can't tell me now, maybe you can get that to me.
    Ms. Brown. I can get that.
    Mr. Wicker. But I have that small and large flames resulted 
in 170 deaths for the entire year of 1980.
    Ms. Brown. Right.
    Mr. Wicker. And it's only 80 deaths----
    Ms. Brown. Ron, do you have that, or should we get that?
    Mr. Medford. That's about correct.
    Mr. Wicker. Okay.
    Mr. Medford. We'll correct the record.
    Mr. Wicker. Small and large.
    Mr. Medford. My number is 200 for 1980, the number that I 
have here.
    Mr. Wicker. Okay.
    Mr. Medford. But we can correct it for the record.
    [The information follows:]


[Page 537--The official Committee record contains additional material here.]



    Mr. Wicker. That's even more of a dramatic decrease then.
    Small and large. I wonder if there's a way we can quantify 
just the small open flames.
    Ms. Brown. We can certainly get it.
    Mr. Wicker. That would certainly be helpful to us.
    Ms. Brown. We'll try to get that.
    Mr. Wicker. It would be a help to me, because we don't have 
that.
    I don't mean to monopolize, but with the indulgence of my 
fellow subcommittee members, could I proceed with a question or 
two more? Mr. Stokes?
    Mr. Stokes. Yes. Please do, yes.
    Mr. Wicker. I appreciate the indulgence.
    Initially, small open flame was to be considered separately 
from the smoldering ignition.
    Ms. Brown. Cigarette ignition, right. Yes.
    Mr. Wicker. And now that has been merged.
    Ms. Brown. No.
    Mr. Wicker. It has not?
    Ms. Brown. No.
    Mr. Wicker. Okay. Would you correct----
    Ms. Brown. What has happened----
    Mr. Wicker [continuing]. My----

                  focus on small open flame ignitions

    Ms. Brown. Yes, I would. It has not been merged. We are 
still dealing with small open flame. It turns out that the 
staff tells us that what would be done for small open flame 
would have the pleasant coincidence also of reducing the number 
of cigarette-ignited fires. It is still directed for small open 
flame ignitions.
    But what they have found that they think might work and 
that we have seen in the briefing package would reduce the 
number of cigarette-ignited fires. But that would not mean that 
the two have been merged. It just happens to be one of the 
pleasant things that the staff----
    Mr. Wicker. Would you explain how that works, how making a 
piece of furniture resistant to----
    Ms. Brown. Yes.
    Mr. Wicker [continuing]. A small open flame reduces the----
    Ms. Brown. I will.
    Mr. Wicker [continuing]. Deaths from cigarette ignition?
    Ms. Brown. I will. I just wanted also to mention one 
thing--that upholstered furniture is still, the leading cause 
of fire deaths among all products. So although there has been 
this great reduction, we still do have upholstered furniture as 
the leading cause of fire deaths among all consumer products.
    Ron, will you explain how this----
    Mr. Medford. Yes. The regulation that the Commission is 
considering would be one in which you actually regulate and 
have a test for open flame. There would be no test for 
cigarettes. There would be no requirements for cigarettes.
    But in doing the cost-benefit analysis, you consider what 
benefits and what costs are associated with such a rule. And 
what we found out is that the way the companies would likely 
comply with an open flame requirement would be with a fire 
retardant back treatment of the fabric.
    And that treatment provides protection in two ways. It 
provides protection from cigarettes and from open flame, with 
no intent on the staff's part at this point to require any test 
for cigarettes. It's simply a benefit that is derived from the 
small open flame standard.
    Mr. Wicker. And it is not true that these two issues were 
merged simply to get a better cost-benefit analysis?
    Mr. Medford. Not at all, no.
    Mr. Wicker. You deny that?
    Mr. Medford. Yes, absolutely. Absolutely. It's just a 
benefit, like any other benefit that we would count or any 
other cost that we would count. It is derived because it has 
that benefit based on the tests that we've done.
    Mr. Wicker. All right. Now, you say a treatment to the back 
of the material is what the staff is looking at.
    Mr. Medford. Well, that is sort of the principal way that 
we believe companies would comply. It is a performance test, 
and companies would be able to do whatever they decide to meet 
the tests that we would require for open flame.
    Based on the experience in the UK, what we have found out 
is that the use of FR-treated back coating is the principal way 
in which that benefit is derived, and that's what we would 
expect to happen in the United States.
    Mr. Wicker. All right. Madam Chair, my understanding is 
that perhaps as early as next week the Commission will vote on 
whether to authorize a five-month study of the toxicity----
    Ms. Brown. Correct.
    Mr. Wicker [continuing]. Of this chemical that Mr. Medford 
spoke about that prevents ignition of----
    Ms. Brown. It would be any number of chemicals.
    Mr. Medford. Any number of chemicals.
    Ms. Brown. In other words, it's not just one chemical. The 
industry would have a choice of what they could use. So the 
toxicity studies that we will be doing and the hearings will be 
on any number of chemicals.

                       five-month toxicity study

    Mr. Wicker. Is a five-month study adequate to determine the 
toxicity of chemicals that could be harmful, not only to the 
workers in the plants that manufacture the furniture but also 
to----
    Ms. Brown. People who use the furniture.
    Mr. Wicker [continuing]. The consumers?
    Ms. Brown. Of course.
    Mr. Wicker. Is that going to be----
    Ms. Brown. We were assured by the staff that five months 
would be adequate, because they have done a certain amount of 
work on this already. If it were not adequate, they certainly 
could come back to us.
    Mr. Wicker. Well, if I could just say in conclusion that 
progress has been made.
    Ms. Brown. Yes.
    Mr. Wicker. Lives have been saved in dramatic numbers 
through voluntary programs. There are other ways to save more 
lives. We have a pilot project involving smoke detectors in my 
own congressional district in Benton County. Since our pilot 
project went into effect, the number of deaths caused by fires 
in Benton County, MS has been reduced to zero through very 
inexpensive means.
    And I would just say to the members of the Subcommittee, 
and to the members of the Commission, that before we take 
action which may be harmful because of this chemical placed on 
the fabric, and which will certainly increase the price of the 
product and drive people out of a job, I that we will consider 
the entire picture, including other means, such as smoke 
detectors and the voluntary program, as alternatives to a huge 
new government regulation.

                     visit to manufacturers planned

    Ms. Brown. Congressman, I want you to be assured that we 
are taking all this into account very seriously. One thing that 
we're doing is we're going to be visiting--members of our staff 
are going to be visiting Tupelo during the spring recess. We 
are very cognizant of any problems to businesses. My father was 
a small business man. We are certainly are aware of any kind of 
repercussions.
    And we have been extremely supportive of smoke detectors. 
We have been part of several programs, of giveaways, of making 
sure that not only do people have them but they are working 
smoke detectors.
    We feel that we need to both prevent residential fires, and 
once a fire is started to get people out of the home. So we 
look at this as a two-pronged approach.
    But you can rest assured that we have--that I have an open 
mind in this, and I find your questions are provocative and 
interesting and thought-provoking for me, and that we have no--
we are going to wait and see what the staff says and what our 
five-month investigation and what that shows us before we make 
any decisions.
    Mr. Wicker. Well, we look forward to having you and the 
entire staff and the Commission perhaps in Tupelo. Do you like 
catfish? [Laughter.]
    Ms. Brown. Do I like catfish? Congressman, it just became 
my favorite food. [Laughter.]
    Mr. Wicker. Mr. Chairman, the Subcommittee has been very 
indulgent in letting me leap ahead with questions, and I do 
thank you.
    Mr. Hobson [presiding]. Okay.
    Mr. Wicker. And I ask that I be excused.
    Mr. Hobson. You may be excused. I know you have other 
meetings.
    Welcome, Ms. Brown and----
    Ms. Brown. Thank you.
    Mr. Hobson [continuing]. Ms. Gall and Mr. Moore. I 
understand you have a statement, and if you would like to make 
your statement we'll put it in the record as----
    Ms. Brown. Good. And I will make it very briefly.
    Mr. Hobson. Yes. It's nice to have you here.

    Statement of Ann Brown, Chairman, U.S. Consumer Product Safety 
                               Commission

    Ms. Brown. Thank you, Congressman.
    I'm Ann Brown, as you know, Chairman of the U.S. Consumer 
Product Safety Commission. With me are Vice Chairman, Mary 
Sheila Gall and Commissioner Thomas Moore, and members of the 
Commission staff. And I'm very pleased to have this opportunity 
to testify in support of our FY99 appropriation request.
    This is our fifth appearance before you, and I can tell you 
I was a bit more apprehensive in my first appearance back in 
April 1994. I had been Chairman only a few weeks; I didn't know 
what to expect. But you've treated me kindly, been very 
generous to me every year, and I appreciate your support.

                      bike helmet safety standard

    I want to begin by telling you briefly about two recent 
accomplishments of CPSC's brand of common sense government that 
can make a real difference in people's lives. Earlier this 
month the Commission voted unanimously to issue the first 
uniform federal safety standard that all bike helmets sold in 
the United States must meet.
    This carries out the Congressional mandate in the Child 
Safety Protection Act. Each year over 900 people, including 
more than 200 children, are killed in bicycle-related 
incidents, and 60 percent of these involve a head injury. In 
addition, more than half a million people are treated annually 
in hospital emergency rooms for bicycle-related injuries. And 
research shows that helmets can reduce the rate of injury by as 
much as 85 percent.
    This new standard will reassure consumers that every bike 
helmet for sale in every store will provide the same excellent 
head protection. And just as important, the new standard will 
reduce the confusion of consumers confronted by an alphabet 
soup of standards and standard labeling.
    I just brought this, not because I rode my bike here, but I 
did want to show you the new bike helmet for children. There 
are special requirements for children's soft temporal lobes, 
which is around here. The new bike helmet protects the 
children's developing head by giving more protection to 
children from ages one to five. And all of the helmets--another 
new thing--will have much strengthened chin straps, so that in 
case there is a crash the helmets will not roll off. So this 
will be excellent protection.

                            vent pipe recall

    I'm also especially pleased to tell you that virtually the 
entire furnace and boiler industry has joined with CPSC to 
announce a program to correct, free of charge to consumers, 
about 250,000 high-temperature plastic vent pipes. I'll show 
you what these are in case you're not familiar with your 
furnace. These are pipes that connect to your furnace and your 
boiler.
    The problem with these, they pose a deadly carbon monoxide 
threat to consumers because they crack. The nationwide 
replacement program will be paid for entirely by the 
participating companies. And, Mr. Chairman, this project also 
demonstrates the increasingly complex technical nature of the 
issues facing the Commission in consumer product cases and our 
growing need for more resources to address them.
    And I just want to commend our staff for reaching a 
successful conclusion on this with a limited budget and for 
doing a creative job of getting the work done.
    This was the first time in the history of the agency that a 
mediator was used to bring together all segments of an industry 
to implement a program for the benefit of consumers nationwide. 
And you may have seen it--I don't know if you saw the Today 
show this morning, but this--about the high-temperature plastic 
vent pipes was featured on the Today show.
    This is another example of how we use smart, common sense 
government to achieve a solution that will save lives without 
resorting to costly litigation or regulation.

                             fy 1999 budget

    Our program and activities for FY1999 implement the 
strategic goals we developed in response to the Government 
Performance and Results Act. Our eight goals are set forth in 
my written statement. I ask that both the strategic plan and 
our 1999 annual performance plan be included in the hearing 
record at the conclusion of my statement.
    The President's budget provides $46.5 million to carry out 
our plans. This is a very lean number. Our proposal to OMB for 
FY1999 contained funds for several critical investments to 
enhance our ability to address a larger number of deaths and 
injuries associated with consumer products. But unfortunately, 
the President's budget did not include our requests.
    Thus, the budget presented here defers several critical 
investments for acquiring more and better data, improving our 
economic forecasting models, implementing a new fire hazard 
reduction effort, improving consumer information outreach, and 
especially enhancing information technology support for our 
hazard reduction program.
    Instead, the 1999 request seeks more limited funds to 
maintain the ability of the agency to continue its present 
level of health and safety activities. Just to maintain the 
current level of product safety activity in 1999 requires an 
additional $1.3 million for expected salary and other cost 
increases necessary to do business. Without funding these 
costs, reductions would be necessary throughout all of 
theagency's programs, resulting in a retreat from today's product 
safety efforts.
    The $1.3 million will fund 1999 projected cost increases 
for salaries and benefits of $972,000, and General Services 
Administration estimates for space rent increases of $303,000. 
After funding mandatory and program costs, a mere $225,000 
remains to invest in the agency staff--our most important 
asset.
    In recent years, the agency has relied on the increased 
productivity of its staff to compensate for reductions in 
purchasing power. The FY1996 budget cut forced the agency to 
reduce training, travel, promotion opportunities, and employee 
recognition programs. Thus, a small investment of $225,000 
would be used to improve the staff's productivity and enhance 
skill levels.
    These efforts will keep productivity high by improving the 
technical skills of the staff, rewarding staff contributions, 
and making the agency competitive in seeking and retaining its 
highly skilled employees.

                           cpsc productivity

    Mr. Chairman, we urge the Subcommittee to appropriate the 
full amount requested in the President's budget.
    As you will recall, last year you asked us to demonstrate 
specific examples of our productivity in our testimony this 
year, and attached as an appendix are five examples of our 
efforts to improve our productivity. I believe we have been 
very successful in these efforts, and of course can discuss 
them with you.
    In previous efforts before the Subcommittee, I have 
stressed the importance that I place on cooperation with 
industry, market-oriented solutions to product safety issues, 
and voluntary compliance with our laws and regulations. And 
each year I try to build on the successes we've had in this 
area.
    This year, in partnership with Procter & Gamble, we 
sponsored Pampers Parenting Institute, we have published a 
grandparents guide for family nurturing and safety.
    Mr. Hobson. I need one of those.
    Ms. Brown. Yes. [Laughter.]
    We all do. And we do have them for all members of the 
Subcommittee. It's distributed as a free document from the 
Consumer Information Center. This is a followup to our highly 
successful baby safety shower program, and I deeply appreciate 
the support of two members of this subcommittee, Mr. Hobson and 
Mr. Stokes, for their effort to make their colleagues aware of 
this project. It's another example of the public benefits that 
flow from government and industry working together.
    I've also mentioned the Chairman's Commendation Award to 
you, and this year I presented an award to the Wayne Dalton 
Corporation, the leading manufacturer of garage doors in Mount 
Hope, Ohio, for its production of a new, more safe garage door 
system.
    And I just want to, as I end, read to you a brief excerpt 
from the statement of Mr. Geoff Foreman. He is a Vice President 
of the company. He said, ``The CPSC has demonstrated they know 
very well how to constructively work with manufacturers to 
achieve common goals. In working on behalf of Wayne Dalton, and 
also as a member of the garage door industry at large, I have 
seen the CPSC's concern for the implications on the 
manufacturers while still driving for improved design and safer 
products.''
    Mr. Chairman, through our efforts over the past four years, 
we have earned the respect of consumer product manufacturers, 
retailers, and consumers, and I hope and believe we have earned 
yours as well. With your continued support, we will reach our 
goals to protect and serve the public in an effective and 
efficient manner.

                     commending comgressman stokes

    And I just wanted to say one word about Congressman 
Stokes----
    [Laughter.]
    Ms. Brown [continuing]. As I end, because this is my last 
appearance before your distinguished ranking minority member. 
We, at the Consumer Product Safety Commission, will miss him 
greatly, and I will miss him personally. His great brother, 
Carl Stokes, was a friend of my good friend, Carl Rowan, and 
Carl Rowan called the Congressman and said, ``I want you to 
meet somebody,'' and the Congressman has been a great personal 
friend.
    And, in fact, at my swearing in ceremony he introduced the 
Vice President. But most of all, he has been a friend of all 
Americans and especially in matters of consumer advocacy. And 
his retirement, having never lost an election, is a loss to the 
Congress as well.
    Thank you.
    [The information follows:]


[Pages 545 - 566--The official Committee record contains additional material here.]



    Mr. Stokes. Thank you very much.
    Ms. Brown. I'd be glad to answer any questions you may 
have.
    Mr. Hobson. Mr. Stokes.
    Mr. Stokes. Thank you, Mr. Chairman.
    And thank you, Chairman Brown, for your very kind and warm 
words. I deeply appreciate it, and I am still grateful to my 
good friend Carl Rowan for having introduced us on that 
occasion, and you have not let either he or me down in the 
manner in which you have carried out the responsibilities of 
your office.
    Ms. Brown. Thank you, sir. That's high praise.

                           grandparent guide

    Mr. Stokes. I certainly mean it.
    Let me ask you firstly, Mr. Hobson, as you heard him say a 
few moments ago, he and I have a very special interest in this 
grandparent guide.
    Ms. Brown. As do I. I hope you'll see the picture of me and 
my grandchildren there. [Laughter.]
    Mr. Stokes. We're certainly going to look forward to seeing 
it. But as you say, both Mr. Hobson and I did introduce this 
document to our colleagues in the House, and we're very proud 
of that fact.
    I guess another example of the success of this method that 
you're utilizing is the statement of the Gerber Products 
Company repeated before the authorization hearing last year 
when they said that CPSC is a model of what good government 
should be.
    Can you just elaborate for a moment for the committee on 
the process engaged in your grandparent guide and how this is 
becoming more and more indicative of the way that the 
Commission does business?
    Ms. Brown. Well, you know that the Census Bureau estimates 
that 1.3 million children are entrusted to grandparents every 
day, and the same study says that another 2.4 million children 
live in households headed by a grandparent. So we see not only 
the visit to the grandparents at holidays, but you see that 
this has become very much a way of life for many families in 
the United States.
    The National Consumer Information Center brought Procter & 
Gamble and the CPSC together, and they both knew of the good 
work that we had done in other kinds of partnering efforts. And 
we felt that many grandparents who had gotten a little less 
conversant with their grandchildren and didn't know about new 
safety trends might want to do something on this.
    And they got Dr. T. Berry Brazleton, the famous 
pediatrician, who is the head of the Pampers Parenting 
Institute of Procter & Gamble, and we wrote this booklet 
together, giving grandparents information about what they need 
to know about safety and nurturing. And it was advertised free 
in Parade magazine for people to contact the Consumer 
Information Center where they can obtain it free of charge, and 
we hear it has been a very popular free item. And Procter & 
Gamble has underwritten this.
    So we think that this is the way good government should 
work--a wonderful partnership with industry and the government 
in order to help consumers.

                        agency reauthorizaation

    Mr. Stokes. Let me ask you this, Madam Chair. When was the 
last time that the authorizing committees acted to authorize 
the funding for your agency?
    Ms. Brown. Gee, not in my lifetime here. Ah, 1990 somebody 
says brilliantly. [Laughter.]
    Mr. Hobson. What a great staff, right? [Laughter.]
    Ms. Brown. That's why I look so good.
    Mr. Stokes. She showed her value. [Laughter.]
    Mr. Stokes. Well, I did have a followup question, and that 
was if you could tell us what the current status is of the 
reauthorization legislation for this fiscal year.
    Ms. Brown. Well, at this point, I don't know of anything at 
all.
    But, Pamela, why don't you come up here, just in case we 
have other questions.
    At this point, there is nothing on either in the future 
about that.
    Mr. Stokes. Are we to assume, then, that the lack of 
authorizing legislation does not have any affect upon the 
operations of your agency?
    Ms. Brown. At this point, we seem to be doing just fine, 
and it has not had any kind of affect.
    Mr. Stokes. That doesn't speak well for the rest of the 
Congress. [Laughter.]
    If every agency can----
    Ms. Brown. Well, I could check beyond----

                          fourth hammer award

    Mr. Stokes. Well, we appreciate that, and I think that's 
what we wanted from you. But we do have some concern about the 
other side of the House in terms of their legislative 
responsibilities.
    It's my understanding that the Consumer Product Safety 
Commission recently received its fourth Hammer Award?
    Ms. Brown. Yes.
    Mr. Stokes. Presented to agencies who demonstrate money-and 
time-saving strategies. Is that correct?
    Ms. Brown. Yes. This is from the Vice President of 
Reinventing Government, and this Hammer was given to us for our 
fast track recall system. This is a way that we can recall 
products more quickly, in 20 days rather than the usual three 
to four months that it takes, by not making a preliminary 
product defect determination but working with the industry to 
do this in a speedy fashion.
    And the reason that this works so well is is that the 
faster that we work, the more lives we save, because when 
you're doing a recall you've got to get those products out of 
people's homes. And so this has worked very well, and it's a 
way to work efficiently and save money and time, and the Vice 
President recognized that with our fourth Hammer. Very, very 
good for a small agency.
    Mr. Stokes. You have received it four times, is that 
customary, usual for many agencies?
    Ms. Brown. From what I understand, when they came out to 
present this, they said this was one of the top agencies--that 
we were--particularly for a small agency. We're hardly the 
Defense Department, and so this is very, very good work.

                    reduction of deaths and injuries

    Mr. Stokes. Very good. Madam Chair, since the Commission 
was established in 1973, this year will mark its 25th 
anniversary.
    Ms. Brown. Yes.
    Mr. Stokes. And can you give us some idea of what has been 
the rate of reduction in deaths and serious injuries from 
consumer products during this time and to what extent you think 
the actions of the CPSC are responsible for those reductions?
    Ms. Brown. Well, the death rate has been reduced over this 
period of time by over 30 percent, and the injury rate has been 
reduced over 20 percent. And I would like to claim that most of 
that or all of it is due to the CPSC, but I wouldn't be so 
foolish. It has been, of course, due to concerted efforts of 
many people. But I do think that the CPSC can claim some great 
amount of credit for that. I think it has been good work.
    On May 12th we are celebrating our 25th anniversary, and I 
do hope that everybody here will come to our celebration. We 
think it's much to celebrate, especially that kind of reduction 
of deaths and injuries.

                             strategic plan

    Mr. Stokes. Madam Chair, on page 3 of your statement, you 
address the results-oriented goals of the Commission's 10-year 
strategic plan.
    Ms. Brown. Yes.
    Mr. Stokes. And you provide the Committee some examples of 
some of the actions the Commission intends to take to meet----
    Ms. Brown. Yes.
    Mr. Stokes. [continuing] The goals referenced in your 
statement, and how the CPSC will measure success against those 
goals.
    Ms. Brown. Yes.
    Mr. Stokes. Can you----
    Ms. Brown. Yes, certainly.
    Pamela, do you want to talk about the goals?
    Ms. Gilbert. Sure. And maybe Ron would want to come up 
and----
    Ms. Brown. Just briefly.
    Ms. Gilbert [continuing]. Join me. Let me repeat the 10-
year strategic goals that are included in our strategic plan. 
Our goals are to reduce head injuries to children by 10 
percent, to prevent an increase in deaths from poisoning to 
children, to keep it at the very low rate it is at now, reduce 
the death rate from fires by 10 percent, reduce the death rate 
from carbon monoxide poisoning by 20 percent, and to reduce the 
death rate from electrocutions by 20 percent, all in 10 years.
    It sounds very ambitious, I know, but we came up with these 
goals by looking at our track record, at the trends, what our 
past activities have been, and, most importantly, what our 
future activities are planned. And we are confident that we are 
going to be able to reach those 10-year goals.
    I would like to turn this over to Ron Medford to talk a 
little bit about some of our head injury and fire activities.
    Mr. Medford. On the carbon monoxide poisoning reduction, we 
have just finished in the last couple of years working with 
manufacturers and Underwriters Laboratory to get into 
residences CO detectors that will work, and we continue to 
upgrade that standard.
    And we're hopeful that those are going to make a 
significant impact on the number of poisoning deaths, and also 
the number of poisonings victims that go to the emergency room 
every year. This along with other work that we're doing on 
furnaces and other products to reduce the potential for carbon 
monoxide hazards should lower the number of deaths.
    We've done a lot of work on gas-fired appliances to ensure 
that they don't emit CO, and if they do, they have automatic 
safety mechanisms to shut them off.
    One of the big challenges is in the fire area. I think you 
heard the Chairman say that there is still a tremendous number 
of fire deaths and injuries and property damage associated with 
fire. There are several major initiatives that we have planned 
in our future to deal with that problem.
    And some of those--the upholstered furniture issue was 
raised earlier today as one of the initiatives that we have. We 
have another one on range and oven fires, which is one of the 
leading causes of injuries in the United States from gas and 
electric ranges. We have a research project going on in our own 
laboratory now for that.
    We have just initiated a study with the industry on open 
flames from mattress fires--again, it's similar to upholstered 
furniture--with candles, matches, and lighters with children, 
child play.
    The head injury impact--we think that now we have the bike 
helmet standard finished, and that standard, along with a lot 
of other programs that are going on around the nation to get 
people to increase the use of bike helmets, has a tremendous 
potential.

                         state bike helmet laws

    Mr. Hobson. Could I just ask a question about the helmets?
    Mr. Medford. Yes, sir.
    Mr. Hobson. Is there a federal law or a proposed law, or is 
there any state laws?
    Ms. Brown. There are state laws and laws in local 
communities. I can't remember exactly, but I think it was 25 
communities in 14 states, something like that, that have laws 
requiring bike helmets. The Federal Government doesn't make a 
law requiring that people wear their helmets, because it would 
be unenforceable. But local states and jurisdictions can do 
that.
    Mr. Hobson. How many states have helmet laws?
    Ms. Brown. Was it 14? I think it was 14 states and 25 
jurisdictions, but I could get that exactly for you.
    [The information follows:]

                  State and Local Bicycle Helmet Laws

    According to information compiled by SAFE KIDS, there are 
bicycle helmet laws in 15 states and 62 localities.

    Mr. Hobson. Yes, I'd like to know that statistic, because I 
understand the requirement is becoming quite important----
    Ms. Brown. Yes. States and in local communities--for 
instance, Montgomery County, Maryland, has----
    Ms. Gall. Fairfax County, too.
    Ms. Brown. What?
    Ms. Gall. Fairfax County.
    Ms. Brown. So counties do that, too. Thank you.
    Mr. Stokes. Are you finished?
    Mr. Medford. Yes, sir.

                   employment of women and minorities

    Mr. Stokes. Okay. Thank you.
    Mr. Chairman, before I yield back--one other area that each 
year, as you know, I question you about, and during the four 
years that you have chaired this committee we have had a great 
deal of discussion about this area. And I'd preface my comment 
with the fact that I take seriously the President's commitment 
to the fact that he wants his administration and agencies of 
government to look like America.
    And you and I have had some discussions about whether 
you're making any real progress in terms of employment of women 
and minorities at your agency. And when each agency comes in 
here and sits across from me, I get some reflection then, when 
I look at the table where you are, or I look behind you to see 
whether your agency looks like America or not.
    And maybe your actual figures look better than the 
accompanying scene, but you ought to be able to tell me what 
you're doing in terms of your agency employment, of equal 
employment.
    Ms. Brown. We take this seriously, as you do, Congressman. 
And I will give you some figures.
    Mr. Hobson. Could we just suspend for a minute?
    [Recess.]
    Mr. Hobson. I don't know where we were.
    Ms. Brown. I do. I know just where we were. [Laughter.]
    Mr. Hobson. Well, we just all missed a five-minute vote. 
But we said also that if Mr. Natcher was still here the staff 
would all be fired because he would have missed his record of--
--
    Ms. Brown. Oh, my goodness. Well, while you were gone, I 
just sent for some of our minority employees to come down so 
you could see----
    [Laughter.]
    Ms. Brown [continuing]. That we are doing much better than 
it looks. Let me just give you a little bit of information. 
Particularly since January 1997, we have made great strides in 
our most recent hires.
    Mr. Stokes. Okay.
    Ms. Brown. We have hired 57 new employees agency-wide since 
January 1997; 60 percent are female, 44 percent are minorities. 
We have hired 18 new employees in the upper grades; 66 percent 
are female, 44 percent are minorities. So particularly with the 
effort that we have made in the new hires, which is one way 
that we want to change the face of the agency to look more like 
the face of America, very often you can do it with new hires.
    Mr. Stokes. Sure.
    Ms. Brown. We've done very well with that. Now, I can give 
you the other statistics of how we are doing overall, if you'd 
like me to.
    Mr. Stokes. Well----
    Ms. Brown. Or I could submit it for the record.
    Mr. Stokes. In the interest of time, what I'd appreciate is 
if you would delineate that information for me in the record.
    Ms. Brown. Yes, I will do that.
    Mr. Stokes. And break it down for me, so that we'll have a 
good understanding of it.
    Ms. Brown. Right.
                    Minority Representation at CPSC
    We have made great strides with our most recent hires. Since 
January 1997: Hired 57 new employees agency-wide. 60% are female; 44% 
are minorities. Hired 18 new employees in upper grades. 66% are female; 
44% minorities.
    31% of CPSC's workforce are minorities; 30% is the government-wide 
average. (28% minorities prior to Chairman's arrival.)
    49% of CPSC's workforce are female; 42% is the government-wide 
average. (44% female prior to Chairman's arrival.)
    In the upper grades, GS-12 through GS-15: 20% of employees are 
minorities. (17% minorities prior to Chairman's arrival.) 43% of 
employees are female. (31% females prior to Chairman's arrival.)

    Mr. Stokes. But I do want to say that obviously, from what 
you're reciting here, you obviously have made great progress. 
And I'm cognizant of the fact that there is some problem 
related to trying to undo these types of situations when you 
come into an agency that has not looked at this very seriously. 
And often the method or means by which you have to do it is 
through the new hire--
    Ms. Brown. That's right.
    Mr. Stokes [continuing]. Process. So I'm mindful of that. 
I'm appreciative of the fact that you have always been 
responsive to my concerns in this respect, and you obviously 
are trying to remedy the problem.
    Ms. Brown. And not just because of your concerns, but I 
think when you have an agency that looks more like and is more 
like the face of America, with a more diverse workforce, I 
think it's an agency that gets the work done with a greater 
understanding of the problems that exist out in the total 
community of the United States. So I think they'll work better.
    Mr. Stokes. I think you're absolutely right. Thank you very 
much, Chairman Brown.
    Thank you, Mr. Chairman. Nice to see you.
    Mr. Lewis [presiding]. Was that a command performance? I 
was planning to say a word, but I----
    Mr. Stokes. I understand.
    Mr. Lewis. I'm sorry that I missed your testimony, but I 
had it by my rocking chair last night. [Laughter.]
    Ms. Brown. Did you commit it to memory? [Laughter.]
    Mr. Lewis. You wouldn't believe the number of questions my 
wife was asking about that. [Laughter.]
    Ms. Brown. We're delighted to see you here.
    Mr. Lewis. Yes. Nice to see you, Chairman Brown.
    I understand Mr. Hobson has some questions. Mr. Hobson.
    Mr. Hobson. Thank you, Mr. Chairman.
    While I was in the chair, I was going to say one thing once 
he got back, and I wanted to say it while I was in the chair 
that I have enjoyed--working with Mr. Stokes over these years.
    We were on the Ethics Committee together, and we have been 
on this committee together. And there is not a person that I 
know of more dedicated to this institution and to his people 
than Mr. Stokes, and it has been my pleasure to have this few 
brief years with him. I wish it had been longer. Although, I 
like being in the majority, might be in the minority----
    [Laughter.]
    Mr. Stokes. Or being in the double minority. [Laughter.]
    Thank you very much, Mr. Hobson.
    Mr. Hobson. But Mr. Stokes has always been a gentleman, and 
I went to his fundraiser when I first arrived here in 
Washington, D.C. and he came to mine.
    Mr. Stokes. Sure did.
    Mr. Hobson. Which doesn't always happen in State 
delegations.
    I also enjoy working with the Consumer Product Safety 
Commission. It's one agency that demonstrates the best in 
government. And that is, you have accomplished a lot of things 
without doing new statutes or new laws. I go back to the work 
that we did on replacing the drawstrings on children's clothes, 
which is where we first met.
    The Grandparent Guide is particularly good, because lots of 
things have changed since we all had our children. Times have 
changed, equipment has changed and people have changed. I think 
the educational approach is very good for people.

                             recall roundup

    A couple of my questions have already been asked, but I 
want to ask one about the recall roundup that relates to public 
awareness of the dangers of certain previously recalled 
defective products that may still be in garages and flea 
markets.
    Ms. Brown. Right.
    Mr. Hobson. Can you tell the Subcommittee about this 
initiative, how successful has it been, and do you plan to 
continue it in 1998?
    Ms. Brown. Yes. We do plan to have a repeat of this highly 
successful program from last year. And I have the report from 
last year's recall roundup, which I would like to place in the 
record, if I may.
    Mr. Lewis. Okay.
    Ms. Brown. Thank you.
    Mr. Lewis. It will be included.
    Ms. Brown. And it will be, this year, on April 16th. And we 
are able to notify consumers of defective products that have 
been previously recalled that they still may have in their 
attics or basements or that may be in thrift shops or flea 
markets. And this was a hugely successful program last year.
    [The information follows:]


[Pages 574 - 577--The official Committee record contains additional material here.]



    We raised public awareness about such recalled products as 
playpens or bunk beds, lawn darts, hair dryers, halogen lamps, 
and our effort last year involved all 50 states and reached 37 
million people. And this year, in Ohio there are some very 
active programs planned with the Ohio Department of Health, and 
the WIC Program, and the Central Ohio Safe Kids, and the Office 
of Aging, and the YMCA.
    And I just wanted to tell Chairman Lewis, that in Southern 
California we are working with the Pediatric Trauma Unit of 
Loma Linda Hospital, which happens to be in his district. So--
--
    [Laughter.]
    Mr. Lewis. That's smart. [Laughter.]
    Ms. Brown. Will you tell him about that for me, Mr. Hobson?
    Mr. Hobson. Yes, I'll tell him.
    Ms. Brown. Thank you. [Laughter.]
    And also, Sheila Jackson Lee, who chairs the children's 
caucus, one of your colleagues, we blanket the country 
nationwide letting people know, both on national television and 
local television, and with all sorts of events in each state, 
just what they need to know about the recalled products.
    We will be doing this recall roundup in your district, Mr. 
chairman. We are working in Southern California with Connie 
Cunningham, Pediatric Trauma Coordinator at the Loma Linda 
Hospital, and they have planned for recall roundup some very 
important events. And if you are possibly in your district 
then, we would love you to participate.
    Mr. Lewis. Loma Linda Hospital happens to be right in the 
heart of my district.
    Ms. Brown. I did happen to know that. [Laughter.]
    Mr. Lewis. Figured that out.

                              rent expense

    Mr. Hobson. I have just two other questions. One is on your 
rent. One of the worst topics we got into the very first time 
we met was about rent. You were trying to merge two labs, and 
lots of other things. You moved people out of offices.
    I'm a little curious about the fact that your rent is going 
up by a 10 percent increase in 1999, and that's a trend that is 
reversed for you. I'd like you to explain that.
    Ms. Brown. Well, unfortunately, this is just because GSA 
has increased our rent beyond our control. We are taking on 
nothing new. We are taking no more space.
    Mr. Hobson. Did you get in a fight with him?
    Ms. Brown. We have tried to be as good and gratifying as we 
can, but GSA just has gone ahead and done that. Particularly to 
our new labs that are consolidated, they have raised the rent 
on the consolidated labs.
    Mr. Hobson. What reason did they give you for raising the 
rent? Are these full-service leases where they're paying the 
utilities or have the taxes gone up?
    Ms. Brown. Somebody can help me out with this?
    Ms. Gilbert. The increase in the rent is $303,000, but it's 
made up of a number of increments. And one of the biggest is 
that the GSA reassessed the value of the land where our lab is, 
and that is going to raise our rent $125,000. They just came in 
and did that.
    Mr. Hobson. But is this the merged lab?
    Ms. Brown. Yes.
    Ms. Gilbert. Yes. It's not because of that, because it's 
the same land. It is the land that they have reassessed.
    Ms. Brown. They just----
    Ms. Gilbert. Because----
    Mr. Hobson. The reason I'm spending so much time on this--
after we had our discussion some years ago, the GSA guy came to 
see me, which is kind of fun. But there are ways to handle 
this. What I'd like to know, is there anybody that gets into it 
with GSA? Because this is not just with you, this is with a lot 
of other agencies. We're trying to keep these rents in line.
    Ms. Brown. And it surely would help us to keep them in line 
in our budget.
    Mr. Hobson. I don't know why that assessment would happen. 
I could understand if somebody came in and did a tax 
reassessment, but GSA is not paying real estate taxes.
    Ms. Gilbert. No. What happened was they did a reevaluation 
of our site, and the first thing they told us was that we would 
have to leave. And we did, as you say, have it out with GSA 
over that, because that would have been a tremendous 
inconvenience and would have stopped our safety work while we 
were moving. We didn't think anything would have been cheaper, 
and we think it would have been further away from our 
headquarters, which is also a tremendous inefficiency.
    So we fought with them over that. When they decided that we 
could stay, they reassessed the value of the land, and that's 
what happened. So we were happy to hear that. At the same time, 
they helped us co-locate our health sciences lab with our 
engineering lab, and that was a tremendous benefit to us as 
well.
    But any help that you can lend with those rates, that would 
be tremendously helpful to us, because as you know it is a 
great, great hardship. It sounds like not a lot of money for 
some people, but for our agency it's an enormous amount of 
money.
    Mr. Hobson. Well, it's a 10 percent increase in your 
overall rent, and I don't understand why, and I don't 
understand the authority. When I talked to GSA before, the 
fellow who ran the agency was very interested in keeping rents 
in line and was fighting internally about some issues. They had 
some internal staff situations that he was having trouble with.
    So I'm going to reserve talking about rent costs now, but I 
want to talk about that because it is a specific situation that 
I think I'd like to look at and understand better.
    Ms. Brown. Well, perhaps we could come and brief you. And 
if you wanted to meet with GSA with us as an advocate for us, 
that would be very, very good.
    Mr. Hobson. Yes. I'd like to understand how they do this.I 
don't understand it. I'm an old real estate guy.
    Mr. Lewis. That would be very helpful to the Committee, and 
if you would report back to us, we'd appreciate that.

                       year 2000 computer problem

    Mr. Hobson. My last question is on your computer--and this 
is one I ask everybody also--is on the computer software that 
you have. Do you have any 2000 problems that you are aware of, 
or have you anticipated them? Are you looking at them, or what 
are you doing?
    Ms. Brown. We have anticipated them. I appointed Clarence 
Bishop to head up a committee well before all of the talk 
started about it, and we are right on target with our year 2000 
compliance. There appear to be no problems either with our 
regulated industries or with what we are working on. We are 
ahead of the issue.
    Mr. Lewis. Where is Mr. Bishop?
    Ms. Brown. Clarence, would you raise your hand?
    Mr. Lewis. Clarence, would you stand up? I just want to 
make sure--I want to look right at you. I expect you to have 
this done, 2000----
    [Laughter.]
    Ms. Brown. I did the same thing. [Laughter.]
    Mr. Hobson. The reason we're asking these questions is we 
don't want any surprises in the year 2000, and we're asking 
this of every person. Every committee that comes before this 
committee I'm going to ask this question. And we're going to 
take names and----
    [Laughter.]
    Mr. Hobson [continuing]. We're going to be hopefully around 
here in 2000, because if there's going to be a problem, we want 
to anticipate the problem, we want to work on the problem 
little by little. So we're asking every agency the same 
question.
    Ms. Brown. Those are my words to the staff exactly, Mr. 
Hobson. But, of course, the buck stops here.
    Mr. Hobson. Those are things that are important.
    I also want to say thank you. I think you do a lot of good 
work across the country, and you get a good bang for the buck. 
That's important to this committee.
    And, I hope he's going to answer your question about----
    Mr. Lewis. You can go ahead if you'd like.
    Mr. Hobson. Well, the question I want to ask is, you got 
cut by OMB, and I think if there's something in there----
    Mr. Lewis. We're going to ask that.

                       increase in agency budget

    Mr. Hobson [continuing]. That is really critical to saving 
people's lives that we need to fund, this is one area that we 
ought to look hard at.
    Mr. Lewis. We'll spend a little time on that in a few 
minutes.
    Ms. Brown. Good. Whenever you're ready, I have----
    Mr. Hobson. Thank you.
    Mr. Lewis. You're ready. I----
    [Laughter.]
    Mr. Lewis. Mr. Frelinghuysen has been here for a while. Do 
you have questions?
    Mr. Frelinghuysen. Mr. Chairman, Mr. Hobson is a very tough 
act to follow. Before your arrival, Mr. Hobson was in the chair 
and Mr. Stokes was speaking, so there has been an absolute 
love-in from Ohio. [Laughter.]
    Very positive. And if you'll pardon----
    Mr. Lewis. I'm sure you'll take care of----
    [Laughter.]
    Mr. Frelinghuysen. If you'll pardon the expression, 
Chairman Brown has indeed been pampered appropriately. 
[Laughter.]
    Mrs. Meek, you wouldn't believe what happened before you 
arrived. [Laughter.]

                   distribution of grandparent guide

    Let me thank--Chairman Brown has been extremely solicitous 
and dedicated. She was good enough to visit my congressional 
district to Morristown Memorial Hospital and hold a baby safety 
shower, and I think the repercussions are being felt in a most 
positive way throughout northern New Jersey. And other members 
of Congress are wondering how the devil I ever got you there 
and would like to have you come back. But thank you for your 
time, and I think you raised a lot of issues to a high range of 
visibility.
    The pamphlet you held up here--you know, for someone from 
Ohio, this man has remarkably white teeth. Is that another 
solicitous comment? [Laughter.]
    What's your method of distribution of this? This is a good 
pamphlet, but how are you actually getting it distributed?
    Ms. Brown. It is being distributed through the Consumer 
Information Center, which is in Pueblo, Colorado, and they do a 
very fine job of distribution. It's free of charge, so people 
are very anxious to send for it, and Parade magazine that comes 
out on Sundays in newspapers across the country advertised it.
    And, of course, we disseminate it through a myriad of other 
kinds of--nurses and physicians. We have our own list of how it 
goes out through all sorts of individual groups throughout the 
country and through other agencies. But the Consumer 
Information Center is the place that people really know about. 
Another one of the ways is through--the AARP and that has been 
very successful.
    So this has had massive dissemination and will continue, 
because Procter & Gamble has been quite generous, and they'll 
keep funding the printing as long as we keep having people who 
want them.
    Mr. Frelinghuysen. Well, I commend you for it.
    Mr. Lewis. I notice that it is not Joe Knollenberg, is that 
right? [Laughter.]

                      working with small business

    Mr. Frelinghuysen. That's on the record, Mr. Chairman. 
[Laughter.]
    All of us are concerned about how the Federal Government 
treats small business. Can you just briefly describe how your 
agency ensures that small business is heard and not ignored? I 
know that one of the things that you've promoted is that you 
have a good relationship with small business men and women.
    Ms. Brown. Working with small business is very important. 
It's especially important to me personally. My father was a 
small businessman. He had a small ladies ready-to-wear store in 
Washington, D.C., so I'm very aware of the problems of the 
entrepreneurs in small business as I grew up listening to those kinds 
of problems at my father's knee. And we are very sensitive to the 
problems of small business.
    In 1996, CPSC and the SBA held a joint small business 
conference in New York City providing guidance on how the small 
business community could better comply with CPSC's regulation. 
So we weren't playing ``gotcha'' with them, so we were telling 
them ahead of time how they could better comply so that they 
would know much more about how to deal with us.
    And at that conference, we inaugurated our small business 
Ombudsman Program. And to date we have had direct contact with 
more than 1,300 small business persons from all 50 states and 
several foreign countries, so that they could comply more 
easily with us.
    And I'm pleased to report that the Ombudsman Program 
received several positive citations in the first report to 
Congress, ``Regulatory Fairness,'' issued by the SBA's National 
Ombudsman in December. So I think it has been a very successful 
program for us.

                          halogen lamp safety

    Mr. Frelinghuysen. Relative to an issue that some 
constituents have informed me of they have a problem getting 
retrofitting kits for halogen lamps. I know this is an area 
where you've been doing----
    Ms. Brown. Right.
    Mr. Frelinghuysen [continuing]. A considerable amount of 
work. Could you just tell us what progress--
    Ms. Brown. Yes, of course. The industry worked 
cooperatively with us, and retailers, to get these guards in 
stores that people could get to put on top of their halogen 
lamps because you know the bulb is very hot. And if it falls 
over or if it touches any kind of flammable material it goes up 
in flames. That happened at Lionel Hampton's apartment.
    So we worked with industry and they have this safety guard 
that was being given away, free of charge, through retailers 
and through an 800 number. It so happened that we had no idea, 
neither the industry or the agency, of the huge number of 
requests there would be for those guards. And, unfortunately, 
we also hit the UPS strike.
    So the combination of the UPS strike and not having enough 
guards available made some delay when people went to stores to 
get them. That has been rectified now, and people are able to 
get these free of charge so that their lamps will be ever so 
much less likely to ignite a fire.

                             skiing safety

    Mr. Frelinghuysen. Thank you. The last question is similar 
to the bicycle helmet question. There has been some public 
attention relative to skiing, and I know that this rubs a lot 
of people wrong, but I do see, since I get on the slopes on 
occasion, far more young children wearing helmets than ever 
before. They can be rented. If you buy them, they're darn 
expensive. But I was just wondering whether you had looked at 
that issue----
    Ms. Brown. Yes.
    Mr. Frelinghuysen [continuing]. And just had any general 
advice.
    Ms. Brown. We are looking at ski injuries to see and 
particularly trying to analyze them to see about the number of 
head injuries. Children are wearing helmets, and we think that 
is a good idea. We haven't gotten far enough along to know that 
they will be enormously helpful.
    The reason we had been working on bike helmets rather than 
ski helmets is that the numbers of deaths and injuries, head 
injuries, with bikes far, far surpasses the ski injuries. But 
we are working on this now to see if we can come up with some 
recommendations.
    Mr. Frelinghuysen. Okay. Well, again, thank you, and your 
colleagues as well, for your help.
    Ms. Brown. Thank you very much.
    Mr. Lewis. Thank you, Mr. Frelinghuysen.
    Mrs. Meek?
    Mrs. Meek. Thank you, Mr. Chairman.
    Ms. Brown, and your colleagues, I am pleased to see you 
again. And I must commend you for following up on what you 
promised to do the last time you came before the Committee.
    And I had great success with the baby shower. And just to 
see how delighted the mothers are in very, very low income 
areas, they are just excited. We've done it three times. It's a 
big district we're going around. So we want to thank you. 
That's a very good idea.
    This is the one committee you can come to and get something 
functional done for your district, including the 
congressional----
    [Laughter.]
    Mrs. Meek. Well, we can. This is the one subcommittee in 
appropriations that thinks about something other than a dime. I 
think that's very good for this committee. The idea that the 
Chairman incorporated about building a congressional Habitat 
For Humanity home in the District of Columbia, those are the 
kinds of things people really look at back home. So I welcome 
the kinds of things that you do. We've always mailed your 
information out to all of our constituents, and certainly the 
people in my age group will be getting this. [Laughter.]
    Ms. Brown. Well, that can be given out anytime you have a 
senior citizens forum or even just to parents who can give it 
to their parents.
    Mrs. Meek. Thank you.
    Ms. Brown. Thank you very much. We aim to please. We are--
--
    [Laughter.]
    Ms. Brown. We try to be a very practical agency, and that's 
one reason that the places like the Today show want us to do--
    Mrs. Meek. Right. Mr. Chairman, you see how I keep harping 
on----
    Mr. Lewis. I see.
    Mrs. Meek [continuing]. Having women over these agencies? 
[Laughter.]
    He didn't respond to that, Ms. Brown.
    Mr. Lewis. I know you were at the hearing yesterday. 
[Laughter.]
    Let's see. Mrs. Meek, is that it?
    Mrs. Meek. Yes, sir. Thank you.
    Mr. Lewis. Thank you very much.
    Mr. Walsh?
    Mr. Walsh. Thank you, Mr. Chairman.
    I only have one question, but just a couple of comments 
before I do that. This was kind of neat. It reminds me--
somebody just told me a story. You may consider it a joke; you 
may not. But they said, ``What is it that causes grandparents 
and their grandchildren to get along so well?'' The answer is: 
they have a common adversary. [Laughter.]
    I thought that was pretty clever.
    The other is Mr. Frelinghuysen's comment about skiing. The 
two high-profile accidents obviously were accidents with trees, 
and please don't get into the business of suggesting that ski 
areas remove all trees. First of all, they have----
    [Laughter.]
    Mr. Walsh [continuing]. Every tree hugger in America will 
be after you, and there are risks and rewards that come with 
glade skiing and other types of skiing. So I would suggest 
that--and just maybe a little facetious--but don't go too far 
with that one. [Laughter.]
    Ms. Brown. Well, Mr. Walsh, may I add that the preliminary 
analysis of what our staff has done has--does not think that 
even wearing a helmet would have had any effect on those two 
very tragic deaths.
    Mr. Walsh. Do you come out with a statement that people 
should ski under control and within their own level of ability? 
That would be helpful.
    Ms. Brown. Right.
    Mr. Walsh. Other than that, I'm not sure.
    The last one that I did have a question on, and that is you 
have this consumer hotline----
    Ms. Brown. Yes.

                              cpsc website

    Mr. Walsh [continuing]. I think very popular and very well 
used. The question that I had was regarding the Internet and 
your web site. It seems to me that would be a tremendous tool 
for the people who are on line. Now, not everybody is on line, 
but, you know, as we--as schools and libraries--and there is 
more and more public access to the world wide web, that would 
be a tremendous educational tool.
    And also, just if you call the hotline, usually you have a 
specific question. Whereas, the web site, if you get on, you 
intend to graze and see what else is on there. And it would 
seem to me that would be a very valuable tool. You'd have to 
put some resources into it, obviously, but just--I'm sure 
you've thought about it.
    Ms. Brown. We have an excellent web site, and it has been 
cited among some of the more successful web sites. And I don't 
have our exact statistics, but we have had a tremendous 
increase in the numbers of hits. We also have a children's web 
site, ``4 kids,'' so that kids can learn about and help with 
their own safety as well.
    We are also part of an intergovernmental group that have a 
web site with the FTC and a couple of other agencies--
www.consumer.gov. And so we have been using the web site 
tremendously. People really find it very, very valuable, and it 
has become a very major tool of communication.
    Mr. Walsh. What is the web site?
    Ms. Brown. Somebody help me.
    Mr. Medford. www.CPSC.gov.
    Mr. Walsh. Thanks. I'll bookmark it.
    Ms. Brown. Good. We'd like that.
    Mr. Lewis. Thank you, Mr. Walsh.

                       need for additional funds

    We do have a number of questions, again, for the record, 
and we appreciate your responding to them. The schedule is kind 
of getting crazy, but I did want to have us spend a little bit 
of time on the first point that has been raised by others--that 
is, that there is a disparity between that which was your 
original budget request and that which was recommended by OMB. 
And I think the figure falls in the neighborhood of $7.5 
million.
    That question--I'd just like to have you spend a few 
moments on how your priorities are affected, what you would 
have done with extra monies----
    Ms. Brown. Right. About $5.3 million in program 
enhancements are not funded. One-time expenditures would 
include an information technology program to enhance the agency 
safety work of $2.4 million. That will not be funded. Something 
else that will not be funded will be smoke detector technology 
research, also a one-time expenditure of $500,000, and an 
update of the agency's 15-year old population model, which 
would cost $165,000. These are used in risk assessment and 
cost-benefit analysis.
    And then there are some recurring expenditures that include 
some investigation support for technologically complex hazards, 
that's $1.5 million; extended hours and service for the public 
through the agency's hotline and world wide web site, $145,000; 
and some consumer outreach information efforts, such as smoke 
detectors campaign, reaching families through pediatricians, 
and outreach through radio, and that's $170,000.
    You can see these are not mammoth amounts of money, but 
they do, in fact, hamper us in our efforts both to get out to 
the public and to do our work as speedily and efficiently as 
possible.
    Mr. Lewis. Ms. Brown, I am concerned that you are in a 
difficult position when OMB says X and your objectives are Y. 
At the same time, I'm not certain that in every circumstance 
the person who is saying Y necessarily knows the priority, and 
I'd just like to have you--I understand the delicacy of these 
kinds of questions, but I would hope that there is a reasonable 
line of communication for some of the items that you've 
mentioned. And others that you'll provide for the record I'm 
sure would cause me to ask questions of OMB, and yet the buck 
stops somewhere else.
    Ms. Brown. Well, I'd just like to mention that if we could 
get an additional $2.4 million for information technology--and 
I know everybody comes and talks to information technology--but 
just this small amount would make a huge difference for us. It 
would improve our productivity and efficiency. It would improve 
the speed.
    And I've talked about how our agency depends on speed, 
because speed we need to save lives, to get a recalled product 
off the shelves quickly and out of people's homes. The 
industries we deal with, you realize, are at the cutting edge 
of technology, and we need a better degree of technology to, in 
fact, keep up with them.
    The two things that would make up the $2.4 million are one-
time expenditures that would have no outyear impact at all. And 
one would be for $1 million for an integrated data system to 
speed up our investigations and recalls of potentially 
dangerous products.
    Right now, we have separate databases and we need to link 
them, and an integrated system would link them. Let me just 
give you an example. If I wanted to find out about all of our 
injury and death information on a product, here is what I have 
to do now.
    I have to do a search of our death certificate database. I 
have to do another search of our in-depth investigation 
database. Then I have to search our consumer complaint and 
newsprint database. Then I would have to do a separate search 
of our emergency room treated injury database. And finally, 
another search of our compliance investigations database.
    The inefficiency, plus the time-consuming nature of that,is 
quite difficult, and that to integrate our databases at $1 million, 
which is a small amount, would be a huge, huge help to us.
    Mr. Lewis. In a facility that is adjacent to the Children's 
Hospital that you might be visiting at Loma Linda University is 
a proton therapy center which has been magnificently successful 
for the treatment of small tumors and prostate cancer.
    We had in a bill while the President was in Latin America 
an item--a separate bill than this one, but an item that would 
have broadened that protocol to maybe make some very--we think 
make some very significant breakthroughs in breast cancer. It 
was not a direct request.
    Somebody at OMB thought that that really wasn't very 
important, and at the very beginning of Breast Cancer Month, 
the President found himself line item vetoing that item. I'd 
hate to see us in a condition where one of your items might be 
inserted in the bill and have a similar action.
    Ms. Brown. Well, if something were inserted in the bill, we 
would then say, ``Look, our committee thinks that this is 
good,'' and we would, quite honestly, use our good offices 
there to do what we could. If something were inserted, I think 
we would have a much better chance of talking to our good 
friends at the White House.
    Mr. Lewis. All right. We would expect that you probably 
would. And in the meantime, it is an item that we'll take under 
serious consideration. If you'd respond to the rest of our 
questions for the record----
    Ms. Brown. Yes, of course.
    Mr. Lewis [continuing]. We'd appreciate it. We have one 
more hearing from this point forward.
    And Mr. Stokes had some special plans for me this 
afternoon. I'm not sure if he has discussed it with me yet, 
but----
    [Laughter.]
    Mr. Lewis. In the meantime, we're going to miss him.
    Ms. Brown. Yes, I talked about that before you came. Miss 
him desperately.
    Mr. Lewis. Thank you very much. We appreciate being with 
you.
    Ms. Brown. Thank you, sir, and thank you for taking the 
time to be with us.
    Mr. Lewis. Thank you.


[Pages 588 - 749--The official Committee record contains additional material here.]



                                      Wednesday, February 25, 1998.

                      CONSUMER INFORMATION CENTER

                               WITNESSES

TERESA NASIF, DIRECTOR
BETH NEWBURGER, ASSOCIATE ADMINISTRATOR FOR PUBLIC AFFAIRS FOR THE 
    GENERAL SERVICES ADMINISTRATION
BILL EARLY, DIRECTOR OF BUDGET FOR GENERAL SERVICES ADMINISTRATION

                 Welcome to Consumer Information Center

    Mr. Lewis. If the Committee will come to order, we'll 
switch to the budget request for the Consumer Information 
Center. The Center's budget request for direct appropriations 
in fiscal year 1999 is $2,419,000, which is the same amount 
provided for the fiscal year 1998.
    In addition to the direct appropriations, the fund is 
authorized to collect and use funds from other Government 
agencies and sources to offset its operations up to a total of 
$7,500,000.
    Now we are pleased to welcome back Ms. Teresa Nasif, the 
Director of the Consumer Information Center. We will print your 
entire statement in the record, as is usual. And if you'd 
introduce your friends who are with you, we'll proceed from 
there.

    Statement of Teresa Nasif, Director, Consumer Information Center

    Ms. Nasif. Thank you, Mr. Chairman.
    With me today is Beth Newburger, the Associate 
Administrator for Public Affairs for the General Services 
Administration, and Bill Early, the Director of Budget for GSA.
    Mr. Lewis. And that's it?
    Ms. Nasif. I have an abbreviated statement.
    Mr. Lewis. You just go right ahead.
    Ms. Nasif. Thank you so much.
    Mr. Lewis. First, I keep doing this because Mr. Stokes 
promises me he's going to be leaving me, but I can't let him 
leave too soon, and he may want to say hello to you too.
    Ms. Nasif. Hello, Mr. Stokes.
    Mr. Stokes. Always a pleasure to have you back in front of 
the subcommittee.
    Ms. Nasif. Thank you so much.
    Mr. Stokes. Thank you.

                           opening statement

    Ms. Nasif. For nearly three decades now, the Consumer 
Information Center has successfully performed the vital mission 
of helping Federal agencies provide important information to 
the public.
    The information covers a wide variety of essential topics, 
including health and safety issues, developments in Federal 
programs and the impact and effects of Federal research and 
regulatory actions.
    CIC's fiscal year 1999 request does include $300,000 to 
continue producing and distributing the Consumer's Resource 
Handbook. CRH helps Americans find the best, most direct source 
of help for their consumer problems and concerns.
    Last year, this committee directed CIC to begin producing 
this landmark publication, and I'm pleased to report that we're 
nearing completion of the 1998-1999 edition and that we expect 
to release it in late spring.
    Our work on CRH complements our production of the quarterly 
Consumer Information Catalog, the primary means for informing 
the public about the broad range of free and low cost useful 
Federal publications.
    The Catalog and the CRH are two of the most popular 
consumer documents produced by the Federal Government.
    During fiscal year 1999, CIC will continue to identify new 
areas for public education as needed. In fiscal year 1997, we 
helped to develop and/or promote and distribute 60 new 
publications.
    For example, the Telecommunications Act of 1996 increased 
competition among long-distance telephone service providers and 
brought consumers a greater choice in rates and service 
options. But increased competition has also led to some 
deceptive marketing techniques.
    In response, CIC brought together the Federal 
Communications Commission, the Consumer Federation of America 
and MCI Communications to develop Making the Best Call. This 
publication spells out new telephone service options and helps 
educate consumers about deceptive marketing practices.
    It also typifies our commitment to CIC's Cooperative 
Publishing Program, a program which stretches limited Federal 
resources by matching businesses and trade associations with 
Federal agencies who share a mutual interest in providing 
unbiased information to the public.
    CIC remains in the forefront of Federal efforts to 
disseminate information electronically. The public will access 
www.pueblo.gsa.gov more than five million times in fiscal year 
1999, approximately five times the accesses in 1995, the first 
full year that the Web site was available.
    And I'm pleased to report that we've just introduced the 
capability to order CIC publications online. Consumers can now 
directly order any of the items after viewing the full text of 
all publications in the Catalog.
    And this is a natural addition to our electronic services 
and in keeping with our goal of providing the public with 
faster and easier ways to obtain our information.
    Although CIC is committed to serving consumers 
electronically, we will continue to focus on a strong and 
dynamic print distribution program. ``Pueblo, Colorado 81009'' 
remains one of the best known mail addresses in the country.
    It's where Americans order millions of publications 
published by more than 40 Federal departments and agencies. The 
Government Printing Office facility in Pueblo provides 
warehousing and order fulfillment services for the tens of 
thousands of orders received weekly as a result of CIC 
promotion.
    The numbers of printed publications requested during fiscal 
year 1997 from the Pueblo facility totaled 8.3 million 
publications, a 1.3 million increase over the 7 million 
distributed the previous year.
    Increased distribution also increased public user fees to 
$297,000. Also during fiscal year '97, CIC joined with GSA's 
Federal Information Center Program to promote a toll-free 
number, 1-888-8PUEBLO for citizens to call for a copy of the 
free Catalog.
    During the first 12 months of operation, the toll-free 
number was called by 200,000 consumers and is currently 
receiving approximately 17,000 calls per month to request the 
Catalog. CIC is now moving forward to provide nationwide toll-
free service for the ordering of publications, as well as for a 
copy of the Catalog.
    In summary, it's our goal to continue our successful 
publication development, media, marketing and centralized 
distribution programs while responding to the public's desire 
for easier and quicker access to information.
    CIC remains deeply committed to the services it has so 
effectively delivered to the American public since 1970, 
services that continue to grow in importance as our Nation 
approaches the 21st Century.
    We trust that the Committee will agree that CIC is a 
valuable Federal program and that it will look favorably upon 
our budget request.
    At this time, I'd be pleased to answer any questions you 
might have.
    [The information follows:]


[Pages 754 - 757--The official Committee record contains additional material here.]



    Mr. Lewis. Thank you very much, Ms. Nasif.
    While I welcome you back to the Committee, many of our 
questions, as you know, relate to specific and detailed items, 
and if you will respond to them for the record for those, we'd 
appreciate that.

                          effects of internet

    It is of interest that the budget request does indicate 
that approximately $300,000 is dedicated for production and 
distribution of the Handbook for the year 1999. A few years 
ago, there was some concern that, with the growth of the use of 
computers, fewer people would be using the services and instead 
would be using Internet to acquire information.
    Your budget projects no change in the distribution of 
printed publications, copies of the publication, remaining 
constant at 8.3 million. What's been the practical effect then 
of Internet on your operations?
    Ms. Nasif. When we started our Internet site in fiscal year 
1995, we started to experience a decline in publication 
distribution, and it was logical to see why. Rather than send 
away to Pueblo, Colorado, someone could access the full text of 
any of our publications 24 hours a day.
    And we have a search function so that you could actually 
put in the topic that you were interested in and it would call 
up the parts of all the various publications that dealt with 
the issue you were interested in.
    So while our Internet access was booming, we started to see 
that the print distribution was decreasing. And when I was here 
last year, I predicted that '97 would continue to decrease. But 
we just redoubled our efforts and tried really hard to promote 
the print distribution program.
    We did several special promotions. We were more aggressive 
about finding corporate partners to help fund the cooperative 
publications that they do with the Federal agencies. So we were 
able to get a more appealing mix of titles in the free program.
    And, as a result, we were able to actually increase from 7 
million to 8.3 million. We think that print distribution should 
stay at the same 8 million level even though we are continuing 
to see the increase on the Web site usage.
    The fact that we are planning significant program 
improvements letting people actually order publications on the 
Web site, and also with our plan to hopefully offer the 
American public the opportunity to order books via a toll-free 
number, we think that will actually be an impetus to the 
ordering of publications as well.

                             rental charges

    Mr. Lewis. Okay. During fiscal year 1998, your GSA rental 
charge increased by about 30%, and fiscal year 1999 rental 
charges increased another 10%.
    Ms. Nasif. Yes.
    Mr. Lewis. Mr. Hobson is not here to ask this series of 
questions, but it has been brought to my attention that Bill 
Early had something to do with this. [Laughter.]
    And we want to ask more questions of GSA, so we're 
wondering why?
    Ms. Nasif. Well, I could begin----
    Mr. Lewis. Sure.
    Ms. Nasif [continuing]. The response, and I'm sure Mr. 
Early will add to it.
    For fiscal year 1998, we did acquire new space. We acquired 
1,000 square feet additional space due to the fact that over 
the years our staff had increased from 18 to 22 and we had 
never expanded any, and we were quite crowded.
    We also had new responsibilities such as the Consumer's 
Resource Handbook. And we also had an environmental problem. 
One of the rooms that we occupied, we discovered, was having 
electromagnetic fields emanating from some mechanical vaulting 
that our office was located directly over.
    Mr. Lewis. From a GSA facility?
    Ms. Nasif. We are in a Federal building, and it's a 
historic building. It is about 80 years old.
    Mr. Early. Built in 1917.
    Ms. Nasif. As a result, we realized that there was a 
problem because our computers were just not functioning well. 
And when the room was tested, we realized we needed to evacuate 
the staff.
    And so we acquired 1,000 square feet additional space, and 
we're now remediating the EMF. But we have found that we really 
need the additional space for our increased workload and the 
fact that we have four additional staff members.
    So the increase from '98 to '99 was based on that 1,000 
square feet that we are acquired.
    Mr. Early. There was some small, overall GSA Government-
wide rental rate increases for '99. There's a three percent 
rate increase for essentially all of the space. You'll be 
seeing it in the other justifications coming to you from the 
other agencies.
    And there was an effort to have GSA compensated for the 
increased security after the Oklahoma City bombing that it has 
been absorbing over a number of years. So on a building 
specific basis, there are some rate increases for security that 
is in place for an agency's needs.
    Mr. Lewis. Bill, I'm not sure if you were in the room when 
Ann Brown was here, but a question was raised by Mr. Hobson 
relative to the space that they currently have where GSA 
increased the assessment, I gather, of the land upon which 
their building is located, and that was the justification for a 
ten percent increase in their rental values.
    And when the Government doesn't pay taxes on such land, 
etc., we have questions like that that we'll be pursuing. If 
not through our committee, it will be elsewhere.
    Mr. Early. That's on their new space up there at Silver 
Spring----
    Mr. Lewis. I think it is. It's the space they've had for a 
while. Their consolidated labs, yes.
    Mr. Early. GSA is supposed to charge a commercial 
equivalent rate. Therefore, as market rates in an area go up 
that reflect increasing land values, GSA would pass the 
increase through to an agency.
    If they are in the leased space, GSA is charging in new 
lease assignments, rates to cover actual cost plus 
administrative fee.
    Mr. Lewis. Since this has been a pattern and there's been 
significant interest in our committee, I would expect that we 
may very well pursue this with the appropriate subcommittee 
here to make sure they're asking questions.
    Mr. Early. We'd be glad to follow up on those individual--
--
    Mr. Lewis. Okay, Mr. Stokes.

                            hits on internet

    Mr. Stokes. Thank you, Mr. Chairman.
    During your last couple of appearances here, we've had some 
discussion with you about the Internet access to your 
documents. How many hits would you say you had this past year?
    Ms. Nasif. We had four million page accesses. We do a more 
conservative measuring than ``hits.'' Page accesses measure 
when an entire information page is used by a user. If we 
measured hits, we could actually get a higher number.
    Hits are pieces of information that are downloaded from the 
server, so you could have one page--if it has a lot of 
graphics, it could count as ten hits.
    So we use a more conservative yardstick. And we know that 
it was four million page accesses, which, translated into hits, 
probably would be 16 million hits. And this year, in FY 1998, 
we expect it to be five million accesses.
    Our Web site is very well received. It's a very easy way 
for consumers to get specific answers to a specific consumer 
question. And it's promoted quite widely through a number of 
different computer magazines and different sources.
    Mr. Stokes. What was the status of the hits, say, the 
previous fiscal year?
    Ms. Nasif. Our first year was FY 1995 and we went from one 
million to two million in the second year, to four million in 
FY 1997, and this will be a five million year. So it's really 
increasing dramatically. And it's estimated that one out of 
every four adults in the United States now has access to the 
Internet.
    And with the push to put them in every school and library, 
we think it really will be reaching all segments of the 
population. And at the same time, of course, we're keeping up 
our print program.
    You don't need a computer to access Pueblo. It will soon be 
as close as a phone call away to order publications. Right now 
you can call a toll-free number to get the free Catalog. You 
get the Catalog, and then just mail your order in to Pueblo.

                          access to computers

    Mr. Stokes. Okay. That gets me to the issue we discussed 
last year about those who have access to computers having the 
ability to download----
    Ms. Nasif. Yes.
    Mr. Stokes [continuing]. And get the access to your 
documents, whereas those who do not have access to computers 
have to pay for the documents----
    Ms. Nasif. Well----
    Mr. Stokes [continuing]. Which you sort of indicated was--
--
    Ms. Nasif. Yes, that's----
    Mr. Stokes [continuing]. A minimal cost, you felt, 50 or 70 
cents.
    Ms. Nasif [continuing]. Right. And you can order up to 25 
free publications even when you send in by mail order. There is 
a $1.00 user fee. But you can order up to 25 free publications.
    Now, with the Web site ordering that we just inaugurated a 
week ago, however, anyone ordering the publication, a hard copy 
of the publication, of course, will be paying for it.
    You can always download it, but many people prefer to have 
the publication with the original graphics and bound just so 
that they can keep it as a reference.
    Mr. Stokes. That they don't have to pay for?
    Ms. Nasif. No.
    You can come online, view the publication and get the 
information for free. If you choose to order the publication 
and it's a sales document, you would pay for it through our new 
online ordering system.
    If you order free publications online, there is still a 
user fee, a $1.00 user fee. You pay a user fee whether you 
order by mail or Web site.

                             fairness issue

    Mr. Stokes. Do you see any issue there of fairness at all 
as it relates to those who fall into the category of being 
poorer and those who do not have access and so forth?
    Ms. Nasif. It is a potential issue. And it's an issue being 
addressed nationally because we do not want to become a Nation 
of information have's and have not's. I think that's why 
there's such a vigorous effort to get schools access to 
Internet and library systems access to Internet.
    And I know in my own public library, I can walk in and sign 
up to use the Internet that they have available there for all 
of the patrons to come in and search the Net and access all of 
the information. Internet access is the same case as with all 
new technology--with telephones, with cars, with television.
    At first, it seems to be concentrated in the hands of the 
better educated or the more affluent, but eventually it becomes 
available to everybody. And I do believe that's the case with 
Internet.
    Now it's getting to the point you don't even really need a 
computer. You can buy an Internet box and you don't need to 
have a computer. You just get the box and it's like having a 
television set, and you can have full access to all that 
Internet has to offer.
    Mr. Lewis. Mr. Stokes, we're going to have to be very 
careful about what happens with our grandchildren. [Laughter.]

                            free advertising

    Mr. Stokes. I notice that your justifications on page 13 
indicate that the Consumer Information Center receives an 
estimated 16.1 million dollars worth of free electronic and 
print media to advertise its operations and publications, 
right?
    Ms. Nasif. Yes, that's correct.
    Mr. Stokes. How do you arrive at this estimate?
    Ms. Nasif. Well, on our television public service spot, 
which we distribute nationwide, we actually have started a new 
system of encoding the television spot so that every time it's 
used nationwide, the A.C. Nielsen Company receives the signal 
and does a report for us.
    And they can actually tell us in what market, at what time 
and next to what program it appeared and the dollar value for 
the time. And we were told that whereas the average public 
service spot is used by 16% of the stations, ours was being 
used by 44% of the stations.
    And so we know that we have good play there. We estimate 
that we've gotten close to 11 million dollars worth of air time 
just for the TV spot. And in addition to that, we do print ads 
for newspapers and magazines, and we do radio public service 
spots.
    And we also count in the time that newspapers and magazines 
give to our press releases--consumer releases where we give 
consumer information and mention a publication that's available 
from Pueblo.
    And so when we factor it all together, we arrived at the 16 
million dollars.
    Mr. Stokes. Do you take separate estimates for print space 
and air time?
    Ms. Nasif. Yes, we do. We break it out by TV, radio and 
then newspapers and magazines, the print component.
    It actually used to be easier for us to segment the outlets 
when we only gave a mailing address. We gave each promotion a 
different coded address.Now we often give the telephone number, 
the 1-888-8PUEBLO telephone number, which is resulting in these 17,000 
phone calls a month.
    And although we ask on the phone where did you hear about 
the free Consumer Information Catalog, not everybody remembers 
because they hopefully have seen it in so many different places 
they don't quite remember if it was TV, radio or a magazine.
    And so we take their answers and try to do an educated 
guess as to what is generating what response.
     Mr. Stokes. Okay, I notice that in last year's budget 
submission, you estimated the 1997 amount would be about $16.8 
million, and the 1998 amount would be $17.5 million. This 
year's submission shows $16.1 million for each of the fiscal 
years, '97, '98 and '99.
    Can you tell us why the estimates have declined?
    Ms. Nasif. Basically, because it's getting so much more 
competitive for us public service advertisers. There are more 
organizations vying for time, broadcast time, and it is 
actually harder to get broadcast time than it used to be years 
ago.
    I have been with the program 25 years at this point, and so 
I can see over the time how our strategy has had to change in 
order for us to make sure our spot gets played versus somebody 
else's. And so especially with deregulation, TV stations no 
longer have to set aside an amount of time devoted to public 
service programming.
    It really is up to their own judgement, and they often 
define their own local programming to be public service 
advertising and choose not to use spots such as ours.
    One of the things we've done to increase our chance of 
being used is that we have partners, local partners, on the tag 
line of our public service announcements. So we might have the 
Ohio State Consumer Office, for example, or the California 
State Consumer Office in cooperation with the Consumer 
Information Center, General Services Administration.
    The spot then counts as a local spot, and we get more air 
play than if it were strictly a national spot.
    Mr. Stokes. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Lewis. Thank you, Mr. Stokes.
    Mr. Walsh.

                         most popular brochures

    Mr. Walsh. Thank you, Mr. Chairman.
    Thank you for your testimony today. I don't have any 
oversight questions, but I am curious. What are your most 
popular--most popular requested brochures or pamphlets?
    Ms. Nasif. Well, the Consumer's Resource Handbook remains 
one of the most popular. And we are seeing a surge of interest 
in anything relating to financial management. Making a Will was 
our most requested publication during a recent sampling period.
    Mr. Walsh. The baby boomers are getting----
    Ms. Nasif. Yes, baby boomers. And things relating to----
    Ms. Kaptur. What was the one for----
    Ms. Nasif. Making a will.
    Making a Will was our most requested one, and I think 
that's of interest among many age groups. And publications 
relating to Federal benefits like Social Security or buying 
surplus Federal property seem to be consistently among the most 
popular.
    Mr. Walsh. And if you go on the Internet and you reviewed 
the list and you want to order, what do you do, put in a credit 
card or----
    Ms. Nasif. Yes, give us your credit card number. It's 
encrypted and we have a very secure system.
    Mr. Walsh. It's secure.
    Ms. Nasif. Yes, it is. And we explain this to the customer, 
that it's a very secure system and it's encoded, and the 
information is protected. And we don't retain any information 
other than the customer's name and address, which we explain to 
them because we would like to mail them a Catalog in the future 
again.
    Mr. Walsh. Thank you.
    Mr. Lewis. Ms. Meek.

                   child pornography on the internet

    Ms. Meek. Thank you, Mr. Chairman.
    And thank you again.
    I went to a hearing this morning on the Treasury Postal, 
and they mentioned something that concerned me a great deal, 
and that was child pornography on the Internet.
    I know that there is--this does not have, I don't think, 
any relativity for what you do, but I wanted to mention that in 
case you and your group are looking at your long range goals 
and there is something there that you might tap into that might 
help the consumer.
    Ms. Nasif. Ms. Meek, I'm so glad you mentioned it. Because 
in the kits that I brought for the committee members today, we 
have a new publication on the Parent's Guide to the Internet 
that discusses this and the kinds of safeguards that a parent 
should take to protect their children.
    Ms. Meek. Thank you.

                          cic information kits

    Ms. Nasif. Excuse me. Perhaps we didn't----
    Ms. Meek. Maybe my staff took it. I'll get it.
    Ms. Nasif. Oh, here they are. I can't resist bringing you a 
kit of information each time I come. And so we have some of the 
publications that are popular right now, a list of our most 
popular publications and samples of our press releases, and an 
explanation of how Members can actually imprint a copy of our 
Catalog.

                       catalogs for constituents

    I'm pleased to report to the committee that six out of 13 
members have imprinted Consumer Information Catalogs this year 
and sent them to their constituents.
    So we have those here on display, and I'm very, very 
pleased with the support that we've received.
    And Ms. Meek, thank you for mentioning our Catalog to your 
constituents in your report to senior citizens in December. We 
really appreciate it.
    Ms. Meek. Do you hear everything I do?
    Ms. Nasif. I do, yes.
    Members have the option of imprinting the Catalog with a 
message to their constituents. And so at the time we go to 
press, it's a plate change and we will imprint copies for 
distribution in your district.
    Mr. Lewis. Ms. Meek, you finished?
    Ms. Meek. I'm finished, thank you.
    Thank you very much.
    Mr. Lewis. Okay.
    Mr. Frelinghuysen.

                         medical privacy issue

    Mr. Frelinghuysen. Yes, thank you, Mr. Chairman.
    I was admiring your picture. [Laughter.]
    There's been some discussion--quite a lot of discussion in 
fact, in the media about medical privacy issues. Is this an 
area where you've done any work?
    Ms. Nasif. Well, we do have a publication dealing with 
privacy issues. It's entitled FOIA, Your Right to Know is 
thename of the publication. And it's done by GSA's Federal Information 
Center working with the Department of Justice.
    And we've been offering----
    Mr. Frelinghuysen. So, it does not mirror the right to know 
laws, but----
    Ms. Nasif. It's Your Right to Know. It discusses Freedom of 
Information as well as the Federal Privacy Act of 1974 and what 
your rights are in terms of what information you have that 
should be kept private.
    Mr. Frelinghuysen. Does it have a medical section flavor?
    Ms. Nasif. I believe it does discuss it in a general way. 
Of course, the law is 1974, and so it describes what your 
rights are and what you need to know as far as that law is 
concerned.

                             mailing lists

    Mr. Frelinghuysen. And the last question I have, you 
mentioned the name--or you mentioned the fact that you keep the 
names and addresses of people who write you. Do you have 
mailing lists?
    Ms. Nasif. We don't have a permanent mailing list. If you 
order from Pueblo, we will not keep your name forever. But we 
will keep your name long enough to send you a Catalog in 
approximately six months. And so we use the names once or 
twice, but not forever.
    At the current time, we have about 300,000 names of current 
users that we will retain and not send them the very next 
Catalog since it comes out quarterly, but probably two Catalogs 
down the road.
    And we find that we have an excellent response rate from 
that group. That if they order it once, they're likely to order 
again and be interested in the new publications that we have.
    Mr. Frelinghuysen. Some people are chronically interested 
in getting pamphlets and materials.
    I think, Mr. Chairman, generally on the issue of mailing 
lists, I find that while I haven't been in the state 
legislature for three years, I am still on the mailing list for 
the EPA.
    And I do think, as a general rule, we ought to build into 
the language of all of our appropriations bills some 
requirement that they purge mailing lists on a timely basis 
because I do think that a lot of people are long gone, 
deceased, moved on.
    And we must spend oodles of money paying for sending out 
various pamphlets and fliers. Perhaps not your organization----
    Ms. Nasif. Right. That's why we only use a name once or 
twice, and we do regularly purge all of our mailing lists. 
There's a media mailing list purge going on right now by CIC. 
We maintain our mailing lists continuously.
    So when mail is returned, we immediately take that returned 
name off. But we still go through an every other year purge of 
our bulk mailing list, which is 36,000 names of community 
organizations distributing bulk copies of the Catalog, and our 
media list.
     And we do it just because it's too expensive to keep names 
of people who don't order from us.
    Mr. Frelinghuysen. We're very happy that at least one 
agency has that attitude.
    Mr. Lewis. I was interested in your list of questions.
    Mr. Frelinghuysen. I may have to put that in writing.
    Mr. Walsh. Maybe it just shows the wisdom and foresight of 
the agency to continue you on their mailing list. [Laughter.]
    Mr. Frelinghuysen. You went to the Mr. Hobson School of 
Flattery. [Laughter.]
    Mr. Lewis. Ms. Kaptur.
    Ms. Kaptur. Yes, thank you.
    I also apologize for----
    Mr. Lewis. Could the record show that Mr. Walsh kept Mr. 
Stokes' Catalog? [Laughter.]
    Mr. Walsh. I want to get it autographed.
    Ms. Kaptur. First I want to apologize for not being here 
for your testimony. I'm ranking member at another subcommittee. 
And when I take over this place, I will not have simultaneously 
scheduled hearings.
    It has been a hard day.

                     a 50th anniversary celebration

    So I apologize for not being here. I will tell you a little 
story because I went to a 50th anniversary of a couple in my 
district about a month ago. It was a very formal celebration 
and the entire church was full of people.
    And there came a time when I had to congratulate them in 
the pulpit and so forth. And I went up to both of them and 
shook their hands. And as I was speaking to the wife, who was 
the wife of the pastor, she said to me, ``Thank you for that 
catalog. I never knew you could freeze cabbage.''
    And I--of all the things that could have been said to me. 
[Laughter.]
    I never expected that, freeze cabbage. And I knew----
    Ms. Nasif. Which catalog she was talking about.
    Ms. Kaptur [continuing]. Which catalog she was talking 
about. And evidently this church has a freezer, and so they 
were able to buy cabbage down at the market and freeze it for a 
lot of their members which, in this particular neighborhood, 
was a good idea. [Laughter.]
    And that had to be years ago.
    Mr. Lewis. Have you ever been hit by a frozen cabbage? 
[Laughter.]
    Ms. Kaptur. But I just--that was the most amazing moment. I 
won't forget that one. I mean, everybody's dressed in white 
dresses and all the singing and everything.
    Ms. Nasif. Our catalog addresses a great variety of topics, 
and I'm sure we can address----
    Ms. Kaptur. I was completely caught off guard by that, but 
it told me that it really mattered--you know, mattered to 
somebody. It meant a lot.
    Ms. Nasif. Thank you for your kind words.
    Ms. Kaptur. That's all right.

         print communications versus electronic communications

    I have maybe two questions. One is, of all the 
communications that occur in your office, how many are print 
and how many are electronic? I know you were answering 
questions about one million to five million pages that have 
been accessed on the--through the Internet or through the Web 
site.
    But what percentage--ball park-- of communications with you 
are orders for written publications versus electronic?
    Ms. Nasif. The eight million publications distributed 
represent about two million orders we received in Pueblo.
    So if we use that two million orders going into Pueblo 
compared toInternet users, we estimate that, for example, the 
four million page accesses really represents a little over a million 
users because we use the standard which is one of the many ways of 
measuring.
     One rule of thumb is three and a half pages of page 
accesses represents one user. The typical user will go in and 
read about three and a half pages.
    So we would say maybe 1.1 million users on Internet, versus 
perhaps two million users ordering from Pueblo. I'm not sure if 
that's exactly what you're looking for.
    Ms. Kaptur. The electronic is about half?
    Ms. Nasif. Yes, it is. As far as publications being 
ordered, of course, most of the orders, at this time, are still 
print orders. We think that we're going to have perhaps a 
transformation of that in the next few years with the Web site 
ordering.
    And if indeed we start telephone ordering, more and more 
people will be ordering by telephone as opposed to writing. And 
what we've observed in the private sector is that most catalog 
businesses get most of their orders by telephone, not by mail.
    So that you can't really call them mail order catalogs 
anymore; you have to just call them catalog businesses because 
most consumers pick up the phone--and you know yourself, if 
you're a catalog user, do you send your order to L.L. Bean 
writing it out, or do you pick up the phone and order by phone?
    So we think that that is going to probably become a primary 
way for us to receive orders in the future by our toll-free 
number.

                        most popular publication

    Ms. Kaptur. Now the publication you said was the most 
popular, was it this one?
    Ms. Nasif. Well, that's the Catalog that lists all the 200 
publications available at any time. And there should be a sheet 
in your kit that lists the most popular publications at this 
time. And the Consumer's Resource Handbook and financial 
publications, those dealing with Federal benefits----
    Ms. Kaptur. This is the one.
    Ms. Nasif. Yes, that's the Consumer's Resource Handbook.
    Ms. Kaptur. Well, I wondered what this----
    Ms. Nasif. Yes.
    This is, of course, the previous edition. We're working on 
the new edition right now.
    Ms. Kaptur. Well, why is this so popular?
    Ms. Nasif. Well, it's a wonderful publication. [Laughter.]
    That's why it's so popular. One hundred and twenty-five 
pages on how to solve any consumer problem you have. It has a 
list--a consumer assistance directory of 2,000 names of Federal 
agencies, corporate contacts, Better Business Bureaus, utility 
commissions.
    You can look in this book and it will give you a lead on 
how to start solving virtually any consumer problem. It has 
been produced since 1979 and it is one of the most popular 
Federal consumer documents ever available.
    Mr. Lewis. Ms. Nasif, would you allow me not just one of 
those, but two of them for--Leon Panetta's going to be in the 
other room in a couple of minutes, and he may be--I'd like to 
give him a copy personally.
    Ms. Nasif. Oh, please, yes.
    Mr. Lewis. I was going to ask you to sign it, but I think I 
should hesitate.
    Ms. Nasif. I will show you just the front of the new 
edition that we are working on. This is just the cover--what 
the cover will look like. We went through a number of different 
focus groups trying to figure out how to make it more 
effective.
    One of the suggestions we received was to have tabs here so 
if you're looking for how to contact your state and local 
government, for example, the pages will be color coded and you 
can go right to that section. And so that's one of the 
innovations that we will have.
    Hopefully it will be released to the public in June. And 
you will all receive many copies, I assure you. [Laughter.]
    Ms. Kaptur. Thank you so much.
    Mr. Lewis. Thank you, Ms. Kaptur.
    Other members have questions?

                       government printing office

    Mr. Walsh. One last question. Who prints all these? Does 
the Government Printing Office print these?
    Ms. Nasif. Yes.
    Mr. Walsh. They do?
    Ms. Nasif. Yes.
    Mr. Walsh. Here? They print them here?
    Ms. Nasif. No, actually they bid it out. And they get the 
best price possible. We have been going to St. Louis and Omaha 
to get the Catalog printed over the last year. And----
    Mr. Walsh. They bid it?
    Ms. Nasif. What happens is that we write up a work 
statement for a term contract of one year, and it specifies, 
you know, everything we need and the number of copies. And GPO 
puts it out on the street, they call it, to compete it among 
printers all over the United States.
    Mr. Walsh. So the Government Printing Office doesn't print 
this in their own shops?
    Ms. Nasif. No, they don't.
    Mr. Early. They're the clearing house for it.
    Ms. Nasif. Right, they're our agent----
    Mr. Early. They do not print it themselves.
    Ms. Nasif [continuing]. In finding us a good price 
hopefully. And we're coming up now on finding out who our 
printer will be for the next four editions. We'll know in the 
next several weeks.
    Mr. Walsh. Thank you.
    Ms. Nasif. You're welcome.
    Mr. Lewis. Other questions, members?
    Ms. Nasif, thank you very much for being with us. 
Appreciate it.
    Ms. Nasif. Thank you.


[Pages 769 - 809--The official Committee record contains additional material here.]



                                       Thursday, February 26, 1998.

                UNITED STATES COURT OF VETERANS APPEALS

                                WITNESS

HON. FRANK O. NEBEKER, CHIEF JUDGE

                              Introduction

    Mr. Lewis. Judge Nebeker, welcome back to the Committee.
    We are going to suspend any in-depth opening remarks, but 
would certainly welcome you to introduce us to your guests who 
may be with you.
    It is our intention to begin with your 1999 budget request 
and ask a few questions after your statement, but not an awful 
lot more than that. But before I go any further, Louis Stokes 
tells me this may be the last time he has you before our 
committee.
    Judge Nebeker. Am I going somewhere, Mr. Stokes?
    Mr. Stokes. No, Judge, it is me. You are okay. You will be 
back over and over again.
    Mr. Lewis. Mr. Stokes has told us he is not going to stand 
for election on the next go-around, and as a result of that, 
unless we have you back up here on an emergency basis----
    Judge Nebeker. I hope that won't happen.
    Mr. Stokes. I may come visit you in court.
    Judge Nebeker. You are always welcome.
    Mr. Lewis. With that, begin with your statement. The 
statement will be included in the record in its entirety, and 
from there you can summarize it, as you like.
    Judge Nebeker. And I will introduce the folks that have 
come with me for the record: Bob Comeau, the Executive Officer 
and Clerk of the Court; Sandra Montrose, my Executive Attorney; 
Ann Olson, our financial officer; and last but not least, of 
course, is Judge Ivers.
    Mr. Lewis. Judge, good to see you.

                             budget request

    Judge Nebeker. With your permission, I would like to talk 
about two topics. The first one, of course, is the budget. And 
we are asking for an $801,000 increase over last year.
    Now if you had recourse to the transcript of the testimony 
that I gave a few days ago before the authorizing committee, 
you would see I said the increase was $876,000, and you might 
wonder why I am changing the amount. I am changing the amount 
because I am doing what I am asking you folks to do, and that 
is to separately consider the pro bono program's budget request 
from ours. Their increase is $75,000. I subtract that from the 
total I gave to the authorizing committee, and that leaves us 
with an $801,000 increase, and we asked for that separate 
consideration for the reasons you are quite familiar with from 
years past.
    Our increase is brought about by a 38 percent increase in 
the caseload of the court, a marked increase that has resulted 
from the capacity of the Board of Veterans' Appeals to get its 
decisions out. They have increased drastically their output and 
that proportionately affects the calendar of our court.
    We are asking for one additional FTE to enhance our 
computer capability, which has not been enhanced in the last 
few years at all. There is a 3 percent rent increase that we 
can do nothing about, dictated by GSA, and GSA has also, along 
with the United States Marshals Service, imposed upon us 
additional security costs resulting from the Oklahoma City 
bombing incident, so we are adjusting to that as well and 
trying to do so with this increased amount. And there is a 
substantial sum that goes to mandated pay increases to include 
for the first time in a long time, for the judges, as well as 
our nonjudicial staff. Now that pretty well sums up my first 
comment respecting the budget.
    [The information follows:]


[Pages 813 - 818--The official Committee record contains additional material here.]



                              pay increase

    Mr. Lewis. By substantial sum, what percentage was used?
    Judge Nebeker. For the pay increase?
    Mr. Lewis. Yes.
    Judge Nebeker. Mr. Comeau will have the exact figures.
    Mr. Lewis. It is obvious there is one FTE, and there is an 
870 plus thousand dollar adjustment, and that doesn't normally 
reflect on FTEs.
    Judge Nebeker. It does not. The major part is consumed in 
rent and the security enhancements that we have to do and the 
pay increases.
    Mr. Lewis. Why don't we ask you.
    Mr. Comeau. The COLA for the judges amounts to $22,000 of 
that figure, plus $30,000--they got a COLA this year, but we 
had no coverage for that COLA, so there is a $30,000 floor on 
which that is built. This year we are able to absorb that out 
of the hire lag because our seventh judge, who replaced the 
judge who died a year ago May, didn't come aboard until late 
November.
    The staff pay increases amount to $140,000, so that is a 
total of; $162,000, plus the $30,000--$192,000.
    The new computer--the new FTE is for a computer systems 
analyst, for which we are allocating about $45,000, so that is 
$237,000 there.
    Mr. Lewis. Okay. That gives me a feeling. Go ahead, please.

                         cause of court backlog

    Judge Nebeker. Thank you.
    The second topic I wanted to mention is an atypical one. I 
am sure you will find it so. The court has had visited upon it 
a backlog of some 2,300 cases. That does not mean those cases 
are before the judges for disposition; quite to the contrary. 
Before a case can be ready for disposition and a decision by a 
judge or the court, we have got to get the record on appeal 
together. The Secretary has custody of the record and knowledge 
as to what is needed in it.
    Then, of course, there is a statute that says, and I quote, 
``the Secretary shall be represented before the Court of 
Veterans Appeals by the General Counsel of the Department.'' 
Now that is a mandatory representation duty upon the general 
counsel. With his present staffing, he simply can't perform 
that statutory function, and he is coming to you for extra 
money devoted to Group VII, the group of lawyers that represent 
the Secretary under that provision, 38 U.S.C. 7263(a). And I 
implore you, we need for them to have that appropriation.

                           va representation

    Mr. Lewis. Judge, let me be very specific about that 
question. Since I have the wonderful circumstances of not 
having to be a lawyer, so I am not suffering that difficulty, 
would you interpret for me that language. Is it conceivable we 
could say--we could interpret ``presence'' in a way that didn't 
require a physical body; is there another way of fulfilling 
that requirement other than a sizable dollar requirement?
    Judge Nebeker. Really not. They have to have the lawyers to 
do it.
    Mr. Lewis. Help me with the word ``presence,'' that is what 
I am asking about.
    Judge Nebeker. Presence? Represent. I'm sorry, represent. 
In an attorney/client relationship, VA General Counsel's staff 
attorneys are representatives of the Secretary for the purpose 
of appearing before the court. They must file a brief. After 
the record is designated, we have the facts together, we wait 
then for the appellant's brief, and when the appellant files a 
brief, it is the Secretary's obligation to do so. We have to 
have his position in the case before we can decide it.
    Mr. Lewis. I guess what I will do is try to have my staff 
otherwise follow through on this line for it. It strikes me 
that sometimes by way of our language, we create problems that 
may or may not serve as well a constituency we are supposed to 
be servicing, and my concern is that that language not lead to 
a cost load that produces almost zero difference in terms of 
real representation for the clients who are there. So we need 
to probe that with you.
    Judge Nebeker. I am not talking about representation of the 
appellants. That is the pro bono program, the private
    bar.
    Mr. Lewis. All that I am aware of, yes.
    Judge Nebeker. We are talking about the other side of the 
litigation, and the Secretary, to be represented in court, has 
got to have a lawyer who is not so busy that he can no longer 
function in any particular case. We have had thousands of 
motions to extend time for the general counsel to do his job in 
our court--her job up, until a little while ago.
    Mr. Lewis. I guess staff can tell me. This takes me back to 
the original decision we made to change the process in the 
first place, and I wonder if we didn't just create something 
that becomes another layer that may or may not be improving the 
condition of the people who are serving. I know that goes to 
the heart of why you are here.
    Judge Nebeker. It does, but let me liken it to this. In 
other Federal courts in the United States, the Justice 
Department, through the United States attorneys, represents the 
interests of the United States. In the Court of Veterans 
Appeals it is the same function, but it is being performed by 
the General Counsel of the Department of Veterans Affairs. 
``You can't get there from here'' without the government being 
represented.
    Mr. Lewis. Yes. I guess that is my problem is the cost of 
money, and you are suggesting you don't want it in your budget, 
you would like to have it in the other.
    Judge Nebeker. It is their budget. Taking us back to our 
discussion about the pro bono program, I think I said to you 
before, it would be like taking our operating budget and 
putting it into the VA to fund their Group VII. And--no, 
everyone would conclude of course not. But in this instance, we 
need them to have that money, the court does, in order to get 
to the cases it has, and if it doesn't, the backlog is going to 
get worse and worse and worse because the Board is producing 
more decisions, and more than one third of those decisions are 
denials of all benefits sought. So we can expect a large number 
of appeals. If we don't break this logjam soon, it is really 
going to be hopeless.
    Mr. Lewis. You have actually answered the first couple of 
questions I have.
    Mr. Stokes, do you have any?

                       increase in bva decisions

    Mr. Stokes. Mr. Chairman, thank you, just a couple of 
questions.
    I see here that the Board of Veterans' Appeals issued 
43,000 decisions in 1997, compared to 34,000 decisions in 1996. 
What is the basic reason for the increase?
    Judge Nebeker. Mr. Stokes, I can't tell you, because the 
court is so separate from the Board that we are not privy to 
any of the functioning of the Board. I am sure, though, it is 
just an increase in the capacity to make dispositions of the 
appeals that are there. They've gotten more people, they've 
gotten more support staff, I guess they haven't gotten any more 
Board members, but they have gotten additional support staff. 
The Board members now function singly rather than in panels, so 
that increases their productivity right there.

                         va group vii staffing

    Mr. Stokes. Judge, in last year's hearing, you indicated 
that a real potential bottleneck in the entire appellate 
procedure was Group VII within the Department of Veterans 
Affairs office, the General Counsel's office, which you said 
had been starved for personnel. What is your understanding of 
the personnel situation in Group VII this year.
    Judge Nebeker. Mr. Stokes, the court issued an order about 
4 weeks ago in a case where there was the sixth motion to 
extend time to file a brief. The order directed the Secretary 
to respond to this question: If, within 6 months, this court 
were to adopt a rule that said caseload, workload, would not be 
a good cause for an extension of time, was the Secretary 
prepared to devote the necessary resources to meet the demand 
that would then be imposed upon it? He filed a response to that 
on the 19th of February. I can make a copy available, it is 
public record, if one hasn't already been made available to 
you. And his response was that he has diverted some available 
funding to already begin to build up this Group VII in terms of 
attorney power, as well as support staff, and commensurate with 
that, providing them additional floor space. He then informs 
the Court that he has requested another $1 million in the 
budget you are about to be considering to make that permanent, 
that is, increased staffing, a permanent thing, and that is the 
increase that I am talking about in my second point this 
afternoon.
    [The information follows:]


[Pages 822 - 833--The official Committee record contains additional material here.]



    Mr. Stokes. I see.
    Judge Nebeker. So the Secretary is doing, I think, just 
about what he can at this point, but without that 
appropriation, the changes would just go to the end of this 
fiscal year, and that would be it.

                        pro bono program funding

    Mr. Stokes. Let me ask you this, so I can get a little 
clearer understanding. You have been consistent in terms of 
requesting that the pro bono program be kept separate from the 
courts. What is your basic reason for that? Let me understand.
    Judge Nebeker. If the court has to take out of its own 
operating budget and sacrifice in order to have the Pro Bono 
Program work, it is like the court out of its own budget, 
paying lawyers to represent one side of a case before the 
court.
    Mr. Stokes. It doesn't have anything to do with fairness?
    Judge Nebeker. It has more to do, I think, with an 
appearance of unfairness. The court being forced to sustain one 
side of the litigation at its own expense might appear to be 
less fair to that side. Those who lose would say that is the 
reason.
    Mr. Lewis. And we all know we want the courts to be fair.

                             court staffing

    Mr. Stokes. Your point is well taken, I think.
    Now let me understand, in terms of staffing on each side, 
the court's program. You have how many employees?
    Judge Nebeker. We have 79.
    Mr. Stokes. Seventy-nine.
    Judge Nebeker. Seven judges and 72 staff.
    Mr. Stokes. Now, is that on both sides of the program, or 
is that the whole thing?
    Mr. Comeau. That is the whole program. The judges and their 
law clerks and their secretaries make up 30 of those, and then 
the rest are all part of the Clerk's Office, my office. We 
process the cases, get them in, get them shaped, get them to 
the judge and get them back out on the street again when the 
decision is rendered--this is strictly within the court 
structure itself.
    Judge Nebeker. I want to make sure, when you said program, 
you weren't including the Pro Bono Program.
    Mr. Stokes. No, I am going to ask you about that, too. In 
terms of the Pro Bono Program, how much staffing is there?
    Judge Nebeker. We don't count them as our staff.
    Mr. Lewis. Mr. Stokes, this is David Isbell, he is with the 
pro bono program, who is going to answer those questions if you 
like. Just do whatever you like.
    Judge Nebeker. How many do you have on your staff?
    Mr. Robertson. I have nine full time, and there are some 
part-time folks who are in outreach and education.
    Mr. Stokes. Now in terms of your staffing, does it come 
through the bar association itself, the pro bono employees?
    Mr. Robertson. There are two attorneys in my office, myself 
and my deputy. We have three administrative staff, and I have 
four what we refer to as veterans law specialists or case 
evaluators. They come to us from the supporting service 
organizations, such as the American Legion, Disabled American 
Veterans, Paralyzed Veterans of America. Those are the folks 
who do the evaluation of the cases which we use as the basis 
for our decision to accept a case or not accept a case, and 
then refer it out to pro bono counsel.
    Mr. Isbell. I might say for the record, the speaker there 
was Brian Robertson, who is head of the case evaluation and 
placement operation of the program.
    Mr. Lewis. Thank you.
    Mr. Stokes. In the documents here, it shows 28 employees. I 
guess 9.2 are from the grant, and the others come from this 
other source.
    Well, a further clarification, your total FTEs in the pro 
bono office are what?
    Mr. Robertson. I am not sure I can answer that without 
consulting some documents in my office. Again, I have nine 
full-time personnel in my office, but there are some other 
individuals who work part time. There are other components.
    Mr. Lewis. You have it right there.
    Mr. Isbell. We have a total of 10 full time equivalents.
    Mr. Stokes. Okay.
    Mr. Isbell. 10.06.
    Mr. Stokes. Judge Nebeker, let me come back to you for a 
moment. There are 72 employees of the court--is that correct?
    Judge Nebeker. Yes.

                         court staff diversity

    Mr. Stokes. Can you give me some idea of the distribution 
of those employees in terms of gender and race and so forth?
    Mr. Comeau. Yes, sir. Of the 72 staff, 61 percent are 
women, 40 percent are minorities and 33 percent are veterans or 
people who have veteran's preference, including a widow of a 
deceased veteran.

                    pro bono program staff diversity

    Mr. Stokes. In terms of pro bono FTEs, what is the 
breakdown there?
    Mr. Robertson. Again, sir, I can speak with respect to my 
own staff, which is 90 percent of that. I have four women who 
are employed, of the nine people. Also five men, one of whom is 
black, and that is the makeup, sir.
    Mr. Stokes. Thank you, Mr. Chairman.
    Mr. Lewis. Thank you, Mr. Stokes.

                      pro bono program fiscal year

    Mr. Knollenberg is going to have a couple of questions, I 
think, that relate to Mr. Isbell, at least in part, so why 
don't you come up and join the judge.
    Mr. Knollenberg.
    Mr. Knollenberg. Thank you, Mr. Chairman.
    Judge, thank you. I know the Pro Bono Program is one that 
has been around for a while, and there are a couple questions 
about the 1997 appropriations earmark I believe it was 
$700,000, right?
    Mr. Isbell. For fiscal year 1997, that is right, $700,000.
    Mr. Knollenberg. I have also been told that in 1997, they 
switched from a Federal fiscal year to the calendar year for 
operating expenses; is that right?
    Mr. Isbell. We did do that. We switched from fiscal year 
ending September 30, to a fiscal year starting January 1 and 
ending December 31, and we were able to fund that stub quarter, 
in effect.
    Mr. Knollenberg. What quarter?
    Mr. Isbell. I call it a stub quarter, like stub financials. 
Accountants call it that. We were able to fund that stub 
quarter almost, by reason of our having a surplus, and for 
various reasons we have had a surplus from each preceding year, 
so there has always been a carryover that has allowed us to 
keep operating after the end of the fiscal year and until we 
start receiving money.
    Mr. Knollenberg. Because you gained a 15-month period 
there.
    Mr. Isbell. We managed to stretch our fiscal year into 15 
months, but that used up absolutely all of our reserves, and in 
fact one of the constituent organizations had to pay an 
additional $8,000 out of its own pocket.
    Mr. Knollenberg. This may be an appropriate question. How 
much was spent on the Pro Bono Program during the 15-month 
period from October 1, 1996 until December 31, 1997?
    Mr. Isbell. It would have been the amount of our 
appropriation plus approximately $150,000.
    Mr. Knollenberg. Would you explain partially where the 
extra funds came from?
    Mr. Isbell. Well, we had, in each successive year, had an 
appropriation that turned out to be more than we were able to 
spend. One year in particular sticks out. It was the year of 
the great budget crunch, you know, continuing resolutions and 
so forth, and we anticipated for a good part of that year that 
we were going to have to go out of business. We simply didn't 
have the money to keep operating beyond 6 months of the year, 
and so we cut down on our staff, on our activities. When the 
funds came through, we were not able to staff up to the point 
to be able to use all of the funds.
    I don't have a memory as to the particular circumstances of 
each previous year, but in any event, a switch from a Federal 
fiscal year to a calendar fiscal year will make it easier for 
us to operate in the future. And of course we can't count on 
it. We never budgeted it on the expectation of having a 
surplus.
    Mr. Knollenberg. So there was a surplus.
    Mr. Isbell. In each previous year there wound up being a 
surplus at year end, and as I say, that allowed us to keep 
operating after the fiscal year end until new funds came in, 
including the year of the budget crunch.

                    pro bono program in-kind funding

    Mr. Knollenberg. Finally, what percentage of the Pro Bono 
Program is funded by appropriations, and what percentage is 
funded by the Paralyzed Veterans of America and the National 
Legal Services Corporation? It may be a random question, but 
could you respond?
    Mr. Isbell. Our annual reports put out that information. In 
terms of cash contributions, the proportion is not as 
substantial as the amount of in-kind contributions. Two of the 
organizations contribute staff members to the case evaluation 
placement component full time. Their salaries are paid by those 
organizations, and we are not told how much those salaries are, 
and those organizations do not allow us to report those dollar 
amounts, although we estimate them. I might mention that if you 
count the value of contributed services in addition to dollars 
actually put in, we get a factor of something like 3 to 1.
    Mr. Knollenberg. Thank you, Mr. Isbell.

             relationship of pro bono program to the court

    The only other question, and I am not trying to 
characterize this as the case, but, Mr. Isbell, would it be 
fair or unfair to say that the Pro Bono Program is kind of a 
stepchild of the entire program? I don't want to put words in 
your mouth, but with all the conversation and commentary we 
have had, I sometimes get that feeling. I don't know if that is 
the reason you want to separate it, not to suggest that it is.
    Judge Nebeker. Let me answer it this way. It was a pilot 
project funded with excess money when we first started it. It 
has worked successfully. Fiscally, it is a stepchild; legally, 
it is a very great help.
    Mr. Knollenberg. Thank you. I think you answered it very 
well. Thanks to both of you.
    That concludes my questions, Mr. Chairman.
    Mr. Lewis. Mr. Stokes, any further questions?
    Mr. Stokes. No, Mr. Chairman, thank you.

                          budget for equipment

    Mr. Lewis. You are requesting an increase of $146,000 for 
computer and printer replacement. How many computers and 
printers do you plan to replace, and how old is that equipment?
    Judge Nebeker. I will defer to Mr. Comeau on that one.
    Mr. Comeau. Eighty computers and twenty-four printers, and 
we are trying to get all of our automation equipment on a 3-
year replacement cycle, which we understand is standard in the 
automation world because things go obsolete in just over 3 
years, so that amounts to about $129,000 of that $146,000. The 
remaining $17,000, I believe, would be for replacement of 
software, which is also, from a budget standpoint, categorized 
as equipment.
    Mr. Lewis. There is an additional amount of $108,000, isn't 
there, for other equipment?
    Mr. Comeau. Yes, and that gets into----
    Mr. Lewis. You can provide that information for the record. 
Also provide for the record an update of the caseload 
statistics table found on page 11 of last year's hearing, if 
you could do that.
    [The information follows:]

    The $108,000 budgeted for equipment, over and above the 
$146,000 for computer upgrades, covers regular Court expenses 
for furniture, books, telecommunications equipment, copy 
machines, facsimile machines, and routine upgrades to existing 
computer software or new automatic data processing software not 
associated with the programmed computer purchase.

                                               STATISTICAL SUMMARY                                              
                                                                                                                
----------------------------------------------------------------------------------------------------------------
                                                               Pending at                  Cases      Pending at
                         Fiscal year                           beginning   Cases filed   terminated      end    
----------------------------------------------------------------------------------------------------------------
1994........................................................         1268         1142         1264         1164
1995........................................................         1164         1279         1168         1275
1996........................................................         1275         1620         1252         1643
1997........................................................         1643         2229         1611         2261
----------------------------------------------------------------------------------------------------------------

                               Conclusion

    Mr. Lewis. Other than that, that closes out my questions 
for the year. Thank you very much, Judge Nebeker.
    Mr. Isbell, pleasure to see you.


[Pages 839 - 859--The official Committee record contains additional material here.]



                                       Thursday, February 26, 1998.

                        SELECTIVE SERVICE SYSTEM

                                WITNESS

GIL CORONADO, DIRECTOR, SELECTIVE SERVICE SYSTEM
    Mr. Lewis. Welcome, Mr. Coronado. I must say that this 
should be a reasonably brief hearing, since yesterday's hearing 
and the day before we filled the room with Members, so there 
were enough questions to go around. This should be a very short 
meeting indeed, if that meets with your approval.
    Mr. Coronado. I appreciate that very much.
    Mr. Lewis. The Selective Service System is requesting 
$24,940,000 and 180 FTEs for fiscal year 1999?
    Mr. Coronado. That is correct.
    Mr. Lewis. This is an increase of $1,527,000 above fiscal 
year 1998, and, Mr. Coronado, before having you introduce your 
guests, let me call on Mr. Stokes for anything he might want to 
say, and he is going to keep the meeting brief, otherwise, you 
know, he is going to fire me.
    Mr. Stokes. Mr. Chairman, I know how to take a hint, if I 
have learned anything in 30 years.
    I would just like to welcome Mr. Coronado. It is always a 
pleasure to have you appear before us.
    Mr. Coronado. Thank you, sir.
    Mr. Lewis. Your entire statement will be included in the 
record. We appreciate any summary you might make, and you can 
introduce whatever friends you like.
    Mr. Coronado. Thank you, Mr. Chairman. I intend to have a 
written statement to submit for the record.
    I want to introduce briefly the two key members of the 
Selective Service leadership, Mr. Willie L. Blanding, Jr., on 
my right, the Agency Executive Director. He was here last year. 
To my left is Mr. Lew Brodsky, Director of Public and 
Congressional Affairs, who has been here many times.
    I would like to dispense with the oral and get on to the 
questions. I want to say, I appreciate very much the support of 
this subcommittee and the Congress for allowing us to go 
forward and do the public's business as far as Selective 
Service is concerned. We appreciate it.
    [The information follows:]


[Pages 862 - 873--The official Committee record contains additional material here.]



    Mr. Lewis. We appreciate that, and we understand the spirit 
with which you present that appreciation, and it is great to 
work with you.

                         spirit of volunteerism

    Let's talk about your Spirit of Volunteerism and Awareness 
initiative. This initiative sounds somewhat similar to last 
year's Service to America initiative. There is no specific 
request for additional funds in fiscal year 1999's proposal as 
there was last year with the Service to America. How does the 
Spirit of Volunteerism and Awareness initiative differ from 
last year's Service to America initiative?
    Mr. Coronado. First of all, Mr. Chairman, I came to you 
last year and I testified on behalf of Service to America. That 
was a Selective Service initiative, and we had proposed a 
three-phase program. We presented to you the financial listing 
of what we wanted to do, and we already had implemented Phase 
1. You, of course, did not agree with Phase 2 and 3, and we 
heeded seriously your advice. We never went beyond phase 1 of 
3. [This was Selective Service.]
    Now, the new initiative is from the Administration and is 
called Volunteerism----
    Mr. Lewis. Spirit of Volunteerism.
    Mr. Coronado. Yes, sir. Our project officer for that is Mr. 
Brodsky.
    So, Lew, if you can explain the Administration'sinitiative.
    Mr. Brodsky. Mr. Chairman, we intend to support the 
Administration's emphasis on volunteerism, and as you know, we 
communicate with America's young men as an integral part of our 
registration mission, and that gives us an opportunity to 
encourage volunteerism.
    We have already initiated or will shortly begin to do some 
programs that are no cost. For example, we are installing links 
to other Federal agencies on our Selective Service web site. We 
are also going to distribute literature about volunteer service 
opportunities when we do our Selective Service registration 
awareness exhibits around the country. And, we are going to 
specifically seek out young men and women to serve as 
volunteers on our local boards.
    Now that being said, in fiscal year 1999, sir, we also plan 
to modernize our own automation processes, our own systems, to 
further deliver messages concerning volunteerism as a part of 
our regular routine mailings to young men. Specifically, we 
will do an overprint or a tag-on to the acknowledgment card, 
which reaches about 1.8 million men per year.
    Mr. Lewis. Describe that for me in a little more detail.
    Mr. Brodsky. Well, we will have space on the card which 
will be able to be overprinted. It will be similar to the Phase 
1 card from Service to America, but we are freeing up even more 
space on that card, and perhaps we will go to a larger card 
that will allow us to promote other activities that deal with 
volunteerism, such as America's Promise activities, or 
clearinghouses for community service. And, of course, we will 
continue to promote Department of Defense opportunities as 
volunteer opportunities for America's young men.
    Mr. Lewis. So in this case we have a card that is addressed 
to a Mr. Calvin in Blankville, Indiana.
    Mr. Brodsky. Calvin Lindsey Johnson is fictitious. That is 
a sample card.
    Mr. Lewis. And information is developed here that relates 
to registration.
    Mr. Brodsky. Yes, and Selective Service specifically. That 
is how a man gets his unique Selective Service number that 
serves as his proof of having complied with the registration 
program, should he seek benefits tied to registration.
    Mr. Lewis. Above and beyond that, there may be or may not 
be material on here that would give him information that 
relates to volunteerism.
    Mr. Brodsky. Yes. In our concept, there would be additional 
information to share with the young man that says, if you are 
interested in volunteer service in the U.S. military, call this 
number. If you are interested in finding out what you can do in 
your community, here is a number for you to call.
    Mr. Lewis. Where did this kind of idea develop; who did the 
brainstorming relative to this?
    Mr. Brodsky. Originally, Service to America, which was the 
program we hoped to expand last year was directed by the 
Selective Service System. It was our original idea. It 
involved, in its later phases--which we never implemented, as 
you know--providing recruiting leads to AmeriCorps and to the 
Department of Defense. Again, that was never implemented. We 
were never funded for that.
    The Spirit of Volunterism idea is Administration-initiated. 
In other words, the White House has specifically asked Federal 
agencies to get involved in encouraging a spirit of 
volunteerism throughout the U.S. So, we are taking this step, 
taking these steps, we hope, to be able to comply with that 
White House directive.
    Mr. Coronado. We attended the Philadelphia summit. We 
intend to knock out the whole permanent address and free up 
some space on our acknowledgement cards. We also intend, once 
we use up stocks of the current card, to drop AmeriCorps. We 
will drop that based on your feelings about last year. But, I 
will continue to support the Department of Defense in any way I 
can. Both numbers were already there. Supplies of this card 
carrying DOD and AmeriCorps phone numbers will be used up this 
summer and we will use a new card. It will have space on it for 
other messages and promote programs as the Administration may 
ask us. It could, for example, promote AIDS awareness or 
include other possibilities of communicating public service 
messages to America's youth.
    Mr. Lewis. I think we covered the questions I have.

                                staffing

    The fiscal year 1997 FTE level was 167, a decrease of 23 
below last year's estimate of 190. Fiscal year 1998 FTE level 
of 180 is also below last year's estimated level of 190. What 
caused the 1997 staffing level to be 23 below?
    Mr. Coronado. I will defer to the Executive Director.
    Mr. Lewis. Thank you, sir. Good to see you.
    Mr. Blanding. Thank you, sir. Sir, first off, last year's 
requested level went up approximately five FTEs because we were 
anticipating your approval of the $506,000 for Service to 
America, and we anticipated hiring on extra people to support 
that program. Without the money to fund it, obviously, the FTEs 
were never filled.
    Prior to that, the Agency was going through, if you will, 
survival at the time. We didn't know if we were going to 
survive, and for a period we did not hire individuals, and so 
that is what caused the lag. But since that time employment has 
slightly increased, but not to the point of filling every FTE.
    Mr. Lewis. What is your current employment level?
    Mr. Blanding. For FTEs today, 180.
    Mr. Brodsky. I think actual fill is slightly below that. 
There are always going to be some vacancies, sir, as people 
leave and other people are hired.
    Mr. Blanding. The actual employment is 172 or 173.

                         information technology

    Mr. Lewis. Okay. Let's see. Is the Selective Service System 
changing its emphasis, fewer FTE and more funds for other 
activities, such as information technology?
    Mr. Coronado. The funding increase we are asking for, sir, 
is to support information technology, advancements in ADP. We 
are not changing anything, we are merely moving forward to try 
to serve America better, more efficiently, more rapidly, and 
our FTEs should be stable at 180.
    Mr. Lewis. How much money will go to that extension in 
terms of information technology?
    Mr. Coronado. The increase requested in the 1999 budget is 
$1 million for technology and $500,000 for pay raises and 
inflation.
    Mr. Lewis. So it is $1,500,000.
    Most Federal agencies are making modifications to existing 
computer programs for the next century. Some agencies, like the 
VA, are spending large sums of money on what is generally 
referred to as the year 2000 problem. I am stealing a question 
from my colleague to the right.
    Mr. Hobson. I was just marking mine off here.
    Mr. Lewis. Are you ready for that?
    Mr. Coronado. We are heading toward that very rapidly. What 
we are trying to do is more than that. We are trying to get 
away from the mainframe computer we operate in Chicago which is 
very expensive. We want to go into a more effective and smaller 
platform. We are aware of the year 2000 requirements, the 
glitches that other computers have had.
    Mr. Lewis. Who specifically in the room will be responsible 
for that?
    Mr. Coronado. Mr. Miller is not here, but he heads our 
Information Management Division.
    Mr. Lewis. Lately we have been having the person stand up 
so Mr. Hobson can focus upon him.
    Mr. Coronado. And, really zero in on them.
    Mr. Hobson. When they come back and say you want all this 
money, we are trying to put you on notice now. Don't come back 
and say you have glitches because we are asking you to look at 
them now.
    Mr. Coronado. Well, sir, we think we have a good approach 
to the whole thing. We also have a study that will identify 
problem areas before we really head into this.
    Mr. Blanding. If I can add on to that, we are testing all 
of our computer networks next year, 1999, and we will be ready 
before 2000 rolls around.

                              registration

    Mr. Lewis. You may not want to raise your hand so high. I 
appreciate that. What my staff calls SSS, triple S, the home 
page is available for registration. How many young men 
registered using the Internet in 1997?
    Mr. Coronado. It is not quite there. What we are doing is 
to initiate the registration.
    Mr. Brodsky. I will explain that. Unfortunately, or 
fortunately as the case may be, the law is quite specific. A 
man must ``present himself'' and ``submit to'' registration 
with Selective Service. We are trying to work out how the 
``submit to'' can be covered under an Internet situation. 
Ordinarily the signature on the card represents the 
``submitting to.'' It is proof that the man who is registering 
is actually the man who is filling out the card. You can't do 
that on the Internet, so we are looking at other government 
agencies and how they are working similar issues, such as IRS, 
which issues a PIN number, and when the tax form comes in, the 
PIN number then is identified with the tax filer. In a similar 
way, the registrant might be identified with a PIN number we 
would issue in advance by a reminder mailing, you might say.
    Mr. Lewis. By the time you get a solution, they will be 
able to flash up a picture.
    Mr. Brodsky. But the goal, sir, is not only will the man be 
able to entirely register on line, but almost instantaneously 
he will get his Selective Service number back from the 
computer, on-line. That is in our plan. How we implement that 
depends on how we improve our automation.
    Mr. Lewis. You are explaining a little bit about future 
registration for the Internet. How much cheaper do you think 
that will be, rather than the mail-in cards?
    Mr. Brodsky. It is hard to give you an estimate right now.
    Mr. Coronado. We have gone through so many processes. It is 
$1.06 if you present yourself at the post office, and they 
handle it for us, but men pay the 32 cents if they put their 
own stamp on it. So we don't know all the costs. We know we are 
moving in the direction of better service, quicker service and 
more accurate service.
    Mr. Lewis. Do you think by next year we will have a 
knowledge of what the difference in cost is?
    Mr. Brodsky. We might have a better idea. I think that the 
more people input their own information through the computer, 
the less we have to depend on heavy, labor-intensive keying at 
our Data Management Center.
    Mr. Lewis. Mr. Stokes.
    Mr. Stokes. Thank you, Mr. Chairman.
    Director Coronado, in the discussion I just heard, you 
indicated registration through computer. What will be the whole 
means of access to computers for registration; is that a 
concern?
    Mr. Coronado. It is a concern. We cannot hope everyone will 
have access to the computer. The post office will remain in 
place. However, we are trying to really force the postal clerk 
out of the SSS registration business by providing the mail-back 
cards at the post office so men can fill it out and put their 
own stamp on it. We are providing as much service as we can to 
the communities at large, and certainly with 34,000 post 
offices across the Nation, they are very easily accessible. Not 
everybody will have a computer. Our concentration will still be 
on the inner-city youth, the high school dropouts, the 
minorities who do not have those benefits. So, we are making a 
special effort to reach that segment of our society.
    Mr. Stokes. That was basically my concern about what you 
are doing in terms of reaching them. But right now I guess your 
compliance rate is in excess of 95 percent in terms of 
registration; is that correct?
    Mr. Coronado. I wish I could tell you that was true, but it 
is not. Previous budget cuts have forced a downtrend of 
registration. We are at 90%, but we are curbing that trend. We 
are having blitzes in areas with high levels of noncompliance, 
and they all turned out to be inner-city kids, high school 
dropouts, minorities, the gang members, people who are not part 
of mainstream USA. I have visited so many GED classes, 
alternate schools, to get these people to understand that it is 
important for their future to register. So it is going down, 
and it is all based on the lack of funding that has taken place 
in the previous years and public awareness. The money is not 
there!
    Mr. Brodsky. If I can add to that, it is 93 percent 
currently for 20- through 25-year-olds. If you look at the 
entire universe in our database, 18- through 25-year-olds, we 
have dropped below 90 percent for the first time in many, many 
years. We are at 89.8 percent.
    Mr. Stokes. What category is that?
    Mr. Brodsky. 18- through 25-year-olds inclusive.
    Mr. Coronado. The draft-eligibles is 93%.
    Mr. Stokes. That is why I posed the question. I thought 
here you were saying ages 20 through 25.
    Mr. Brodsky. 20 through 25 is 93 percent, 18 through 25 is 
89.8 percent.
    Mr. Stokes. How does this current breakdown then compare 
with previous years?
    Mr. Coronado. We had a higher and much more favorable rate. 
If the draft ever is enacted, we want a fair and equitable 
draft, and we need to stay in the high nineties.
    And how does that compare, Lew?
    Mr. Brodsky. My experience, Mr. Stokes, just a few years 
ago we were at 97 or 98 percent, 20 through 25, and about 93 to 
94 percent 18 through 25. So, we have dropped a few percentage 
points. However, because of some innovative planning that has 
been going on, such as the specific efforts within the inner 
cities from a public awareness standpoint--the projection would 
be lower than where we are right now. It is only through 
application of some innovative public affairs planning and some 
all out beating the bushes, you might say, that we have 
arrested the downward trend and reduced it in terms of its 
steep decline downward, let's put it that way. But, we still 
have a long way to go to build it back up, sir.
    Mr. Stokes. Then obviously you are telling me that this 
noncompliance group is composed primarily of minorities, inner-
city kids?
    Mr. Coronado. By and large.

                            tailored blitzes

    Mr. Stokes. Do you have data on this?
    Mr. Coronado. We have statistical data based on zip codes, 
and we have identified 21 cities of low registration, and we 
have targeted those cities, and we are in the midst of what we 
call a ``blitz''. A blitz to concentrate on those areas. I just 
came back from Denver, and California earlier during the year, 
and south Texas where low compliance is evident. So we have 
identified that, yes, sir.
    Mr. Stokes. When you say you are targeting, tell us exactly 
what you are doing in your targeted efforts.
    Mr. Coronado. We go into a city, undertake concentrated 
public affairs, focus a 3- or 4-day blitz where we go in, we 
have publicity, we get to see the mayor, he issues a 
proclamation on our behalf, we see the centers of influence, we 
go on the radio, particularlythe radios that would reach the 
minorities in Spanish, or Mr. Blanding would go to the recreation 
centers or whatever it is. We hit the print, we go to the Baptist 
churches where they have the parents, we go to GED classes, alternate 
schools, the little prison camps they have for juvenile delinquents, 
that sort of thing.
    Mr. Stokes. When you say ``we,'' who do you send?
    Mr. Coronado. I go to some. Mr. Blanding represents the 
Agency, itself from the headquarters. But, we have Reserve 
Forces Officers assigned to those locales. The detachment 
commander and his staff will execute the majority of the effort 
in the high schools with cards to get them to sign up on the 
spot.
    Mr. Brodsky. We also try to improve the number of high 
school registrars who are appointed. Roughly half of the high 
schools in the country now have Selective Service registrars, a 
staff member or faculty member who agrees to do an additional 
duty and act as a registrar within that school.
    Mr. Coronado. We are also asking our noncompensated Board 
Members to assist us in this. We are asking our Board Members, 
who get paid nothing. They are volunteers who adopt a school or 
adopt a post office and make sure the forms are current, make 
sure they periodically visit the school and keep the interest. 
We would like very much to see a civics class that includes the 
obligation to register with Selective Service. We speak to the 
commissioners of education at the State level and to the school 
board presidents. Those are the things that we are doing.
    Mr. Blanding. Also, may I add, please, since last year, 
there are several States that have passed legislation to 
support Selective Service as well. I think California has come 
on board since last year. We are working right now with 
Wisconsin, New Hampshire and Georgia.
    Mr. Coronado. The last three were Texas, New Jersey and 
California. They recently passed State laws that support 
Selective Service registration.
    Mr. Stokes. Director, how many young men registered with 
SSS in fiscal year 1997?
    Mr. Coronado. 1.8 million.
    Mr. Stokes. How many of them used the mail-back 
registration card?
    Mr. Coronado. I believe we are at about 35 percent of those 
using the mail-back.
    Mr. Stokes. How did those numbers compare with the budget 
estimates of mail-backs and post office registrations?
    Mr. Brodsky. The breakout, sir, is in our annual report, 
and copies of the annual report are outside. There is an actual 
pie chart, sir, in the annual report that shows you the 
registrations. I will try to find that for you real quick.
    Mr. Stokes. In your statement, you addressed diversity in 
the Selective System work force. Can you elaborate for us now 
and expand for the record regarding overall percentages of 
women and minorities within the SSS work force and trends 
depicted by new hires during the past year or so?
    Mr. Coronado. I certainly can. We have a higher percentage 
of females and a higher percentage of African Americans than 
the Federal Government as a whole. We are just about there with 
the Hispanics, we are just a little bit under on Hispanic 
representation, and we have not met the goals for the other 
groups, the Native Americans, the Asians and the people with 
disabilities. We do not have those goals met yet.
    Mr. Stokes. I am going to ask you to provide for the record 
similar data for both active duty and Reserve officers 
associated with the SSS activities.
    Mr. Coronado. I certainly will.
    [The information follows:]


[Page 881--The official Committee record contains additional material here.]



    Mr. Stokes. And for the roughly 10,000 uncompensated 
civilian volunteers serving on the Selective Service boards 
across the country, what is the Selective Service System doing 
either directly or through force of persuasion, by example, to 
increase minority and women representation in those areas?
    Mr. Coronado. We have increased women representation 
dramatically, and as far as the Board Members, the 
noncompensated Board Members, I am very proud of the fact that 
Selective Service can look at that and see the local board, in 
whatever community, represents the ethnic makeup of the local 
registrant base. We are there, and it makes me feel very good 
to achieve the goal. And, if there is a vacancy and there are 
more Hispanics in the area, or more African Americans, that is 
exactly who is going to get that open slot, because that is 
something we need to have for the fairness and equity of the 
System as it exists.
    Mr. Stokes. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Lewis. Thank you, Mr. Stokes.
    Mr. Hobson.

                              health care

    Mr. Hobson. Well, you took one of my questions, but I have 
two more. One of the primary missions of the Selective Service 
System is to conscript health care personnel. Would you explain 
your efforts to recruit health care workers, particularly in 
how the specialized pool is identified and contacted; and do 
you have difficulty meeting the DOD requirements for health 
care personnel; and how does your recruitment approach with 
regard to health care personnel differ from that of the general 
population?
    Mr. Coronado. As far as health care, we have the program in 
place, as far as the Congress would allow us to go. You don't 
allow us registration for health care, so we don't have that 
yet. What we also don't have is a full compliance module, which 
would be a noncritical aspect of this program. We can execute a 
health care delivery system, if called upon by the Department 
of Defense. We have no problem with that. There would be a 
couple things wrong with it, however, or different, I should 
say. One is that Congress would have to authorize females, 
because some of the medical specialties, particularly the 
nursing corps, has a predominance of females. We also would 
have some difficulty in the compliance, because we would have 
to generate a list from the American Medical Association or 
other groups so we could know who is registered with us at the 
time it happens and what the compliance would be. This would be 
very fast, the medical professionals would have to register. 
And, away we would go, with women, in very low compliance.
    Mr. Hobson. It looks to me like you need to talk to the 
authorizing committee.
    Mr. Coronado. To give us more so we can have a more firm 
program that would mirror the registration of the untrained man 
pool that we have.
    Mr. Brodsky. By way of background, I believe Congressman 
Montgomery was the one who tried to include women, or actually 
include registration as part of the health care process. In 
other words, we would be allowed to register health care 
personnel, as we do with the conventional young man today, but 
that never really made it anywhere. So, today we have a plan on 
the shelf, but we don't register health care personnel. We are 
not allowed to do that.

                                  RENT

    Mr. Hobson. Okay. My last question is about your rent. I 
ask this of everybody. It looks like your rent goes down this 
time, but goes back up.
    Mr. Coronado. The rent?
    Mr. Hobson. I recognize on the budget that your rent 
decreased this year, but it will increase in 1999.
    Mr. Coronado. Yes, sir. What we did, we took a complete 
study of the work areas, and we brought everybody down so we 
could turn some of the space back to GSA, as one of our efforts 
to conserve money. That is why the rent went down.
    Mr. Hobson. Well, it went down, but it will increase again 
in 1999.
    Mr. Blanding. May I try to answer that, please? The 
increase should be marginal, and the increase should be for 
inflation.
    Mr. Hobson. Okay. Can you give me the backup of the numbers 
on that?
    Mr. Lewis. Maybe you can submit that for the record.
    Mr. Hobson. Because I am watching GSA to make sure they 
treat agencies fairly. Yesterday the subcommittee found an 
agency with a 10 percent increase in one year, and we want to 
find out why that is. The subcommittee wants to keep rent costs 
under control. Funds should be going for clients. That is where 
it should be going.
    [The information follows:]

    Question. It looks like your rent goes down this time, but 
goes back up?
    Answer. The Agency's rent decreased in FY 1998 by nearly 
$74,000 over the previous year because we reduced physical 
space at the National Headquarters through GSA at the end of FY 
1997. However, rent does go up modestly in FY 1999 over 1998 
only because of a moderate three percent inflation factor.

    Mr. Lewis. Mr. Knollenberg, if you had come back a few 
minutes earlier, you could have taken his other two questions.
    Mr. Knollenberg. Did you ask the question regarding the 
year 2000?
    Mr. Hobson. They already got it. He got it.

                                MISSION

    Mr. Knollenberg. Great. I will be very brief. I appreciate 
you being here, Director. The question I have, though, and I am 
not trying to back you into a corner on this, but maybe I am an 
old-timer, I happen to be a veteran. I recall the Selective 
Service very well because they got me.
    Mr. Hobson. Me, too.
    Mr. Knollenberg. And I suspect many others in this room.
    In 25 words or less, what is the mission statement of the 
System today, in your judgment?
    Mr. Coronado. To be at the ready, because no one can 
predict the future of our country, as evidenced by certain 
things that happen. We don't know to what extent America would 
have to respond to a crisis, and America's youth are committed 
to meeting the challenges of tomorrow by registering with 
Selective Service.

                       RELATIONSHIP TO AMERICORPS

    Mr. Knollenberg. In your commentary there is a statement or 
some filler material here about AmeriCorps. What is the 
System's relationship to AmeriCorps, and if there is a 
relationship, how does that function?
    Mr. Coronado. I feel like AmeriCorps is a busted 
relationship that I tried to establish, and I was turned down.
    Mr. Knollenberg. What kind of relationship?
    Mr. Coronado. Like a friendly relationship that I tried--
almost like a wooing relationship. I was going to marry 
AmeriCorps, and I was told not to, and I separated quickly 
after that was told to me. There is no relationship between 
Selective Service and AmeriCorps, other than using up the rest 
of the stock of acknowledgement cards listing their toll-free 
recruiting phone number that will expire very soon, and once 
that is over and done with, we have no connection.
    Mr. Hobson. The marriage is over, or the dating period, 
whatever.
    Mr. Coronado. The dating period is over.
    Mr. Knollenberg. I am glad to hear you say that.
    On page 4 in your commentary, you mention there is a 
feature, a listing among others, the AmeriCorps number that is 
available, and you say--I say ``you,'' but the quotation, the 
statement says, this value-added feature of our acknowledgment 
process is being accomplished at no additional cost. I assume 
there is something down here, too, about AIDS awareness and 
drug prevention?
    Mr. Coronado. Well, not yet. We have two 1-800 numbers. 
That is as far as we proceeded in our initial Phase 1 of 
Service to America. That was our initiative, and we thought it 
was a good one because we wanted value added. We wanted to 
serve the American public more, but based on the Chairman's 
advice, we stopped every single bit of it and the field knows 
it. Everybody knows it. We will not proceed with that and that 
was done right after you made your formal decision.
    Now on the Administration's Volunteer--Spirit of 
Volunteerism or whatever, all we offered was an opportunity to 
have 2 inches by 5 inches, whatever it is, blank space on our 
cards that perhaps, as we talk about what are the needs they 
might have, we would have an opportunity to have a laser 
printer print in here ``AIDS awareness'' or an antidrug use 
message, and that could be changed on a quarterly basis.
    Mr. Hobson. Just so it is not an anti-Congress message. The 
reason is that the VA did that.
    Mr. Knollenberg. I think you answered my question. The only 
thing I thought was a little strange is when you say this 
process, if it were to have been--if it were to have 
transpired, would have been cost-free, and no additional cost 
is cost-free, so I was questioning that. We are talking about 
history here. This is all ancient history now.
    Mr. Coronado. This was at no cost. We put that in. That is 
all we did. But, the new card stock will not continue to 
support it, and that is what we intend to do. Yes, sir.
    Mr. Knollenberg. I have no further questions. Mr. Chairman, 
I yield back.
    Mr. Hobson. One quick question. The number you give today--
like when I was in the service, I got a different number. Now 
it is your Social Security number?
    Mr. Coronado. No, it is a unique Selective Service 
registration number.
    Mr. Lewis. Mr. Coronado, it is in the early part of the 
season. We do have come into the room to our meetings our 
smaller agencies, and we have been experimenting to see whether 
this was a subcommittee that would take up whatever time might 
be available regardless of the size of the budget. Now the last 
2 days we have had more Members, as it turned out, but 
proportionately, I want you to know, today, with your Agency, 
we have taken up more time than even those agencies, which 
doesn't bode well for the rest of our year. The experiment has 
failed.
    In the meantime, nice to be with you.
    Mr. Coronado. Good to be with you, sir. I thank you so much 
for everything you have done for us.


[Pages 886 - 909--The official Committee record contains additional material here.]



                                           Thursday, March 5, 1998.

           COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND

                               WITNESSES

ROBERT E. RUBIN, SECRETARY, DEPARTMENT OF TREASURY
ELLEN W. LAZAR, DIRECTOR

                 Introductory Remarks by Chairman Lawis

    Mr. Lewis. Welcome, Mr. Secretary and ladies and gentlemen. 
It is a pleasure to be with you all. This morning Secretary 
Rubin joins the Subcommittee to present the Fiscal Year 1999 
budget request from the President for the Community Development 
Financial Institutions, CDFI. He is accompanied by several 
people, including Ms. Ellen Lazar, the Fund's new director. 
Thank you both for coming so early this morning, allowing us to 
get to work at a reasonable time. Last year Secretary Rubin 
testified for the first time before this Subcommittee. His 
visit signified the importance placed on the initiative by the 
President. And, indeed, it is suggested that the First Lady 
thinks that the work that you are doing in this particular 
sector is important or maybe I am sure all of the work that you 
are doing.
    Like the President, the Congress signaled its commitment to 
the evolution of a successful CDFI program and continues to 
have great hope for the program today.
    Having stated that commitment, however, there is no denying 
that the CDFI initiative suffered last year from exceptionally 
poor judgment calls of some of its top managers. Consequently, 
this year is a rebuilding year. In fact, in my opinion, it is 
not an overstatement to say that the credibility and continued 
changes in the way CDFI manages its systems and monitors its 
programs is required. Its success could very well relate to 
that.
    The President requested $125 million for the program, an 
increase of $45 million over Fiscal Year 1998. Ms. Lazar 
candidly told me that she planned to make changes in the budget 
request in connection with the fact that it was created or put 
together before she became its director. I am very pleased 
today and at other times to listen to your suggestions 
regarding these changes.
    Ms. Lazar, I might mention to you that while this is the 
first hearing, at least for this Subcommittee, this year on the 
subject, we will have more than one opportunity to discuss it 
as the whole process goes through the floor and in conference 
with the Senate, many a turn between now and then, not only 
this program but many programs.
    I must be equally candid and tell you that I am puzzled 
that the President has requested an increase of this magnitude 
given the many management changes and system improvements that 
remain to be implemented. My concern is not meant as a 
criticism as much as a concern. I wonder whether it is 
important for the fund to maybe demonstrate itself. Some 
suggest walk before you start running.
    Ms. Lazar came to this job in early January and in that 
time has quickly acted and we understand very effectively 
acted. In fact, I note that the original budget request 
anticipated a carryover balance for Fiscal Year 1999 of almost 
$60 million. As a part of her proposed changes, Ms. Lazar plans 
to reduce this level to approximately $20 million, a figure 
which is far more palatable. Yet, clearly concern remains about 
whether funds appropriated to this account can be spent within 
the fiscal year, especially with the growing pains suffered 
during this past year.
    Of equal concern to me is the scarcity of information about 
what has been accomplished by CDFI with the money provided to 
them through this initiative. It is my opinion that the concept 
of this initiative will be successful only if its 
accomplishments can be measured and quantified.
    Let me recommend to you, Mr. Secretary, as well as to Ms. 
Lazar the F.Y. '99 budget request of the Neighborhood 
Reinvestment Corporation, NRC. Every year in its budget 
submission, the NRC describes precisely how funds appropriated 
to them have been invested. For example, the Neighborhood 
Reinvestment Corporation describes in detail how many homes are 
purchased and renovated for what prices, the income levels of 
the families who have received assistance, and how many local 
affiliates receive training.
    Because of the preciseness by which we are given 
information and can evaluate those programs, the Neighborhood 
Reinvestment Corporation has become a favorite of this 
Committee, in no small part because that precision also is 
demonstration of a program that seems to do more than pay lip 
service to helping people. It seems to be working out there.
    The budget submission sets performance goals for the 
organization that can be reviewed in the next budget cycle to 
determine whether the goals were met. In the case of NRC, goals 
are regularly exceeded. Let me challenge the CDFI to meet the 
NRC's leveraging ratio of $11 for every dollar of public funds.
    Last year, Mr. Secretary, you stated that you believe that 
this fund has significant potential. You also stated that this 
Subcommittee could judge the results as the fund evolved. We 
want to be able to measure those results. Unfortunately, Mr. 
Secretary, the record is not particularly good, and the 
problems must be completely addressed. I look forward to having 
these concerns addressed during the course of the year, and we 
are at a beginning point this morning.
    So before we call upon you, Mr. Secretary, let me ask my 
friend Mr. Stokes to make whatever remarks he would like to 
make.

               Ranking Member Stokes Introductory Remarks

    Mr. Stokes. Thank you very much, Mr. Chairman.
    Secretary Rubin, Ms. Lazar, I would like to join my 
Chairman in welcoming you and your colleagues to the 
Subcommittee this morning.
    It seems to me that the CDFI fund has a very important role 
to play. While the U.S. economy is on the whole doing well, 
many areas in our country are being bypassed by the current 
wave of economic growth. Many of these are in central cities. 
Others are rural.
    As I understand it, the central mission in the CDFI Fund is 
to assist local organizations that are working to provide 
capital and financial services in economically distressed areas 
and, thereby, spur growth and job creation.
    In my hometown, Cleveland, Ohio, we have at least two 
current CDFI fund grantees: Shore Bridge Capital and Faith 
Community United Credit Union. The first of these provides risk 
capital to small and medium-sized businesses to supplement 
other financing and help them create jobs in the city. The 
other provides housing loans and other financial services in 
lower-income neighborhoods. Both, in my opinion, are good 
examples of the important work being done by community 
development financial institutions.
    I realize that most of the CDFI fund management team is new 
this year. And I certainly wish you success and look forward to 
hearing of your plans for the future.
    As you know, in the past year, we had quite a discussion, 
both in committee and on the floor, relative to problems 
related to the agency. Of course, we are pleased to see you, 
Ms. Lazar, in place now and look forward to working with you.
    Ms. Lazar. Thank you.
    Mr. Stokes. Thank you, Mr. Chairman.
    Mr. Lewis. Mr. Secretary, it may have come to your 
attention, if not, at least for those who are with you, I might 
want to make sure we highlight this. I am not sure whether this 
is my 10th or my 12th year on this Subcommittee. All of that 
time, I have had the privilege of serving with Louis Stokes. He 
was my Chairman, is my Chairman. He has announced that he is 
not going to run for reelection this coming go-around.
    He will be sorely missed in an environment where we have 
these very complex issues from NASA to HUD to veterans' medical 
care. Most of the problems are strictly nonpartisan problems. 
And to be able to work together has been very, very important 
to me. And so he will be missed by us and I know by you.
    Mr. Stokes. Thank you, Mr. Chairman. Thank you very much.
    Mr. Lewis. Mr. Secretary, you can read your entire 
statement or you can summarize it, whatever you wish.
    Secretary Rubin. Let me summarize it.
    Let me say we, too, will miss Mr. Stokes.
    Mr. Stokes. Thank you, sir.
    Secretary Rubin. We worked with Mr. Stokes on a good number 
of issues, and he will be sorely missed.
    Mr. Stokes. Thank you.

                      Secretary Rubin's Statement

    Secretary Rubin. Let me start, if I may, by echoing a 
comment that Mr. Stokes made. Then I would like to address, at 
least in the broad sense, a couple of issues you have raised.
    The CDFI Fund budget request of $125 million reflects a 
view that we have, which is that these issues of the inner-
cities and distressed communities more generally are probably 
the most important domestic issue this country faces. What the 
administration has tried to do over the past five years is 
develop a coherent approach based on investing in people, 
public safety, and then access to capital.
    Within the context of access to capital, the question was: 
What is an effective way to try to get capital into distressed 
areas, particularly with leverage so that public sector capital 
would be leveraged by private sector capital? And it was that 
idea or that framework, if you will, that led to the 
development of the community development bank concept.
    As you know, this has been a bipartisan idea. It is one 
that the President talked about during his campaign in '92. But 
similarly and equally was one that many Republicans talked 
about back then. So our view at least is that this is the 
fruition of an idea that has been talked about by people in 
both parties for quite a while before this particular program 
came into being.
    In terms of the program itself, Mr. Chairman, as you know, 
basically it is a market-driven approach that involves 
partnership between private and public sectors. It involves 
partnership, between nonprofit organizations and the public 
sector.
    The Fund's aim is to provide access to capital in inner-
cities so as to create jobs and growth, provide more access to 
housing. The idea is to take public money, get at least 
matching money because there is required to be at least a one-
to-one match,--in most cases, we have substantially more than a 
one-to-one match--and then with both, to promote inner-city 
economic development with borrowers who could not get access to 
mainstream financial institutions for one reason or another.
    CDFI Fund has two main programs. The first one is the CDFI 
Program itself, and the second is the Bank Enterprise Award 
Program. In the CDFI Program, grants have been awarded at $75 
million to 80 recipients. And while I think what you said is 
undoubtedly true, Mr. Chairman, over time we will need to have 
better ways of measuring success.
    I think it is difficult in a program like this to do this 
quickly because what you invest in small businesses, as you 
well know, takes time for businesses to develop and mature and 
then determine what kinds of successes you have had.
    But I must say I have had the opportunity--as I have taken 
more interest in this, I have spent time on this, more perhaps 
than a Secretary ordinarily would--to meet with various people 
who have been involved in this program. There is enormous 
enthusiasm for this program in the community of people who care 
about these kinds of issues.
    I have met with a reasonable number of people who have 
benefitted from the program. And you do get a very, very good 
sense in both the general community of those who care about 
these sorts of issues and the people who have been direct 
recipients of CDFI Program grants that this is something that 
is working and is having a real effect and having a leveraged 
effect.
    We go to a meeting, for example, the BEA award meeting, and 
there are representatives of mainstream banks from around the 
country there. I do not remember the title of the person. One 
of the people at one of these banks said that because of this 
program, because of the involvement of this bank in the CDFI, 
it has caused the top officers of that bank to think about 
inner-cities in ways they never had before.
    So I think there are benefits that go beyond those that you 
are going to be able to measure tangibly, though I would agree 
with you. Over time, we need to develop ways to try to measure 
the success of this sort of thing.
    Let me give you two examples, if I may. They are anecdotal. 
They may not represent a systematic or rigorous measurement of 
success. One is called Bethex Federal Credit Union in South 
Bronx, which was a small financial institution originally 
founded in 1970 by welfare recipients. They received a $100,000 
grant to expand financial services and increase business 
lending.
    Over the past 18 months, and, I think, fair measure because 
of that loan, Bethex membership has grown from 1,270 people to 
3,000 people. Its assets have increased from $1.6 million to $3 
million. In addition, Bethex has initiated a school banking 
program to encourage savings among students.
    It is those kinds of small programs that I have had the 
opportunity to see myself, through my involvement in CDFI. They 
give one a very good feeling about this, not only what it can 
do, but what it is doing.
    Let me use another example of the impact this Fund has had 
on an individual, a man named Andrew Fuentes of San Antonio, 
who had been a construction worker. And then he got sick, and 
he could not go back to work. So at his wife's suggestion, he 
made a table and set of chairs for an empty kitchen. Soon 
afterwards, he was selling furniture to friends and others, but 
he did not have enough money to buy the wood and kind of things 
he needed just to engage in his own little carpentry business.
    He got a $3,000 loan from ACCION Texas, which is a 1996 
CDFI awardee. That allowed him to expand his inventory, expand 
his operation, and now he has an ongoing business for himself. 
It is that kind of more or less micro-enterprise activity that 
is, I think, a very important part of the profit or the 
potential of this program.
    On the BEA side, this year we received 104 applications, a 
48 percent increase over last year. If you ever had the time, 
Mr. Chairman, and you went to a meeting, as I have done, as I 
said a moment ago, of the BEA participants, you see 
representatives of mainstream banks across the country with 
enormous enthusiasm for this program. And I have to believe, 
based on what I have been told, anecdotally, as I mentioned 
before, and other things I have heard, that the enthusiasm is 
then transferred back into the banks themselves and has an 
effect much beyond that which you can see simply through the 
CDFI activity.
    In addition, quite a number of these awardees not only are 
doing the kinds of things that enable them to get the awards, 
but then, although they are not required to do so, they are 
taking the awards and they are reinvesting them in inner-cities 
or in CDFI types of activities. Citibank, for example, had a 
$227,000 award. And then they took the award and reinvested it 
in helping to build the capacities and skills of CDFIs.
    As you correctly say, there have been some growing pains. 
And I think that our focus in those growing pains is very much 
helped by the congressional oversight function. I think your's 
served a very useful purpose. But I am also convinced that we 
have strengthened the internal controls. We have strengthened 
the procedures. I think these problems have been dealt with 
effectively, and I think we are in very good shape right now, 
although we will obviously continue to work on procedures as 
the program builds.
    The Fund recently received, as you probably know, an 
unqualified audit for its activities since inception. And with 
Ellen Lazar and a new CFO and Maurice Jones, the new Deputy 
Director, I think that we are very well-positioned to move 
forward with dedication and focus on what I think is enormously 
important program.
    Let me just add, if I may, Mr. Chairman, that all of us at 
Treasury are committed to making this work. This is not 
something that somebody started and then it is kind of floating 
on its own.
    Jerry Hawke, our Under Secretary for Domestic Finance, is 
here. Michael Barr is here, who has been a special assistant to 
me with respect to, among other things, urban issues. And, from 
the Secretary on down, we are committed at Treasury to making 
this work.
    When there are issues--as you correctly pointed out there 
were some last year we took control of these issues quickly. 
And, under Jerry's leadership, we took hold of it, and we did 
the things that needed to be done. I am very comfortable that 
those issues have been dealt with and we are on very solid 
ground as we go forward.
    [The information follows:]


[Pages 917 - 932--The official Committee record contains additional material here.]



    Mr. Lewis. Mr. Secretary, just a word about how I think we 
should proceed this morning.
    Secretary Rubin. Sure.
    Mr. Lewis. I know that you have pressure for all kinds of 
other obligations. And I think it would be appropriate for me 
to proceed with members who have questions for the Secretary 
himself. And we will go forward. And Ms. Lazar is very 
important to demonstrate for us her leadership as well.
    Secretary Rubin. And then, if I may, Mr. Chairman, when I 
leave, Jerry Hawke, who is our Under Secretary, will come up to 
the table.
     Mr. Lewis. Sure. That is fine.
    Secretary Rubin. Jerry can also be very useful in this.

                             urban renewal

    Mr. Lewis. Let me mention an item. I do not believe I have 
ever mentioned this in a public forum, but it has been in my 
thought for a lot of years. A graduate school program in San 
Francisco and a thing called urban renewal came to my 
attention, a new program established with enthusiasm, as you 
described, enthusiasm and a lot of idealism. Its purpose was 
urban America and its problems.
    In California, there were two cities that first made 
application and were designated as urban renewal projects. One 
was San Francisco, where I was doing this work. The other was 
my hometown: San Bernadino. And they both demonstrated just 
what a disaster can result from an idealistic program put 
together with enthusiasm that is not measured carefully. Urban 
renewal by any measurement is a program that at best did little 
more than pay you to spend taxpayers' dollars.
    In city after city across the country, it has been used to 
clear property, create nice developable land for which big 
business comes in and competes with one another as cities 
compete with one another.
    And there is no net difference. The marketplace would have 
done the same thing if there was real value. All you have to do 
is look at downtown San Francisco and scratch your head. And if 
you go to downtown San Bernadino, it is even worse, amazing, 
and time after time across the country.
    That was only 1958 or '59. Since that time, program after 
program with enthusiasm and with idealism have delivered money 
to suede shoe people in local communities who are going to tell 
how to better improve their community.
    Right now the County of San Bernadino is trying to get rid 
of a set of movie houses they have built. My own city was 
asking for money to do the same thing, and I said: For gosh 
sakes, you have got about 150 new theatres around here.
    Why is the County of San Bernadino trying to get rid of 
their houses at those new shopping centers? Because they are 
losing $60,000 a month. With idealism and enthusiasm, let us 
move at great care as we measure these programs would be my 
point.

                          program measurement

    Secretary Rubin. No, I would not disagree with that. Pat 
Moynihan, Senator Moynihan, wrote a book ``Miles to Go.'' About 
a year ago maybe it came out. I do not remember exactly. It 
really makes exactly the point you did or are making, which is 
programs should have accompanying them some scheme for 
systematic measurement of results.
    I think that is right. I think that is something that CDFI 
needs to develop over time. I think it is much harder when 
looking at these kinds of activities, versus housing, to be 
systematic at least with housing.
    Having said that, I think this is really in a sense a 
program that is the antithesis of urban renewal because local 
people are going to know what is best for their communities and 
the private sector is the best place to see or at least private 
sector economic activity is the best way to try to create 
activity in inner-cities.
    So if you take the two examples I used, what happens is you 
have these small community development financing decisions that 
then provide resources to people to engage in what, in fact, is 
private sector activity.
    Mr. Lewis. Yes. We have started an experiment by way of 
this Committee in which a small amount of money is going to be 
spent in a few very small cities to try to deal with the fact 
that in a specific region, there are 1,000 burned-up homes.
    How do you go in? You use Habitat for Humanity. You use the 
private sector, et cetera, and actually get volunteers to come 
in and redo those homes, make them the marketplace available to 
middle-income families, et cetera. Good idea. Whether or not it 
will work, it has got to be measured very, very carefully, yes.
    Secretary Rubin. Oh, I agree with you. Listen, I think 
measurement is a very important thing. I agree with that, but I 
also thought you were making yet another point, which I was 
agreeing with as well, which is that the extent to which we can 
rely on private sector market forces, as opposed to government 
telling people what to do, we are likely to have better 
results.
    That is really what the thrust of this is. This is pretty 
much I think why it originally grew out of as much a Republican 
idea as it was a Democratic idea.
    Mr. Lewis. Beware of suede shoes, Mr. Secretary.
    Mr. Stokes.

                    minority financial institutions

    Mr. Stokes. Thank you, Mr. Chairman.
    I would like to ask you about something that may or may not 
tie directly into CDFI. Last night just before I fell asleep, I 
was lying in bed reading Jet magazine and ran across a very 
interesting story about a program that you, the President, Rev. 
Jesse Jackson, the Labor Secretary, and others participated in, 
I guess on the day we celebrated Dr. Martin Luther King's 
birthday up on Wall Street in New York. And I guess this was a 
first. Wall Street closed down its headquarters for the first 
time in celebration of Dr. King's birthday. And, evidently, my 
good friend Rev. Jesse Jackson was the keynote speaker.
    I guess the thrust of the program that day was the lack of 
participation in the financial world and financial institutions 
of minorities and what can be done to try and turn that around.
    Can you just talk about that a little bit and whether this 
relates at all to the CDFI Program in some way?
    Secretary Rubin. Relates to the CDFI Program? I think the 
broader issue, and I think Rev. Jackson and I discussed it----
    Mr. Stokes. At least talk about the broader issue for us 
since we do not get you too often.
    Secretary Rubin. He had called. Alan Greenspan and I both 
went down. I think it was a very good thing to do. It was his 
notion--I think he is right--that there is very much of a 
tendency for people in these institutions to hire and promote 
people that are sort of like themselves. It is probably a 
pretty natural human characteristic, I guess. And what he was 
saying is that what you needed to do is increase the awareness 
of everybody available to these institutions.
    I said in my remarks, Mr. Stokes, that it seemed to me that 
it was in every institution's bottom line self-interest--forget 
any other concern--in this highly competitive world that we 
live in to have the best possible people. If they are going to 
have the best possible people, what they ought to do is reach 
out to the whole population in the country.
    One of the things we have done at Treasury, for example--
and we did it at the investment banking firm I was at before I 
came to government--was to start recruitment from these 
institutions that never would have thought of Wall Street; 
Morehouse, for example. And I think it was a very good thing to 
do because the consequence was it gave us access to people who 
if they would not have thought of us, we would not have thought 
of them.
    Mr. Stokes. It is a little different market up there.
    Secretary Rubin. Yes. It is a different group of people. It 
is not people we ordinarily would have thought of, or who would 
have thought of us.
    So I think what Rev. Jackson did was very constructive. I 
do not know whether he plans to do it every year or not, but it 
seems to me that it would be a useful thing to do every year.
    With the CDFI Program, yes. I had not thought about it 
before, but to the extent that people working in these smaller 
institutions gain--actually, it is a very good point I had not 
thought about--experience in credit analysis and credit 
evaluation and performing financial services functions, then 
they have equipped themselves for those who wish to do it to go 
on into mainstream institutions. It never occurred to me until 
you just mentioned it this moment. It could actually become, if 
you will, a training ground incubator for people to then go on 
to the mainstream financial services institutions. So I think 
it is a good point.
    Mr. Stokes. Thank you.
    Let me ask you this: I was present at the White House a few 
years ago when the President first announced this program. He 
had several people there that day who were examples of the kind 
you pointed to a few moments ago, the kind of small loans that 
you make that enable really small people to start being able to 
get into the mainstream of American business. But the 
underlying reason that the government has to do this, as the 
President stressed that day, is because our conventional 
financial institutions are not fulfilling this function. And so 
the federal government has to step in to a void, so to speak.
    It would seem to me that concurrent with the government 
trying to fill this void, we ought to be doing something about 
the standard conventional financial institutions at some point 
in time actually taking on the same kind of responsibility 
towards these small businesses that they do towards the large 
corporations.
    It is easy for the large, big, biosciences to get loans 
from financial institutions. Why should it be that small people 
cannot get the same type of consideration from our standard 
financial institutions?
    Secretary Rubin. Well, I guess in my view--others may have 
other views--I think that, on the one hand, there actually has 
been a lot of progress over the last I guess four years now, 
four or five years, four years maybe, CRA really has been--
well, it is about four years--restructured and reframed and has 
become a much more effective program. And the amounts of 
capital flowing from mainstream institutions in inner cities, 
other distressed areas increased very substantially.
    Having said that, a big bank is not really set up to 
provide a $3,000 loan to Mr. Fuentes. First of all, if it is a 
character loan, it is not a loan that was based on a credit 
history.
    Mr. Stokes, I may be wrong about this, but my guess is that 
mainstream financial institutions are never going to be set up 
for that kind of a loan and there is going to always be a 
vacuum that CDFI kinds of institutions are going to have to 
fill.
    I think what we can try to do--and I actually think this is 
working quite well so far--is to get mainstream institutions to 
help support the CDFI Programs because then they will be right 
there on the ground, if you will, and equipped and set up with 
a mind-set to provide $3,000 loans to people who do not have 
credit histories but who they think are serious about what they 
are doing.
    So I think your point is well-taken. And I think through 
CRA, we have been successful in bringing a lot more capital in. 
But I think this purpose, this market, if you want to think of 
it that way, is probably one that is never going to ever be 
served by--well, maybe financials will--the great preponderance 
of mainstream financial institutions.
    Mr. Stokes. So it is putting an almost permanent need for 
this type of an institution to fill this void.
    Secretary Rubin. You know, permanent is a long time. So I 
do not know. [Laughter.]
    Mr. Stokes. You do not know whether you want to go that far 
or not.
    Secretary Rubin. Yes. Permanent is a very long time. I 
think for as far out in the future as I choose to look, yes, I 
kind of think so.
    Mr. Stokes. Thank you very much. Thank you, Mr. Chairman.
    Mr. Lewis. Mr. Frelinghuysen.

                  big banks and community development

    Mr. Frelinghuysen. Very briefly, Mr. Chairman.
    Good morning, Mr. Secretary. I would like to follow up on 
Mr. Stokes' comments. I think for average consumers' banks, 
they are unresponsive, uncaring unless you have a hell of a lot 
of money, unless you are in a business with a huge asset base.
    Some of the mire on the whole credit union issue, one of 
the things that speaks well for the credit union system, is the 
fact that they are there in the community. And it is difficult 
for us to tell from the materials in front of us whether any of 
the mainstream players are actually in this game.
    You know, what percentage should we say of large financial 
institutions? God only knows what their names are any more 
because there have been so many consolidations. How many of 
them are actually participating in a substantial way in this 
new program? In your testimony on Page 7, you say that we are 
now in 30 states. Are there parts of the country where you have 
not been able to make any inroads into some communities, with 
or without bank participation?
    Secretary Rubin. You know, on the question of how many of 
the large institutions, I do not know the answer to that. Ellen 
may have a better sense. But I must say when you go to these 
BEA meetings, you see the big names of American banking, the 
Chases and the Banks of America. It is very gratifying to me to 
see the numbers of these very large banks that I knowin a very 
different way that are at these meetings; and the enthusiasm of the 
people that they send there.

                         bank enterprise awards

    Ellen, I do not know. Would you like to expand on that?
    Ms. Lazar. Yes. There were 104 banks that just applied in 
the most recent round of BEA that we received applications for 
a couple of weeks ago. The banks range in size from really 
smaller institutions in communities that have an awareness of 
the program to the large, multi-state banks. We have awarded 
money over time to institutions as small as $3 million and as 
large as $35 billion. So there is a broad range of institutions 
that have been participating in the Bank Enterprise Award 
Program.
    [The information follows:]

    The Fund has conducted two rounds of awards under the Bank 
Enterprise Award (BEA) Program. The headquarters of the Bank 
Enterprise Awardees are in 22 states and the District of 
Columbia. The states and territories with few or no Awardees 
are in the following regions: outside the continental United 
States; the northwest and upper Midwest; southwest (excluding 
California); and a few states east of the Mississippi.

    Ms. Lazar. We continue our outreach and intend to do more 
in the coming year to develop more communications tools to 
reach out even further and deeper into communities.
    We have received applications from all over the country. 
Our awardees were admitted to the 30 states that we mentioned.
    Mr. Frelinghuysen. So the other states are not 
participating because there is not enough money?
    Ms. Lazar. Not necessarily.
    Mr. Frelinghuysen. It has more to do with the fact that 
those 30 states represent the greatest concentrations of 
distressed areas?
    Ms. Lazar. I think that that is correct.
    Secretary Rubin. Or it could be the quality of the 
applications.
    Mr. Frelinghuysen. So you are entirely satisfied with the 
reaction of the overall national banking community to this 
program?
    Ms. Lazar. We have seen a 93 percent increase since the 
program was initiated 2 years ago in the number of applications 
that we have. I would not say I am satisfied. I would like to 
reach out further and deeper into the banking community so that 
they have a greater awareness of the work that we are doing and 
make sure that more of them participate.
    Mr. Frelinghuysen. Maybe they would have less exposure in 
places like Indonesia and perhaps more potential for 
gratification if they did something in their own backyards.
    Ms. Lazar. I agree with you.
    Secretary Rubin. I think you raise a more general point 
that is well-taken. And I also think it makes a case for the 
credit unions, which they are not so enthusiastic about.
    Mr. Frelinghuysen. Thank you. Thank you, Mr. Chairman.
    Mr. Lewis. Mr. Knollenberg?
    Mr. Knollenberg. Mr. Chairman, thank you very much.
    Mr. Secretary, good to see you again.
    Secretary Rubin. Very good to see you.
    Mr. Knollenberg. It is a pleasure at any of them that we 
see you at.
    Ms. Lazar, welcome. We are looking forward to your success 
in that role.
    Ms. Lazar. Thanks.
    Mr. Knollenberg. I do not have any significant questions, 
but I have one.
    Mr. Lewis. Wait a minute.

                               leveraging

    Mr. Knollenberg. I have one. I do not know if you mentioned 
this, but you did say that there is leverage within the 
program. I think it is at least a one for one. I think that I 
have read where there is potential for it to be three to one, 
maybe even four to one. So would you explain, Ms. Lazar, a 
little bit on how you generate those kinds of ratios?
    Secretary Rubin. Sure.
    Mr. Knollenberg. What brings that about? The match is one 
for one.
    Secretary Rubin. The match is actually running much more 
like three to one, is it not, or something?
    Ms. Lazar. Yes. We do not have complete statistics, but it 
is our understanding that it is a higher ratio.
    Mr. Knollenberg. Is that right?
    Ms. Lazar. Yes.
    Mr. Knollenberg. And so if there was a number out there 
that you could make public, what would it be?
    Ms. Lazar. I have heard numbers anywhere from three to four 
times as much leverage. I cannot corroborate those numbers, and 
I would like to spend some time doing that.
    Secretary Rubin. Remember, it depends on what happens 
within the institution. They are required to put up one to one, 
but, then, they are the ones who by virtue of trying to use 
this that comes in to try to see if they can get two to one, 
three to one, four to one, whatever it may be.

                            micro enterprise

    Mr. Knollenberg. You called it micro, I think, or it is a 
micro loan or maybe it was Mr. Stokes who referred to as a 
micro loan, which leads me----
    Secretary Rubin. That is one part of the program, these 
micro enterprise loans.
    Mr. Knollenberg. Yes, which kind of mirrors what is being 
done in foreign operations where we make micro loans to women, 
in particular, in various countries. That is just beginning to 
grow, but the success of that has been quite good. Did this 
come after that?
    Secretary Rubin. As the Chairman said, there is this bank--
I do not know the name of it--in Bangladesh.
    Mr. Lewis. Grameen.
    Ms. Lazar. Grameen Bank.
    Secretary Rubin. Right. That really has become renowned for 
this micro enterprise program.
    Mr. Knollenberg. Yes.
    Secretary Rubin. The First Lady developed a very strong 
interest in micro enterprise lending. And I believe it would be 
fair to say that that was part of the thinking that led all of 
us to focus on micro enterprise lending in the CDFI context. 
And I think it is a very, very promising idea.
    Mr. Knollenberg. So it was triggered, then, by what we were 
doing overseas?
    Secretary Rubin. In part. There were people who were 
thinking about it independently of that, but I think that lent 
some additional energy to the thought.
     Mr. Knollenberg. Mr. Chairman, I do not have any other 
questions. Again, thank you, Mr. Secretary.
    Secretary Rubin. Thank you.
    Mr. Knollenberg. Ms. Lazar, everyone else.

                               year 2000

    Mr. Lewis. Thank you very much, Mr. Knollenberg.
    Mr. Secretary, I know that you have got a little problem 
schedule-wise. So we do very much appreciate your being here.
    When you mentioned character-like loans, it raised a point 
that Mr. Knollenberg was raising. The micro enterprise loans 
that kind of began with an experiment in Bangladesh, where 
loans began to be given to women, raises a question that I will 
ask further of Ms. Lazar: What percentage of our loans end up 
going to small businesses run by men? And we will talk about 
women as well.
    Before we get into that, let me mention to you that if Mr. 
Hobson were here, he would ask you the question about F.Y. 
2000. All of us are attempting to push our agencies to look 
with great care about not how we got into this crazy mess of 
not thinking about what happens when the new millennium came 
along but making sure that we are prepared and be prepared to 
fire whoever is in charge and his or her supervisors if we end 
up having a crisis afterwards because it is a serious 
difficulty. And I hope people are giving time to it.
    Secretary Rubin. We have the second largest activity level 
in the federal government, computers, after the DOD, because of 
IRS and also for some of the FMS which handles the government 
payments and intragovernmental financial affairs.
    I meet biweekly with our Assistant Secretary of Management 
and our Treasury CIO. We have, I think, 325 critical missions, 
if I remember correctly. And with the exception of one mission 
in the intragovernmental area, I think we are pretty much on 
schedule, Mr. Chairman.
    But this is enormous. We plan to spend $1.4 billion at 
Treasury. By the time this gets done, we plan to spend about 
600 and some odd million dollars in 1998. This is an enormous 
enterprise with us, and we are exceedingly focused on it.
    You are absolutely correct. This is of immense importance.
    Mr. Lewis. I would only add this point because of your 
business experience and perspective. The IRS spent several 
billions of dollars reexamining their computer systems, and it 
has all been a loss. In the marketplace, you know, there would 
be a brand new head. So we ought to be really making sure that 
this is----
    Secretary Rubin. We have a brand new head.
    Mr. Lewis. Okay.
    Secretary Rubin. No. You know what we did, what we brought 
in was--and I think it was the right thing to do--instead of 
bringing in a tax lawyer, we brought in a CEO of a large 
company. And we said that this is a management job, not a tax 
job.
    Mr. Lewis. Right, exactly.
    Secretary Rubin. I think the concept was right. I think we 
were very lucky to get the person we got.
    Mr. Lewis. Yes. Okay. It is that style, approach, and 
priority that I would suggest for all of us.
    Secretary Rubin. Could I just add one more thing?
    Mr. Lewis. Certainly.

                          health of cdfi fund

    Secretary Rubin. You had mentioned in your opening comments 
concerns about the various problems. I really do think that 
these things have now been taken care of and they have been 
effectively addressed.
    This happens to be a program I am personally extremely 
interested in. I call it people's capitalism. I think it is 
really a very good program. And I think all of the comments you 
made about urban renewal are pretty well-taken.
    My view, at least, is that I think there is a real chance 
this program could be the antithesis of that kind of a program. 
It is not a top-down. It is right in the community and so 
forth.
    Mr. Lewis. Yes.
    Secretary Rubin. If you all develop concerns or issues that 
you think are not being addressed exactly the way you think 
they ought to be, in addition to working with Ellen and 
everybody else and Jerry Hawke, you are more than welcome to 
call me. I can assure you that all of Treasury will focus on 
the issues that you raise.
    Mr. Lewis. We appreciate that. And let me say the questions 
were raised from the authorizing side within the House. And 
they brought them to our attention. Nonetheless, there were 
members who were very seriously concerned. And they are very 
pleased with the interaction and the response, the two-way 
communication, and also the movement. And so for that, you are 
complimented.
    Secretary Rubin. We worked with the authorizing committee.
    Mr. Lewis. I know you did.
    Secretary Rubin. I did as well personally to deal with 
this.
    Mr. Lewis. We got a lot of positive feedback regarding 
that. And if the whole system operated that way, you know, we 
would make some progress around here.
    Anyway, we will recess for just a moment. The Secretary has 
to leave. We appreciate your being with us.
    Secretary Rubin. Well, thank you, Mr. Chairman. It is good 
to be with you again.
    [Recess.]
    Mr. Lewis. If we can come back into session. I might 
mention that all of our members, please don't be disappointed 
with the crowds or lack or crowds because members have 
conflicting subcommittees, including shortly, Mr. Stokes, who's 
got to go on to another subcommittee.
    I don't know if you have questions of Ms. Lazar or not, but 
if you do, Mr. Stokes, I'd call upon you for whatever you wish. 
In other words, before you have to take off, or I'll go 
forward.
    Mr. Stokes. Whatever. I don't want you to interrupt, you 
know, your way of doing things.
    Mr. Lewis. We're in this together.
    Mr. Stokes. Right. I appreciate it.

                         fy 1999 budget request

    Mr. Lewis. Okay, I'll proceed and then I'll call on you. 
Thank you.
    Ms. Lazar, the fiscal year 1999 budget request wascreated 
prior to your arrival as we discussed earlier. Now that you've had time 
to review the budget submission you've decided to make some changes, as 
you indicated to me privately.
    The changes include: increasing the financial assistance to 
city advised activity by $18 million over the President's 
request, from $42 million to $60 million; the direct loan 
subsidy activity is increased by one million dollars from $2 
million to $3 million; the Bank Enterprise Award program is 
increased by $10 million, from $25 million to $35 million; and 
the training and technical assistance activity is increased by 
$2.5 million from $20 million to $22.5 million.
    Why did you make these changes and are the changes 
supported by the Department of Treasury and OMB? The latter is 
a given, so why did you do it?
    Ms. Lazar. We looked at these changes internally. We still 
need to bring them to OMB. These are our estimates of what we 
can spend in the coming year.
    It's my expectation that we'll be able to obligate 
approximately 86 percent of the $146 million in the first year 
of '99, and that we would be able to obligate a total of $126 
million in fiscal year '99.
    Again, these numbers have been reviewed at Treasury; we 
still need to bring them to OMB and discuss them.
    Mr. Lewis. As we look at the changes that you're proposing 
relative to CDFI, is there sufficient demand among CDFIs and 
banks for these increases that you're suggesting?
    Ms. Lazar. We believe there is. As I've mentioned earlier, 
we increased the number of applications that we've gotten under 
the Bank Enterprise Awards from our original number of, I 
believe it's 54, to 104 this year.
    We have requested, asked for, a total of $35 million in 
Bank Enterprise Awards. We have approximately $25 million to 
give out. So we see an increased demand for these funds.
    We're going to be continuing to train organizations and 
it's our expectation that we're going to have many more 
competitive CDFIs. Over the course of time we've had 500 
applicants for our funding requesting a total of $400 million.
    This year we expect that we'll have an increase over last 
year in the number of CDFI applicants that we have. So these 
numbers are really based on our expectations for growth and 
growth in the industry.
    Mr. Lewis. Maybe you'd share a bit of that with us, then, 
Ms. Lazar. If the increases are appropriated, how many CDFIs 
and banks will receive assistance and will the size of the 
financial assistance grants to CDFIs be increased?
    [The information follows:]

    For this year's core component round of the Community 
Development Financial Institutions (CDFI) Program, the Fund 
expects to make awards to approximately 50-60 CDFIs. In the 
next round, which will be in FY99, the Fund expects to make 
awards to 60-75 CDFIs. The size of the financial assistance 
will depend on a number of factors, not the least of which is 
the amount of matching funds obtained by the CDFIs.
    In the round that will end in September 1998, the Fund 
expects to fund 65-75 awardees under the BEA Program. During 
FY99, the Fund expects to make awards to 80-90 banks under the 
BEA Program next year.

    Ms. Lazar. I don't have a good answer for you to that 
question. We have certified now, 196 CDFIs; we have about 70 
applications in our pipeline. My expectation is that everybody 
who has applied for certification did so with the intention of 
applying for core grant awards.
    To the extent that we have seen growth in both programs I 
expect that we'll continue to see that growth. I'd be happy to 
get you stronger numbers in the coming months. We have a round 
that's going to be started for the CDFI program in March. We 
expect to have applications in by the beginning of June and 
that will help support, I think, our growth numbers.
    We're also doing quite a bit of training this year. We're 
putting a notice of funds availability on the street for $5 
million next month and with that money we intend to train 
smaller, more nascent institutions. We expect that that 
capacity-building effort will also increase the number of 
competitive CDFIs around the country.
    This past year we gave out over $5 million to two large, 
intermediary organizations, and they will in turn re-lend that 
money, re-grant that money to smaller CDFIs. It's our 
expectation that that money will support over 200 institutions 
in the next five years.

                           measuring results

    Mr. Lewis. Ms. Lazar, I presume that you, with your 
sophistication, had heard the term ``walking around money''?
    Ms. Lazar. Yes, I have.
    Mr. Lewis. You mentioned the street, and walking around 
sometimes has to do with walking around with money in the 
street.
    Ms. Lazar. Yes.
    Mr. Lewis. I do not mark myself as one of those who's a 
cynic, but there are those who suggest that a program like 
this, if not carefully monitored, could be little more than 
walking around money for organizations that were interested in 
supporting their slant on the world, if you will.
    Frankly, I would not ascribe that to these programs, but 
it's very, very important that we measure carefully what's 
happening out there; make sure that expanded numbers of grants 
as a result of applications are being monitored, that they're 
getting to those businesses and stimulating opportunity for 
people.
    I'll be very interested in looking at the number of women, 
for example, who receive applications, or women's small 
businesses, etc., in this process, going back to the price of a 
dream.
    Let me be specific. Does CDFI have the capacity to 
effectively administer these increases with their existing 
staff?
    Ms. Lazar. I believe we do. Right now we are allotted 35 
full-time employees, and right now we're building the staff. We 
brought on Paul Gentille, our CFO, who has been growing the 
administrative side of our house. He's brought on an awards 
manager, an accountant; he'll be bringing on a controller in 
the next month.
    And having those systems and awards monitoring procedures 
in place will help us make sure that we're putting the money to 
good use.
    We're also building our program staff. Maurice Jones, who 
had been our counsel, became our deputy for Program and Policy 
in the last month. Under Maurice will be four managers: a 
manager for each of the programs and a manager for policy and 
research. And it's our intention that these folks will be 
charged with helping us administer and run the program.
    Mr. Lewis. I am impressed by the emphasis to strengthening 
management and improving internal systems and the like. What 
was the result of the fund's first financial audit?

                        cdfi fund annual report

    Ms. Lazar. The fund received an unqualified opinion on its 
financial statements from our auditors, KPMG Peat Marwick. What 
that means is that our financial statements were fairly and 
accurately presented.
    Peat Marwick did note certain material weaknesses that were 
identified in our audit, and we have been working on those 
material weaknesses and taking corrective action that I expect 
will continue throughout the year, but we're working quickly to 
address the problems.
    Mr. Lewis. Would you outline some of those major weaknesses 
and what actions you're taking?
    Ms. Lazar. Sure, I'll be glad to. One issue that wasraised 
was a lack of formal FMFIA process and internal controls over 
procedures. The Fund actually did in fact, conduct an FMFIA review in 
October and November of 1997. You'll recall that the audit covered 
fiscal years 1995, 1996, and 1997.
    The Fund was also given advice that we should be filling 
certain vacant positions including a CFO position and an awards 
manager position; which we did this last fall. There was no 
formal review of monthly financial statements and accounting 
records, and we're doing that all now that we have the 
appropriate systems in place.
    We were also criticized for inadequate delineation of 
organizational responsibilities within the Fund, and we've now 
submitted an organizational proposal to the Department for 
their approval; which includes mission functions, an 
organizational chart, staffing plans.
    Under Secretary Hawke. Mr. Chairman?
    Mr. Lewis. Yes.
    Under Secretary Hawke. May I supplement that very briefly?
    Mr. Lewis. Sure. Secretary Hawke.
    Under Secretary Hawke. I think it's important, and I know 
you do understand that the auditor's report really speaks as of 
the end of the last fiscal year, which was September 30. And 
their comments about material weaknesses therefore, really 
spoke as of that date.
    I think the auditors in their report recognized that 
management itself had identified the material weaknesses and 
subsequent to the close of the fiscal year, over the last five 
months, have been working very diligently to correct those 
weaknesses and have in fact done so.
    But that timing difference, between the date as of which 
the auditor's opinions spoke and today, is important to 
recognize.

                   establishing system and processes

    Mr. Lewis. I can understand the sensitivity here. You know, 
one of the reasons we work very closely internally with IGs for 
example, is we find that a lot of times they give us some 
objective opinions. Anyhow, we do appreciate your comments.
    During the last year's hearing Ms. Moy testified that some 
of the delay in selecting winners and awarding funds is due to 
need for the Fund to establish systems, procedures, and 
infrastructure. Have those issues been addressed?
    Ms. Lazar. I think they have been. This year we developed 
and we have a very detailed system for choosing applicants. We 
work with our reviewers and go through the selection process in 
a very deliberate fashion. We've developed conflict of interest 
procedures and numeric worksheets to ensure that there's 
fairness and rigor in our selection process.
    Subsequent to the selection process we work with our 
awardees to develop performance goals that go into the 
assistance agreements we enter into then. We work with them to 
develop both performance goals over the course of five years as 
well as financial covenants that they need to meet over time.
    That documentation gets done through a combination of work 
between our staff and the awardee. We have boilerplate 
documents now in place for each type of assistance, which has 
helped speed up the process.
    And we did workshops with all the awardees last December to 
explain the award process to them, to walk through the 
assistance agreements with them, to ensure that they understood 
what their responsibilities were in terms of developing the 
performance goals and participating in the closing process.
    Another aspect of the closing process that had in the past 
I think, delayed disbursement of funds, was really the reward 
of matching funds to our awardees to ensure that they've gotten 
the matching funds.
    Mr. Lewis. Ms. Lazar, as I hand the questioning period over 
to Mr. Stokes, let me take a moment though, as we welcome Under 
Secretary Hawke to the table. You might take up and introduce 
your other guests as well as the Under Secretary.
    Ms. Lazar. Well, I have Maurice Jones who's our Deputy 
Director for Program and Policy; Paul Gentille who's our Deputy 
Director for Management, and CFO.
    Mr. Lewis. Welcome, gentlemen. Mr. Stokes.

                            grant selection

    Mr. Stokes. Thank you, Mr. Chairman. Ms. Lazar, you sort of 
touched on this a little bit, but let me go into it a little 
deeper with you.
    One of my concerns would be the fact that when we took this 
bill to the floor last year we must have spent money in about 
three hours, maybe four hours, with the Authorizing Committee 
bringing up amendments attacking parts of the bill.
    And paramount in their concerns were two things, and they 
were well taken in both instances. One were allegations related 
to conflicts of interest and the granting of loans; the other 
was political considerations entering into the granting of 
loans.
    Those of course, are very serious concerns and we took them 
seriously. And of course we addressed all of these things in 
Conference, and Secretary Rubin and the rest of the Agency were 
very concerned about these problems.
    What are you doing to ensure that these type of things will 
not occur in the future?
    Ms. Lazar. Let me say that it's my understanding that in 
the past there's been no political influence used in 
determining who the winners are. We've had and will continue to 
have, a very fair and objective review process.
    We solicit applications, we send out a Notice of Funds 
Availability and issue new regulations. We in turn then review 
the applications that we get through a very rigorous, 2-step 
process whereby we do really a qualitative evaluation and then 
reduce our qualitative evaluation to a numeric worksheet, which 
helps us compare and contrast our awardees, one to the other.
    This is done through a group of both outside reviewers and 
internal staff. It's my intention this year to have as many 
staff as I can put onto this project as possible, and to limit 
the number of outside reviewers that we use.
    We go through a very rigorous conflict of interest review 
before we bring on outside reviewers to ensure that none of 
them have potential conflicts with any of the awardees.
    At the time the awards are in fact, made, there is no 
review from others at the Treasury Department. The decisions 
are made within the CDFI Fund. And as in the past, these 
decisions will not have any political influence over them.
    Under Secretary Hawke. Mr. Stokes, could I add one or two 
notes?
    Mr. Stokes. Sure.
    Under Secretary Hawke. First of all, as the Chairman 
recognized, we have been working closely with the Authorizing 
Committee, and the oversight effort that they have gone through 
I think has contributed tremendously to theimprovement of the 
Fund's processes.
    They really did focus our attention on things that needed 
to be done; we've tried to work closely with them and be 
responsive to their concerns. And I think that process has 
worked exactly as the Secretary said it should work, and we're 
pleased with that.
    Mr. Lewis. Let me interrupt just a moment, Mr. Stokes.
    Mr. Stokes. Sure.
    Mr. Lewis. One of the items in connection with that is that 
there was, when people began to focus upon problems, there were 
some who wanted to make this a cause celebre and it could have 
easily been a demagogic effort to create differences between we 
and them and those and so on.
    But I must say that the Authorizing people, the leadership 
there was more concerned with the program and results than 
otherwise, and I thought there was a very healthy and 
professional exchange of the kind that helped us all rather 
than getting bogged down in some of the stuff that sometimes 
goes with these debates.
    Mr. Stokes. I quite agree with you. In fact, even on the 
floor I thought, you know, bereft of any type of partisanship.
    Under Secretary Hawke. I think that's right. The other 
point that I wanted to make is this. I've been involved with 
this program right from the very start and as the initial 
Director, Kirsten Moy and I discussed the formulation of basic 
policies in the program, I made it emphatically clear that this 
program, in order to maintain its credibility, it had to be 
completely free from outside influence.
    This was originally, as you know, a program that was going 
to be run in a freestanding fund, and it was assigned to 
Treasury. And we made it an important foundation precept of 
this program that the programs be completely insulated from 
outside influence.
    The Treasury Department has no role whatsoever, in the 
granting of awards. The decisions on awards are made 
professionally by the staff and the director of CDFI. They 
don't consult us, we don't know what the recommendations are, 
and we have done everything we can to insulate this program 
from outside political influence in order to maintain its 
credibility and validity.
    Mr. Stokes. Ms. Lazar, when you make a grant you enter into 
an agreement with the grantee. Do you include certain 
performance goals and are they then monitored?

                       grantee performance goals

    Ms. Lazar. Yes. We in fact, negotiate performance goals 
with our awardees and the performance goals are really 
performance goals out into the future. They're over a 5-year 
period. At the end of five years we expect each of the awardees 
to be in a particular place.
    There are benchmarks that are required to be met and those 
benchmarks are monitored on a regular basis. We now get reports 
from our awardees. We intend to bring on staff that will be 
able to work with the awardees who are, you know, as they move 
forward, to make sure that they're meeting their benchmarks.

                             intermediaries

    Mr. Stokes. I understand you're planning to make some 
grants to a special category of CDFIs that you referred to as 
intermediaries?
    Ms. Lazar. Yes.
    Mr. Stokes. What do these organizations do?
    Ms. Lazar. The intermediary organizations generally work at 
a higher level. They're often groups that do training and 
lending work for their industries, for their particular 
industries.
    We made an award to the National Federation of Community 
Development credit unions; we've made an award to the National 
Community Capital Association. Both are organizations that do, 
in fact, new lending but work with a broader membership that 
really have the opportunity through them to growth to their 
capacity.

                                staffing

    Mr. Stokes. Now, your budget documents indicate CDFI Fund 
staff is expected to more than double this year, from 14 full-
time equivalents in fiscal year '97 to 35 in fiscal year 1998.
    More employees, you know of course, are not necessarily a 
bad thing. But I recall the Fund criticized last year for 
allowing two contractors. Yet this is still a substantial 
increase.
    Tell us why you're adding this additional staff.
    Ms. Lazar. The staff is necessary so that we don't need to 
rely on contractors in order to effectively administer the 
programs that we've been charged with running.
    We need to add this staff. This staff was approved in the 
past in our appropriation, and at that time it was the judgment 
of the Congress that that was the level we needed to 
effectively run the programs.
    Mr. Lewis. The original authorization was for 35, and 
you've just never gone up to that.
    Ms. Lazar. That's right. Right now we're bringing the staff 
on so that we can grow capacity and talent within the 
organization so that there is continuity rather than relying on 
contractors. We feel that that is a better way to run the ship.

                       volume of grant applicants

    Mr. Stokes. Well, lastly, let me ask you this. In terms of 
the volume of grant applications, in ratio to the amount that 
you're able to bring, give us some idea of how that works.
    Ms. Lazar. In the past, let me see, I've brought some 
numbers here. In the past we had over $400 million in requests 
for CDFI money. We had a total of about $60 million to give 
out; between $60 and $70 million. Actually, we obligated $71 
million. So that was $400 million to $75 million.
    Mr. Stokes. You gave out 75?
    Ms. Lazar. No, we had $75 million, I'm sorry. Let me 
correct myself. We had $71 million to award out and we had $400 
million in applications in the CDFI Program in the past.
    The number of applications that we received in the BEA 
Program; let's see how much we leveraged here. Our BEA Program 
in the past has been well subscribed. This year we have $25 
million to award and have $60 million in applications; so we 
have three times as many applications. Four times.

                      award percentage of request

    Mr. Stokes. Give us some idea also of what percentage in 
each individual case, let's say. We have an application before 
you. What percentage of the request are you able generally, to 
give? Can you break that down for us at all?
    Mr. Jones. I'm not sure I can break that down that 
specific, because we have to go back and look at each 
application, but let's take a look at the first round.
    We had 268 applications in the first round. We only had 
enough money to fund 31 of those institutions. And in most 
cases we were not able to fund those institutions at the full 
amount that they requested.
    Same thing the second round. We had approximately 159 
applications. Yes, about 159 applications. We were only ableto 
fund 46 of those. Again, in each case we weren't able to fund the 
applications at the full amount that they requested.
    Now, in some cases, the reasons why we weren't able to fund 
them is they didn't have sufficient matching funds. And in 
other cases we determined that they were asking for more money 
than they could absorb at that particular time.
    Or in other cases we decided that it would be more prudent 
to give people grants or loans as opposed to equity 
investments. So when we get into the evaluation process there 
are a number of factors that would contribute to why we make 
particular decisions.
    Mr. Stokes. Okay, thank you very much. Thank you, Mr. 
Chairman.

                           affirmative action

    Mr. Lewis. Thank you, Mr. Stokes. Ms. Lazar, before I hand 
the round over to my colleague from New Jersey, I think you may 
know that over time Mr. Stokes and I have expressed some 
interest in areas that might be described as affirmative 
action.
    It is my intention as we ask you to review your work and 
measure it over time, to apply some of those principles to our 
questions. I don't expect that they will be an extension of his 
questions that would cause me to ask whether or not applicants 
are registered or not, or even whether they're Republican or 
Democrat.
    But it is every important that we proceed in a way that 
overcomes difficulties that relate to perception of outside 
interests and political preferences in this application 
process.
    But touching on affirmative action specifically, could you 
tell me, of the institutions which were successful applicants, 
how many of those institutions happen to be run by women?
    Mr. Jones. I don't know the answer to that at this time, 
but I can go back.
    Mr. Lewis. Well, off the top.
    Mr. Jones. Off the top of my head.
    Mr. Lewis. Ms. Lazar must.
    Mr. Jones. We can go back and get you that answer after 
this.
    [The information follows:]

    Approximately 60 percent of the core component CDFI Program 
awardees have a woman as Chief Executive Officer (or 
equivalent) and/or Chair of the Board (or equivalent).

    Mr. Lewis. I've had a project for about a decade that's 
involved in trying to find more women to run in Republican 
primaries across the country and increase the numbers thereby. 
We've had some success, but this does not relate to that.
    Mr. Jones. I can particularly look at California. We can go 
back and get that information.
    Mr. Lewis. Mr. Frelinghuysen?

                         depressed communities

    Mr. Frelinghuysen. Yes. Ms. Lazar, what do you mean 
exactly, in the second page of your testimony, and I quote, 
``the Fund's efforts are designed to turn dysfunctional markets 
into well functioning, local economies''.
    I may have a fixation on words here, but what does that 
mean? I'm familiar with dysfunctional people, but I just need, 
as succinct as possible, an explanation of exactly what that 
means.
    Ms. Lazar. I think that what I'm saying is that we want to 
work in communities where they traditionally and for a long 
time have not had access to capital, particularly for small 
business, for community facilities, and for housing.

                      audited financial statement

    Mr. Frelinghuysen. All right. Thank you. Can I take it from 
the earlier responses that all of the auditor's points that 
raised some red flags have been answered?
    Ms. Lazar. They're in process and we have plans to fix all 
of them. All are in process.
    Mr. Frelinghuysen. So there will be at some point in time, 
a sheet of paper where the auditor will have raised some points 
and there will be an actual response which the Committee will 
have an opportunity to evaluate?
    Ms. Lazar. Our goal is to make sure that by the time we're 
audited again next year, these material weaknesses are gone.

                             matching funds

    Mr. Frelinghuysen. All right. Do you require a dollar-for-
dollar match before awarding grants?
    Ms. Lazar. Yes.
    Mr. Frelinghuysen. Do you require that the grantees 
demonstrate in any way a guaranteed source of funding before 
you award the grant?
    Ms. Lazar. We look at their business plans, we look at 
their matching funds coming in. We look at their financial 
viability, we look at their financial statements and their 
comprehensive business plan pretty closely.
    Do you want to add anything more?

                                  risk

    Mr. Jones. Let me add to that, we do in fact, ask them to 
put forward information that will demonstrate to us that they 
won't be reliant on the Federal Government for financial 
viability in the future. So they have to put forward to us some 
projection of the sources of income that they're going to 
receive over the next five or so years.
    Mr. Frelinghuysen. So the answer to my question, do they 
have to demonstrate a guaranteed source of funding before you 
award the grant, or is it just that you have a feel-good 
feeling about them?
    Mr. Jones. With respect to the match, they have to show us 
that they have an actual legal commitment that guarantees that 
they're going to get that matching money.
    With respect to the other dollars going forward to ensure 
that they're actually going to be financially viable, we don't 
ask them to show us a guarantee. We ask them to give us a 
projection that is convincing to us that they actually will 
have enough funds to be financially viable in the future.
    Mr. Frelinghuysen. Is there a matching requirement in the 
BEA Program?
    Mr. Jones. No sir. There's no matching requirement.

                           financial capacity

    Mr. Frelinghuysen. Could you comment briefly on, in your 
testimony on I think it's page 8, you say the fund builds a 
financial capacity, etc., etc., in the form of equity, 
investments, grants, loans, or deposits, to enhance the capital 
base.
    What's the spread between grants and loans here? Obviously 
there's a big difference between a grant and a loan.
    Ms. Lazar. Actually, I have some numbers for you on that.
    Mr. Frelinghuysen. Maybe just give us a percentage figure. 
We would like the specific information.
    Ms. Lazar. I have it.
    Mr. Frelinghuysen. All right. Go right ahead.
    Ms. Lazar. In 1997 we made equity investments in the amount 
of $6,650,000. We gave out $24,528,000 in grants; $1.2 million 
in loans; and $914,000 in technical assistance.

                     new jersey banks participating

    Mr. Frelinghuysen. All right. I'd like to know 
specifically, and this refers to some of the questions I asked 
the secretary when he was here, what banks in New Jersey are 
participating? You may not have that answer.
    Ms. Lazar. I don't know that I have it now. I do know that 
First Union has participated.
    Mr. Lewis. Why do you ask that question?
    Mr. Frelinghuysen. I'd like to know and I'd be interested 
in knowing what community organizations you've had some 
interaction with.
    Ms. Lazar. I'd be glad to get you a list of the New Jersey.

                            success stories

    Mr. Frelinghuysen. What's entirely natural is to hear some 
of the specific success stories, and we have some anecdotal 
evidence, wherein we had some specific failures or non-success 
stories.
    Ms. Lazar. That's an interesting question.
    Mr. Frelinghuysen. And better yet, from those, what have we 
learned?
    Ms. Lazar. That's an interesting question for me because 
I've been working on success stories of late.
    Mr. Lewis. Have you had to work hard to find them?
    Ms. Lazar. No, I haven't had to look under rocks. But my 
understanding is that we've had four awardees that have not yet 
received their disbursement from our 1996 round. Maurice, maybe 
you can share with us, what's holding those up and maybe those 
would be responsive to the Congressman's question.
    Mr. Lewis. Excuse me just a second. Did you say four 
awardees who have had successful application?
    Ms. Lazar. Yes.
    Mr. Lewis. But have not received funding from the '96 
round?
    Ms. Lazar. That's right.
    Mr. Lewis. Just curious. I wanted to clarify it.
    Mr. Frelinghuysen. Yes, thank you, Mr. Chairman, for that 
clarification.
    Mr. Jones. There are four awardees.

                            obligated funds

    Mr. Frelinghuysen. Therefore, my next question will have to 
do with the issue of what you've used in the way of money and 
what you anticipate is a possible carryover of funds?
    Mr. Jones. There are four awardees from the first round who 
have yet to receive their monies.
    Mr. Lewis. How many of them are working at this table? I'm 
sorry.
    Mr. Frelinghuysen. You're the Chairman.
    Mr. Jones. The reasons really at this point are reasons 
that are specific to these institutions. All of them have 
statutory requirements that they must comply with before we can 
legally give them the money.
    For instance, if they do not have the matching funds in-
hand we cannot give them the money until they raise it, or 
until they receive it.
    Mr. Frelinghuysen. So the money is being held in abeyance?
    Mr. Jones. So the money in some cases, is not actually in 
the hands of the awardee for particular reasons between that 
awardee and whoever that third-party source of funds is. Until 
they get that money, we won't give them our money.
    We've had particular situations with banks who are 
concerned, who have to go through and get the approval of their 
regulators, and if they're State regulated they have to get the 
approval of their State regulator, as well, before they can get 
our money. We're waiting for that sort of thing to happen.
    So in each case, we're prepared to give them the money as 
soon as they satisfy these prerequisites that are in our 
statute that they have to satisfy. But you know, there are four 
that don't have their money; there are 27 that actually already 
do have their money.
    And as soon as these get their act together, basically, 
we're ready to give them money as well.
    Ms. Lazar. Yes. While we were waiting we realized that we 
did have the information on the New Jersey organizations that 
have been certified.
    The Camden Community Credit Union, the Cooperative Business 
Assistance Corporation in Camden, the New Community Development 
Loan Corporation in Newark, the New Community Federal Credit 
Union in Newark, the New Jersey Community Loan Fund in Trenton, 
which was an awardee last year.
    Also the Delaware Valley Reinvestment Corporation which is 
located in Philadelphia but does a great deal of work in 
Camden, has been an awardee over time.
    Mr. Frelinghuysen. That sounds like they're good groups.
    Ms. Lazar. Yes.
    Mr. Frelinghuysen. The money we appropriated in fiscal year 
1998, will we use all of that funding and do you expect to have 
any carryover?
    Ms. Lazar. I need to reiterate that this is 2-year money. 
We expect to obligate 82 percent of our 1998 money this year, 
and expect to have a carryover of about $21 million into 1999.

                                training

    Mr. Frelinghuysen. And lastly, can you describe the new 
skill development training initiative that you've requested $50 
million for? What's led you to believe that there's a need for 
a skill development among the CDFIs, and can you elaborate by 
what you mean?
    Ms. Lazar. Sure, I'll be glad to. Our capacity building 
initiative is something that was intended by our original 
authorizing legislation, both in our core program and in a 
separate section in the authorizing legislation. We're 
encouraged to go forward with helping to grow and build the 
industry, to develop capacity within the industry.
    We've seen that there are a lot of small organizations that 
have a need for growth, that need to develop certain business 
skills, including comprehensive business planning.
    Mr. Frelinghuysen. People competent enough to fill out the 
paperwork for the program?
    Ms. Lazar. I think beyond that. People who are competent to 
manage and run an institution that's going to be able to remain 
in the community beyond their support from the Federal 
Government; that are going to be able to sustain themselves 
into the future.
    This month we're going to be issuing the Notice of Funds 
Availability for a $5 million round to provide training and 
technical assistance for small organizations who otherwise 
wouldn't be competitive. They will select the type of training 
they need and we will evaluate what they selected against what 
their plans are for the future.

                     difference--cdfi fund and ncua

    Mr. Frelinghuysen. What's the difference between the CDFI 
Fund and the revolving fund administered by the National Credit 
Union Association, who was also in here the other day? The 
NCUA?
    Ms. Lazar. I'm not sure I have a good answer for that.
    Mr. Frelinghuysen. Well, maybe for the record you'd be good 
enough to provide that.
    Ms. Lazar. I'd be glad to get back to you and differentiate 
the two.
    [The information follows:]

    Our understanding is that the National Credit Union 
Association (NCUA) Revolving Loan fund only provides debt 
financing. The CDFI Fund provides technical assistance and 
financial assistance in the form of equity, loans, deposits and 
grants. We also understand that the NCUA Revolving Loan Fund 
only makes loans to low-income designated credit unions. The 
CDFI Fund provides assistance to banks, thrifts, CDFIs and 
organizations demonstrating that they will become CDFIs within 
two years. CDFIs include a diversity of institutions such as 
credit unions, banks and bank holding companies, multi-bank 
community development corporatins, microenterprise loan funds, 
business and housing loan funds and venture capital funds. 
Finally, we understand that the terms of the loans are uniform 
under the NCUA Revolving Loan Fund. Under the CDFI Program, the 
form, value and terms of the assistance depends on the match 
presented in an entity's application for assistance.

    Mr. Lewis. The Secretary did allude to the fact that the 
credit union's funds are involved in similar activities, and 
there's obviously some competitive relationship, if not 
otherwise.
    Ms. Lazar. We're very active. The National Federation of 
Community Development Credit Unions, which are the smaller 
credit unions around the country, are very actively involved 
with the CDFI Fund.
    They're an awardee in our intermediary round. Their members 
have been big users of the CDFI Fund. I will find out some more 
and see where there's overlap.
    Mr. Jones. I will say this. The revolving fund that the 
NCUA administers is just for credit unions; that's one big 
difference. Credit unions can be winners under our program but 
they have to be credit unions that satisfy our test at CDFI; 
which I do not believe, in fact I'm almost certain, that the 
NCUA does not require.
    But we'll get back to you on the particular differences.
    Mr. Frelinghuysen. Thank you, Mr. Chairman. Thank you both.
    Ms. Lazar. Thank you.
    Mr. Lewis. Ms. Meek.

                         adequate funding level

    Ms. Meek. Thank you, Mr. Chairman. Good to see you and all 
your staff. My question is similar to Mr. Frelinghuysen's 
question regarding the revolving loan of the credit unions. I 
think I talked to you about it.
    I have sort of a visceral feeling about the CDFI. I 
strongly support it; I think it's a very good program. But I 
don't think, with the problems we have in many of these urban 
and rural communities, that there's enough money in this fund 
to really help.
    So they said, well there she goes. I'm sure my Chairman is 
saying, well there she goes, one of those Democrats. I can see 
it in his face. That's not what I'm seeing.
    Mr. Lewis. Ms. Meek, that's not what you see in my face. If 
we had more people like you around here we wouldn't have very 
many problems.

                                outreach

    Ms. Meek. I just believe in spending the money where there 
is a need. I'm very thrifty otherwise, as my staff can tell 
you. But I think there is a need, there is such a strong need 
for capitalization in many of these rural and urban 
communities; very, very strong need.
    Much of what I hear my President talk about when they talk 
about the great economic status, the high economic status that 
this country is in, much of it has not gotten down to many of 
the people I represent.
    There are so many, many communities and groups that would 
love to do well in business but they cannot get the capital. 
And I become frustrated, Ms. Lazar, after so many years of 
working and trying to do this. They just can't get access to 
it.
    Now in researching what you've done, I think it is 
excellent. You haven't been there very long; this fund is good 
and it will be even better. But the match is hard for some of 
these small groups to get.
    I have one or two small manufacturers; they're small in my 
district. They're about to close because they can't get loans 
from the banks.
    There's only one bank in my large, metropolitan Dade 
County, down in the south end, West Miami, that has been able 
to access the Fund. I'm very happy to say, they did get an 
award because they were able to loan money.
    And Ms. Lazar, I've known you for many years in housing. 
You know what the needs are in these areas. And much of it is, 
the need is greater than it was when you were working in 
housing.
    So I guess my question is, there seems to be something 
missing in terms of, how do we get the money to some of the 
people--the banks, thrifts, and organizations who need it? They 
must get the 100 percent match; I can understand that.
    The Fund has limited funds. Your certification is obviously 
very accountable. I'm searching for a word and I haven't gotten 
the word in my mind yet. But it's not a dichotomy but there's 
something missing between the people who need the capital and 
the ability of the public, of the small businesses to get it.
    Now don't fool yourself. There's very little help in SBA. 
They'll say, well go to SBA, you can do this. But I have so 
many, many small business people who have come to me and said, 
Ms. Meek, we can't get loans from the Government because we 
have to put up everything that we own; everything.
    My inquiry is not quite a question; it's more of a plea, 
really. And I see this particular fund and this particular 
program as being a big part of the answer. I'm just not able to 
structure what I'm saying that's missing here.
    First of all, the Business Assistance Center in Miami is 
the one organization that's certified to even loan money. I 
called them, not this time but last year when this came up. I 
called them. I wanted to know why they were not putting any 
money on the street and why they didn't have enough to help 
out.
    They said, well, we don't have the matching money to do 
that. Now, the Business Assistance Center is not the only 
center in the middle of Miami's urban community, the inner 
city, that would need the loan money.
    Have you heard this frustration before from others, or am I 
the only one that you've heard it from? My second question is, 
how can they get access to capital, other than through CDFI? Is 
your intermediary program the kind of program that would lend 
itself to access from these businesses?
    See, in a small community the businesses are the ones that 
provide the jobs; that's where the jobs come from. We keep 
talking about welfare reform but we don't know how to solve it. 
In Dade County we have 25,000 women going off welfare and they 
don't have jobs for them, yet we can't get help from some of 
the five Government programs that are working there. That's my 
frustration.
    Now I know you're not the Oracle of Delphi so you may not 
be able to answer. But I needed you to hear my frustration. Go 
ahead, Ms. Lazar. Anybody.
    Ms. Lazar. My sense is that, as we grow, as we spend more 
time doing outreach in various communities around the country, 
through a Web page, through newsletters, through our 
relationships with the more mainstream banks, we can then 
reinvest in some of the community development financial 
institutions in their communities.
    We'll be able to get the word out more and really provide 
more access through the community development financial 
institutions to the type of small businesses you're talking 
about.
    You know, I was dismayed to hear that there were so few 
organizations in South Florida that have been engaged in this, 
and I think that that's the case in different parts ofthe 
country where there are pockets that really need to be targeted for 
more marketing activity and more outreach by the Fund.
    We intend to do that this year and I'm planning on hiring 
an external relations person and have a staff that will be able 
to help us do more outreach than we've done in the past.
    Ms. Meek. Okay, so my question was one in terms of how much 
outreach you're going to do to try to reach some of these 
under-developed areas. You only have four in Florida. Florida 
is a very, very large State.
    So either the word isn't getting out, we're not doing a 
good enough job as representatives in those areas, and to have 
only four is very small for the State of Florida. So I guess we 
both have to do a better job in that regard.
    Ms. Lazar. I agree with you.
    Ms. Meek. Well, I thank you, Mr. Chairman.
    Mr. Lewis. Ms. Meek, on your question specifically, a 
portion of their budget request involves technical training and 
assistance for the people that are served out there, and it 
seems to me that there really is a need for that, to make sure 
that you've tapped into those communities.
    My colleague, Mr. Frelinghuysen, always in special ways 
gets my attention. When you mentioned the word Web page he 
said, good God, do you know how many people don't know what a 
Web page is? And the people we're trying to deal with here 
don't know what a computer is.
    Ms. Meek. They don't have any access to it.
    Mr. Lewis. And our mindset, where we come from, ofttimes, 
biases are kind of what we deliver out there. And it's 
important for us to know that.
    As you were discussing earlier, sometimes I just kind of 
presume people understand what my concerns are. But as you were 
talking about those applicants who were successful and then the 
length of time that you were responding to Mr. Frelinghuysen, 
its '96 go around, it popped into my head, for gosh sakes, I'm 
on the margin.
    I'm a businessman or woman who wants to expand my activity, 
and I see this pool here that I might get access to and I make 
an application and hallelujah, I get accepted. And it's 1996 
and we ain't got the money yet. I mean, either it's technical 
assistance or training or there's something wrong with the 
people we're selecting; that is, they're either too solid.
    So the question came to my head is, a piece of that; only a 
piece of it. And how many of those businesses who are 
successful outcomes or would be successful applicants, who are 
now broke out of business because of the length of time that's 
involved here?
    Do we have any idea how many of those who actually are 
successful are out of business now?
    Under Secretary Hawke. I think it's important Mr. Chairman, 
again to focus on the fact that the recipients are community 
development financial institutions as opposed to the ultimate 
business.
    Mr. Lewis. No, I understand that, but nonetheless. Go 
ahead.
    Mr. Jones. I was just going to say, of the ones who have 
not received our money yet, we are constantly monitoring to 
make sure that they are in business.
    Mr. Lewis. I hope so.
    Mr. Jones. In fact, if they go out of business we probably 
won't give them any more money.
    Mr. Lewis. Hey, that's a good idea. If you're going to 
start that process I've got a brother that I'd like you to deal 
with.
    Mr. Jones. Can I just add something? We have had two 
outreach sessions in Miami over the last two years for the Bank 
Enterprise Award Program, and we will constantly increase those 
outreach sessions to try to inform the public more about these 
programs; both on the CDFI side of what we do and the BEA side.
    And we've got approximately six applications pending for 
certification as CDFI from the State of Florida. So the word is 
getting out.
    Mr. Lewis. We may want to follow up. Please, go ahead.

                               leveraging

    Ms. Meek. Where do you get your money? I know you get most 
of it from the Federal Government. Where do you get your other?
    Mr. Jones. We get all of it from the Federal Government.
    Ms. Meek. Why can't you leverage the money you get from the 
Federal Government? Can we do that? What other sources do we 
have?
    Ms. Lazar. We in fact, require that our applicants for the 
CDFI Fund have a one-to-one match from private sector dollars. 
So they're all leveraging our money.
    Ms. Meek. What do you mean, your money? I mean the money 
you have. Yes, the $125 million. To get other monies; is that 
possible?
    Mr. Jones. That's not possible. We don't have the authority 
to do that.
    Ms. Meek. Well, you can't get blood out of a turnip if it's 
not in it. So if you don't have that much money, you can't get 
any more from the rest, I guess.

                           reporting systems

    Mr. Lewis. But on your point, in my introductory comments 
when the Secretary was here I asked the two of them to take a 
hard look at NRC, Neighborhood Reinvestment Coalition for their 
leveraging dollars that are Federal dollars on an 11:1 basis.
    And we're talking about, you know, in four communities 
redoing neighborhoods and using volunteer, non-profit 
Government agencies, locally, etc. And at best we're doing, 
gosh, two or three to one here.
    And so the question is, or what we were suggesting is, take 
a hard look. There are some programs that really work. We'd 
like to have yours really work.
    The budget submission does not contain a great deal of 
information about what has been accomplished with the funds 
provided to CDFI. Monitoring the uses of the funds has been a 
priority.
    Have you, or do you intend to implement reporting systems 
and monitoring systems? The answer of course is?
    Ms. Lazar. Yes.
    Mr. Lewis. Do you expect to hire contractors to carry out 
any of these monitoring responsibilities?
    Ms. Lazar. No, we don't.
    Mr. Lewis. So it's going to be done internally?
    Ms. Lazar. We intend to do it internally.
    Mr. Lewis. Will the monitoring be based upon results?
    Ms. Lazar. Yes.
    Mr. Lewis. Can we expect a compilation of the results of 
the Federal Expenditures?
    Ms. Lazar. Yes.
    Mr. Lewis. And when?
    Ms. Lazar. We will be bringing on a person to do policy and 
research in the next month. We now have our awardsmanager in 
place. The awards manager has been developing a process for reviewing 
the materials for monitoring our awards on a regular basis.
    We do have reporting requirements in our assistance 
agreement and those reporting requirements, I'm happy to 
report, are really being adhered to by our awardees. We 
recently did a complete review of our files to ensure that the 
reports that had been due have come in.
    They've been read by our staff. What we're really going to 
try to do in the next year is develop a homework quantitative 
approach to analyzing the reports and being able to talk with 
you about that further.

                           internal controls

    Under Secretary Hawke. Mr. Chairman, we also have created a 
separation of functions within the Fund so that the monitoring 
activity will be carried out primarily under the Chief 
Financial Officer and not the Deputy for Program and Policy.
    So that this is sort of a private sector model where we 
bring to bear that kind of objectivity so that people who are 
monitoring and evaluating performance are not the same people 
who might have a vested interest in the policy decisions that 
were made at the time awards were made.
    Mr. Lewis. But I would hope that all three of you would 
look at that leveraging question that we were discussing, to 
help us better understand what's in place that works and how we 
can expand or extend those patterns.
    Because you know, there are only so many of these dollars 
to go around. If we do the leveraging, if we monitor it 
carefully, have results at the other end as our expectation as 
we evaluate these efforts, it helps all of us. Especially when 
we're going through these tight budget hearings.
    Ms. Lazar. I understand.

                             review process

    Mr. Lewis. At last year's hearing, Ms. Moy testified that 
the review process was a 3-tiered process. Are the criteria in 
those tiers still in place?
    Tier 1, completeness of application; Tier 2, successful 
Tier 1 applications meet the financial and organizational 
capacity requirements to be a CDFI; and tier 3, more of tier 2 
criteria plus other factors?
    Ms. Lazar. Yes.
    Mr. Jones. Well, at last year's hearing Ms. Moy was 
describing, all of those components are there, not necessarily 
in the tiers. But we have to review all of the applications for 
completeness, we have to review all the applications for 
quality.
    Mr. Lewis. Boy that really surprises me. I wonder why we 
even ask that.
    Mr. Jones. We have to review them for quality as well. The 
tiered level was a pretty structured process. We don't have 
that particular structure anymore but the contents that were 
included in those structures are still there.
    We've got to do all that review plus look at the capacity 
of the management, the ability to raise matching funds, look at 
the track record, look at the financial projections, and then 
make decisions.
    Mr. Lewis. Who selects the successful applicants?
    Ms. Lazar. The successful applicants will be selected by a 
team of staff and reviewers.
    Mr. Lewis. I kind of want to be pretty specific about that. 
Is it just you randomly select a group of staff members 
internally and say hey, you review these applications and 
select applicants and then make awards?
    Ms. Lazar. We're in the process of formulating how those 
decisions are going to made for this year.
    Mr. Lewis. That wasn't what I was asking about.
    Ms. Lazar. No, no, I understand. Maurice, why don't you 
describe how it was done last year?
    Mr. Jones. Let me tell you how we've done it in the past 
and then how we think we may modify this year. We had two steps 
to it last year, and this is the CDFI program, to be specific.
    Mr. Lewis. Correct.
    Mr. Jones. In the first level of review in the CDFI Program 
we got the assistance of outside contractors to help us pare 
down from, I think it was 159 applications, to about 60.
    In that process we had contractors, with expertise in the 
CDFI industry, review the applications, do due diligence on the 
applications, and then make recommendations to us, the Fund 
staff, about what applications should be considered further.
    The results were about 60 applications. We then had a panel 
of three; two of whom were from within the Federal Government, 
one was a fund staffer, another was on detail from another 
Federal agency.
    They took those 60 applications and then recommended 
ultimately, the 48 to the Director that we selected, and at the 
end of the day the Director selected the 48 who we chose as 
winners.
    Mr. Lewis. Okay, just review that last bit for me again. 
How many were involved?
    Mr. Jones. At the outset we had 159 applications. That 159 
were parsed out to about 20 different contractors. Those 
contractors then recommended from that, about 60 applications 
that we were to consider further for funding. So we eliminated 
a little over a hundred.
    From the 60 we then had a panel of three.
    Mr. Lewis. Internal panel?
    Mr. Jones. Yes sir, an internal panel.
    Mr. Lewis. Of three people.
    Mr. Jones. Of three people, that looked at the 60 and made 
recommendations to the Director. She used those recommendations 
to choose 46. She then was ultimately the chooser of the 
winners.
    Mr. Lewis. Now, I'm asking for your personal experience in 
this because I sense that you have had that personal 
experience.
    Of the 60 upon which 48 were selected, were there close 
calls involved?
    Mr. Jones. Oh yes. There were definitely close calls 
involved.
    Mr. Lewis. By chance, were some of the differences in the 
close calls based upon what the applicant said they wanted to 
accomplish with the fund?
    Mr. Jones. Yes. One of the things we looked at for 
instance, is the potential, community development impact of our 
investment. And in many cases we made, this wasn't dispositive, 
this was one major factor that actually led us to choose one 
applicant over another.
    So they have to put forward a comprehensive business plan. 
This business plan is a plan that covers at least the next five 
years of the work that they propose to do. And that is a key 
document in our review of the applications and ultimately in 
our decisions to fund them.
    We're not only looking to fund institutions that are viable 
and that have good management and that have a sound track 
record; we're also looking to fund institutions that have a 
great potential for community development impact.
    And so yes, is the answer to your question. That definitely 
made a decision.

                         applicant demographics

    Mr. Lewis. Ms. Meek, this line of questioning is very much 
parallel to what you were asking about, and it sure strikes me 
that internally here that we might help ourselves, maybe help 
CDFI as well, if we with our staff, try to focus upon a group 
like these 60 applicants; eventually 48 selected, and looked at 
them in various categories.
    What is their size, what number of employees? The 
applicants themselves are the institutions that deliver money, 
but beyond that they are recipients.
    I'd be interested also in knowing, as we do that kind of 
looking, I'd like to have more input regarding the 60 
applicants. When did they apply, how long did it take, and then 
money in hand; how long before they got money in hand.
    And I'm really sensitive about the fact that you've got 
applicants dealing with people who are marginal employers, or 
people who are somewhere near the cusp, you know, whether we 
are helping people survive or whether we just have them survive 
for a while and later go broke, are we contributing to the 
environment that improves the economy?
    Under Secretary Hawke. There's a tough balance to strike 
there.
    Mr. Lewis. There is, sure. But that's kind of what, you 
know, the Government shouldn't be involved if we're not going 
to deal with tough balances.
    Under Secretary Hawke. In a sense, the fact that we've got 
four or five applicants from the first round that haven't 
received their funds shows that the Fund is being very careful 
in the disbursement of Federal money.
    So there is that tension between wanting to make sure that 
all the preconditions have been met and their matching funding 
is there, and meeting the concern that you've very properly 
raised, Mr. Chairman, that there are people out there that 
actually need this money and are not able to get it from 
conventional, financial institutions.
    Mr. Jones. Let me just add to what the Under Secretary has 
said. We had an instance where we chose an applicant in 
Richmond, Virginia, that struck us as a pretty sound 
investment. They were involved most primarily, in affordable 
housing for low income individuals.
    Well, after we had chosen that group as a winner, the CEO 
and the loan officer left the organization.
    Mr. Lewis. This was the contractor lender?
    Mr. Jones. Right. Yes sir.
    Under Secretary Hawke. The CDFI.
    Mr. Jones. This is the CDFI itself that we chose. So we 
were left with a situation of not having in place the very 
management that we decided to invest in.
    And so what we did in that case was, we had to delay until 
there was some semblance of management to replace prior 
management, and some sense on our part that in fact, the 
business plan that the old management had put forward, was 
still one the new management subscribed to.
    Otherwise, it wasn't clear to us that we were still 
investing in the same institution. You know, that's the sort of 
thing that you can't predict, but it happens.
    And when it does happen we have to pause to make sure that 
we're still making a sound investment and that the institution 
that we're investing in still subscribes to the business plan 
that it put forward in its application. That's the sort of 
challenge we have, and that's the sort of challenges we have 
with the four that are outstanding.
    Mr. Lewis. Thank you. Mr. Frelinghuysen.
    Mr. Frelinghuysen. I have nothing more, Mr. Chairman.
    Mr. Lewis. Ms. Meek.

                   success rate parallel marketplace

    Ms. Meek. Just in a follow-up to your question, Mr. 
Chairman, in terms of the regular marketplace, what has been 
your success in terms of your investment in certain 
institutions, those that failed and those who are able to 
continue?
    Have you had any record of failures similar to what happens 
in the marketplace with investments? In terms of your funds?
    Mr. Jones. We have no institution that we have invested in 
thus far that has failed.
    Ms. Meek. So you're doing better than the general populace?
    Mr. Lewis. Question mark.
    Ms. Meek. Thank you.
    Mr. Lewis. A couple of other questions. We have a number of 
questions that we'll ask you to respond for the record.
    Ms. Lazar. Okay.

                        performance plan process

    Mr. Lewis. After the fund selection of successful 
applicants, those organizations of the funds are legally 
required to negotiate performance plans before the award is 
released. How long does the performance plan process take?
    Ms. Lazar. To negotiate the performance goals we had 
workshops with our awardees for the 1997 round in December, 
where we sat and explained to them in fact, what work was going 
to be required of them.
    Staff has told me that they're coming in right now; that 
they're submitting their performance goals and their financial 
covenants.
    I think in the past, in the first year it took a lot 
longer. I think people have a deeper understanding now of what 
they need to do. Number of months?
    Mr. Jones. Yes, it could take three weeks, it could take a 
month, it could take longer. It really depends on how quickly 
the CDFI that we chose responds to us.
    What we have to do is to base their performance goals on 
the business plan that they put forward in the application. 
What we usually do is, we'll read through their business plan, 
they will propose to us what they would like to have as 
performance goals.
    We read through the business plan, we measure that against 
the business plan. We also measure it against the historical 
performance of the institution, usually over the last three 
years.
    And if we don't think what they're proposing to do is 
challenging or ambitious, we go back and try to negotiate. Have 
you got higher goals? But sometimes we get them coming in with 
goals that we believe are much too high, much too optimistic. 
And so we end up going back saying, is this realistic? We don't 
want to set you up for failure.
    So that process can take three weeks; it could also take a 
month or more.
    Mr. Lewis. Are CDFIs on track with their performance plans? 
I mean, do we have a hole here somewhere, a problem, or 
generally would you say that they are performing in a way that 
reflects the plan?
    Ms. Lazar. From anecdotal evidence that we've seen my sense 
is that these organizations that we've made awards to in the 
past are really thriving; that the awards have been very useful 
to them; have helped them increase their activities.
    It's really meant to bolster their bottom line and give 
them the opportunity to do more in their communities. And I 
think that that's in fact, happening.
    Mr. Lewis. Let me just ask one more question area then, and 
we'll go to the record as I suggested.

                             cap on awards

    The funds authorizing statute restricts individual CDFIs 
from receiving $5 million over three years. Fiscal year 1999 is 
the fund's fourth year of existence. Have any CDFIs hit the 
ceiling?
    Ms. Lazar. No sir. We have had one CDFI that has received 
$4.5 million. That CDFI has been the CDFI that has received the 
most amount of money since we've been up and running, and no 
other CDFI has hit the $5 million ceiling yet.
    Mr. Lewis. Maybe that one, but address the question more 
generally. Do you anticipate that any of the first round CDFIs 
will reapply for another term of funding?
    Mr. Jones. I would think so, yes sir.
    Ms. Lazar. Yes, we think so.
    Mr. Lewis. Do you have any idea what percentage might be 
returning?
    Mr. Jones. Well, between the first and second rounds 
because we have done two rounds thus far, we had five repeat, 
what we call repeat offenders; reached down in the second 
round.
    Mr. Lewis. I do that with candidates.
    Mr. Jones. The likelihood is that we'll get more folks who 
were winners in the first and second round to come back to us 
now. But I have no sense of precisely what that will be.
    But what that means is, five out of 46 institutions that we 
chose in the second round, were first round winners as well.

                            re-applications

    Mr. Lewis. Do you treat those re-applicants any differently 
than first time?
    Mr. Jones. No sir. They have to go through the same process 
again and they have to put forward the same application 
materials and go through the same review and there's no 
guarantee that they'll be successful the second time around. It 
really depends on what they're proposing and whether we see it 
as a sound investment.
    Mr. Lewis. My colleagues, additional questions? Ms. Lazar, 
gentlemen, it's a pleasure to have affirmative action working 
right here before us.
    Ms. Lazar. Right.
    Mr. Lewis. With that then, for this year at least, the 
meeting's adjourned.


[Pages 964 - 1067--The official Committee record contains additional material here.]



                                          Thursday, March 19, 1998.

                  AMERICAN BATTLE MONUMENTS COMMISSION

                               WITNESSES

GENERAL FRED F. WOERNER, U.S. ARMY (RETIRED), CHAIRMAN, AMERICAN BATTLE 
    MONUMENTS COMMISSION
MAJOR GENERAL JOHN P. HERRLING, U.S. ARMY (RETIRED), SECRETARY, 
    AMERICAN BATTLE MONUMENTS COMMISSION
KENNETH S. POND, EXECUTIVE DIRECTOR, AMERICAN BATTLE MONUMENTS 
    COMMISSION
COLONEL ANTHONY N. COREA, U.S. AIR FORCE, DIRECTOR, OPERATIONS AND 
    FINANCE, AMERICAN BATTLE MONUMENTS COMMISSION
COLONEL DALE F. MEANS, U.S. ARMY, DIRECTOR, ENGINEERING AND 
    MAINTENANCE, AMERICAN BATTLE MONUMENTS COMMISSION
    Mr. Lewis [presiding]. The meeting will come to order.
    Today, we will be taking testimony for the Fiscal Year 1999 
budget request for the American Battle Monuments Commission and 
the Office of Inspector General of the Federal Deposit 
Insurance Corporation. The first step is, of course, ABMC, 
whose Fiscal Year 1999 request is $23,931,000, which is a 
decrease of $2,966,000 below the 1998 funding level. Testifying 
on behalf of ABMC again this year is, of course, the 
Commission's Chairman, General Fred Woerner.
    Welcome, General, and as you know, we under normal 
circumstances suggest that you can summarize your testimony, 
and it will be included in the record. Before getting into 
that, I'll be asking you to introduce your guests in a moment 
and then ask that you give your oral testimony here to us.
    But before we get to that point, let me call on my 
colleague, Mr. Stokes.
    Mr. Stokes. Thank you, Chairman. I don't have any formal 
opening remarks. I just want to welcome General Woerner and 
colleagues, and say it's always a pleasure to have you appear 
before the Subcommittee, and as I wind down my career here, 
I'll have some regrets about not having the chance to associate 
with you in this formal respect. But I certainly look forward 
to some informal relationships with the Commission, even after 
I leave here.
    Mr. Lewis. Thank you, Mr. Stokes.
    General, before I start to ask questions, please introduce 
your guests, so they're in the record as well, including the 
gentlemen behind you.
    General Woerner. To my right is the Secretary, General 
Herrling. To my left, Mr. Ken Pond the Executive Director and 
to my rear, Colonel Tony Corea, who handles money and 
operations, and Colonel Dale Means, who handles the engineering 
and maintenance.
    Mr. Lewis. My friend, Mr. Hobsons is going to be going to 
another meeting and he's going to submit his questions for the 
record, and maybe would like to make a 10-second comment.
    Mr. Hobson. I just want to say thank you. I really wanted 
to thank your people. Last year I was over in Luxembourg and I 
hadn't been there in over 30 years and I went to the cemetery. 
Your people were most gracious. They did a good job there, and 
I just wanted to say, thank you.
    Mr. Lewis. Good. Thank you.
    Mr. Hobson. I will submit for the record.
    Mr. Lewis. Ms. Meek, I think perhaps you wanted to speak?
    Ms. Meek. I don't have any questions, Mr. Chairman.
    Mr. Lewis. All right. Thank you, Ms. Meek. Thank you.
    General Woerner, in an effort to begin to get your 
backlogged maintenance under control, the Congress last year 
increased your appropriations by $3 million over the budget 
request. I understand that a new such list was developed just 
recently detailing all of the necessary maintenance projects at 
your various cemeteries and monuments on a priority basis, and 
assume that work on some of these project has gotten underway. 
In terms of numbers and cost of projects, can you please give 
us an idea of the progress that's been made to date, what you 
expect to complete this Fiscal Year, and what will be carried 
out in 1999?
    General Woerner. Yes, sir. Would you like me to respond to 
that question or make an introductory statement first of all?
    Mr. Lewis. I'm sorry. Of course, I meant to have you give 
your introductory statement. I'm sorry, General.

                           Opening Statement

    General Woerner. Not at all, sir.
    Mr. Chairman and members of the Committee on behalf of the 
Commissioners of the American Battle Monuments Commission, I am 
sincerely pleased to appear before you today. I begin by 
thanking you, Mr. Chairman and the members of the Committee, 
for the very generous support you have provided over the years, 
and in particular, this past year with the $3 million plus-up.
    I add a personal and special note to Congressman Stokes, in 
anticipation of his retirement; thank you for your long term 
support and commitment of our activities, sir. We wish you the 
very best in retirement.
    Mr. Stokes. Thank you.
    General Woerner. We seek approval of our appropriations 
request today on a simple premise: That the matter in which we 
care for our honored war dead is a measurement of the 
importance that we as a people give to the service and 
sacrifice of all those who have worn or are wearing a military 
uniform.
    Associated with this trust, that has been given to the 
Commission, the care and maintenance of the facilities, the 
grounds, the monuments, the cemeteries are quite labor-
intensive. In fact, in our proposed budget for 1999, personnel 
costs account for a full 64 percent of our budget. This year we 
are conducting a survey, a comprehensive and independent 
manpower study, of all our personal assets. This study will 
clearly define our manpower requirements for each individual 
cemetery. We will make whatever adjustments are required based 
on that and hopefully maximize our shrinking manpower.
    The remaining 36 percent of our budget is required to fully 
fund our operations, engineering, maintenance, rent, utilities, 
supplies, equipment, and administrative cost. In managing that 
36 percent, we do not, like some other agencies--most other 
agencies--have the option of closing or consolidating 
facilities. Therefore, we have to increase our efforts to 
achieve efficiencies through other means. One of the primary 
means available to us in this age is automation, and we are 
pursuing this in our operations and financial management areas.
    The Congress has been most instrumental in our success at 
maintaining a high standard of excellence by providing us the 
funds required to accomplish our objectives. We sincerely 
appreciate the visit Mr. Cushing, of your staff, and his 
colleagues made to our cemeteries this past year.
    Your added funding of $3 million has done nothing less than 
change the psychology, the emotions and the thinking, of the 
Commission from the lowest to the senior managerial levels. I 
sense, in my four years with the Commission, that we had 
slipped into a mentality of managing progressive decay to the 
best of our ability. With that $3 million plus-up and our 
economizing to allocate greater portions of our budget into 
engineering and maintenance, we have erased that mentality. 
There is now a new positive feeling throughout the organization 
that we can restore our cemeteries and monuments to the glory 
they truly merit. And I sincerely, as an individual and as 
Chairman, thank you, sir, for the support that has truly made 
this revolutionary change possible.
    To maximize the $3 million that you are giving us, we are 
micromanaging it from my level to that of the Secretary, 
through Mr. Pond, and to the levels of the overseas directors 
and superintendents. We are grouping together projects such as 
replacing the sprinkler systems, replacing the fuel tanks, and 
maintaining roads and pathways to achieve economies of scale; 
thus, permitting contractors to submit consolidated bids and 
giving us better value for our dollar.
    In order to keep the momentum going on this reduction in 
the backlog of maintenance of key projects, we propose, within 
our FY 1999 budget that we are submitting to you at this 
hearing, dedicating $3.6 million in maintenance funding. This 
level of funding will help us to continue to reduce mostly the 
backlog of projects.
    As you know, the vast majority of our budget is spent 
overseas, and therefore subject to foreign currency rate 
fluctuations. For the second consecutive year, we have repriced 
our budget to conform to Fiscal Year 1999 rates directed by the 
Office of Management and Budget. This repricing, which is 
generated by today's strong dollar in Europe, has allowed us to 
reduce our request by slightly over $1 million.
    In 1996, the Congress specifically directed that the 
American Battle Monuments Commission prepare agencywide 
financial statements annually, beginning with the Fiscal Year 
1997, and that these statements be audited in accordance with 
accepted governmental auditing standards. I can now report to 
you that the General Accounting Office and a designated CPA 
firm has just completed the first such audit of our Fiscal Year 
1997 operations.
    Furthermore, I am very pleased to report to you that we 
received--in technical terms--an unqualified opinion or--in 
nontechnical terms--a ``clean audit'' on our balance sheet, 
which we understand is a very rare occurrence on initial 
financial audits. Additionally, we have been recognized as one 
of the first agencies in the Executive Branch to be ``early 
complied'' with the 1998 accounting standards prescribed by the 
Office of Management and Budget.
    With continued success in our audits and the parallel 
implementation of a new, integrated financial management 
system, we expect the Commission to achieve yet new levels of 
management excellence within the next two to three years. While 
pleased with the audit, one important material weakness was 
highlighted. We were aware of it, had already briefed you on 
it, and we're working to it. That is the inadequate controls 
over our information technology as a result of rather ad hoc 
developments of multiple accounting systems.
    As I reported last year, we contracted with the Department 
of Treasury's Financial Services Center regarding the 
replacement of our multiple accounting systems with one fully 
integrated system. We anticipate selecting a system this year 
and implementing it next year; thus, resolving this material 
weakness.
    Finally, we of course have in additions----

                           accounting system

    Mr. Lewis. Excuse me. Let me interject at this point. The 
audit led to a highlight that suggested a need for integration 
of your accounting systems?
    General Woerner. Yes, sir.
    Mr. Lewis. And so then you went to bid essentially and 
looked at various prospects of some form, selected the system 
that you were going to use. It sounds like it's taken two-and-
a-half years to correct the problem.
    General Woerner. No, sir. We knew----
    Mr. Lewis. Did you get that impression?
    General Woerner. We knew the problem ourselves. In fact, we 
had informed you of the problem last year.
    Mr. Lewis. Yes. That's the first year and then the second 
year and then----
    General Woerner. We had already initiated that. The audit 
merely confirmed what we were already working on.
    Mr. Lewis. You were already working on it and you were 
trying to find a solution. Why does it take three years to get 
to the solution?
    General Woerner. For that, I'll turn to the expert.
    Mr. Lewis. Excuse me for doing this.
    Colonel Corea. We used money the first year to begin the 
process and we had money appropriated by the Committee this 
year to begin funding a new system.
    Mr. Lewis. Yes, but you identified the problems a year ago.
    Colonel Corea. Yes, sir.
    Mr. Lewis. And you began working on it?
    Colonel Corea. We began working on it in-house. We had the 
Treasury come in to help us confirm requirements. We had no 
real money starting until this year.
    Mr. Lewis. I would think it would be priority enough you 
would have done something with money internally?
    Colonel Corea. It's a major difference to us, sir. We have 
to select an integrated system authorized under GSA's Federal 
Procurement Schedule which includes some eight commercial off-
the-shelf choices.
    Mr. Lewis. And that takes about a week, correct? 
[Laughter.]
    Colonel Corea. No sir, it takes more selection and 
development time because we're talking about a system that will 
work for ABMC's Overseas requirements: Even the commercial off-
the-shelf systems (COTS) are all primarily for U.S. dollar 
accounting and most of what we do is also done in foreign 
currencies.
    Mr. Lewis. Correct.
    Colonel Corea. Since the commercial systems are built for 
U.S. operations it's taking us that time to do this, in a 
deliberate manner, to make it right from the beginning. In 
spite of that, as General Woerner just mentioned to you, we 
were able to get a ``clean audit'' the first time out. So I'm 
not worried about our controls or what we're doing. But we are 
working extra hard to get to the new accounting system. There's 
no question about that.
    Mr. Lewis. We probably ought to have Mr. Hobson here to ask 
the 2000 questions, do you think? [Laughter.]
    Colonel Corea. We will be year 2000 compliant.

                      opening statement continued

    General Woerner. Sir, in addition to our overseas mission, 
we, of course, have the additional mission mandated by Congress 
to construct the World War II memorial. As I reported to you 
last year, the rainbow pool site on the mall was dedicated on 
November the 11th, 1995, by the President. And the following 
January the President announced, the winning design by 
Friedrich St. Florian. Since that time, reviews by the 
Commission of Fine Arts and the National Capital Planning 
Commission have resulted in the requirement to modify the 
design. The basic design remains sound, but too big. So we are 
adjusting it to more appropriately fit within the rainbow pool 
site.
    Professor St. Florian is currently working these 
modifications. We anticipate that the modifications will meet 
the expectations of the Commission of Fine Arts and the 
National Capital Planning Commission when we again appear 
before them later this spring.
    Senator Robert Dole, our National Capital Campaign Chairman 
and his Co-Chairman, Mr. Fred Smith of Federal Express, are 
working closely with the members of the World War II Advisory 
Board in raising the $100 million that we anticipate will be 
required to construct the memorial.
    In summary, sir, since 1923, the American Battle Monuments 
Commission, its cemeteries, its memorials, monuments, and 
markers have been held to a high standard in order to reflect 
America's continuing commitment to its Honored War Dead, their 
families, and the U.S. national image. The Commission intends 
to continue to fulfill this noble trust while continuing 
efforts to improve overall management and operational 
efficiency. Our appropriations request, sir, for Fiscal Year 
1999, is $23,931,000. We welcome your questions, sir.
    Mr. Lewis. Mr. Stokes?
    Mr. Stokes. Thank you, Mr. Chairman. Do you want to----
    Mr. Lewis. Just go right ahead.
    Mr. Stokes. Okay. Thank you, Mr. Chairman. I appreciate it.
    General Woerner, after I've posed my questions, I may have 
to go out and go to another subcommittee, too. So you will 
understand my reason for leaving.

                      world war ii memorial design

    Mr. Chairman, I just have a couple of questions about the 
proposed project on the mall for the World War II memorial. 
During last year's hearing, the American Battle Monuments 
Commission witnesses indicated the design and review process 
would take 10 to 12 months, starting with the first review last 
June. As General Herrling stated at that time, and I quote him, 
``Now that doesn't mean that it's going to be smooth sailing. 
There will be a lot of comments from the members of those 
commissions, and a lot of modifications as we go through this 
process,'' closed quotes.
    Can you tell us exactly where you are in the process and 
what has transcribed since you were here last year?
    General Woerner. Yes, sir. General Herrling was prescient 
in his statement that it would not be smooth sailing and that 
there would be a lot of comments. I'll give you an overview and 
ask General Herrling to give you a bit more detail, sir.
    We presented the design. During the course of review of the 
design, the site was reconfirmed. Really, there was no doubt in 
our minds going in, but that just reinforced locking it in. The 
general feeling of the commissions to which we presented the 
design was that there was a disconnect between what the site 
called for and the size of the memorial that we were proposing. 
It was not the basic design concept that was a problem, but 
rather berms and columns. And so, we have been, since those 
hearings, in the process of redesign and modification to 
accommodate the guidance we received from both commissions.
    We're doing our homework. We're not just waiting until then 
to inform them of the direction that we're moving, and we have 
reason to be quite optimistic about the second round of 
hearings that will take place in late spring.
    Mr. Lewis. Can I interpose a question?
    Mr. Stokes. Certainly, Mr. Chairman, go right ahead.
    Mr. Lewis. I'm just wondering what the artist, the original 
designer, felt about these commissions requiring the scale-
back, et cetera. Give us a bit of that dialog.
    General Woerner. John, would you?
    General Herrling. Mr. Chairman, I'd say he was a little bit 
taken back by the comments that he received from both the 
Commission of Fine Arts and the National Capital Planning 
Commission. And as a former professor of architecture, as a 
Dean at The Rhode Island School of Design, he's been involved 
in a lot of international and national competitions. So, the 
criticisms he got on his design, I think, caused him some 
concern.
    Mr. Lewis. I'm really surprised at that. [Laughter.]
    General Herrling. But it's very interesting because it 
reminded me that Henry Bacon's first design for the Lincoln 
Memorial was rejected, Bacon went back to the drawing board, 
and what evolved was the Lincoln Memorial as we know it today. 
So, I think there was an element of encouragement there for 
him. But, anyway, he's back redesigning the memorial. He's 
taking into consideration the guidance and the comments that 
were received from both the approving commissions.
    Mr. Lewis. If I can just interpose for a moment, Mr. 
Stokes----
    Mr. Stokes. Sure.
    Mr. Lewis. I'd kind of like to have our staff find for us 
the original design of the Lincoln Memorial to see if you would 
like it better. [Laughter.]
    You may find that you guys are right on target with it. 
[Laughter.]
    General Herrling. But he is now in the final phases of 
completing the redesign concept, and we expect as Chairman 
Woerner said, to go back before the commissions in the late 
spring. We are fully confident that we will have the design 
concept approved at that time.
    In the meantime, we've conducted a first year of a 
fundraising campaign with Senator Dole as the Chair and we've 
had a very good year. We've taken in over $20 million. Andjust 
two weeks ago, the Veterans of Foreign Wars committed to a fundraising 
goal of $7.5 million. Also half of that money already received has come 
from corporations. There are several $2 million gifts, and there are 
several $1 million gifts. The rest has come from foundations and 
individuals and a very good direct mail campaign. So, the fundraising 
campaign has come a long way and we expect that once we get an approved 
design, it will really take off.

                   world war ii memorial fundraising

    Mr. Stokes. Let me then just sort of follow up on that 
because I did want to get into some funding questions. Page 28 
of your budget justification portrays the funding summary of 
the World War II project. It shows that in 1997 the expense of 
the project was $6,408,000, exceeded revenues of $3,741,000 by 
more than $2.6 million. The 1998 estimated revenues are $20 
million.
    And I realize that the Commission does not have any role in 
private fundraising, and that this schedule is only for 
informational purposes. But since the fund balance at the end 
of 1997 is only about $5.3 million, and since estimated 
expenses are nearly $14 million in 1998, private contributions 
need to be at least approximately half of the estimate for the 
fund to remain solvent. Can you tell us what would happen if 
revenues did not materialize as expected?
    General Herrling. The revenues did materialize, Mr. Stokes, 
as expected. They did, and we've had a very good year.
    Tony, you can provide details to it.
    Colonel Corea. Sir, we're absolutely at this point ahead of 
schedule in terms of all our revenues. In our last report that 
we did at the end of last month, February 1998, we were at 122 
percent of where we need to be at this point in time in the 
year. As a matter of fact, on the expense side we were about 64 
percent, which meant we were spending less than we intended to 
spend. So we're very positive about where we are.
    In addition to that, we're doing cash flow analysis and 
projections because, as you are pointing to, solvency is the 
question. We could be making profit and still be broke by not 
having cash. However, our cash flow estimates are on target, 
and as a matter of fact, we're favorably exceeding them 
monthly.
    So we're very positive at this point in time that, if 
everything continues as it has and, as General Woerner and 
General Herrling have mentioned, improves from here, this will 
continue to be good in terms of financial results.

                  world war ii memorial contributions

    Mr. Stokes. Can you tell what has been contributed to date 
this Fiscal Year from private sources?
    Colonel Corea. From private sources this Fiscal Year? If 
you'll give me a minute, I can find it, sir.
    Mr. Stokes. Okay.
    Colonel Corea. Over the last, I'd say 14 months, as General 
Herrling said, we have received $20 million from private 
sources.
    Mr. Stokes. That's very encouraging, Mr. Chairman.
    Mr. Lewis. And that's without an approved design?
    General Woerner. Without an approved design.
    Mr. Lewis. I'm wondering myself what the total cost was of 
the Roosevelt Memorial. You're not familiar with that?
    Colonel Corea. I don't know, sir.
    Mr. Lewis. It was over $100 million. We had a very 
significant fundraising program for three years, it seemed to 
me.
    Colonel Corea. That actual number, this year through the 
28th of February, was $8.6 million, and that's from October 
1997 through February 1998--five months.
    Mr. Stokes. Mr. Chairman, I appreciate your accommodating 
me and I yield back.
    Mr. Lewis. If I could follow up on your last question----
    Mr. Stokes. Sure.
    Mr. Lewis [continuing]. Relative to design, and so, I am 
curious to know whether that requirement of redesign, et 
cetera, is going to impact the schedule of completion of the 
project. We're scheduled to have it--Memorial Day 2000, we're 
supposed to have the ceremony? Veterans Day.
    General Herrling. Veterans Day in the year 2000, we hope to 
break ground for construction, but this doesn't include 
dedication.
    Mr. Lewis. Dedication, okay. All right.
    General Herrling. One of the requirements----
    Mr. Lewis. So what you're really saying is we can break 
ground any time. So it doesn't really----
    General Herrling. We can't do that, Mr. Chairman, because 
the government requires you to have all the money in the bank 
before you can turn the first spade of dirt.
    Mr. Lewis. That's the response I was looking for. Thank 
you. [Laughter.]
    Thank you, Mr. Stokes.
    Mr. Stokes. Thank you, Mr. Chairman.

                  engineering and maintenance funding

    Mr. Lewis. I posed that question regarding the $3 million 
and a list of projects or needs that were outlined. Could you 
give me an idea or respond to that question and tell me how 
much of the $3 million will be obligated by end of the Fiscal 
Year or end of Fiscal Year 1999?
    General Woerner. Yes, sir. All of it will be obligated, and 
I'll ask Colonel Means to give you more details on that, sir.
    Colonel Means. We expect to fully obligate that $3 million 
plus-up by the end of this Fiscal Year. That money has been 
fenced and is being applied to engineer projects, primarily 
concentrated in Europe, but also the Mediterranean region. We 
are using that $3 million plus-up, sir, really as a supplement 
to our normal engineer and maintenance program and expect to 
put over $6 million into engineer projects within the ABMC 
arena this Fiscal Year. This will leave us in a position to go 
into 1999 to apply over $3 million of our--if you'd like me to 
go back late----
    Mr. Lewis. That's okay.
    Colonel Means [continuing]. I'll be glad to do that. We're 
going to apply over $3 million from our program to engineer 
projects in Fiscal Year 1999. This will continue to decrease 
our backlog, and if everything unfolds the way we expect it to, 
that will allow us to wrap up the end of Fiscal Year 1999 with 
about $6.7 million in backlog, and at that point I think I can 
safely say that we would be able to begin to manage the backlog 
on a very systematic basis each year.

                engineering and maintenance requirements

    Mr. Lewis. Can you give us an idea of how you actually 
develop these lists, how you prioritize, et cetera?
    Colonel Means. Yes, sir, I can. If anyone wants to precede 
me----
    General Woerner. Go right ahead.
    Colonel Means. What we have here in developing our engineer 
projects, what I call the master priority list, isinput and 
review at three levels, and it all begins with the superintendent at 
the cemetery who is really master of his--or someday her--ship and he 
knows his cemetery or installation better than anyone else. We look to 
the cemetery superintendent as the primary generator of engineer 
project requirements. However, his submittals have to be reviewed and 
approved by our regional headquarters, the directors there in each 
case, in order to validate the project, to review it, to make sure that 
it's properly combined or consolidated with other requirements, and 
then is passed to the Washington office for staff review and validation 
and approval as well. So, we have three levels of input and review, and 
what you see on our consolidated master priority list is a complete 
rollup of what we feel is an accurate representation and a honest 
portrayal of our requirements in the field, based on realty in the 
field today, sir.
    General Woerner. Sir, we sincerely view the $3 million 
plus-up as a special trust and figure that, if we fail in that, 
you're going to kill us and you deserve to. As a result, this 
has been conveyed to the field. General Dickey, our European 
director, is managing it on a day-to-day basis. General 
Herrling in the Washington office has a monthly review of that 
particular slice of the budget to ensure not only that we 
obligate the funds, but that we obligate them wisely against a 
prioritized list. We're going to do it right, sir.

                        cemetery labor projects

    Mr. Lewis. I'm interested in pursuing a little bit the way 
one goes about doing the work. We mentioned that our committee 
traveled with you this last season. During that session or that 
process an issue arose relative to what appeared to be pretty 
competent staff people doing most of the responsibilities that 
were laid before them. But the question swirled around whether 
or not they'd be able to do their ordinary duties and at the 
same time carry forth these additional maintenance jobs. I 
imagine that circumstances are different at every location, but 
what I'd like to know is whether this issue has been resolved, 
and if so, tell me how and how.
    General Herrling. These special projects you're referring 
to, Mr. Chairman, are called cemetery labor projects. They're 
actually projects that are undertaken by the cemetery 
workforce.
    Mr. Lewis. Yes.
    General Herrling. And normally, that workforce is involved 
in the care and the maintenance of the cemetery itself. 
Particularly through the primary growing season, you've got 
folks that are out there taking care of lawns and hedges and 
trees and gardens, and things like that. Outside that primary 
growing season, the requirements out in the cemetery tend to be 
less. So it gives the superintendent the flexibility to take 
some of that workforce and selectively put them on projects 
that he needs to get done: repairing of stone walls or fences 
or walkways, or things like that.
    But this is done on an exception basis. They're some rules 
to go along with getting approval for a CLP, or a cemetery 
labor project. And those are: It can't interfere with the 
normal operations and care of the cemetery. You've got to have 
the qualified people who can do this job competently, and 
you've got to have the material to do it.
    So, CLPs save the government money because we don't have to 
go out and contract the work, but you have to be careful on the 
basis on which they're used. We try to ensure that CLPs are 
closely scrutinized to make sure it doesn't detract from the 
normal operations of the cemetery.
    Mr. Lewis. What percentage of these CLPs are being done by 
contract?
    General Herrling. All CLPs are done in-house.
    Mr. Lewis. Okay.
    General Herrling. But there are----
    Mr. Lewis. But in terms of the $3 million, what are we 
contracting out? What percentage of the $3 million?
    General Herrling. Oh, I'd say, probably most of it----
    Colonel Means. Virtually 100 percent of that $3 million 
plus-up will be contracted out, sir.
    Mr. Lewis. Why?
    Colonel Means. Because we----
    Mr. Lewis. Because your normal staff is overworked?
    Colonel Means. Absolutely. Yes, sir. We do not have the 
internal capability to deal with doing that level of engineer 
and maintenance projects within the Commission.
    General Woerner. In terms of manpower and skilled labor, 
sir.
    Mr. Lewis. You know, dealing with the year 2000 problem is 
a big problem in my office. I acquired some extra energy, et 
cetera, et cetera. But I laid it before my staff and said, hey, 
we've got to get this done. Some way it's getting done and they 
didn't contract out to do it.
    My point is obvious. Isn't there some flexibility within 
staff whereby these--I'm just laying the question out because 
it's a real one in my mind.
    General Herrling. Yes sir. But some of these projects are 
fairly major, where you've got to replace entire sprinkler 
systems or you've got to pull old fuel tanks out of the ground 
and replace them; you've got to do paving to repair parking 
lots and drive ways and things like that. So, those large 
projects we almost always have to contract out because they 
take too much time away from the cemetery staff, and we always 
don't have the expertise to do them.

                  engineering and maintenance backlog

    Mr. Lewis. Okay. According to your budget justifications, 
you expected that by the end of Fiscal Year 1999 your backlog 
maintenance, repair, and capital improvements would be 
approximately $2,600,000. This, of course, assumed full funding 
of the President's budget. I understand that this number has 
now changed to an additional $4.1 million worth of projects 
that have been added to maintenance list. Could you or your 
staff outline specifically where we are today on this matter 
and what you expect to accomplish in the 1998 Fiscal Year, as 
well as 1999?
    General Woerner. Yes, we can, sir.
    Colonel Means. To lead off, I think we can attribute the 
fact that there has been an increase in our backlog of engineer 
projects to the fact that we are now conducting more intensive, 
more comprehensive inspections of our facilities at our 
cemeteries.
    Mr. Lewis. Going from what was $2.5 million to an 
additional $4 million, that's quite a significant jump. I would 
have assumed you would have been carefully looking at your 
facilities long before that. I mean, I would think every year, 
as guys do their normal work, people do their normal work, 
there would have been flags if there were problems arising at X 
and Y locations. That's how you develop backlogs.
    Colonel Means. Well, hopefully, sir, that was the system at 
the time. The only thing that I can attest to is,personally and 
professionally, is what I've gone out and seen and observed and dealt 
with. I've now visited 22 out of our 24 cemeteries worldwide, along 
with our three separate major memorials, located in New York City, San 
Francisco, and Honolulu, and sometimes a building or structure or 
pavement may look good, but the reality is that there are underlying 
problems that have been developing over time. And I think that these 
more comprehensive and intensive inspections have revealed that there's 
more work to be done than we previously expected. We also have a very 
competent, new regional engineer in the Paris office who has been very 
aggressively looking into the engineer status of the projects there. 
So, I think the first factor that we can attribute the increase to is 
more complete, more comprehensive, more intensive inspections.
    Secondly, I would say, frankly, we're getting more top-
level, top-team management interest and support, led by the 
Commissioners who visit our cemeteries, asking questions about 
engineer projects. General Herrling specifically works those 
when he goes into the field, and he's leaving this afternoon 
for a swing to the Mediterranean region--later this afternoon. 
We'll be looking at those projects.
    Our regional directors are much more intensively concerned 
with the engineer aspects of their regions, and we also, as a 
third factor, have some superintendents who have finally 
recognized and understand now that we are absolutely serious 
about what we're doing, and we want a good, what I'll call, 
solid, justifiable, supportable, and defendable engineer 
project list which is subject to validation and scrubbing by 
two higher headquarters levels.
    I also would say that we believe--and this may be a fourth 
factor--that we're seeing an accelerated decline through normal 
aging and deterioration. We had a very brutal winter in Europe, 
not this immediate past winter, but the winter of 1996-1997. 
And it had very high impact on a number of our masonry 
structures; for example, grand staircases, retaining walls, 
pavements, and what have you. So, we at this point are hopeful 
that we have our arms around this animal and we're now able to 
deal with it.
    Mr. Lewis. As you proceed with this effort, one would 
assume that the priority projects were worked on first, and 
that the remaining on the list are somewhat of the lower 
priority. That may or may not be the case.
    General Herrling. That is the case.
    Mr. Lewis. That is?
    General Herrling. And the priorities go something like 
this, Mr. Chairman: First priority goes to anything that has to 
do with health or safety. The second priority goes to those 
things that have to do with environmental impacts; thirdly, 
those things that affect the cemetery operation or appearance 
to a major degree; and fourthly, those things that affect 
cemetery operations or appearance to a lesser degree. There is 
an established priority and the highest priorities are funded 
first.
    Mr. Lewis. We've talked a lot with other people with whom 
we work about the difficulty of tough budget years, et cetera. 
Can you give us some feeling for the down side? What happens if 
we aren't able to respond in a fashion requested here? What's 
the down side of all that in delay that might be the result of 
lower funding?
    General Woerner. The current split of 64 percent to 
personnel and 36 percent to operations will be exacerbated, and 
our backlog of maintenance will significantly increase and what 
we will return to, sir, is a condition of managing progressive 
decay rather than a restoration.
    Mr. Lewis. Do you have any questions? Mr. Walsh?
    Mr. Walsh. Thank you, Mr. Chairman.

                             abmc security

    I wasn't real clear on your charter, and so I thought I 
would go over it and learn a little bit. I'm just looking 
through here. But what I was interested in, and it doesn't 
really come under your purview, but you may comment on it. I 
got a letter from our local Federal attorney, Tom Veroni, and 
from the Vermont Federal attorney, Charles Tessler. What 
they're contacting me about is there's a historic area between 
Montreal and New York City where there are a number of 
battlegrounds, major battlegrounds, Ticonderoga, Lake 
Champlain, and others. They're going to have sort of a catalyst 
to talk about people stealing things out of these historical 
sites. Anything that isn't tied down, people will carry off. Is 
that a problem in your sites, too? It seems sacrilegious, but--
--
    General Herrling. It's not so much that there's vandalism 
or things missing from the cemetery proper. People will tend to 
break into the maintenance areas and steal equipment, trimmers, 
mowers, that sort of thing. But we haven't had any serious 
problems with it.
    General Woerner. Ours is not a problem of collectors. It's 
common criminality raiding our supplies.
    Mr. Walsh. And you have burial grounds around the world?
    General Woerner. Overseas, around the world.
    Mr. Walsh. Primarily in Europe?
    General Woerner. Primarily. Europe and the Mediterranean.
    Mr. Walsh. And the Mediterranean.
    General Woerner. That's right.

                              abmc budget

    Mr. Walsh. And how did the President treat your budget this 
year? Did it increase, decrease, flat?
    General Herrling. We have a flat budget.
    Mr. Walsh. Okay, so it's level funded?
    General Woerner. Yes, sir.
    Mr. Walsh. So in order to raise your folks' pay and keep up 
with the rest of the world, where do you cut? Where do you 
reduce spending?
    General Woerner. In a flat budget, as salaries go up, we 
have no other option than to take it out of the operating 
accounts.
    Mr. Walsh. How long has that been going on, level funding?
    General Woerner. How many years have we been flat?
    Colonel Corea. We were virtually flat, but this committee 
was kind enough to give us $3 million for our backlog in 
maintenance. Of course, our numbers go up $3 million. But if 
you take that out, it's basically flat. But then there's a 
foreign currency aspect to it because the dollars in our budget 
allowed us to save some money. So, consequently, that savings 
were attributable to or used for some other projects or 
programs, like pay raises as well as some other small increases 
for maintenance, headstones, services and supplies that we have 
in the budget.

                       Foreign National Employees

    General Woerner. We haven't mentioned it, but we are 
concerned. France may go to a reduced work week. We have 
already experienced a workweek reduction from 48 to 39 hours.
    Mr. Walsh. In France?
    General Woerner. In France. And now there's a very real 
possibility, even as early as 1999, January, of it going from 
39 to 35 workhours per week.
    Mr. Walsh. You have to pay the same rate?
    General Woerner. Yes this will mean that will have a 10-
percent impact on our personnel budget and available workhours 
in France.
    Mr. Lewis. And the pay is controlled by our relationship 
with the country that's involved, right?
    General Woerner. Exactly. We have no control over it 
whatsoever.
    Mr. Walsh. What do you need to stay whole this year? It 
will probably be redundant of the chairman's questions, but----
    General Woerner. While fully supporting the President's 
Budget, I would welcome the opportunity to demonstrate our 
management of another plus-up earmarked for engineering and 
maintenance.
    Mr. Walsh. And how much would that be?
    General Woerner. We could handle the same amount that you 
gave us this past year, sir.
    Mr. Lewis. Once you get it? [Laughter.]
    Mr. Walsh. Nobody said it would be easy when you work for 
us. These are hard choices, obviously.
    Mr. Lewis. Mr. Walsh, we've got three minutes now.
    Mr. Walsh. Yes, I've actually already voted, Mr. Chairman.
    Mr. Lewis. Oh, I see. Excuse me. I wish you had told me 
that.
    Mr. Walsh. I should have told you. [Laughter.]
    Mr. Lewis. Excuse me, gentlemen. The new chairman will take 
over. [Laughter.]
    If you need more questions, they're right here.
    Mr. Walsh [presiding]. Let me go through your questions for 
you.
    I've got a terrible cold. Stay as far away from me as you 
can. I'm going to have to go out, too, because we have a second 
vote.
    But the Chairman did discuss that possibility with you, an 
increase in your budget?
    General Woerner. No, sir.
    Mr. Walsh. He hadn't gotten there yet? Okay.
    General Woerner. No, sir.

                                manpower

    Mr. Walsh. Let me just run through a couple of questions 
for the Chairman, to save him some time and probably yours, 
too. During Fiscal Year 1998, ABMC will be conducting a 
manpower study, so as to clearly define the manpower needs of 
each cemetery. What problems exist which resulted in your need 
for such a study?
    General Woerner. John, please.
    General Herrling. The problem, Mr. Walsh, is that over the 
past probably seven years we've taken a reduction in our 
manpower, and it's down to the point now where it's starting to 
cut into the operations of cemeteries and how well we can 
maintain them. We haven't had a good manpower survey to 
determine what our requirements are, but OMB keeps telling us 
we're going to have to take additional cuts every year. So, we 
reached an accord with them this year that if we conducted a 
very thorough manpower study, they would take a look at that, 
and then determine if further cuts were warranted or if we had 
reached a point where further cuts were not necessary. So we're 
doing a very comprehensive manpower study to determine that.
    Mr. Walsh. What's the status of this study?
    General Herrling. The contract was just let this month and 
we expect to have the results by the end of this summer.
    Mr. Walsh. This is an evaluative analysis of all of your 
operations and the demands----
    General Herrling. It will.
    General Woerner. It will, sir, total personnel done by an 
outside authority.
    Mr. Walsh. Will it be done within a timeframe such that we 
can include those calculations in our 1999 appropriations?
    General Woerner. No, the results are to be included in our 
FY 2000 budget request.
    Colonel Corea. That's the intention.
    Mr. Pond. The contractor tells me that she should be 
concluded by October in doing the 18 cemeteries in Europe.
    Mr. Walsh. Be concluded by October?
    Mr. Pond. Yes, sir. The 1st of October.
    Mr. Walsh. It won't make it. We have to know by June or so.
    Mr. Cushing. Probably September we could still deal with 
it.
    Mr. Walsh. Okay.
    Mr. Pond. We can probably make September but this would not 
allow time for a proper review, analysis and OMB approval 
during this cycle.
    Mr. Walsh. All right. Why don't you take that on advisement 
then; if you can move it along--because there will be some 
reengineering at the end on this. The Fiscal Year ends the 
30th. So if we had it by the beginning of the month--okay?

                           workweek in france

    Let's see. Okay, it's our understanding that the work--yes, 
you just sort of alluded to this--the workweek for the majority 
of the European workforce is now 39 hours. Much discussion 
surrounds the notion of France considering a 35-hour workweek. 
Will your manpower study include any analysis to determine 
exactly what a reduced workweek will mean for ABMC in terms of 
both workforce and manpower costs?
    General Woerner. We have been managing all along, sir, the 
reduction of hours available to us. There's two dimensions of 
the hits that we've been taking. One, of course, is in the 
authorized workweek. The other has been in the reduction of 
spaces within the organization. We have had to manage this in-
house over the years. What we haven't done is seriously address 
the cost of leveling of our manpower internally within the 
organization, and this is where we are going to be applying the 
outside expertise that we are contracting for. Most certainly, 
the possibility of a reduced workweek in France will be 
factored into our considerations in our defense of manpower.
    Mr. Walsh. What percent of your operations are in France?
    General Woerner. Pardon, sir?
    Mr. Walsh. What percent of your operations are in France?
    General Woerner. Eleven cemeteries out of 24 is the best 
measurement, sir--significant; plus, our overseas headquarters 
is in Paris. So it's a major focal point of our activity. Such 
a workweek reduction amounts to, our rough calculation, of a 
loss to us of 10 percent of our workweek--a very significant 
impact.
    Mr. Walsh. And then with level funding----
    General Woerner. Exactly, sir. It means we have to convert 
operational funds that should be going into this backlog of 
maintenance into casual hire, temporary hire.
    Mr. Walsh. Anymore that we need to get in? Yes, we haven't 
begun the next set of questions but there is a five-minute vote 
right after. I think what we'll do is, if there are some 
follow-on questions, we'll submit those for the record, if you 
could get back to us with your responses.
    Thank you very much.
    General Woerner. Thank you very much, sir.


[Pages 1085 - 1146--The official Committee record contains additional material here.]



                                          Thursday, March 19, 1998.

                 FEDERAL DEPOSIT INSURANCE CORPORATION

                               WITNESSES

GASTON L. GIANNI, JR., INSPECTOR GENERAL, FEDERAL DEPOSIT INSURANCE 
    CORPORATION
PATRICIA BLACK, COUNSEL
REX SIMMONS, ASSISTANT INSPECTOR GENERAL FOR MANAGEMENT AND POLICY

                             budget request

    Mr. Lewis [presiding]. This morning I'm pleased to welcome 
Mr. Gaston Gianni, the Inspector General for FDIC.
    The budget request for the Office of Inspector General for 
Fiscal Year 1999 is $34,666,000, an increase of $301,000 above 
Fiscal Year 1998.
    Normally, Mr. Gianni, I would turn to Mr. Stokes who would 
have opening remarks, but we have conflicting subcommittee 
meetings here.
    In the meantime, feel free to make any opening remarks that 
you might have.

                            Opening Remarks

    Mr. Gianni. I appreciate the opportunity to be here today 
Mr. Chairman. First, let me introduce my colleagues. On my left 
is Patricia Black, my counsel, and on my right is Rex Simmons, 
my Assistant IG for Management and Policy.
    Mr. Chairman, I'm really pleased that you've taken time to 
hear our budget request, and I'd like to have my full text 
submitted for the record and I'll try to summarize it for you.
    Mr. Lewis. Thank you.

                          overview of fdic oig

    Mr. Gianni. I've been the Inspector General for the past 
two years at the FDIC, and since coming to the FDIC, we've made 
a number of changes to improve our operations. We merged the 
two Inspector General offices, the RTC and the FDIC. We've had 
to downsize from 370 to our current level of about 218. We also 
reviewed what and how responsibilities under the Inspector 
General Act were being carried out and have made a number of 
changes to strengthen our operations and organizational 
structure. We've also increased our communications with the 
Corporation. My philosophy is that the Inspector General's 
office has to work hand in hand with the agency as we carry out 
our respective responsibilities. We've also established an 
Office of Congressional Relations and Evaluation to provide 
quick assistance to the Corporation in addressing management 
controls. We've consolidated and expanded our Office of 
Counsel. We've tried to take a more proactive approach with the 
Corporation in carrying out our work, so as to provide our 
input sooner rather than after the problem has occurred.
    We've refocused our audit work into the financial and 
program and performance review areas.

                    law enforcement responsibilities

    An Inspector General's office has a law enforcement 
responsibility, and one of the things that I was really 
concerned about was the adequacy of our training. As a result, 
we initiated a very intensive training program for our law 
enforcement agents. We also recently entered into Memoranda of 
Understanding with the Justice Department to have deputization 
for my agents and with the FBI regarding how we will coordinate 
and cooperate with them in carrying out our investigations.

                         appropriation request

    I feel very positive about the accomplishments that we've 
made during my first two years with the Corporation, and 
certainly I am happy that we're here to make the request for 
our appropriation. It's basically a hold-steady appropriation 
for the coming year. There is an opportunity for us to increase 
our staff somewhat. As we look to the future, I see us playing 
a continued role in carrying out audits that address the major 
issues facing the agency. To accomplish this, we've allocated 
our resources among the issues identified in the Corporation's 
Results Act strategic plan. Hopefully this will enable us to 
address the most pressing issues.
    Our actual budget increase is about .01 of a percent 
increase over last year, primarily to deal with implementation 
of a new pay-for-performance system, as well as relocating some 
of our staff in California from Irvine to San Francisco, and to 
cover some of the inflationary costs that we anticipate.
    I would be happy to answer any questions that you might 
have.
    [The information follows:]


[Pages 1149 - 1162--The official Committee record contains additional material here.]



                            staffing levels

    Mr. Lewis. Let's start by having you give me a feel for 
just how large the organization is, how many FTE.
    Mr. Gianni. We have 241 full-time equivalents that we are 
requesting in the budget. I believe the Corporation as a whole 
has at the present time 8,000 people. So we are a relatively 
small portion of the Corporation.

                       law enforcement activities

    Mr. Lewis. You would appropriately describe your 
responsibility of that of being a law enforcement 
responsibility. Would you discuss that a bit for us? Tell us of 
some of those activities that we would see as law enforcement 
activities.
    Mr. Gianni. Okay. I have approximately 39 agents on staff 
out of the 218. Their primary responsibility is looking for 
fraud against the government, against the Corporation. Right 
now, most of our work deals with contractor-related fraud 
associated primarily with the work of both the Corporation and 
RTC in liquidating the assets from the banking and thrift 
crisis of the late 1980's and the early 1990's. Oftentimes in 
managing these assets, the Corporation relied on contractors to 
perform the work, and so much of our investigative work focuses 
on contractor fraud.
    In addition, we've had several cases where the Corporation 
has contracted for legal services and firms pad their bills, 
and intentionally try to hide it from the Corporation.

                    savings from oig investigations

    Mr. Lewis. Would you give us some of what you would really 
describe perhaps as an accounting matter, but could you, for 
the record, provide us with levels of money that you would 
suggest these efforts may have saved the government? What kinds 
of dollars were involved in these fraud cases and describe 
them, et cetera? I would just like to get a better feel for 
what kind of values the government is receiving for that sort 
of, what is called, law enforcement activity.
    Mr. Gianni. Sure.
    [The information follows:]


[Page 1164--The official Committee record contains additional material here.]



    Mr. Gianni. Collectively, this past year, we had, I 
believe, about $6 million in restitutions, and collections was 
about $5 million as a result of our investigative work. We're 
planning to look at the restitution area where there is a large 
amount of money that is owed the Corporation. In a certain 
percentage of these cases, people have hid their assets from 
the Corporation and have indicated that they are unable to pay 
the Corporation. So we're looking for that type of activity.

                     financial regulatory agencies

    Mr. Lewis. Mr. Gianni, you know that the FDIC is one of 
five organizations that are involved in regulating financial 
institutions. There are similar problems in terms of oversight 
responsibilities, et cetera. Is there coordination between 
these agencies in the work that you do?
    Mr. Gianni. Certainly, there's coordination at the agency 
level. Five regulatory agencies--they have the Federal 
Financial Institution's Examination Council.
    Mr. Lewis. I'm thinking of the IGs, of course.
    Mr. Gianni. The IGs, yes. I meet monthly with the other IGs 
to go over the types of work that we're doing and to coordinate 
projects. This past year, we identified one area where we could 
establish a joint project. We reviewed the organization and 
operation of the Examination Council and made some 
recommendations to the council this past month. We plan to 
continue doing a follow-on project related to the Council's 
training function. My hope is that over time, we will be able 
to identify other cross-cutting issues that we will be able to 
address.
    I know that in the past, there has been some concern or 
questions asked about the differences in the regulatory 
practices of overseeing the various institutions.
    Mr. Lewis. Right.
    Mr. Gianni. I think that it would be quite possible for us 
to initiate a project, to look at, and compare, and see where 
the differences are, and see whether they're justified.

                   independence of inspector general

    Mr. Lewis. As you know, we deal with a number of Inspector 
Generals in various agencies that come before the Committee. 
The Housing Inspector General, for example, is carrying out 
some very special work that relates to the interest of the 
Committee. The independence of those Inspectors General is very 
important to the agencies that they work with.
    So I'm wondering outloud really whether there should not 
only be coordination between these ideas, but whether there 
shouldn't be perhaps consideration of a single IG organization 
that deals with financial institutions that would address all 
of these five areas.
    Mr. Gianni. Well, it's an interesting thought, and I 
certainly----
    Mr. Lewis. Has it ever been discussed?
    Mr. Gianni. It has not been addressed among ourselves. 
Right now, the Office of Thrift Supervision and the Office of 
the Comptroller of the Currency are covered by the Treasury IG. 
They have administratively appointed IGs at the National Credit 
Union Administration and the Federal Reserve. Such a single IG 
would require legislation. I certainly would support such a 
proposal. I'm not sure where the respective agencies would come 
out in that regard. But in the meantime, I'm looking for 
opportunities where we can work together to identify projects 
and work in that fashion.

                               year 2000

    Mr. Lewis. I appreciate that response. What role does the 
Inspector General have in making sure that the FDIC computers 
will be ready for the year 2000?
    Mr. Gianni. A very important role. Right now, we're trying 
to assist the Corporation. The Corporation has put together a 
very extensive plan to address the issue. GAO recently issued a 
report and indicated that more guidance was needed to assist 
the financial institutions assess their servicers, whether 
their service providers are going to be year 2000-compliant; 
and, secondly, whether their customers, major customers, are 
also year 2000-compliant.
    What we're trying to do in the IG community is assist the 
administration in ensuring that their respective agencies meet 
the year 2000 requirements. We're currently looking at how the 
Corporation is going about implementing its year 2000 program 
and will be testing to make sure that they are getting the 
right information; to make sure that they keep on schedule, and 
as we find opportunities for them to tighten up and make 
improvements, we're passing that information on to the 
Corporation. Right now I think the Corporation has a very 
aggressive plan to meet the timetables of having an assessment 
of its 6,200 financial institutions under its responsibilities 
completed by the end of May.
    Mr. Lewis. Thank you. That's very helpful.
    Mr. Walsh?
    Mr. Walsh. Thank you, Mr. Chairman.
    On that year 2000 issue, one of the institutions wasn't 
ready--what's the down side for the customers, for example? 
What's the scenario you would envision?
    Mr. Gianni. The worst-case scenario would be a stoppage of 
payment of funds, either coming in or going out, and just the 
whole financial transactions for that financial institution 
would come to a stop until the problem was corrected.
    Mr. Walsh. So within the electronic transferring system the 
banks have----
    Mr. Gianni. We have electronic transfers; the problem is 
from a standpoint of balances and the financial institution 
losing all of its records because it would revert back to a 
year 1900. And so, you have to deal with this on an 
institution-by-institution basis, but if it begins to happen 
with any degree of regularity--and let's say the percentages 
start to increase; then you worry about what the outside 
implications are, even for people who might be doing business 
in an institution that is sound and has met all of the 
standards.
    So, I think it is very important. The Corporation is 
putting a lot of energy and a lot of resources into ensuring, 
or at least helping the financial institution to make the 
necessary move to deal with these problems. And they are also 
spending money to make sure that the FDIC's internal systems 
are in compliance with the year 2000.
    Mr. Walsh. Fortunately, at least it seems currently the 
banking industry is much healthier than it was back in the 
1980's, the early 1990's. Do you anticipate banks, especially 
smaller banks, maybe rural banks, having problems providing the 
resources that are needed to fix this computer problem?
    Mr. Gianni. For your smaller institutions, I think there is 
a concern, even though last year was a banner year in the 
financial industries. I think many of the smaller institutions 
rely on service providers to provide most of their support 
activities. So, therefore, it's important that these service 
providers are taking the necessary action. But there is always 
that risk that people will be unwilling to make the investment 
because this requires a substantial investment.
    Mr. Walsh. In order to meet their obligations to be members 
of the FDIC, do you require certain things of them?
    Mr. Gianni. That is correct, and the Corporation is 
currently developing a plan that if, in fact, between here and 
the year 2000, they find banks that are deficient in either 
their plans or their actions to address the problem, that they 
can begin to take the various regulatory actions, cease and 
desist, and at some point in time they will have to make a 
decision as to whether even to take over that financial 
institution.
    Mr. Walsh. So, it is possible they could.
    Mr. Gianni. That is possible.
    Mr. Walsh. That would be the exception to the rule, I would 
think.
    Mr. Gianni. I think it would be the exception. I think 
right now the statistics would indicate that a relatively small 
number are in the unsatisfactory area, and hopefully, through 
aggressive oversight, these institutions will pick up their 
pace and solve the problem before the time comes.
    Mr. Walsh. Do you look at if the banks that are members of 
the FDIC in terms of their fiscal strength, their managerial 
strength?
    Mr. Gianni. The Office of Inspector General does not. That 
is the responsibility of the Corporation and its Office of 
Supervision.
    Mr. Walsh. Thank you.
    Mr. Lewis. Ms. Kaptur?
    Ms. Kaptur. Thank you, Mr. Chairman.
    Good morning.

                    cost of savings and loan crisis

    Mr. Gianni. Good morning.
    Ms. Kaptur. Good to have you here, Mr. Gianni.
    I have several questions, having served on the Banking 
Committee many years before coming to this committee and having 
been here during the savings and loans crisis. I'm wondering 
where you could refer me or if you could obtain information for 
me on the cost to the public at this point of the refinancing 
of all of the debt, the public debt, that has been issued to 
essentially bail out those institutions. I have read many 
articles indicating it is now the third largest contributor to 
the public debt, but because it is incorporated into the 
overall debt financing, it's hard to get a handle on the actual 
costs. I'm very interested in that cost, dating back to the 
1980's. Where would I obtain that disaggregated information?
    Mr. Gianni. I know about a year-and-a-half ago, the GAO did 
put together a report that estimated the cost of the savings 
and loan crisis and the cost that it--and I believe the cost 
was somewhere in the $125 to $130 billion range, if my memory 
serves me right. And some of the financing is still going on, 
but I believe that GAO did take the financing costs into 
consideration in coming up with its cost estimate. But we can 
provide this for the record.
    Ms. Kaptur. And if you could obtain all of the information, 
I want to go over it with a fine-tooth comb.
    Mr. Gianni. Yes, ma'am. We'd be happy to.
    [The information follows:]

                    Cost of Savings and Loan Crisis

    The U.S. General Accounting Office (GAO) issued a report entitled 
Financial Audit: Resolution Trust Corporation's 1995 and 1994 Financial 
Statements (GAS/AIMD-96-123, July 1996) that addressed the cost of 
refinancing the debt the government incurred in cleaning up the savings 
and loan crisis. According to GAO, in total, the Congress provided 
funding to cover $105 billion of losses and expenses associated with 
RTC's resolution of failed institutions. GAO reported that 
approximately $209 billion in estimated interest payments would be 
needed over 30 years to cover the interest expenses related to 
appropriations used to cover direct costs of the crisis.
    A copy of this report will be sent to the subcommittee.

    Ms. Kaptur. And it's significant because it is over a 30-
year period.
    Mr. Gianni. Yes, ma'am.
    Ms. Kaptur. So, when you look at what the cost is, it is 
absolutely phenomenal. And the American public doesn't really 
see this. They think that we're wasting money on foreign aid. 
We probably are in some senses, but if you look at the amount 
that this particular refinancing contributes to the 
accumulation of the public debt, it is really significant. So, 
any way you can help me understand what that is, I would 
appreciate it.
    Mr. Gianni. We'd be happy to.

                         international lending

    Ms. Kaptur. Secondly, having lived through that and several 
other banking crises, as you look at safety and soundness--in 
the international lending arena, I have also lived through the 
Mexico situation here, looking at a lot of the speculative 
activity of the banks. Now, we have the Asian situation, and it 
is unclear to me exactly which U.S. institutions, if any, are 
involved in all of that--again, a very high-risk type of 
lending.
    To what extent does your analysis involve careful 
monitoring of the international lending activities at these 
lending institutions? I didn't see that in your----
    Mr. Gianni. No, ma'am. Basically, that is a responsibility 
of the regulatory agencies themselves. I know the Corporation, 
FDIC, currently has the insurance responsibility for all 11,200 
banks----
    Ms. Kaptur. Yes. Yes, absolutely.
    Mr. Gianni [continuing]. And thrifts. And, they have looked 
at what impacts this may have on the insurance fund. Certainly, 
the Federal Reserve and OCC have looked at it. I don't have the 
specific information, but individually they've looked at it, 
and there is a working group among the regulatory agencies to 
try to bring all of this together, to assess potential impact. 
So each agency is monitoring. I don't have that information, 
but I would be happy to try to get it together and provide it 
to you.
    Mr. Lewis. If you can do that for the record, we would 
appreciate it.
    Mr. Gianni. Yes.
    [The information follows:]


[Pages 1170 - 1172--The official Committee record contains additional material here.]



    Ms. Kaptur. If you can help me think through this issue and 
your involvement--obviously, you're there as the insuring 
entity. In the end, it all comes to rest at your foot, at your 
doorstep, doesn't it?
    Mr. Gianni. Certainly, it does come to rest at the 
Corporation, as the insuring entity. While that's not my 
responsibility as the Inspector General, I certainly have a 
responsibility to ensure that the Corporation is doing what it 
needs to do and will work with the Corporation to get that 
information.

                       community reinvestment act

    Ms. Kaptur. All right, I appreciate that.
    Now, in the area of mandated affirmative credit activity, 
such as the Community Reinvestment Act and the Homeowners' 
Disclosure Act, what type of priority do you place on 
monitoring the affirmative activities that institutions are 
required under the law to provide to their credit communities? 
Do you get involved in that at all?
    Mr. Gianni. The Corporation has a program to review each 
institution's community reinvestment activities. And they do 
that through a series of onsite exams of the institutions over 
a three-to-five-year cycle. And they, along with the other 
regulatory agencies, collect this type of information. As the 
Office of Inspector General, we just recently began to look at 
how well that program was being implemented. And I don't have 
any results yet, but we are spending some of our resources to 
see how that program is administered by the Corporation.
    Ms. Kaptur. Wonderful. I am very interested in that area, 
as you can tell.
    Mr. Gianni. Yes, ma'am.

                         credit card bankruptcy

    Ms. Kaptur. And finally, again in the area of safety and 
soundness, I have been very troubled by the bankruptcy of 
individual American families, looking at the rate. Some say, 
well, the law is too lenient, and therefore, it's too easy to 
file for bankruptcy, and many people file before going through 
consumer credit counseling, and so forth. But, nonetheless, I 
think the numbers show that we are a debt-driven country and 
some people really get in over their heads.
    I have become increasingly troubled by the credit card 
mailings that lending institutions send out, including to 
children who are 12 and 13 years old who may subscribe to the 
Internet. And therefore, they get these offerings to purchase 
credit as a minor. I have a whole set of concerns regarding the 
promotion of debt as opposed to savings by the lending 
community, particularly the kinds of habits they establish in 
our youth. And I'm wondering what you might be looking at in 
terms of the activities of these institutions to push credit to 
the point where, in an average week, you can collect half a 
waste basket full of this stuff that is mailed out to families 
across this country.
    Mr. Gianni. Well, my office at this point in time has not 
taken a look at that. The Corporation, however, has been 
monitoring bankruptcies and has recently issued a trends report 
on bankruptcies and what are some of the causes of this 
increase in bankruptcies within our country. Like you say, it's 
currently running around 1.2 million per year, 1.3 million per 
year. Part of the reason for the increase is attributed to 
credit cards. But one more time, I would be happy to see that 
you get a copy of that information. I think you'd find it very 
helpful.
    [The information follows:]

                         Credit Card Bankruptcy

    Since this question does not pertain directly to Office of 
Inspector General operations or work it has performed, we asked FDIC's 
Division of Insurance to respond. Their response follows:
    Credit card chargeoffs reached a record high of 5.37 percent in the 
third quarter of 1997, and declined only slightly in the fourth 
quarter. One factor in the high rate of credit card losses is the 
continuing increase in consumer bankruptcies, which rose 20 percent in 
1997 to over five filings per thousand of population. Credit card 
lending, however, remains one of the most profitable lines of business 
in banking, although higher credit losses and more competitive pricing 
have led to declining profitability at credit card banks in recent 
years. It appears that most institutions that specialize in credit card 
lending have the financial strength to absorb further increases in 
credit losses and additional erosion of interest margins without 
jeopardizing their solvency. In his testimony before the Senate 
Subcommittee on Financial Institutions and Regulatory Relief on October 
21, 1997, FDIC Chairman Hove observed that developments in credit card 
lending warrant continued close monitoring by both bankers and their 
regulators.
    The Division of Insurance (DOI) at FDIC has conducted extensive 
analysis of recent trends in consumer bankruptcies. These studies note 
that the trend towards higher bankruptcies is taking place nationwide, 
and that the increases are higher than one would expect given current 
levels of consumer indebtedness and the robust nature of the economic 
expansion. A number of legal and demographic factors appear to be 
useful in explaining differences in bankruptcy rates across the nation. 
However, there does not appear to be much evidence that changes in 
federal bankruptcy law are responsible for the large increases in 
bankruptcy rates that have been observed over the past 20 years. 
Instead, as described in the FDIC Publication Bank Trends, it seems 
likely that the surge in bankruptcy filings is largely the result of 
the deregulation of consumer interest rates that took place 20 years 
ago. In the current deregulated environment, annual credit card 
solicitations have run into the billions and annual personal 
bankruptcies have soared past one million while credit care lenders 
continue to earn healthy profits. The implication of these studies is 
that a high rate of personal bankruptcy seems likely to remain with us 
as a long-run consequence of consumer interest deregulation.
    Four Bank Trends articles on the topic of personal bankruptcy 
trends can be found on the FDIC website at www.fdic.gov/publish/
bktrnds.

    Ms. Kaptur. And any work that you can do to give us a sense 
of the scope of the advertising that goes into it in relation 
to your own work and to what extent does that have a 
relationship to people getting hooked early and becoming 
debtors at a very young age would be greatly appreciated by 
this Member.
    Mr. Lewis. Ms. Kaptur is really asking you, as Inspector 
General, to encourage the agency to provide not only this 
information, but your oversight of how they're going forward 
with these kinds of questions.
    Mr. Gianni. I understand.
    Mr. Lewis. Anecdotally, Ms. Kaptur, I just learned that a 
very dear friend of mine who recently became a father for the 
first time, his 9-month-old son has received an application in 
the mail. [Laughter.]
    Ms. Kaptur. My own opinion is it's out of hand, absolutely 
out of hand.
    Mr. Lewis. Mr. Gianni and your friends, I appreciate your 
being with us, and we look forward to continue to communicate 
with you.
    Mr. Gianni. Certainly, sir. Mr. Chairman, if there are any 
other areas you would like us to take a look at, we would be 
more than willing to entertain those requests.
    Mr. Lewis. Thank you.
    Mr. Gianni. Thank you for the opportunity to be here today 
and we look forward to your continued support.
    Mr. Lewis. It's a pleasure to work with you.
    Ms. Kaptur. Thank you very much.
    Mr. Lewis. With that, the meeting is adjourned.


[Pages 1176 - 1206--The official Committee record contains additional material here.]










                           W I T N E S S E S

                              ----------                              
                                                                   Page
Austin, Steve....................................................   473
Black, Patricia..................................................  1147
Brown, Ann.......................................................   533
Bryson, Jeffery..................................................   243
Corea, Col. Anthony..............................................  1069
Coronado, Gil....................................................   861
D'Amours, Norman.................................................   473
Davis, Roy.......................................................   243
Early, Bill......................................................   751
Engel, James.....................................................   473
Gall, Mary Sheila................................................   533
Gianni, Jr., Gaston..............................................  1147
Herrling, Maj. Gen. John.........................................  1069
Hill, Paul.......................................................     1
Hunter Galdo, Julia..............................................   243
Kelly, Margaret..................................................   243
Knight, George...................................................   243
Lazar, Ellen.....................................................   911
McGinty, Kathleen................................................   119
Means, Col. Dale.................................................  1069
Metzler, Jr., John...............................................    71
Moore, Hon. Thomas...............................................   533
Nasif, Teresa....................................................   751
Nebeker, Hon. Frank..............................................   811
Newburger, Beth..................................................   751
Poje, Jerry......................................................     1
Polling, William.................................................   473
Pond, Kenneth....................................................  1069
Porrata, Carlos..................................................   243
Rubin, Robert....................................................   911
Simmons, Rex.....................................................  1147
Smith, Rory......................................................    71
Snuggs, Clarence.................................................   243
Tornblom, Claudia................................................    71
Widener, Mary Lee................................................   243
Woerner, Gen. Fred...............................................  1069
Yolles, Herbert..................................................   473
Zirschky, John...................................................    71


















                               I N D E X

                              ----------                              

             Chemical Safety and Hazard Investigation Board

                                                                   Page
Accounting and Financial Controls................................    40
Amended Budget Request.......................................34, 38, 50
Budget Justification.............................................    66
Business Plan....................................................     4
CSHIB Hiring Issues..............................................    50
CSHIB Personnel..................................................    38
Developing M.O.U.'s..............................................    44
Execution of the FY 1998 Budget..................................    36
Expectations of the CSHIB........................................    41
Funding With Other Agencies......................................    42
FY 1998 Supplemental Appropriations..............................    40
Industry Cooperation.............................................    49
Investigating Vs. Not Investigating..............................    49
Investigation Process of CSHIB...................................    35
Lessons Learned in Nevada........................................    45
Lodi, New Jersey Explosion.......................................    43
M.O.U. with ATF..................................................    47
M.O.U. with EPA..................................................    47
Mr. Hill's Opening Statement.....................................     3
Nature of the Nevada Explosion...................................    45
Nevada On-Site Investigation.....................................    46
Number of FY 1998 Investigations.................................    48
Opening Statements...............................................     1
Organization Plan................................................    44
Other Agencies in Nevada.........................................    47
Questions Submitted for the Record...............................    57
Sparks, Nevada Explosion.........................................     3
Sparks, Nevada Investigation Coordination........................    34
Staffing the CSHIB...............................................    37
Staffing the Sparks Investigation................................    37
Working With Other Agencies......................................    43
Written Testimony................................................     6

              Cemeterial Expenses, Department of the Army

Arlington Burial Waivers.........................................    99
Assistance with Expansion........................................    91
Budget Highlights................................................    72
Burial Criteria and Exceptions...................................    94
Burial Eligibility...............................................    91
Congressional Cemetery...........................................    85
Construction Funds Reduction.....................................    90
Cost for Expansion Plan..........................................    91
Currently Deferred Maintenance...................................    97
Custis Walk Replacement..........................................    93
Deferred Maintenance.............................................    86
Eligibility Criteria.............................................    84
Exception Policy Documentation and Changes.......................    95
Exemption for Surgeon General C. Everett Koop....................    96
Expansion........................................................    72
High Standards of Maintenance....................................    89
Increased Reimbursable Support Costs.............................    93
Introductions....................................................    83
Level of Funding for Individual Programs.........................    96
Lower Previous Levels of Maintenance Funding.....................    97
Number of Waivers Granted in the Past............................    96
Opening Statement................................................    74
Other Burial Waivers Granted at Arlington........................    96
Planning Level Estimate..........................................    87
Policy and Guideline Review......................................    83
Previously Deferred Maintenance..................................    98
Quality and Level of Maintenance.................................    86
Reduction in FTE from 140 to 112.................................    89
Specific Maintenance Items Addressed and Deferred................    87
Vehicle Replacement..............................................    93
Visitor Study....................................................    85
Wash Stand/Fuel Island...........................................    84
Year 2000........................................................   101

                    Council on Environmental Quality

American Heritage Rivers.........................................   143
American Heritage Rivers Program.................................   143
Breaking Gridlock................................................   122
Brownfields......................................................   151
Budget Justification.............................................   195
Clean Water Initiative Impact on Pfiesteria......................   158
Climate Change Flexibility.......................................   156
Climate Change Formula...........................................   154
Climate Change Technology Initiatives............................   148
Conservation Reserve Enhancement and Pfiesteria..................   158
Costs of Homestead Decisions.....................................   142
Developing Countries and Kyoto...................................   156
Endangered Species in Flood Channels.............................   145
Endangered Species Issues........................................   138
Environmental Technology Market..................................   121
EPA Reinvention Priorities.......................................   147
Flood Control Channels...........................................   144
FY 1999 Budget Priorities........................................   147
Goals in Kyoto...................................................   149
Homestead Air Force Base.......................................139, 142
Homestead Time Line..............................................   142
Homestead's Environmental Sensitivity Baseline...................   140
Inter-Governmental Cooperation...................................   122
Kyoto Treaty and The Auto Industry...............................   152
Kyoto Treaty Ratification........................................   149
Ms. McGinty's Opening Statement..................................   120
Nepa and Salton Sea..............................................   137
Nepa Reinvention...............................................123, 145
No-Action Alternative............................................   140
Nuclear Energy...................................................   153
Opening Statements...............................................   119
Other CEQ Priorities.............................................   146
Partnership for a New Generation of Vehicles.....................   155
Partnership for a New Generation of Vehicles Goals...............   155
Pfiesteria Research..............................................   158
Public/Private Partnerships......................................   121
Questions for the Record.........................................   160
Reinvention vs. Resolution and Coordination......................   146
Salton Sea.......................................................   136
Seis Contracts...................................................   141
Seven Oaks Dam--Santa Ana River..................................   138
Successful Public/Private Partnerships...........................   121
Superfund Reauthorization........................................   150
Superfund Reauthorization in 1998................................   151
Three Goals for Kyoto............................................   152
Welcome to Mr. Bevill............................................   157
Written Statement................................................   125

                 Neighborhood Reinvestment Corporation

Bank Participation...............................................   272
Budget Justification.............................................   278
Campaign for Home Ownership......................................   246
Community Revitalization.........................................   247
Computer System Needs............................................   247
Definition of the Pilot Program..................................   266
Examples of Local Contributions..................................   264
FHA..............................................................   273
Full-Cycle Lending...............................................   260
Funding the Home Ownership Pilot.................................   272
Goals for the New Pilot..........................................   267
Homeownership Pilot Program......................................   266
House that Congress Built........................................   262
Loan Performance.................................................   269
Local Support and Local Need.....................................   261
Mistakes and Lessons.............................................   260
Mr. Knight's Opening Statement...................................   244
Mr. Stokes' Opening Statement....................................   244
Neighborhood Reinvestment Corporation Accomplishments............   246
Neighborhood Reinvestment Corporation Capacity...................   268
Neighborhood Reinvestment Corporation Filling Gaps...............   257
Neighborhood Reinvestment Corporation in New Jersey..............   262
Neighborhood Reinvestment Corporation Rent.......................   275
Neighborhood Reinvestment Corporations' Obstacles................   271
Neighborworks in Inner Cities....................................   257
Neighborworks Risk Mitigation....................................   258
New Organizations in New Jersey..................................   263
NRC and Small Communities........................................   274
NRC and the House that Congress Built............................   259
NRC Technical Assistance.........................................   265
NRC's Low Administrative Costs...................................   261
Opening Statements...............................................   243
Operating Budget Funding.........................................   273
Reasons for Low Default..........................................   269
Role of the Secondary Market.....................................   267
Success of Neighborhood Reinvestment Corporation.................   271
Technical Assistance in Rural Communities........................   265
Written Statement................................................   249
Year 2000 Preparation............................................   276

                  National Credit Union Administration

Ability to Provide Technical Assistance..........................   509
Administration's Request for CDRLF...............................   512
Authorizing Limitations..........................................   507
Bank Customer Dissatisfaction....................................   505
Budget Justification.............................................   520
CDRLF Default Rate...............................................   509
CDRLF Technical Assistance.......................................   514
Central Liquidity Facility (CLF).................................   475
CLF Authorization................................................   484
CLF Purpose and Borrowing Authority..............................   482
CLF Staffing Requirements........................................   504
Commitment to Affirmative Action.................................   496
Community Development Credit Union Revolving Loan Fund...........   485
Community Development Loan Fund..................................   497
Community Development Revolving Loan Fund........................   475
Community Development Revolving Loan Fund (CDRLF) Authorization..   508
Credit Union and CDFI Redundancy.................................   512
Credit Union Mission.............................................   491
Credit Union Presence in Low-Income Areas........................   485
Credit Union Share Certificates..................................   507
Decline in Expenses..............................................   504
Director of the Office of Community Development Credit Unions....   513
Distinction Between CDRLF and CDFI...............................   511
Ensuring Membership Year 2000 Participation......................   493
Ethnic Composition of All Credit Union Leadership................   500
Ethnic Representation of All Credit Unions.......................   499
Fixing Problem Credit Unions.....................................   503
Legislation for Credit Union Membership..........................   489
Mr. D'Amours' Opening Statement..................................   474
National Credit Union Share Insurance Fund.......................   475
NCUA Affirmative Action Hiring Practices.........................   494
NCUA Personnel...................................................   486
NCUA Rent........................................................   492
NCUA Workforce Diversity.........................................   496
NCUA Youth Programs..............................................   489
Need for New Borrowing Limits....................................   483
Number of Credit Unions in CDRLF Areas...........................   508
Office of Management and Budget (OMB) Funding Limits.............   498
OMB Authorization Limits.........................................   499
Opening Statements...............................................   473
OPM and Recent Hiring Practice...................................   495
Past Utilization and CLF.........................................   483
Problem Credit Unions............................................   502
Quality of Credit Union Services.................................   490
Questions for the Record.........................................   518
Requirements for Technical Assistance............................   514
Soundness........................................................   505
State-Chartered vs. Federally-Chartered Credit Unions............   506
Supreme Court Ruling on Credit Union Membership..................   486
Trust and Certificate of Deposit Service.........................   506
Women at NCUA....................................................   497
Written Statement................................................   476
Year 2000 Preparation............................................   493

                U.S. Consumer Product Safety Commission

Agency Reauthorization...........................................   568
All-Terrain Vehicles.............................................   593
Annual Performance Plan..........................................   625
Bike Helmet Safety Standards.....................................   541
Budget Justification.............................................   608
Budget Request...................................................   588
Carbon Monoxide Poisoning........................................   598
Cigarette Lighter Testing........................................   597
Commending Congressman Stokes....................................   543
CPSC Productivity................................................   543
CPSC Website.....................................................   584
Distribution of Grandparent Guide................................   581
Employment of Women and Minorities...............................   571
Five-Month Toxicity Study........................................   539
Focus on Small Open Flame Ignitions..............................   538
Fourth Hammer Award..............................................   568
Furniture Flammability...........................................   602
FY 1999 Budget...................................................   542
Grandparent Guide................................................   567
Halogen Lamp Safety..............................................   582
Improved Efficiency..............................................   607
Increase in Agency Budget........................................   580
Information Response Time........................................   594
Need for Additional Funds........................................   585
Offsetting Collections...........................................   599
Purchases of Information.........................................   595
Recall Round Up..................................................   573
Reduction of Deaths and Injuries.................................   569
Rent Expense.....................................................   578
Research and Development Contracts...............................   600
Results Act......................................................   606
Section 15 Subprogram............................................   591
Skiing Safety....................................................   582
Small Flame Data.................................................   537
Space Rent Increase..............................................   601
Special Investigations Unit......................................   592
State Bike Helmet Laws...........................................   570
Statement of Ann Brown...........................................   541
Strategic Plan.................................................569, 696
Strategic Plan Goals.............................................   596
UFAC Program.....................................................   534
Upholstered Furniture Project....................................   533
Vent Pipe Recall.................................................   541
Visit to Manufacturers Planned...................................   540
Working With Small Business......................................   581
Written Statements...............................................   545
Year 2000 Computer Problem.......................................   580

                      Consumer Information Center

Access to Computers..............................................   760
50th Anniversary Celebration.....................................   766
Budget Justifications............................................   774
Catalogs for Constituents........................................   764
CIC Information Kits.............................................   764
Fairness Issue...................................................   761
Free Advertising.................................................   761
Government Printing Office.......................................   768
Internet:
    Child Pornography on.........................................   763
    Effects of...................................................   758
    Hits on......................................................   760
Mailing Lists....................................................   765
Medical Privacy Issue............................................   764
Most Popular Publications......................................763, 767
Opening Statement................................................   752
Print Communications vs. Electronic Communications...............   766
Questions for the Record:
    Mr. Lewis....................................................   769
    Mr. Knollenberg..............................................   772
Rental Charges...................................................   758

                United States Court of Veterans Appeals

Budget for Equipment.............................................   837
Budget Justification.............................................   842
Budget Request...................................................   811
Cause of Court Backlog...........................................   819
Court Staff Diversity............................................   835
Court Staffing...................................................   834
Fact Sheet.......................................................   818
Increase in BVA Decisions........................................   821
Introduction.....................................................   811
Pay Increase.....................................................   819
Pro Bono Program Funding.........................................   834
Pro Bono Program In-Kind Funding.................................   836
Pro Bono Program Staff Diversity.................................   835
Questions for the Record.........................................   839
Relationship of Pro Bono Program to the Court....................   837
VA Group VII Staffing............................................   821
VA Presentation..................................................   819
Written Statement................................................   813

                        Selective Service System

Budget Justification.............................................   890
Health Care......................................................   882
Information Technology...........................................   876
Mission..........................................................   883
Oral Statement...................................................   868
Questions for the Record.........................................   886
Registration.....................................................   877
Relationship to Americorps.......................................   884
Rent.............................................................   883
Spirit of Volunteerism...........................................   874
Staffing.........................................................   875
Tailored Blitzes.................................................   879
Workforce Diversity..............................................   881
Written Statement................................................   862

           Community Development Financial Institutions Fund

Adequate Funding Level...........................................   953
Affirmative Action...............................................   948
Annual Report....................................................   999
Applicant Demographics...........................................   960
Audited Financial Statement......................................   949
Award Percentage of Request......................................   948
Bank Enterprise Awards...........................................   937
Big Banks and Community Development..............................   936
Budget Justification.............................................   977
Cap on Awards....................................................   962
CDFI Fund Annual Report..........................................   943
Depressed Communities............................................   949
Difference: CDFI Fund and NCUA...................................   953
Establishing System and Process..................................   944
Financial Capacity...............................................   950
FY 1999 Budget Request...........................................   941
Grant Selection..................................................   945
Grantee Performance Goals........................................   947
Health of CDFI...................................................   940
Intermediaries...................................................   947
Internal Controls................................................   958
Introductory Remarks by Chairman Lewis...........................   911
Leveraging................................................938, 943, 956
Measuring Results................................................   943
Micro Enterprise.................................................   939
Minority Financial Institutions..................................   934
New Jersey Banks Participating...................................   950
Obligated Funds..................................................   951
Outreach.........................................................   954
Performance Plan Process.........................................   961
Program Measurement..............................................   933
Questions for the Record.........................................   964
Ranking Member Stokes Introductory Remarks.......................   912
Re-Applications..................................................   963
Reporting Systems................................................   957
Review Process...................................................   958
Risk.............................................................   950
Secretary Rubin's Statement......................................   913
Staffing.........................................................   947
Success Rate Parallel Marketplace................................   961
Success Stories..................................................   951
Training.........................................................   952
Urban Renewal....................................................   933
Volume of Grant Applications.....................................   947
Written Statements...............................................   917
Year 2000........................................................   939

                  American Battle Monuments Commission

ABMC Budget......................................................  1081
ABMC Security....................................................  1081
Accounting System................................................  1072
Budget Justification.............................................  1116
Cemetery Labor Projects..........................................  1078
Engineering and Maintenance Backlog..............................  1079
Engineering and Maintenance Funding..............................  1077
Engineering and Maintenance Requirements.........................  1077
Foreign National Employees.......................................  1082
Manpower.........................................................  1082
Opening Statement................................................  1070
Opening Statement Continued......................................  1073
Questions for the Record.........................................  1085
Workweek in France...............................................  1083
World War II Memorial Contributions..............................  1076
World War II Memorial Design.....................................  1074
World War II Memorial Fundraising................................  1075

   Office of Inspector General, Federal Deposit Insurance Corporation

Appropriation Request............................................  1148
Budget Justification.............................................  1180
Budget Request...................................................  1147
Community Reinvestment Act.......................................  1173
Cost of Savings and Loan Crisis..................................  1167
Credit Card Bankruptcy...........................................  1173
Financial Regulatory Agencies....................................  1165
Independence of Inspector General................................  1165
International Lending............................................  1168
Law Enforcement Activities.......................................  1163
Law Enforcement Responsibilities.................................  1148
Opening Remarks..................................................  1147
Overview of FDIC OIG.............................................  1147
Questions for the Record.........................................  1176
Savings from OIG Investigations..................................  1163
Staffing Levels..................................................  1163
Written Statement................................................  1149
Year 2000........................................................  1166