[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]




       VA, HUD, AND INDEPENDENT AGENCIES APPROPRIATIONS FOR 2000

                DEPARTMENTS  OF  VETERANS  AFFAIRS  AND

                 HOUSING  AND  URBAN  DEVELOPMENT,  AND

                  INDEPENDENT AGENCIES APPROPRIATIONS

                                FOR 2000

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS
                              FIRST SESSION
                                ________
            SUBCOMMITTEE ON VA, HUD, AND INDEPENDENT AGENCIES
                   JAMES T. WALSH, New York, Chairman
 TOM DeLAY, Texas                     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
 ROGER F. WICKER, Mississippi         ROBERT E. ``BUD'' CRAMER, Jr., 
 ANNE M. NORTHUP, Kentucky            Alabama                        
 JOHN E. SUNUNU, New Hampshire    

 NOTE: Under Committee Rules, Mr. Young, 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, Timothy L. Peterson, Valerie L. Baldwin, and Dena L. 
                                 Baron,
                            Staff Assistants
                                ________
                                 PART 2
                                                                   Page
 Consumer Product Safety Commission...............................    1
 Consumer Information Center......................................  197
 Federal Deposit Insurance Corporation............................  257
 Chemical Safety and Hazardous Investigation Board................  327
 Council on Environmental Quality.................................  473
 American Battle Monuments Commission.............................  593
 Neighborhood Reinvestment Corporation............................  647
 National Credit Union Administration.............................  911
 Community Development Financial Institution......................  953
 Court of Veterans Appeals........................................ 1035
 Selective Service System......................................... 1081
 Office of Science and Technology Policy.......................... 1127
 DOD--Civil, Cemeterial Expenses, Army............................ 1217
                                ________
         Printed for the use of the Committee on Appropriations
                                ________
                     U.S. GOVERNMENT PRINTING OFFICE
 57-519                     WASHINGTON : 1999





                                  COMMITTEE ON APPROPRIATIONS

                   C. W. BILL YOUNG, Florida, Chairman

 RALPH REGULA, Ohio                     DAVID R. OBEY, Wisconsin
 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                STENY H. HOYER, Maryland
 TOM DeLAY, Texas                       ALAN B. MOLLOHAN, West Virginia
 JIM KOLBE, Arizona                     MARCY KAPTUR, Ohio
 RON PACKARD, California                NANCY PELOSI, California
 SONNY CALLAHAN, Alabama                PETER J. VISCLOSKY, Indiana
 JAMES T. WALSH, New York               NITA M. LOWEY, New York
 CHARLES H. TAYLOR, North Carolina      JOSE E. SERRANO, New York
 DAVID L. HOBSON, Ohio                  ROSA L. DeLAURO, Connecticut
 ERNEST J. ISTOOK, Jr., Oklahoma        JAMES P. MORAN, Virginia
 HENRY BONILLA, Texas                   JOHN W. OLVER, Massachusetts
 JOE KNOLLENBERG, Michigan              ED PASTOR, Arizona
 DAN MILLER, Florida                    CARRIE P. MEEK, Florida
 JAY DICKEY, Arkansas                   DAVID E. PRICE, North Carolina
 JACK KINGSTON, Georgia                 CHET EDWARDS, Texas
 RODNEY P. FRELINGHUYSEN, New Jersey    ROBERT E. ``BUD'' CRAMER, Jr., 
 ROGER F. WICKER, Mississippi           Alabama
 MICHAEL P. FORBES, New York            JAMES E. CLYBURN, South Carolina
 GEORGE R. NETHERCUTT, Jr.,             MAURICE D. HINCHEY, New York
Washington                              LUCILLE ROYBAL-ALLARD, California
 RANDY ``DUKE'' CUNNINGHAM,             SAM FARR, California
California                              JESSE L. JACKSON, Jr., Illinois
 TODD TIAHRT, Kansas                    CAROLYN C. KILPATRICK, Michigan
 ZACH WAMP, Tennessee                   ALLEN BOYD, Florida               
 TOM LATHAM, Iowa
 ANNE M. NORTHUP, Kentucky
 ROBERT B. ADERHOLT, Alabama
 JO ANN EMERSON, Missouri
 JOHN E. SUNUNU, New Hampshire
 KAY GRANGER, Texas
 JOHN E. PETERSON, Pennsylvania     

                 James W. Dyer, Clerk and Staff Director

                                  (ii)




 
DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT, AND 
              INDEPENDENT AGENCIES APPROPRIATIONS FOR 2000

                              ----------                              

                                        Tuesday, February 23, 1999.

                U.S. CONSUMER PRODUCT SAFETY COMMISSION

                               WITNESSES

ANN BROWN, CHAIRMAN
THOMAS H. MOORE, VICE CHAIRMAN
MARY SHEILA GALL, COMMISSIONER
PAMELA GILBERT, EXECUTIVE DIRECTOR
    Mr. Walsh. This is a bad precedent. I apologize. I said a 
late flight and the list goes on.

                           Opening Statements

    Good morning. What I would like to do is just a few 
pleasantries, if I may. We have a newly empaneled subcommittee, 
and I would like to take the opportunity to introduce people on 
my side, and then give the Ranking Member, Mr. Mollohan, the 
opportunity to introduce the folks on his side, even though we 
all have the same issues on the same side.
    I have had the pleasure in my brief stint in Washington to 
have had 10 years of chairing three separate subcommittees on 
appropriations. It has been a delightful experience. I have 
learned each time. Our responsibility has grown each time. The 
first was the District of Columbia; the second was the 
Legislative Branch; now we have VA, HUD and Independent 
Agencies.
    In each and every one of these areas I have had the 
pleasure of working with a Democrat; in the first instance 
Julian Dixon, then Mr. Serrano, and now Mr. Mollohan, who was 
very, very helpful to me as Chairman to get the work done and 
to do it in as bipartisan a way as we could possibly do that.
    I hope we can do the same thing with this subcommittee. I 
do not see why we can't. We all have real interests in these 
issues. They all affect our constituents equally, and I look 
forward to the next 2 years with great relish.
    These are great issues, terrific departments. It is a huge 
budget. We are going to keep it that way, because you are doing 
so well with the small amounts of money that you have. Maybe we 
will use you as a model for everyone else.
    Seventy-some-odd billions of these dollars are at our 
discretion, so we are going to need lots of cooperation to meet 
the priorities of the departments and spending priorities with 
caps.
    Without any further ado, let me introduce members, and if 
they have any comment, we would welcome it: Roger Wicker, the 
gentleman from Mississippi, glad to have you with us; John 
Sununu, a new member of the subcommittee from New Hampshire, 
great to have you with us, John; Rodney Frelinghuysen, one of 
many distinguished Frelinghuysens to serve in this Congress 
over its history, from New Jersey; and Mr. Joe Knollenberg from 
Michigan. Great to have you all here.
    There are a few other members who are not here. Tom DeLay 
is not here, Dave Hobson, and Ann Northup from Kentucky, also a 
new member. Welcome.
    Al.
    Mr. Mollohan. Thank you, Mr. Chairman. Let me say that I 
look forward to serving with you on the subcommittee. In terms 
of the responsibility of the ranking membership, it is a new 
subcommittee for me as well, following the distinguished lead 
of our retired colleague, Lou Stokes.
    We look forward to serving with you and the other Majority 
members, and I speak for all the Minority members. We certainly 
look forward to working with you on the basis that you have 
suggested, and agree that most issues in this bill certainly 
should be approached in a bipartisan fashion.
    Let me first note that David Price is here. David is a fine 
member of this subcommittee, and has served on the 
appropriations subcommittee for some time, and will make a 
quality contribution to our effort.
    I was going to note that Bud Cramer is the only new 
minority Member to join the subcommittee. I will welcome him in 
his absence, and I look forward to working with him. I think we 
have an excellent team, and I look forward to doing the 
business of the committee under your leadership.
    Mr. Walsh. All right. Let us begin.
    Our first hearing this morning is with the Consumer 
Products Safety Commission. The Commission's budget request for 
fiscal year 2000 is $50,500,000, an increase of $3,500,000 
compared to last year's appropriation.
    I would like to welcome the Chair of the Commission, Ms. 
Ann Brown, as well as other members of the Commission, Mr. 
Thomas Moore and Mrs. Mary Sheila Gall.
    Ms. Gilbert. I am Pamela Gilbert, the Executive Director.
    Mr. Walsh. How do you do? Welcome.
    Your entire statements will be printed as part of the 
record. If you would like to summarize your statements, and we 
can then begin with our questions about your programs and your 
budget.

                       Chairman Brown's Statement

    Ms. Brown. Thank you very much, Mr. Chairman. We welcome 
your new leadership. We look forward to working with you. We 
have already had a productive get-together, and we appreciate 
your seeing us.
    As you know, I am Ann Brown, the Chairman. With me today 
are Vice Chairman Thomas Moore and Commissioner Mary Sheila 
Gall, and behind me are members of the Commission staff.
    I will read a very short statement.
    I am pleased to have this opportunity to testify in support 
of our fiscal year 2000 appropriation request. The modest 
increase in our budget to $50.5 million, the establishment of a 
small, carefully targeted, applied research program, and other 
initiatives assure the agency will continue on the effective 
path we have followed for the past 5 years.
    This has been a year of accomplishment and growing 
recognition for CPSC. We received two prestigious awards last 
year. First, the Ford Foundation, the Council for Excellence in 
Government and the John F. Kennedy School at Harvard honored us 
for the innovative development of our Fast Track Product Recall 
Program. Then the Institute for Dispute Resolution gave us an 
award for our use of a mediator in resolving a complex 
compliance case.
    These awards show we are accomplishing our safety mission 
in innovative and cost-effective ways. Moreover, the strong 
commendation we received from the National Academy of Sciences' 
Institute of Medicine provides great impetus for our budget 
request.
    To carry out the second year of our 6-year strategic plan, 
we propose a budget of $50.5 million for fiscal year 2000. This 
year we have restructured our budget to more closely reflect 
our strategic goals.
    Previously we organized our budget along functional lines; 
thus compliance, consumer information, hazard assessment and 
reduction, and agency management were separate categories. In 
our new format we have just two categories: reducing product 
hazards to children and families, and identifying and 
researching product hazards.
    For the first time this year, we are proposing a separate 
specific research budget. We have always done some product 
research when funds were available. Our research proposal is 
supported by the recent report of the highly regarded National 
Academy of Sciences' Institute of Medicine.
    After reviewing the Commission's performance in recent 
years, the report concluded:

    This committee believes that the CPSC is on the right 
course, relying heavily upon cooperative efforts with industry 
to raise prevailing standards of safety. The committee believes 
the agency's capacity to carry out this strategy needs to be 
strengthened by including resources for applied research.

    If you grant our request for $1 million for the research 
program, we would use the funds to enhance the CPSC's capacity 
to study safety problems, stimulate product innovations, and 
examine the feasibility and efficacy of safer product designs. 
We would also develop and test methodologies for setting 
performance standards and monitoring compliance with such 
standards, as the Institute of Medicine report recommended.
    In recent years we have repeatedly stressed to you our need 
for improvements in our technology. We do so again this year. 
As a data-driven agency, we must strengthen the tools we use to 
identify and analyze product hazards if we are to continue to 
make sound risk-based decisions.
    The CPSC requests $500,000 for an integrated hazard 
database. This is a key improvement, because it will speed up 
hazard analysis and investigations.
    We further ask an additional $355,000 to fund various 
initiatives that strengthen the agency's ability to reduce 
deaths and injuries to children and those resulting from fire 
and electrocution hazards, household and recreation hazards, 
and child poisonings and other chemical hazards.
    Some of these initiatives include oversight of the all-
terrain vehicle industry safety program, the distribution of 
safety information to the Nation's families from pediatricians, 
the purchase of laboratory testing equipment, expanded consumer 
hotline services, and an additional safety video news release.
    The balance of the additional request, $2.1 million, is to 
maintain the agency's current safety effort at Year 2000 
prices. The $2.1 million will fund projected increases for 
salary and benefits of $2 million, and General Services 
Administration estimates for space rent increases of $126,000. 
This $126,000 is outside the control of CPSC. CPSC did not 
increase our office space. The increase represents the GSA 
allocation of cost increases that GSA projects it will need to 
operate the Federal office space program in the year 2000.

                           a new partnership

    In previous years I have told you about our partnership 
with Gerber products and other companies to promote consumer 
product safety. Today I am announcing a new partnership with 
CNA, a major insurance organization based in Chicago. With 
CNA's support, today we are issuing a new, free safety brochure 
highlighting low-cost safety devices for making homes safer for 
young children. This is called ``Childproofing Your Home: 12 
Devices to Protect Your Children.'' Each year over 2.5 million 
young children are injured or killed in often preventable 
incidents in their own homes. The brochure will tell about 
safety devices that will keep the children safe in their homes, 
and CNA Financial Corporation of Chicago has underwritten the 
costs of producing and distributing this easy-to-read brochure 
that will be distributed free of charge by the Consumer 
Information Center.
    This is the kind of public-private cooperation that helps 
us get our lifesaving information to the American public 
without regulation, without red tape.
    Mr. Chairman, the Institute of Medicine report concluded 
that CPSC is ``now a model of regulatory efficiency.'' This 
judgment provides strong support for our budget request. The 
$50.5 million we are requesting is equal to about one one-
thousandth of the $400 billion that it annually costs the 
American public for deaths, injury, and property damage caused 
by hazardous consumer products. Your approval of the full 
amount of our budget will be returned many times over in better 
health and safety for all American families.
    Mr. Walsh. Thank you very much for your testimony.
    [The information follows:]
    Offset Folios 10 to 16 Insert here



                    Statement by Commissioner Moore

    Mr. Walsh. I believe Mr. Moore wants to make a statement.
    Mr. Moore. Yes. Mr. Chairman and members of the 
subcommittee, I am Thomas H. Moore, Commissioner, U.S. Consumer 
Products Safety Commission. I am very pleased for this 
opportunity to testify in support of our fiscal year 2000 
appropriations request.
    For next year we are requesting $50.5 million, which is a 
modest $3.5 million increase over our fiscal year 1999 
allocation. Although this request is $6.8 million below our 
original request to the OMB, this proposed increase will 
sustain the Commission's current level of product safety 
activity.
    We must use $2.1 million of the $3.5 increase just to meet 
mandatory administrative costs. Additionally, the modest 
additional amount will allow us to increase product safety in 
several ways. It will allow us to add a focused, applied 
research program to the agency, and it will allow us to 
integrate hazard databases to speed up product hazard 
investigations.
    As I have noted each year--and I am sure that you have 
noted--that there is continuing growth of the public awareness 
in regard to the work that is performed at the Consumer 
Products Safety Commission. Clearly this growing regard for the 
results of our efforts is due to Chairman Brown's leadership, 
and very definitely to the hard work and skills of our 
professional staff and to their intense dedication to our 
mission.
    But the highest regard must also be given to the 
administration, and particularly to this subcommittee, for the 
support we have received over the last 3 years. Without this 
consistent support, we could hardly have realized the success 
that we have had in reducing, for the American people, 
unreasonable risk of injury and death from consumer products, 
particularly those risks associated with children's products.
    Because of their importance, I want to again mention the 
two recent prestigious Ford Foundation Group and Institute for 
Dispute Resolution awards that recognized the innovative ways 
in which we have carried out our mandates. The awards are 
testaments to the fact that creativity in the conception and 
implementation of results-oriented processes in handling safety 
issues are ongoing and are recognized at and beyond the agency.
    With that in mind, I think that our proposal for a separate 
research budget deserves serious consideration. We need the 
ability to research significant consumer product safety 
problems that require substantial technical effort and 
expertise to adequately understand. An example is the need for 
long-term testing of circuit breakers to determine if changes 
in safety standards might reduce home electrical fires that 
originate in breaker panels.
    The circuit breaker project shows how, with sufficient 
research-based knowledge, the Commission can work hand in hand 
with manufacturers to more effectively stimulate safe product 
innovations. Additionally, it is clear that Congress envisioned 
research as one of the Commission's activities. If you will 
take a look at Section 5 of the Consumer Products Safety Act, 
you will find that mandate. There is no better time than now to 
go forward with that vision. We now need the support of this 
subcommittee to initiate these research activities.
    I also want to stress that investing in an integrated 
hazard database will allow the Commission to make more 
productive use of Commission resources. Integrating our hazard 
databases is quite simply an efficiency matter. The ability to 
search multiple databases with a single question, update 
multiple databases at one time, and access documents from an 
electronic format could mean saving thousands of staff hours 
that could be redirected toward additional programmatic 
activities.
    I urge the subcommittee to support the efficiencies that 
will result from the implementation of an integrated hazard 
database. Because time is limited, I will not go into the 
specifics of our safety program enhancements specified in our 
budget document, except to say that I strongly support them. 
Nor will I go into more detail about our noteworthy 
accomplishments.
    I do, however, want to stress that we at the Commission are 
passionate--passionate about our mission. We feel that 
protecting Americans from unreasonable risk of harm from unsafe 
consumer products is indeed a noble endeavor.
    In closing, I strongly urge the subcommittee members to 
support and appropriate the full amount requested in the 
President's budget to continue the progress that is being 
realized at the Consumer Product Safety Commission. Thank you.
    Mr. Walsh. Thank you, sir.
    [The information follows:]
    Offset Folios 21 to 26 Insert here



                     Statement by Commissioner Gall

    Mr. Walsh. Ms. Gall.
    Ms. Gall. Thank you. I have a statement for the record, but 
let me just briefly state that as my colleagues know, I do not 
always rubber-stamp budget proposals that are brought forward. 
I sometimes find fault with them. I must say that I believe 
this particular budget before you today is a sound investment 
for the American taxpayer and the American families across the 
country.
    There are a number of items that have been mentioned by our 
Chairman and Vice Chairman, in particular the research 
activities and integrating our database, which are a good 
follow-up to the GAO report that we had last year discussing 
our policy initiatives and how we pull together data collection 
activities and so on. So there are very sound investments in 
this budget.
    I am proud to say that the people at our Commission are 
very dedicated to their mission, as are my colleagues here 
today. I can assure you that our Chairman knows how to squeeze 
every dime out of every industry that she can for joint 
partnerships. We are all very proud of working with. As a 
fiscal conservative I am especially proud of that, going to the 
private sector for cooperative efforts.
    So I can state very clearly that I am in support of this 
particular budget.
    [The information follows:]
    Offset Folios 29 to Insert here



    Mr. Walsh. Thank you.
    Are there any other statements from the Commission?
    Ms. Brown. No. We will be delighted to answer your 
questions.
    Mr. Walsh. Very good. Thank you all very much for your 
thoughtful statements. We will proceed with the questions.
    First of all, let me take an opportunity to thank the 
staff, particularly Frank Cushing, the leader, the clerk for 
this subcommittee, for preparing all of us for these hearings, 
and also to Douglas Nosik, who is here with us today, working 
at the hearings today, who has done a terrific job.
    I am going to ask, if we try to give everybody about 5 
minutes for questions and answers, I think I will get at least 
a couple of questions in, and if we need to go back around 
again we can do that. We do have two other groups coming in 
today, so we will see how that works.

                        use of additional funds

    The budget that your agency submitted to OMB anticipated an 
increase of about $10 million. The President came back at a 
level of $50.5, a $3.5 million increase. What would you have 
done with that $10 million, almost $11 million?
    Ms. Brown. Originally we requested $6.8 million in program 
enhancements that will not be funded under this budget request. 
The applied research that we talked about, that initiative was 
for $5 million. Now we are requesting $1 million. Of course, 
the $1 million will fund fewer projects, fewer research 
projects than the $5 million would.
    Information technology, which is absolutely critical to our 
work, was originally requested at $2.2 million. We are now 
requesting $500,000 for the integrated hazard database portion 
of the request. That is one of our highest priorities and would 
have the most immediate effect on our safety work.
    Then various program enhancements were originally requested 
at $1.3 million, and we are now requesting $300,000. Items not 
funded were $300,000 to purchase outside contract support for 
investigations of complex product hazards, and $185,000 to 
update our product population model. That is an economic model 
that is used in assessing product hazard risk. Of course, if we 
cannot find alternative means of achieving these items, they 
will probably come around again in future budget proposals.
    Mr. Walsh. If additional funding were provided, would your 
priority be for the applied product hazard research?
    Ms. Brown. Actually, I think first and foremost would be 
the $1.7 million for information technology that the budget 
restraints have forced us to defer to future years. That would 
establish a sound replacement program to keep our equipment and 
software modernized and up to date and to take advantage of the 
latest technology. Right up there would be the research budget. 
So the one and two would be technology and then research.

                    information technology equipment

    Mr. Walsh. Are you talking about office systems software, 
or are you talking about software for applications?
    Ms. Brown. What I would love is to get Doug Noble, who is 
in charge of this, to talk about this, since he is our expert 
here.
    Mr. Noble. Good morning. The answer to your question is 
that $1.2 million would be used to establish, for the first 
time, a program that would allow us to upgrade desk-top 
hardware and software applications on a 3- to 5-year rotational 
basis. It would also allow us to update network software and 
keep it up to date with other products that are released for 
products that we currently use.
    About $300,000 would be used for new applications as a one-
time purchase, provide enhanced support to our network, and 
increase our capability to deal with emergencies involving our 
network operations. That is basically what we would be doing 
with this additional funding.
    Mr. Walsh. What is your replacement cycle budget now? How 
often do you anticipate replacing software?
    Mr. Noble. Our goal is to try to replace every 3 years. 
That is tied primarily to the fact that when we purchase, we 
try to include a good 3-year warranty. As those warranties 
expire, we are facing additional replacement costs.
    Ms. Brown. We should be clear that we don't have a budget 
for that.
    Mr. Noble. That would be our goal, but without the funding 
we are not able to implement that.
    Mr. Walsh. You can't do that 3-year replacement cycle? If 
you got that additional funding that is what you would do?
    Mr. Noble. We would begin that cycle. Right now the monies 
that go to hardware and software replacement are obtained 
whenever we have the chance, to move funds from salary money 
due to temporary vacancies that we have on the staff.
    Mr. Walsh. The application software that you use for your 
research and for tracking products and so on, do you develop 
that software with software companies, or do you buy off-the-
shelf sort of software?
    Mr. Noble. It is a combination of both. What we try to do 
is use our career staff and contractors that are on site with 
us to develop software, develop database applications. These 
people are very knowledgeable, very dedicated, and have helped 
us over the past 3 years to develop three databases that are 
very efficient, saving us thousands of hours of staff time. 
These would be the same people that would be working with us to 
help us link our databases under an integrated concept.
    Mr. Walsh. Thank you.
    Mr. Noble. You are welcome.

                        applied research program

    Mr. Walsh. On the applied product hazard research, the 
budget request to OMB was for $5 million and 12 employees. The 
budget submitted to Congress requested $1 million, with no 
personnel assigned. What is the level of funding you expect to 
achieve for research programs over the next 3 years?
    Ms. Brown. We originally requested $5 million. Over the 
next 3 years, we would be delighted if we were able to get into 
that $5 million category. We have a list, and I would be glad 
to submit it for the record, of different research projects.
    Mr. Walsh. That is a 3-year figure or an annual figure?
    Ms. Brown. If we could get to $5 million over the 3 years, 
we would be happy with that. We would love to have gotten the 
$5 million and to have done all the projects that we had. If we 
could not do that, $5 million in 3 years, we would be certainly 
satisfied.
    Mr. Walsh. That would also account for an increase in 
personnel?
    Ms. Brown. Not necessarily. OMB left the decision to us 
about personnel. With the funding of $1 million, I think we can 
do that with the personnel that we have. If the funding were to 
increase, we would then have to reassess to add some additional 
scientific staff to help manage the research contract.
    Mr. Walsh. My last question is--I think this is a neat 
idea. By the way, that insurance company contract, that is my 
insurance company.
    Ms. Brown. How propitious.
    Mr. Walsh. For all the money I send them, I am glad I am 
getting something.

                           cpsc research role

    Mr. Walsh. Why are we doing research on electrical circuit 
breakers, for example? Why wouldn't CNA and Aetna and all these 
other insurance agencies pool their money and pay for research 
to make electrical circuitry in homes more safe?
    Ms. Brown. As a matter of fact we are often asked this 
question: Why don't manufacturers or other people do this kind 
of work?
    They don't usually do the kind of research that we are 
proposing. We are proposing to do research to evaluate overall 
safety of entire classes of products and the adequacy of our 
voluntary safety standards. Manufacturers usually--individual 
manufacturers do research on product development. Very often 
the original research that we would do would stimulate the kind 
of research you are talking about. But what we have to do would 
have to be done first.
    You know, CPSC is the only Federal health and safety agency 
without a research budget. The National Highway Traffic Safety 
Administration contract research budget is about $50 million 
annually. We are the only Federal regulatory agency that has 
jurisdiction over consumer product safety, so there is an area 
where the research that we do is, quite honestly, catch as 
catch can.
    We do what we have to do, but if we had this budget it 
would be much more systematic.
    We also have an extensive team of professionals in the U.S. 
that have the expertise to deal with these types of hazards 
with consumer products. We have engineers, human factors 
people, standards, injury data collection and economic 
analysts. So we are the ideal people to start off this research 
and then to encourage industry to follow up.
    Just to add something that you really have not asked, but 
it is a question that I ask the staff when we talk about 
research: Is this redundant with other agencies? That is a 
question that I think we should ask.
    For instance, CDC, the Centers for Disease Control, does 
provide some grants related to consumer products, but they 
don't do the type of applied product safety research that we 
are proposing because CDC does not have the same professional 
expertise or the regulatory authority. So that is what makes us 
unique.
    Mr. Walsh. I have a few additional questions that I will 
submit in the record and you can respond at your leisure, or 
until the staff gets all over you.
    Mr. Walsh. Mr. Mollohan.
    Mr. Mollohan. Thank you, Mr. Chairman.
    Ms. Brown, I heard you mention in your testimony that you 
had restructured your budget.
    Ms. Brown. Yes.
    Mr. Mollohan. And that it falls into two categories: first, 
reducing hazards; and second, researching product hazards.
    Ms. Brown. Yes.

                         cpsc budget categories

    Mr. Mollohan. Is that your whole budget as reorganized 
under those two categories?
    Ms. Brown. I will have Pamela Gilbert, our Executive 
Director, talk about the restructuring, which I think will make 
some sense to you when she talks about it.
    Ms. Gilbert. The short answer is yes, our entire budget is 
now structured into those two program areas. What we did is 
look at the results that our agency is trying to achieve. We 
saw that our budget did not reflect that story. Our budget was 
structured functionally, how we got to the results. We thought 
a much better way to tell our story and let the American public 
know what we are doing and how we are doing it is to structure 
it by results, so that is what we have done. We have switched 
our budget around.
    The major result that we try to achieve--our mission--is to 
reduce product hazards to children and families. That is the 
one major program area. We have categorized that program area 
particular hazards: reducing children's hazards, reducing fire 
and electrocution hazards, reducing household and recreation 
hazards, and reducing child poisoning and other chemical 
hazards. Again, those are all our results.
    The other program area is the baseline of how we are able 
to reduce those hazards. That is our data collection. And, if 
we were to get a research budget, our research budget would go 
under this program area. That is, identifying and researching 
product hazards.
    Mr. Mollohan. As I heard you express it, you called that 
second category ``researching product hazards.'' What is the 
official name of the second category?
    Ms. Gilbert. Identifying and researching product hazards. 
Right now the bulk of it is our data collection activities. We 
are a data-driven agency.
    Mr. Mollohan. I thought it was quite an expression of 
optimism with regard to your research request that you could 
structure your budget and one whole category is called 
research.
    Ms. Gilbert. Right. Research is a very small part of that 
category, in fact.
    Mr. Mollohan. Following up a little bit on the Chairman's 
questions regarding your research request--you requested $5 
million from OMB this year?
    Ms. Brown. Yes.

                            research budget

    Mr. Mollohan. In your hopefulness with regard to this 
request, what do the outyears look like----
    Ms. Brown. Well----
    Mr. Mollohan [continuing]. In your vision? If you had 
gotten $5 million from OMB this year and you had gotten an 
appropriation in 2000, 2001, 2002, what would these outyears 
have looked like?
    Ms. Brown. I think quite hopefully and I think quite 
optimistically we would have loved to have had $5 million each 
year for research.
    Mr. Mollohan. When did you project that it would become 
flat?
    Ms. Brown. We really did not make a projection to go year 
after year.
    Mr. Mollohan. You might not have made a formal one, but you 
have sat around----
    Ms. Brown. We have sat around and thought that our needs 
were $5 million a year.
    Mr. Mollohan. For how many years?
    Ms. Brown. We had this plan for $5 million for FY 2000.
    Mr. Mollohan. That is kind of an important consideration, 
because you are opening a wedge in your budget. I think it 
would be important to us to learn how far you anticipate it 
growing into the outyears.
    Ms. Brown. We certainly were not able to get what we had 
asked for, but the $1 million would give us a good start on it. 
If we could build up to, for instance, $5 million in 5 years, I 
think that would be a level that we would be content to stay 
with.
    Mr. Mollohan. I understand that. What I really want to get 
a sense of is how large you expect this wedge to grow in five 
or six years.
    Ms. Brown. I would never see it growing over $5 million a 
year at this point.
    Mr. Mollohan. At this point?
    Ms. Brown. Right. Well, you are parsing my sentence pretty 
well. I would not see it at this point going over $5 million.
    Mr. Mollohan. As you see it now.
    Ms. Brown. We made a list of projects that we thought were 
important to do, and they would get us a few years of what we 
thought was important. With product safety, you can't tell what 
is going to come up on the horizon.
    Mr. Mollohan. How do you do this now? How do you do this 
function that would be served through your research initiative?
    Ms. Brown. I don't quite understand.
    Mr. Mollohan. Do you rely upon associations or industry 
groups to give you assessments about the safety of products? 
How do you make these judgments? You don't have a research 
program now, correct?
    Ms. Brown. Right. We primarily do it through our staff. I 
would like to have the person in charge of research talk about 
this. It is Ron Medford. Would you come up, Ron?
    Mr. Medford. Yes. The idea of the research budget, first of 
all, we do some research now. I think what we have been trying 
to do in this budget is actually in a formalized, structured 
way, to establish research as a part, an integral part, of the 
product safety program for the country.
    So that in order for us to do major initiatives, one of the 
initiatives that we have talked about is the fire sprinkler 
system. As we continue to investigate how fire safety 
sprinklers operate, we are concerned that the standard--it is 
somewhat like what NHTSA does for automobiles or what FAA does 
for airplanes. It determines what the safety rules and 
manufacturing standards should be for products.
    It is not that we would use our research funds to 
manufacture products, but it is actually to develop standards 
as problems emerge.
    Mr. Mollohan. Does that responsibility not in some ways 
duplicate NIST's responsibilities?
    Mr. Medford. NIST's responsibility is principally in the 
area of technology. Actually, we do fund some of NIST's work. 
They have a laboratory that relies on outside funding to 
support its programs. It oversees the standard development 
policy programs for the Nation but does not itself develop 
standards.
    Mr. Mollohan. Would you anticipate doing this in-house or 
under contract?
    Mr. Medford. Principally under contract. This would be 
contract initiatives--we simply don't have the capabilities in 
house to do it.
    Mr. Mollohan. I can imagine there would be a list that 
would be infinitely long of things you could look at under 
this. How would you prioritize the things you want?
    Ms. Brown. I will submit that for the record is the list of 
the $5 million for projects that we went through very 
carefully, through all of the hazards that we saw, all of the 
work that needed to be done.
    We said what is the most crucial in terms of saving lives.
    Mr. Mollohan. So you had a process to arrive at that?
    Ms. Brown. We absolutely had a very thorough process which 
included primarily the staff, our frontline people.
    Ms. Gall. We also do a lot of work with industry as well. 
We have two recent examples of escalators and upholstered 
furniture, fire-resistant materials, where we have had a number 
of organizations present information or studies they had done, 
research they had done on fire-resistant materials.
    So we work with government agencies, we work with industry, 
and try to develop as many partnerships in research as possible 
where our staff works directly with those conducting the 
research.
    Mr. Mollohan. Thank you. I think I got a sense of where you 
are coming from.
    Mr. Walsh. For the sake of the members and the sake of 
order, what I will try to do is, I will go first and I will go 
to the Ranking Member, then we will alternate back and forth to 
those who arrive in the order that they arrive.
    So in the case of Roger and John and Rodney and Joe, they 
were all here when we began, so we will go in that order, and 
then David Price has left, so hopefully he will be back when 
his turn arises.
    Mr. Wicker.
    Mr. Wicker. Thank you, Mr. Chairman.
    Chairman Brown and members of the Commission, it is good to 
have you back for our very first hearing of this Congress.
    Mr. Brown. Thank you.

                         furniture flammability

    Mr. Wicker. I want to return to an issue that Mrs. Gall 
touched on, and that is the issue of furniture flammability.
    As you all know, we engaged in a very spirited legislative 
debate about this issue last year. The regulation that the 
Commission was proposing and is proposing dealt with putting 
flame-retardant chemicals on fabric.
    Our contention was there was not adequate information as to 
the effect of these chemicals on workers that would have to 
work around it; on consumers, and on the environment, so to 
speak, the unintended consequences of this. The end result is 
that we are now conducting a peer review of the toxicity and 
possible harmful effects of the chemical.
    I might add, before I ask my question, that we were joined 
in this effort not only by representatives of industry, 
including the furniture industry and the fiber and fabric 
industry, but also by scientists and government agencies 
worldwide, and environmental groups, such as local chapters of 
the Sierra Club, the National Associations of the Environmental 
Defense Fund, Friends of the Earth.
    On your side of the issue were the State fire marshals, but 
even so, they took not the same identical approach that your 
agency took. But let me leave the toxicity issue. Let's put 
that aside and talk about whether treating the fabric with the 
chemicals is going to be effective in preventing fires, if we 
ever get to that issue.
    In October of 1997 your staff estimated that the treated 
fabric would eliminate 70 to 90 percent of small open-flame 
fires. I think that was based on an estimate rather than actual 
tests. I wrote you on June 4th of last year requesting 
clarification of these tests.
    Basically what I wanted to know is are we taking a 
conventional chair, made according to American standards now, 
and comparing that chair to one made under the proposed 
regulation with the flame-retardant on the material?
    I wrote you on June 4th. Now, on November 4th I got a 
letter back from your Director of Congressional Relations, Mr. 
Wager. In his letter he stated, and I quote: ``Direct 
comparison with similar chairs with and without flame-retardant 
factors cannot be performed, since manufacturers do not offer 
consumers the choice of flame-retardant fabrics.''
    My question is this: I understand that in the British 
market, there have been chairs treated with flame-retardant 
materials which would, I am told, comply with your proposed new 
regulation. It is also my understanding that the CPSC is just 
now purchasing British-made chairs with the flame-retardant 
chemicals on them, that they are just now purchasing those for 
comparison purposes.
    Why only now are those comparisons being made?
    Ms. Brown. I will start, and then to answer your question I 
have to give you a little bit of background. We have at this 
point no proposed regulation. Nothing has come to the 
Commissioners. The staff has not had the chance to make any 
recommendations to us.
    Mr. Moore. Any investigation.
    Ms. Brown. We are right now in the course of the 
investigation, so I think that your concerns are a little 
premature. We have very carefully and deliberately and in a 
very open manner been studying this issue, and it has been now 
for over 4 years, because it is quite a complex issue. And we, 
the staff and the Commissioners, were the first to recognize 
that the potential chemical risks had to be studied. That is 
why we had a 2-day public hearing, why we got 400 pages of 
testimony, and why we are still receiving written comments.
    So we have had no chance to see a staff recommendation, to 
see a proposal. We have had numerous meetings with industry and 
others, and we are now, of course, in the process of preparing 
an environmental impact assessment, and it includes possible 
impact on worker safety, and working with EPA to consider 
possible controls on FR chemicals. You understand, we are in 
the middle of a process.
    I for one, and I don't know about my fellow Commissioners, 
have no idea how I would vote in such a matter because I have 
not even seen any kind of staff recommendations. So you are 
talking about us in the middle of our process.
    The reason that we did start on this, that you have to 
understand, is that the safety of American children--there are 
90 deaths each year from small open-flame fires on upholstered 
furniture, and 60 of those are children. That means that one 
child--more than one child a week is dying in a fire from 
upholstered furniture. Therefore, we started on that.
    Mr. Wicker. I understand that, Ms. Brown, and I think you 
and I are both headed in the right direction of trying to 
prevent those deaths.
    Ms. Brown. Correct.
    Mr. Wicker. The question is what is the best way to do it. 
But since I am limited on time, let me get back to my question. 
That is, that we had an estimate from the CPSC that the use of 
this flame retardant on the fabric would be 70- to 90-percent 
effective.
    Ms. Brown. Right.
    Mr. Wicker. It now turns out that is based on some sort of 
estimate, and that you have yet to compare one chair with a 
chair made according to the regulation. I am just wondering 
when that sort of testing--when we can expect that to be done 
and why we have gotten this far down the road without that.
    Ms. Brown. As I said, we are in our process. But let Ron 
Medford answer the specifics of that.
    Mr. Medford. Congressman Wicker, we had tested previously, 
and the information that you are relying on and the staff was 
relying on were actual tests we conducted on fabrics that had 
been obtained and back-coated with chemical treatment already, 
so we did have a basis for making those statements.
    There are a limited number of chemicals that are used 
either in the United States for commercial furniture or in the 
UK that we could test. As you know, there is a list of about 16 
possible chemicals that could be used. There is only one or two 
that are in use. We obtained from the UK back-coated fabric on 
the items that we tested and relied on to make those data.
    Also, we briefed the Commission previously, we had tested 
chairs manufactured to the UK standard, but in this past year, 
before the end of this fiscal year, we ordered more and 
received this fall additional UK chairs we are testing now. We 
are continuing to develop data, but we had tested product with 
fabric back-coating on them prior to making those estimates. So 
we were relying on actual fabric.
    Mr. Walsh. Mr. Wicker?
    Mr. Wicker. Just briefly because I know that we have a time 
constraint. You mentioned 90 deaths a year in the United States 
caused by small open-flame ignition. You will acknowledge that 
historically the vast majority of fires with regard to 
upholstered furniture have been caused by cigarette ignition?
    Ms. Brown. Correct.
    Mr. Wicker. I think you would agree that the voluntary 
effort by industry, the UFAC program, has been very successful 
in that regard.
    I have been informed that the material coated by the small 
open-flame retardant could actually make furniture more 
susceptible to ignition by cigarettes, which is the major cause 
of death. Do you have that information?
    Ms. Brown. The information that I understand from the staff 
is that the work that they have done on small open flames could 
help reduce the cigarette-ignited fires, and I will let Ron 
elaborate on that. We had exactly the opposite information.
    Mr. Medford. There was a meeting at the Commission in the 
last 2 weeks where the fiber manufacturers came in and 
presented us with some data that suggested in fact that you 
could see the kind of reversals that you talked about. That is 
somewhat contradictory to the tests that we have seen.
    Mr. Wicker. Counterintuitive almost.
    Mr. Medford. That is counterintuitive, and not based on the 
data that we had performed in our laboratory. We are very 
interested in that data, and our testing is continuing. So we 
are going to be investigating that information. We have that 
information and we are looking into it.
    Mr. Wicker. If objective science demonstrated a higher 
likelihood of cigarette ignition, your agency would be 
concerned about that and you would be looking at a different 
approach?
    Ms. Brown. Of course. I would just want to say that I 
believe the staff and the Commission should have the 
opportunity as an independent regulatory agency to consider 
this issue, just as it does all other regulatory matters, 
following the criteria established in our statutes by the 
Congress. That is why we are so concerned about chemicals, FR 
chemicals. We have the same concerns that you do, and feel that 
we should be allowed to complete our work so we can get a staff 
recommendation based on the very best possible science.
    Mr. Wicker. Mrs. Gall, would you like to comment?
    Ms. Gall. Well, I have some major concerns about the 
upholstered furniture investigation that has been conducted. We 
have wonderful experts at the agency who do good work, but I 
think there is a lot of information that we just don't know. We 
don't know about fire-resistant chemicals. I have the same 
concerns you do about workers, about disposal of these kinds of 
materials which might comply with EPA regulations, for example.
    Another concern I have is upholstered furniture. This is 
something that you keep for a long period of time so the impact 
of any proposal we may come up with will be very long range in 
seeing any results, and we should address that.
    I think AFMA and some of the other organizations have done 
a terrific job. Certainly the cigarette voluntary work that 
they have done has made a significant drop in fires. I think 
there is just a lot we don't know. We don't know the cost-
benefit. We don't know about associations with EPA regulations. 
We need to carefully examine those. We don't know about fire-
retardant chemicals. There are a lot of unknowns at this point, 
and so I agree with the Chairman that we do need to continue on 
with our research. But I think it is a slow process, and 
certainly GAO has made a contribution and others will be 
looking into this. I have some very serious concerns, and we 
will be looking at those carefully as we move on.
    Mr. Walsh. Maybe you can finish up your questioning in 
correspondence or maybe wait until the end.
    Ms. Brown. Of course I will talk to the Congressman. We 
were working closely with industry and EPA. EPA is, in fact, 
working on possible controls on FR fabric compound chemicals, 
compounds which they would oversee, and each one that the 
industry wanted to use. So we are well on top of all of these 
and I offer my good offices to you to talk to you at any time 
you like.
    Mr. Moore. I want to reiterate this is a work in progress. 
This is not anywhere near a proposal. Staff is considering each 
of the issues raised by Commissioner Gall and Congressman 
Wicker.
    Mr. Walsh. By virtue of his earlier arrival, Mr. Price is 
recognized.
    Mr. Price. Thank you. Chairman Brown and fellow 
Commissioners, I appreciate your appearance here and continue 
to be impressed by your work. It is good to see these awards 
for innovation and also for dispute resolution and mediation, 
which I think demonstrate that the government can be a positive 
force in protecting our citizens without unduly hampering 
business.

                       fast track recall program

    I wonder if you can describe the Fast Track Product Recall 
Program. I know that is something that you have invested a 
great deal in, and I am particularly interested in how you get 
industry to participate. How does this work?
    Ms. Brown. The Fast Track Product Recall Program is an idea 
that came to us from the staff, from the bottom up so to speak, 
and what we were looking to try to do is to get recalled 
products off of the market faster and out of people's homes 
more quickly and more thoroughly, because anytime you have a 
dangerous product in someone's home or on a store shelf, there 
can be death or injury.
    The staff came up with an idea that they would do the 
recall within 20 days or less if the companies who report a 
problem to us--companies have to report, and what would help 
the company would be that it would be done within 20 days and 
there would be no letter of preliminary determination in the 
company's files. Companies don't like that in product liability 
suits, so it was giving them something. It encouraged their 
reporting, and it also helped the consumer simultaneously 
because it got dangerous products off of the market faster and 
it has been an amazing success.
    Almost 60 percent--over 50 percent of our recalls are down 
on fast track, and instead of the 30 to 40 percent of recalled 
products that we might get back, we are getting 60 percent of 
the products back, which means that dangerous products are not 
lurking in people's homes.
    This has been a very, very successful program and that is 
why the John F. Kennedy School and Ford Foundation gave us this 
prestigious award. It is so prestigious because there were 
1,400 applicants for this award and there were only 3 Federal 
agencies which received one this year, and one was the Consumer 
Products Safety Commission.
    Mr. Price. Congratulations. You say that businesses have 
strong incentives to get involved, and how do you encourage 
that?
    Ms. Brown. We encourage it by assuring them there will be 
no letter of preliminary product defect determination in their 
file, which is a great incentive.
    Mr. Price. You say that this leads to a higher than normal 
percentage of returned products.
    Ms. Brown. Are returned.
    Mr. Price. Why is that?
    Ms. Brown. First of all when we do this, it is done so 
quickly that people in their homes are more aware of it. It is 
not something that has lingered in their homes for 6 months. 
That is how long it takes a normal negotiation to develop. So 
within 20 days--they may have just bought the product recently 
and so they are more aware of it and so we get many more back 
that way.
    Mr. Price. What are some examples of products which have 
been subjected to this?
    Ms. Brown. I just happen to have that list. Hasbro recalled 
1 million Tonka trucks that posed choking hazards to children.
    Sunbeam recalled 73,000 gas grills because a defective hose 
could leak or cause a fire. This recall was done in 5 days and 
over 90 percent of the grills were returned to Sunbeam. And 
other fast track recalls have been IBM computers, Gap Kid 
windbreakers, Gerry baby monitors, and Shimano bicycle cranks.
    Mr. Price. What is the IBM item?
    Ms. Brown. I would have to get you that. It was a defective 
battery in a computer.
    [The information follows:]

                            Computer Hazard

    Under the Fast Track Product Recall program, IBM recalled a 
computer monitor because internal wiring could be exposed 
presenting an electric shock hazard.

    Mr. Price. Thank you.
    Ms. Brown. Thank you.
    Mr. Walsh. Mr. Sununu.
    Mr. Sununu. In the interest of time, Mr. Chairman, I will 
submit the few questions that I have in writing. Thank you.
    Mr. Walsh. Thank you. Mr. Frelinghuysen.

                          cpsc strategic plan

    Mr. Frelinghuysen. Thank you, Mr. Chairman. Ms. Brown, I 
periodically see you on the Katie Couric show and you seem to 
do a good job and it is good to see you in the flesh.
    Would you satisfy my curiosity--I have a boon for self-
punishment, and I was looking over your strategic plan for last 
year--and if I look over the material correctly, you had a 10-
year strategic plan last year. Why is it a 6-year plan this 
year? I have it right in front of me, and I just wondered what 
happened to the 4 years?
    Ms. Gilbert. I cannot answer your question right now. I 
would like to submit the answer for the record. (See insert on 
p. 34.)
    Mr. Frelinghuysen. I think it is important to have 
strategic goals. Last year--and I have a copy of your overview 
of your strategic plan--you had 10 strategic goals and this 
year in your testimony you have 8 strategic goals. What 
happened to the other 2 goals?
    Ms. Gilbert. There has been no change in our strategic 
plan. I don't know exactly what you are referring to and I 
don't have it in front of me.
    Mr. Frelinghuysen. I am referring to the testimony from 
last year which lays out all of your goals, which includes 
reducing head injury to children from consumer products by 15 
percent. Last year the goal was 10 percent, according to the 
document here, so now it has been increased by another 5 
percent. And then preventing any increase in the death rate 
from poisoning to children, reducing the death rate from fires 
by 10 percent. So you have 8 goals and at some point in time I 
would like to know what happened to the other 2 goals.
    Ms. Brown. We may be comparing apples and oranges because 
the strategic goals have not changed and the percentages have 
not changed.
    Ms. Gilbert. One percentage has changed. The head injury 
percentage did change and that is because our staff reassessed 
head injury data and trends and what we were doing about them. 
We determined that we will be able to reduce those head 
injuries 15 percent rather than 10 percent in that same time 
period. We did change those percentages. The number of goals 
has not changed, and I am as confused as you are at the moment. 
We may have taken 2 goals and combined them and called them 1.
    Mr. Frelinghuysen. The public view is often that Congress 
does not know what is going on from year to year, but in 
reality good staff work pointed out the fact you had a certain 
number of goals last year and a diminished number this year, 
and maybe for good reason.
    Ms. Brown. I don't know anything about that, but we will 
clarify that and certainly get back to you on it.
    [The information follows:]
    Offset Folios 61 to 65 Insert here



                    measuring progress toward goals

    Mr. Frelinghuysen. More importantly than the number of 
goals is how you measure how close you have come to reaching 
those goals. I don't need a response to each of the 8 strategic 
goals, but in reality you put these out there. They are 
important to society, most particularly the children, but how 
do you actually measure success in just a brief response?
    Ms. Brown. Briefly, let's just talk about one goal, head 
injuries. We assess what are the various kinds of head injuries 
from our data. And we found baby walkers falling downstairs 
cause head injuries to children, and head injuries to children 
on the playground, and so we go through the various kinds of 
head injuries. Then we determine what can be done and what we 
can do and the amount of time needed to accomplish the result.
    For instance, with the baby walkers, industry has come up 
with a new type of baby walker that stops at the top of the 
steps, or is wider and so it cannot go down the steps, and our 
staff predicts that we can reduce head injuries to infants and 
children by a certain amount by parents buying these baby 
walkers, which are the only ones available. So we can do both 
prognostication and then we can check ourselves when our data 
comes in to see if we have in fact reduced the amount of deaths 
and injuries.
    Mr. Frelinghuysen. I thank you for that response. You are 
asking for a $1 million increase in your budget for research. 
Do you conduct this research in-house or do you contract it 
out?
    Ms. Brown. We primarily contract it out.
    Mr. Frelinghuysen. Like primarily 95 percent?
    Ms. Brown. Probably 90 to 95 percent would be contracted.

                            escalator safety

    Mr. Frelinghuysen. The Commission has been discussing since 
1996 the escalator-elevator industry regulations governing the 
space between side wall and steps. The Commission has 
petitioned to improve or update this standard?
    Ms. Brown. Yes.
    Mr. Frelinghuysen. Can you provide the committee with an 
update on your actions, and can you include any pending or 
proposed new regulations and are the companies participating 
voluntarily?
    Ms. Brown. Yes, it is just escalators, not elevators, and 
there are an estimated 5,500 escalator-related injuries treated 
yearly in hospital emergency rooms. And in May 1997 the 
Commission docketed a petition to develop a mandatory standard 
for escalators. The petitioners allege that there were 
unreasonable risks of serious injuries resulting from 
entrapment of feet and toes and other body parts in the opening 
between the stairs and sides of escalators.
    Soon after we got that petition, the Justice Department 
granted the escalator industry trade group an antitrust waiver 
so that its members could pool their funds and sponsor research 
in the area of step-to-skirt entrapment. That is the official 
name of that entrapment. This is scheduled to be completed by 
September 1999, and the CPSC staff plans to evaluate that 
petition and provide a briefing package with a staff 
recommendation later this year.
    Mr. Frelinghuysen. Who or what agency developed the 
existing standard or code? Certainly we are aware of some of 
the situations that existed and they are particularly 
horrendous and horrible.
    Mr. Medford. The existing standard is with the American 
Society for Mechanical Engineering. It is a code that is 
published with input from the manufacturers, and Commission 
staff is also participating in those activities; but more 
importantly, the codes are adopted into State and local law so 
it is the requirements that exist by law in State and local 
jurisdictions. But in order to effect safety changes, you have 
to do it through that code mechanism, which is a voluntary code 
mechanism, and that is what we have asked them to do--the 
escalator industry to do.
    Mr. Frelinghuysen. Lastly, when the study is completed,will 
it be used for revisiting the issue or rewriting the current code?
    Ms. Brown. Absolutely. That is very important.
    Mr. Frelinghuysen. That is something that we can count on 
happening?
    Ms. Brown. Yes.
    Mr. Frelinghuysen. Thank you, Mr. Chairman.
    Mr. Walsh. Thank you. Mrs. Meek.

                            Fireworks Safety

    Mrs. Meek. Thank you very much, Mr. Chairman. I am 
concerned about the year 2000 and I am sure that your agency 
has anticipated that there may be some injuries from fireworks. 
Have you looked at that and, if so, what initiatives have you 
planned?
    Ms. Brown. We know that there will be a lot of fireworks 
during the millennium celebration, and fireworks are an 
important part of our jurisdiction. We know that firework usage 
will go up, and we want to make sure that injuries don't go up. 
I am pleased to report that firework injuries is one that over 
the last 3 years have been reduced by one-third. But 8,700 
treated injuries are still too many.
    So first of all for the year 2000, we will step up our 
enforcement efforts to keep the illegal, unsafe fireworks from 
getting out to the public. Last year we worked with Customs and 
we seized 40 million illegal fireworks which can hurt people. 
Second, we are planning a major public information initiative 
on fireworks safety for the public, especially to be unveiled 
around July 4 and the New Year's celebration. The kickoff of 
that information effort will be on the Mall on July 1, 1999 and 
I invite you all to attend that, and we already have many 
partners joining with us on that safety initiative. We will get 
information out to communities in many different forms and 
variations about firework safety, and our message is: Leave the 
fireworks to the professionals, and if you do use fireworks, 
here are some safety procedures.
    Mrs. Meek. I am concerned about the hazards associated with 
escalators. I have witnessed several very traumatic accidents 
happening to elderly persons. Can you share with me some of the 
things that your agency has done in that regard?
    Ms. Brown. We have a petition docketed about the safety of 
escalators, and the industry is working on finding ways to 
narrow the skirt issue so that the side of the escalator and 
the wall--that is where people get their feet caught.
    Mrs. Meek. So many of them are so high, that is something 
that should be looked at.
    Ms. Brown. Right. Some things we can do things about, but 
certainly those horrendous injuries, elderly people and 
children, are debilitating injuries. And so that is why 
escalators are one thing that we are concerned about in trying 
to update the standard.
    Mrs. Meek. Is the research focused in some particular area?
    Ms. Brown. That is the area.
    Mrs. Meek. Thank you.
    Ms. Gall. Before we address some of those issues with 
regard to escalators, there is a jurisdictional question as to 
whether or not the Commission has authority over escalators 
that are in stores and so on, whether or not it is actually a 
consumer product.
    Mrs. Meek. What about airports?
    Ms. Gall. Anything where the escalators are in the public 
sector or Metro station or wherever, depending on whether we 
have jurisdiction over that type of product and whether it is a 
consumer product.
    Ms. Brown. That is a concern, and our general counsel 
advises me that we have reasonable grounds to assert 
jurisdiction over escalators. However, we are seeking 
additional facts from industry before we make a final decision 
on that, and we hope to have that additional information by 
this summer.
    Mrs. Meek. Thank you.
    Mr. Walsh. Thank you. Mr. Knollenberg.

                    CPSC Jurisdiction of Escalators

    Mr. Knollenberg. Thank you, Mr. Chairman. Thank you all for 
coming.
    One of my questions picks up on the escalators. I think you 
just brought it up, too, in your commentary on the jurisdiction 
issue. Nobody questions that there should be some oversight of 
escalators, and I understand that there are over 5,000 injuries 
annually associated with escalators, but I am focusing on the 
jurisdiction. If you look at the fact from the definition of a 
consumer product, if you look at it from that perspective and 
you go to the Consumer Product Safety Act, there is a 
definition which was provided which makes me question whether 
it is really within the jurisdiction of this Commission.
    Let me just read for you--and I would like to insert this 
into the record if I could because it does define the term 
``consumer product.'' It means ``any article or component part 
thereof produced or distributed for sale to a consumer for use 
in or around a permanent or temporary household or residence, a 
school, in recreation or otherwise, or for the personal use, 
consumption, or enjoyment of a consumer in or around a 
temporary or permanent household or residence, a school, for 
recreation or otherwise.'' It goes on to define the terms of 
things that are not included as well.
    It seems to me that there should be some reasonable doubt 
about jurisdiction. That isn't to say that it shouldn't be in 
somebody's oversight, but is it truly one that is reserved for 
your particular arena and--by the way, Mr. Chairman, I do want 
to submit that for the record.
    Mr. Walsh. Without objection.
    Mr. Knollenberg. And I want to focus on what is clearly a 
desire, a design to save lives injuries, et cetera, but perhaps 
it should be reserved for another agency or department.
    Ms. Brown. Congressman, let me have Jeff Bromme, who is our 
general counsel, respond to you on that.
    Mr. Bromme. Congressman, I agree with you. I believe that 
there is an area here with respect to jurisdiction where there 
is a ``cloudiness,'' you might call it.
    The statute that you quoted is the lighthouse that we will 
be following: Is it a product in use at home, school, 
recreation or otherwise? Our office has from the beginning of 
the Commission taken the position in several opinion letters 
that the Commission has a basis to assert jurisdiction over 
escalators and elevators; but the Commission, which is the 
ultimate arbiter of its jurisdiction, has never taken that 
position. One of the issues that our office is looking at 
closely is the assembling of additional and pertinent facts 
which would guide that inquiry in light of the case law that 
has been developed under our statute.
    Mr. Knollenberg. When you think about consumer products, 
you think about an item you pick up at the corner store. I 
don't know of too many corner stores that have escalators. It 
does require some analysis.
    Mr. Bromme. We agree with that.

                               Bunk Beds

    Mr. Knollenberg. Let me go on to bunk beds. I know that you 
are taking some steps to develop mandatory standards on bunk 
beds, and this is an issue which has been in the annals of 
concern for some time. This proposed rule, I understand, is one 
that, coupled with the research that is already out there, that 
there is already substantial voluntary compliance within the 
industry. The Federal Register, I think, makes reference to 
that and notes that the percentage of currently produced bunk 
beds that conform to the standard can be as high as 90 percent 
or more. This is voluntary. Many mandatory standards don't get 
to that level.
    And my concern is, just one question: Why is the Commission 
pursuing mandatory standards when they even acknowledge that 
the industry has already at least a 90-percent compliance rate?
    Ms. Brown. Yes, I can explain that. This industry is a very 
unusual industry. The major players, the big manufacturers, are 
in compliance but it is an industry where small manufacturers 
crop up all of the time. And when our compliance staff goes 
out, they continually find bunk beds that do not comply, and 
each of those is a potential death trap. There are still 10 
deaths every year to children in bunk beds, so despite the 
voluntary compliance that we have, we see the continuation, not 
the lessening by any amount, of 10 deaths to children in bunk 
beds.
    Because of the nature of the industry, being such small 
people springing up all of the time, small manufacturers, it 
was the staff's contention that a mandatory standard would 
carry more weight in this case because the voluntary standard, 
despite the compliance that we have, has not reduced the number 
of deaths. Our mission is to reduce deaths.
    Mr. Knollenberg. Would you say that it may be a case where 
the newer, smaller companies, yet experienced, are the ones 
that produce the biggest part of the problem then? For example, 
if that were the case, I would perhaps suggest that there 
should be a greater focus on new companies coming online to 
produce that kind of product. I don't mean to drive them out of 
business, but if it is the mature companies that are 
experiencing good results----
    Ms. Brown. The members of AFMA.
    Mr. Knollenberg. Maybe there is a way to focus on those 
that are new to the industry to make sure that they reach the 
levels that you insist upon. If you are hitting 90 percent----
    Ms. Brown. It is 85 to 90.
    Mr. Knollenberg. Some figures that I have show that it is 
over 90. If you are that close on a voluntary basis, we ought 
to promote aggressively, any way we can, to reflect our 
appreciation of them reaching that level, and then go after 
that area----
    Ms. Brown. That has been done by both AFMA, the furniture 
manufacturers and the industry. However, the number of small 
manufacturers who you can't even find have manufactured up to 
500,000 beds a year that don't comply.
    Mr. Knollenberg. There are no standards to oversight that?
    Ms. Brown. The kind of oversight in this case would be what 
a mandatory standard would do. In other words with a voluntary 
standard we can't impose civil penalties and we can't have 
Customs stop them at the dock if they are imported. I am a 
major proponent of voluntary standards. We have won an award 
from a voluntary standard organization for the work we have 
done with voluntary standards. We have done 4 to 1 in terms of 
voluntary standards, 4 voluntary to every mandatory that we 
have done. But the difference between that 85 to 100 percent 
may be 50,000 beds; each one of those could be a potential 
death trap to a child. I got a catalog from major department 
store that had a bunk bed advertised in it just last week and 
the bunk bed would cost $2,700 and it did not conform to the 
standards. I showed it to our staff.
    Mr. Knollenberg. I appreciate your comment, but it seems to 
me that in some respect--and don't take this the wrong way--
that good is the enemy of perfect. You want that last inch, but 
at what cost and what risk? Again, I am suggesting that maybe 
this is the focus for someone other than you, perhaps it is you 
and your Commission, but perhaps it is something that should be 
focused on differently. Maybe it is the imported products. 
Maybe it is this flowering industry with all of the new 
entrepreneurs coming on board with their product, and I think 
you should not drive them away but certainly ascertain and 
assess that arena more closely. That is what I am gathering.
    Ms. Brown. The last inch happens to be these 10 deaths a 
year. That is our major consideration: How do we reduce those 
deaths?
    Mr. Sununu. If you will yield, 10 deaths a year 
attributable to bunk beds. How many deaths a year are 
attributable to deaths that are not bunk beds?
    Ms. Brown. A lot more, but there is no way to regulate 
that. People put their children in a regular bed. We only 
regulate what is plausible and feasible in this world of 
reality. It is called ``real world.''
    Mr. Knollenberg. Just to reclaim my time----
    Mr. Sununu. Perhaps I didn't understand. You are saying you 
can make bunk beds safer, but not regular beds?
    Ms. Brown. That is correct.
    Mr. Knollenberg. I am concerned about mission creep. We 
have other areas that have greater liabilities in terms of 
producing. Yes, Commissioner?
    Ms. Gall. I don't share the Chairman's view of this 
particular issue. I think 90-percent compliance rate, 
considering other additional factors as well, is certainly well 
and above substantial compliance, given that we have a great 
number of mandatory standards where we have much less than the 
90 percent.
    For example, in the fireworks industry, a lot of product 
comes from overseas. It is cottage industry in China and we are 
happy to achieve a 56-percent mandatory standard compliance 
rate. We hope for a higher percentage and we are working toward 
more; but we are very happy with 56 percent.
    But going beyond the specifics of the bunk bed industry and 
the proposed regulation, there is a corollary issue with regard 
to bunk beds. How are we as an agency defining the term 
``substantial compliance.'' We are currently undertaking a very 
interesting debate within the Commission on this issue.
    Mr. Knollenberg. Thank you.
    Mr. Walsh. Thank you, Mr. Knollenberg. Mr. Cramer.
    Mr. Cramer. Thank you, Mr. Chairman.
    Mr. Walsh. By the way, welcome to the committee.
    Mr. Cramer. Thank you, I am happy to be here.
    I absorbed your information, Ms. Brown, and regret that I 
was not here when you made your presentation. How many 
employees does the Commission have?
    Ms. Brown. Four hundred eighty.
    Mr. Cramer. How has that changed in the last 5 years?
    Ms. Brown. Since the 1980s the staff and budget have been 
cut in half, not that our areas of jurisdiction have been cut 
at all. We have the same workload with half the staff.

                           CPSC Partnerships

    Mr. Cramer. I am interested in your partnerships that you 
referred to, the private sector partnerships, Gerber and CNA. 
How do those partnerships occur and what amounts of money do 
they assume responsibility for?
    Ms. Brown. It depends how you meet them. You meet someone 
in daily work from one of the industries and you talk to them 
and tell them about the work that we are doing, and we have the 
ability to receive gifts, and they will generally come to us 
and say we would like to do something in cooperation with you.
    Mr. Cramer. Such as the childproofing brochure?
    Ms. Brown. CNA came to us, and we do say that we love to 
work cooperatively with the industry.
    Mr. Cramer. How much has CNA contributed?
    Ms. Brown. I don't know exactly how much.
    Mr. Cramer. Is that a new partnership?
    Ms. Brown. Yes, it is. Gerber has been a new partnership. 
Companies provide different amounts. I know that it is quite 
expensive to produce these brochures.
    Mr. Cramer. So that partnership with CNA is specifically 
over that?
    Ms. Brown. Yes, they have made this booklet and they will 
help us get it out to people. And the best thing that they are 
doing, it costs a lot to get it out to the consumer, but 
consumers can get that free of charge and that will be shown in 
Parade magazine.
    Mr. Cramer. Other than the advertisement, how does the 
Consumer Information Center distribute those?
    Ms. Brown. Anybody can write to them, and we on our own get 
to the Federal agencies, the nurses, pediatricians, on our 
website. People know about this and can call us.
    Mr. Cramer. I want to congratulate you on your work, and I 
am very impressed.
    Ms. Brown. Thank you.
    Mr. Walsh. Mr. Hobson.
    Mr. Hobson. In deference to time, I submitted the following 
questions, and I won't read the whole question, but if anyone 
wants to read the record afterwards, on the bicycle helmet 
programs, on the grandparent guide--and that was Mr. Stokes' 
favorite question--on the applied product research, on rent, 
and year 2000; also, how the CPSC uses its website to promote 
safety, and on the National Omnibus 1995 Program how you have 
done so well on that.

                     Strings on Children's Jackets

    Mr. Hobson. The other question that I failed to submit--
some years ago we changed the way that children's clothes are 
made in this country with drawstrings. It was done without any 
new rules or regulations. Ms. Brown, you were able to get this 
done. Is anybody monitoring it? Are people still limiting 
themselves to the 2 inches with the drawstrings?
    Ms. Brown. We went to the industry and explained the 
problem that children were getting strangled by the drawstrings 
of their hooded garments that would get caught in elevators or 
escalators or school bus doors or playground equipment. The 
industry voluntarily changed over to hooks and eyes, snaps and 
Velcro. And in stores today you are hard-pressed to find 
anybody selling anything with a drawstring. And industry worked 
with us to get this information to remove the drawstrings from 
around their children's garments or just to tack them down and 
to only have a 2-inch one at the waist.
    We haven't got the data up to date yet because the death 
data comes to us more slowly, but I have heard of only one 
death, every death is a terrible tragedy. I read all of the 
death notices that the CPSC gets, and so far we have only 
gotten one death with a drawstring. So I think when we do get 
our data in, we are going to see a precipitous decline in 
deaths from those drawstrings, and we are monitoring to see 
what are being sold.
    Mr. Hobson. That is the result of one letter that I wrote, 
so voluntary compliance does work.
    Ms. Brown. Absolutely. I am a big proponent of voluntary 
compliance when it can work.
    Mr. Hobson. Thank you. Congratulations to both of you.

                               Bunk Beds

    Mr. Moore. The issue of bunk beds bothers me somewhat. I 
don't know where the agency is going to go with that, but to 
continuously focus on a statistic in terms of compliance I 
think goes in the wrong direction, when our aim is to try to 
reduce injuries and deaths. Even if you have 95-percent 
compliance, if you are still getting a high number of beds that 
are out of compliance, that means those beds are potentially 
unsafe. That means that you are putting a large number of 
children at risk. So you still have to look at that and say is 
there more that we can do in this particular area to protect 
these children.
    That is what it is about. It is not about substantial 
compliance. It is not saying we have 90-percent compliance, 
let's ignore 50,000 bunk beds not in compliance and a large 
number of deaths a year because we have this sizable compliance 
rate. That is going in the wrong direction. I think we need to 
be investigating in that area to find out if there is more that 
can be done.
    Mr. Walsh. Would Mr. Knollenberg like to respond?
    Mr. Knollenberg. Thank you, Mr. Chairman.
    You have areas where 85 percent is okay. On the strength of 
some of those numbers in other arenas, other areas, I wonder 
why this intense focus; it seems like it is a rifle shot on the 
bunk bed and that is a concern that I still have not heard 
anyone who spoke to justifying 80 or 85 percent. Now we want to 
justify 95, 98 percent on this little strata of product, and it 
is just not clear to me.
    Ms. Brown. There is only one question that you have to ask 
about whether to have a mandatory regulation: Will it make a 
difference?
    Mr. Walsh. Can we leave it at that? We are really getting 
our back up against the time slot, and I want to leave time for 
Ms. Kaptur before we go to the next department.
    Ms. Kaptur. I will submit most of my questions for the 
record. They have to do with the hazard research program and 
strategic goals, a little more explanation on that.

                           Imported Products

    Ms. Kaptur. I wanted to ask you about the imported items 
that are coming onto our shores in greater and greater numbers. 
This is certainly true in everything related to children, 
particularly toys. The Commissioner mentioned fireworks and so 
much of that is imported now. To what extent does your 
involvement with foreign firms shipping to our shores differ 
from U.S. firms that are already located here? Is there a 
difference in either the extent of your involvement with them? 
Is it the same? I am very interested in how you describe the 
difference between U.S.-based firms versus those located 
offshore and the goods back here.
    Ms. Brown. We tend to find that the imported goods give us 
more problems from a safety point of view. For instance, with 
the Government of China, we have sent people over trying to 
explain about our regulations and how they work. Very often 
when we do a recall, we did the recall recently of a Baby Dior 
infant carrier. It is a Swedish company and they recalled the 
product in the United States. Because we got them to recall the 
260,000 baby carriers in the United States, they did a 
worldwide recall. So we can certainly have an effect.
    We work with Customs to stop any import of products that do 
not comply with our regulations, but there still is a major 
problem with infant deaths and one that we are dealing with 
every day.
    Alan do you have anything to add? This is Alan Schoem.
    Ms. Kaptur. Do you have anything to add?
    Mr. Schoem. We hold the U.S. importers accountable for any 
product that doesn't meet our standards, so we work closely 
with the U.S. Customs Service and they will stop products that 
we evaluate after testing as being in violation. Customs will 
stop those products from coming into the country. That does not 
mean that some violative products won't get into the country. 
We hold the U.S. importer accountable, and the U.S. importer is 
responsible for recalling that product.
    Ms. Kaptur. I wanted to ask you, though, if you look at all 
children's related toys made in this country versus all 
children's related toys that are imported, what responsibility 
do you have over those imported items? You say that you hold 
the importer responsible. With your staff of 400, what percent 
of imported items can you even look at? Do you act only on the 
basis of complaints? Do you do spot checks? Do you go to Toys 
'R Us? There are warehouses of foreign goods.
    Mr. Schoem. We do all of that. We rely on other people to 
help us. Toys 'R Us, for example, has a very good program. They 
test products that they are importing into this country. Not 
only are they tested in foreign countriesbut they test them 
themselves after the manufacturer has tested them.
    Working with the U.S. Customs Service, we are using their 
resources and their investigators who have worked with us and 
they identify product which they think is suspect. They will 
look at bills of lading identifying toys coming into this 
country and they will do a screening test at the dock 
themselves or call our investigators to do a screening test if 
it looks like the product might be violative, and we send it to 
our lab and test it. In the meantime, Customs is holding that 
product at the dock or they release it under bond so it cannot 
be sold until our tests are completed.
    Sixty percent of the toys sold in this country come from 
China. Many are imported through the port of Los Angeles. We 
have an outstanding relationship with U.S. Customs in Los 
Angeles. They are very good in working with us in screening 
those products. I can't tell you that we do catch every one of 
those products. We have a limited staff and there are many 
ports in this country. But as Customs officials in other ports 
see how successful our program is in Los Angeles, they adopt 
those programs in their ports and start looking at the products 
coming in.
    Over the last year we looked at five different ports. We 
looked at the areas where imported toys are coming into this 
country and we identified five ports where most imported toys 
are coming in, and we worked with Customs at those ports to 
screen and identify violative toys. Toys are a very big program 
for the agency because children are a vulnerable population and 
are at risk for choking and death.
    Ms. Kaptur. When you classify deaths or injuries, is there 
a way of taking a look between domestic and imported product? 
Do you prepare data in that way in your agency?
    Ms. Brown. You must understand that U.S. industries have 
toys made abroad so even though you have companies based here 
much of it is made abroad. As long as we have someone to hold 
accountable, we have either the United States company who have 
made toys abroad or we have the importer who we can hold 
accountable. Or if the fireworks are made abroad or toys are 
made abroad, it is being able to hold someone accountable. 
Being able to impose civil penalties gives us some clout.
    Ms. Kaptur. How do your voluntary standards impact on 
importers?
    Mr. Schoem. The voluntary standards are met. As a practical 
matter, major retailers will not carry a toy that doesn't 
comply both with the mandatory and the voluntary standards.
    We have sent staff to China and I have gone to China and 
spoken with them about the need to comply with mandatory 
standards and the voluntary standards. What the industry has 
done is they have gone beyond some of our mandatory standards. 
We have worked with them in developing voluntary standards so 
that the voluntary standards offer an increased level of 
protection, and we will monitor performance of toys' 
compliance, and if we find that the toys are violating 
voluntary standards, we will work with the company to recall 
that toy.
    Major manufacturers of toys that are made abroad--Hasbro, 
Mattel, Fisher-Price--have very good safety programs to ensure 
that the products that they are importing comply with the 
mandatory standards. The problem is with the off-brand, smaller 
companies that don't have the same quality control as the 
Hasbros and the Mattels, and those are the companies that give 
us problems, and we target those at the docks. We have some 
companies that are repeat violators.
    Ms. Kaptur. What countries are those from?
    Mr. Schoem. China or the Far East. But we provide the U.S. 
Customs Service with a list of violators and they will look for 
those companies' products.
    Ms. Kaptur. I thank you very much for those answers. We 
will have some follow-up questions in the record on that. Thank 
you, Mr. Chairman.
    Mr. Walsh. Thank you, Ms. Kaptur.
    That ends the portion of the hearing regarding the Consumer 
Products Safety Commission. I would like to thank Chairman 
Brown for her presentation, and the Commissioners and staff, 
and thank you for getting all of our members out today. It is a 
remarkable turnout. We will take a small recess and then we 
will have the Consumer Information Center.
    [Recess.]
    [Questions and answers from the first panel follow:]
    Offset Folios 91 to 237 Insert here



                                        Tuesday, February 23, 1999.

                      CONSUMER INFORMATION CENTER

                               WITNESSES

TERESA NASIF, DIRECTOR
BILL EARLY, DIRECTOR OF BUDGET FOR THE GENERAL SERVICES ADMINISTRATION

                 WELCOME TO CONSUMER INFORMATION CENTER

    Mr. Walsh. The hearing will come back to order, and we have 
used up a lot of our allotted time already so I will defer 
immediately to Teresa Nasif, Director of the Consumer 
Information Center, and allow her to make an opening statement 
which, if she is prepared to summarize, we would be delighted. 
Your entire statement will go into the record.

                           Opening Statement

    Ms. Nasif. Thank you, Mr. Chairman. Thank you for the 
opportunity to present the fiscal year 2000 budget request for 
the Consumer Information Center.
    With me today is Bill Early, the Director of Budget for the 
U.S. General Services Administration. Mr. Chairman, we have 
been experiencing a revolution in the ways that Americans 
obtain and use information. During much of CIC's history, the 
public got Federal consumer information primarily by writing 
for printed publications from our facility in Pueblo, Colorado. 
Just 4 years ago, CIC was totally a mail order operation. All 
orders were received by mail and all information was 
distributed by mail, but with the dominance of computers and 
their emphasis on instant access to information, Americans are 
now relying less on printed materials, especially those ordered 
by mail.
    To meet this challenge, CIC has reinvented the way it 
serves the public, moving from a concentration on the printed 
word to a larger vision of a central reservoir of information 
that can be assessed in a variety of ways. CIC continues to 
make it easy for citizens to get Federal information.
    Specifically, last year we improved our toll free telephone 
ordering service and at the same time added a publication 
ordering system to our expanded and improved website. Consumers 
can now place orders by calling the toll free number, 1 (888) 8 
PUEBLO, while those with Internet access can visit the CIC 
website at www.pueblo.gsa.gov. They can then view the 
information online, copy it to their home computers or use 
CIC's secure online ordering system to place credit card orders 
for printed copies of the information. We have the full text of 
approximately 500 publications available online, along with 
Federal agency recalls, special notices, consumer news and 
links to consumer sites in the Federal and private sector.
    Reflecting the Nation's new information environment, CIC's 
publication distribution has decreased from 8.3 million in 
fiscal year 1997 to 7.6 million in fiscal year 1998. During the 
same time, page accesses to CIC's website increased from 4 
million to 6.5 million and CIC's toll free telephone system 
received nearly 300,000 requests.
    We recently had a very dramatic example of how Americans 
are now choosing to obtain CIC information. In the February 7th 
edition, Parade magazine, mentioned an FDIC publication 
available from CIC and they listed the written address, and the 
toll free number and our website address. That is the first 
time that Parade has agreed to give all three methods of 
ordering. In the week following this Parade article, there were 
3,500 people who chose to write for a copy of the book. There 
were 14,000 who picked up the phone and ordered a copy of the 
book, but there was an increase of 100,000 accesses to our 
website the week following, and it demonstrates that we are 
successfully fulfilling our mission mandate in the new 
information environment. Throughout any program transition, our 
goals and objectives remain focused on delivering to the public 
useful and reliable government information.
    In keeping with the goal of delivering the best government 
consumer information, in fiscal year 1998 we updated and 
released the 1998-99 Consumer's Resource Handbook. The Handbook 
is a prime example of government empowering individuals to 
solve their own problems and answer their own questions by 
providing them with the best and most direct sources of 
assistance.
    Published continuously since 1979, the Consumer's Resource 
Handbook is one of the most popular consumer documents ever 
issued by the government. We also produce the Consumer 
Information Catalog which lists hundreds of other popular 
titles on such topics as money management, health and Federal 
programs and benefits. Today I am pleased to present our newly 
redesigned Consumer Information Catalog, of which we have 
copies in the kits I will pass around. The kits also have 
various other publications of interest. The new catalog was 
just released this last Tuesday, and is now a 4-color 
publication with new graphics and new layout. We have easier 
ordering instructions and I think it is going to make it easier 
for people to order our information.
    In conclusion, CIC will continue to meet the information 
challenges offered by the new century and our accomplishments 
will be measured by our successful research and identification 
of valuable Federal information, our media and our marketing 
programs, our centralized publication distribution system in 
Colorado and our widely acclaimed website.
    Mr. Chairman, we trust that the committee will look 
favorably upon our budget request for the fiscal year 2000, and 
I will be pleased to answer any questions.
    [The information follows:]
    Offset Folios 243 to 246 Insert here



                        DEVELOPING PUBLICATIONS

    Mr. Walsh. Thank you very much for a very straightforward 
presentation.
    Who edits or develops these reports and checks them for 
content and veracity?
    Ms. Nasif. All of the publications listed in the Catalog 
are written by the particular Federal agency with expertise in 
that subject area. There are two publications we develop 
ourselves and one is the Consumer's Resource Handbook and the 
other is the Guide to Federal Government Sales. It was mainly 
because we could not persuade any Federal agency to take the 
lead on the latter that we decided to do it ourselves. Other 
than those two produced by CIC, it is the Federal agency with 
the expertise in a given area who does the developing.
    We also have a cooperative publishing program where Federal 
partners will work with a private sector counterpart in a 
cooperative fashion to develop publications, but it is the 
Federal agency who has the final word on the content.

                     Audit of Publication Accuracy

    Mr. Walsh. Has anyone ever requested or has there ever been 
implemented an audit on the accuracy or clarity or efficacy of 
these information brochures?
    Ms. Nasif. I think there is an ongoing audit evaluation 
done by the agencies producing the information. Whether it is 
the National Cancer Institute or the Food and Drug 
Administration or the EPA or FDIC, they themselves have the 
wisdom and the knowledge and the know-how as to what is best to 
put in them and so we trust that level of expertise, and 
basically if it is produced by a Federal agency, we take it and 
run with it.
    Mr. Walsh. I have some budget questions which I will submit 
for the record, and I will defer now to Mr. Mollohan.

                       Welcome From Mr. Mollohan

    Mr. Mollohan. Thank you, Mr. Chairman. Welcome to the 
hearing. It is good to see you again. I appreciate your 
reminding me that I chaired the committee.
    Ms. Nasif. It was the Spring of 1991, so for the fiscal 
year 1992 budget. It seems just like yesterday.

                           Sources of Funding

    Mr. Mollohan. In many ways it does. I note that you are 
funded from a number of different sources--annual 
appropriations, reimbursements from Federal agencies, user 
fees, private sector gifts--and all of that goes into your 
Consumer Information Center Fund; is that correct?
    Ms. Nasif. That is correct.
    Mr. Mollohan. The trend line suggests that in recent years 
your carryover has decreased significantly; and the information 
I have is in 1998 you carried forward $1.087 million, which 
decreased to $656,000 in 1999 and $230,000 in the year 2000. At 
that rate you won't have any carryover soon. Do you agree with 
that trend line, and what are the implications of that trend 
line with regard to the necessity for you to have appropriated 
funds?
    Ms. Nasif. This is an issue of prime concern to us and one 
we will be addressing in the budget request for 2001, which 
will be later this Spring. At that time it is our intention to 
evaluate all the sources of our funding as well as our level of 
administrative expenses to implement a strategy to ensure that 
we have adequate funding for the work that we need to 
accomplish in the year 2001. But I will say that the fund has 
truly been a blessing for the Consumer Information Center. When 
you established the fund in 1983 and gave us the flexibility to 
use user fees from the public----
    Mr. Mollohan. I understand that, but I'm not sure that 
answers my question?
    Ms. Nasif. It means that we are going to have to do some 
hard thinking when later this Spring we----
    Mr. Mollohan. What is your thinking now when you project 
out the impact of this trend line on the necessity of your 
needing increased appropriation funding to meet your budget?
    Ms. Nasif. That is certainly a possibility and one that 
occurred about 8 years ago for fiscal year 1992, the year that 
you chaired, as a matter of fact. We came in that year for an 
increase of $400,000, because the fact was that while it is 
wonderful that we could use the user fees and the unobligated 
balances, our administrative expenses had outstripped the level 
of income. Similarly, now we have an appropriation of $2.6 
million and administrative expenses of $3.4 and that shortfall 
is covered by these other sources of revenues.
    So in preparing for fiscal year 2001, an increase of 
appropriation is one possibility. Increased use of 
reimbursements from the agencies is another. Strategies to try 
to increase user fees is another, and certainly trying to 
control and reduce administrative expenses is another.
    Mr. Mollohan. Are you looking at all of these?
    Ms. Nasif. Yes, we are.
    Mr. Mollohan. Are you developing strategies to increase 
funding from all of those areas potentially?
    Ms. Nasif. We are looking at all the possibilities because 
we are very aware of the $230,000 balance, whereas we were 
using $431,000 and $426,000 in fiscal years 1999 and 2000.

                    Changes In Acquiring Information

    Mr. Mollohan. Regarding the shift from the traditional ways 
of aquiring this information, (impressive in one way but 
perhaps ominous in another), as you described in your opening 
remarks of using Parade--you had 3,000 mail responses, 14,000 
phone and 100,000 website hits?
    Ms. Nasif. Accesses.
    Mr. Mollohan. And you do charge for the mail and phone, but 
not the website?
    Ms. Nasif. If the phone order comes in as a request for a 
printed copy----
    Mr. Mollohan. You charge for that. If that same information 
is pulled off the Web, the person has it free?
    Ms. Nasif. That is right. It was an interesting dilemma for 
us back in 1995 when we were looking at our mandate to 
disseminate information to the public: Do we put up the full 
text of every publication? We knew that once we did that, the 
demand for the printed publications would decrease and that, in 
fact, has happened and yet we are achieving the mission mandate 
in ways not possible just a few years ago.
    Mr. Mollohan. I have some questions that I will submit for 
the record in cooperation with the Chairman's time constraints.

                          relationship to gsa

    Mr. Walsh. Thank you. Mr. Wicker?
    Mr. Wicker. What is your relationship with GSA?
    Ms. Nasif. It is our administrative parent agency. We were 
established by executive order in 1970, and it was a logical 
place for us to reside because GSA provides services to Federal 
agencies. And it was felt that the Consumer Information Center, 
by assisting agencies to promote and develop and distribute 
information, was an additional administrative service as well. 
So we have been in GSA since 1970 and they provide us with 
administrative support and counsel and guidance, and it has 
been a good home for us for the last 30 years.

                    maintaining current information

    Mr. Wicker. You are more or less a clearinghouse. Do you 
have any mechanism for maintaining the currentness of the 
information or do you simply rely on the various agencies to 
provide you with current information?
    Ms. Nasif. We do rely on the agencies, but our Catalog 
comes out 4 times a year so every 3 months we review the 
content of the publications and the demand and the stock, and 
we are able to continuously review the offerings of the printed 
materials.
    Also now that we have information online, agencies can 
update their information at any time. The Consumer's Resource 
Handbook which we manage, as telephone numbers or any kind of 
information change, can be updated continuously, so the 
information online in some ways is more up to date than the 
printed information.
    Our Catalog comes out 4 times a year, but if an agency 
says, ``Pull that publication, it is no longer accurate,'' we 
can stop distribution of it very quickly.
    Mr. Wicker. Thank you.
    Mr. Walsh. Okay, Mr. Wicker. Mr. Sununu?

                           sources of funding

    Mr. Sununu. Thanks for coming in. You talked about sources 
of funding. Obviously there is an appropriation request of $2.6 
million, and how much do you receive for reimbursements and how 
much do you receive from private sector contributions as well?
    Ms. Nasif. Reimbursements that we receive from the Federal 
and private sector partners will amount to about $3 million.

                               user fees

    Mr. Sununu. Combined?
    Ms. Nasif. Yes. It is outlined on page 6 of our 
justification. Also, user fees are charged to the public when 
they order free publications. Last August it was increased to 
$2; in fiscal year 1998 we received $229,000, and we are 
projecting user fees of $350,000 in 1999 and the year 2000.
    Mr. Sununu. Two dollars to whom?
    Ms. Nasif. When the public receives our Consumer 
Information Catalog and they decide to order any number of free 
publications, there is a user fee. It is $2, and they can order 
as many free publications as they want for that $2. This 
revenue goes into the CIC Fund to help offset administrative 
expenses.
    Mr. Sununu. So it is a one-time fee for access to all of 
the free publications?
    Ms. Nasif. That is correct.

                           sales publications

    Mr. Sununu. What about the ones with a 50-cent fee 
associated with them?
    Ms. Nasif. There is no user fee attached if they ordered 
sales publications.
    Mr. Sununu. So there is a $2 charge for the free 
publications.
    Ms. Nasif. It is a good value. You can get as many free 
publications as you would like.
    Mr. Sununu. That is a good value. How do you decide which 
are free and which are--I saw 50 cents. Do they vary all over 
the map?
    Ms. Nasif. Yes. When we go to the publishing agency it is 
up to them whether they would like to offer the information 
free to the public. If that is the case, they are assessed the 
postage and handling costs borne by the Pueblo, Colorado 
facility. So an agency, if they want to offer something free, 
will pay for the printing and also pay for the postage and 
handling. If an agency doesn't have that much money available 
to support the publication, they can also make it a GPO sales 
document where GPO sets the price of the publication and those 
typically are the books priced at $1 or $2 in the Catalog.
    Mr. Sununu. So the agency puts up the cost for distribution 
and printing or GPO sets a price for the publications.

                          50-cent publications

    Ms. Nasif. Yes, and a third possibility is if they have 
some money available for printing but do not have the money to 
pay for the distribution, it goes into the 50-cent program 
where we collect 50 cents from the consumers to cover the 
postage and the handling.
    Generally speaking, when there is no charge for the 
publication, more copies are distributed. So it is an agency 
decision that they make according to its budget.
    Mr. Sununu. In practice is it less complicated than it 
might sound here? Is it efficient?
    Ms. Nasif. It probably does sound complicated, but we give 
agencies lots of choices when they join our program, and we 
give them choices according to the impact on their budget. They 
also have the choice to give us information that will go 
straight to our website.

                              web accesses

    Mr. Sununu. How many Web hits were there?
    Ms. Nasif. There was an increase of 100,000 Web accesses 
the week following the Parade mention. Normally we would 
receive 150,000 a week and that week we got 250,000.
    Mr. Sununu. There is a number here, 6.5 million page 
accesses.
    Ms. Nasif. That is for the entire year. A hit would be each 
visit. A page access is more conservative.
    Mr. Sununu. Is a page literally a page?
    Ms. Nasif. It is. Whereas a hit, if it was a graphically 
rich page, might count as 3 or 4 or 5 hits.
    Mr. Sununu. Good. That is more accurate.

                             cic web server

    Do you keep your own server, your own website?
    Ms. Nasif. Yes. It is maintained by GSA, which is one of 
the benefits of being part of a larger agency.
    Mr. Sununu. Where does it physically reside?
    Mr. Early. It is in our GSA building here in Washington, 
DC.
    Mr. Sununu. Have any concerns been raised about its year 
2000----
    Ms. Nasif. It is year 2000 compliant.
    Mr. Walsh. Thank you. Mr. Freylinghuysen.

                      members' imprinted catalogs

    Mr. Frelinghuysen. Good afternoon. I will submit some 
questions for the record but let me compliment you on the 
inclusion of Mr. Walsh's mugshot in the pamphlet.
    Mr. Walsh. I would have done that, too, had I seen it.
    Ms. Nasif. It is in your kit. It is a letter that we send 
every year to all the members offering them the Consumer 
Information Catalog and copies of the Consumer's Resource 
Handbook. And because Mr. Walsh had the wisdom of imprinting 
our Catalog, we included a copy of his Catalog in each member's 
package.
    Mr. Walsh. Yes, I did that at last year's hearing.

                medical privacy and credit card hazards

    Mr. Frelinghuysen. Thank you for doing it for me as well, 
and I will submit for the record my continuing interest in 
whether you have updated materials that relate to medical 
privacy issues, because I think last time your pamphlet was 
based on the Federal Privacy Act of 1974, which I assume there 
may have been some changes to that, and also a question 
relating to how current your pamphlet is relative to credit 
card hazards at home and abroad. I am sure those are two 
subjects that you spend some time on.
    Ms. Nasif. Yes. Thank you.
    Mr. Frelinghuysen. Thank you.

                          rent charged by gsa

    Mr. Walsh. Thank you. Mr. Hobson.
    Mr. Hobson. I will submit the questions that I have for the 
record, but I am concerned about your share of the budget which 
looks like about an 18-percent increase over 3 years, and I 
have some things on rent and print costs. But I also have a 
question for Mr. Early, since he is here on a previous 
testimony and since GSA is here and I want to send some 
messages to GSA anyway.
    As I understand it, the Consumer Product Safety Commission 
got an increase of $240,000 in their rent this year from GSA, 
which was imposed on them after they had gone to OMB, and it 
doesn't include any increase in space. They had already 
increased rent costs $126,000, so the total rent increase by 
GSA to the Consumer Product Safety Commission was $366,000. I 
don't understand why that is, why that happened, why there is 
not an increase in space. So I am sending a message to GSA 
ahead of time: I think that agency needs to act more like a 
private sector agency.
    I don't understand how you can increase somebody's rent 
when they didn't get any more space and you don't justify it to 
them. Somebody renegotiated for them. This is a message that I 
tried to send a couple of years ago and continue to try to send 
about GSA and the outlandish rents that they charge and how 
they charge them. The whole process is antiquated and needs to 
be reviewed and updated. So, there is a message. You don't have 
to answer the question now unless you care to.
    Mr. Early. I will look into it and get more information for 
you.
    Mr. Hobson. You understand the $240,000 increase with no 
increase in space and they already increased their rent in 
their proposal by $126,000.
    Mr. Early. In regard to your comment about trying to 
modernize the rent-setting process, GSA has been doing that in 
the last year, and some of the results are these dramatic 
changes for some selected agencies. GSA is charging commercial 
equivalent rent for the space. The rates have been capped for a 
number of years.
    Mr. Hobson. Someone needs to look at the rent for 
commercial space and the rent for GSA. When people come in 
here, they are paying high cost per square foot for space, and 
many times they tell you that they don't have any choice. They 
would like to go elsewhere. They have the idea, or it is said 
to them that they don't have any choice. I have a lot of 
concerns about the operation of GSA.
    Mr. Early. We will look into that.
    Mr. Hobson. Thank you, Mr. Chairman.

                            other questions

    Mr. Walsh. Thank you, Mr. Hobson. Are there any other 
questions of our witness?
    Mr. Mollohan. I have some for submission.

                      questions from the chairman

    Mr. Walsh. I also have questions that we will submit for 
the record, and I thank you very much for your testimony.

                               conclusion

    Ms. Nasif. Thank you.
    Mr. Walsh. We will take a very brief recess and then we 
will be ready for the IG for FDIC.
    [Recess.]
    [Information received from panel two follows:]
    Offset Folios 264 to 310 Insert here



                                        Tuesday, February 23, 1999.

                 FEDERAL DEPOSIT INSURANCE CORPORATION

                                WITNESS

GASTON GIANNI, INSPECTOR GENERAL

                            Opening Remarks

    Mr. Walsh. Our final panel this morning is on the budget 
for the Office of Inspector General for the Federal Deposit 
Insurance Corporation. The committee welcomes Mr. Gaston 
Gianni, the Inspector General.
    The budget request for the Office of Inspector General for 
fiscal year 2000 is $33,666,000, a decrease of $1 million. Mr. 
Gianni, if you would like to summarize your statement, we will 
include your entire statement in the record, and feel free to 
introduce your capable staff.
    Mr. Gianni. Thank you. To my right is Pat Black, my 
counsel, and to my left, your right, is Rex Simmons who is my 
Assistant Inspector General for Management and Policy.
    It is a pleasure to be here with you today and I will 
summarize my statement. I appreciate the opportunity to present 
the Federal Deposit Insurance Corporation Office of Inspector 
General's fiscal year 2000 appropriation. This is our third 
time being an appropriated office, and we are requesting $33.7 
million or $1 million less than our fiscal year 1999 budget. 
This is a reduction of about 2.9 percent. Like prior FDIC OIG 
budgets, the funds will be derived from the Bank Insurance 
Fund, the Savings Association Insurance Fund, and the FSLIC-RTC 
Fund. OIG, along with the Corporation, is continuing along a 
downsizing plan.
    In January 1996, OIG had 370 staff. In addition, we had 
approximately 150 contractor equivalent staff to supplement our 
work.
    Our proposed funding is for 231 staff in fiscal year 2000 
and this level is less than half that for fiscal year 1996. 
During fiscal year 1998, OIG work resulted in $50.7 million in 
total or actual monetary benefits to the Corporation. Also 
during this period we made 165 nonmonetary recommendations to 
improve the controls and operations of the Corporation. We 
opened 102 new criminal investigations and closed 133 cases. 
Our investigations resulted in 26 indictments, 21 convictions, 
53 referrals to the Justice Department, 9 employee disciplinary 
actions and 3 contractor actions.
    As you know, FDIC has enjoyed a long history of success 
from a wave of bank failures of the Great Depression to 
managing the failure over 1,600 depository institutions during 
the period from 1980 through 1994. The Corporation has provided 
protection for bank depositors. While the Banking Insurance 
Fund reported net operating losses of $25 billion from 1988 to 
1992, currently BIF and SAIF have accumulated the largest 
reserve in history, approximately $39 billion.
    Given the overall stability of the banking system in more 
recent years, FDIC is now shifting its focus to monitoring and 
assessing the existing and emerging risks to the insured 
deposit system. We continue to work in partnership with the 
Corporation to address these risks.
    Our work is concentrated in the following areas: Y2K 
issues, supervision of insured institutions, maximization of 
returns from failed institutions, oversight of contracting 
activities, and carrying out the FDIC mission with a downsized 
staff.
    In addition, we will continue our partnership with the 
General Accounting Office for conducting the Corporation's 
annual financial audit statement and our partnership with other 
financial regulatory IGs to coordinate our work on Y2K issues 
and to review how Federal financial regulatory agencies 
coordinate their respective work.
    Also, we will continue to monitor the implementation of the 
Corporation's strategic and annual plans prepared in accordance 
with the Results Act. In addition, we will continue to build on 
our success in proactively providing management evaluation 
services to the Corporation.
    Before I close, I would like to turn to the internal 
operations of my office. I am committed to continuously 
enhancing our effectiveness and our efficiency. Towards that 
end, we have initiated a number of efforts to better ensure 
that we meet the goals laid out in our strategic and annual 
performance plan.
    In closing, I want to thank the subcommittee for its 
support of our operations and I look forward to working with 
you and the subcommittee during the coming year. I would be 
happy to answer any of your questions at this time.
    [The information follows:]
    Offset Folios 316 to 332 Insert here



                        independence of the oig

    Mr. Walsh. Thank you very much. As you mentioned, this is 
the third year that your budget was appropriated as opposed to 
being approved by the FDIC Board. The idea was to provide you 
with more independence. Can you confirm that is happening?
    Mr. Gianni. Yes, sir. When I first arrived here, we 
prepared and submitted our budget for approval by the 
Corporation. At my confirmation hearings in the Senate, the 
Senate Banking Committee asked me to look into this matter. All 
of the presidentially appointed IGs had greater control over 
their budgets. So working with OMB we started a process whereby 
we now come to the Congress to have an annual review of our 
budget. And I think it is working nicely.
    Mr. Walsh. How would you say that we might be aware of the 
difference in your status?
    Mr. Gianni. In one sense, it takes my office out of direct 
Corporation control and influence. We now have an independent 
review of our budget request by Congress; whereas if my funds 
were totally under the control of the Corporation, one could 
make the case that I was less independent and that my decisions 
were being influenced because I was trying to placate the whims 
of the Corporation.

                              oig staffing

    Mr. Walsh. Your budget proposal indicates a total number of 
staff as 231. That is a reduction of 10. Following the merger 
of the Resolution Trust Corporation employees with FDIC in 
1996, the office had been staffed to 370. How has your workload 
changed from 1996 to justify such a significant reduction in 
staff levels?
    Mr. Gianni. At the time of the merger, we had a lot of 
liquidation work carried over from the RTC where we were trying 
to manage and sell the assets from the failed institutions. 
That work has come down substantially. The Corporation had 
about $4 billion in inventory at the present time. We are still 
doing some work in those areas, but that is where most of the 
work has come down.
    In addition, during that time we had a lot of work 
reviewing contracts or legal fee service bills from law firms 
helping the Corporation and the RTC wind down the failed 
institutions. We had a backlog of work in this area that has 
been completed. Now I think our work is more stable and we are 
able to spread our remaining resources a little more evenly 
over the Corporation to help ensure that things are going in 
the right direction.
    Mr. Walsh. Do you have any concern at all that the 
reduction in funding and personnel places any risk, any 
additional risk on the safety and soundness of the FDIC 
Corporation?
    Mr. Gianni. At the present time, I feel comfortable with 
the staffing and the funding that we have been able to request.

                               Y2k Issues

    Mr. Walsh. Y2K. In your capacity as Inspector General, do 
you agree with the assessment of the Chairman of the FDIC that 
97 percent of the banking industry is on schedule?
    Mr. Gianni. Let me see if I can expand on that. Certainly 
the Corporation is in the process of visiting banks. This is a 
very critical stage of the testing phase which will carry on 
through the end of March.
    We are monitoring that activity, and the Y2K initiative is 
the highest priority within the Corporation. As we monitor the 
Corporation's activities, we are identifying areas where we 
think the Corporation can strengthen its process and we are 
providing that information to the Corporation as fast as we can 
so that they can take action on it. They have been very 
supportive of that process.
    Mr. Walsh. You don't want to say 97 percent?
    Mr. Gianni. I can't attest to the 97 percent figure.
    Mr. Walsh. Would you guess that it is higher or lower than 
97 percent?
    Mr. Gianni. Given what we are seeing in our work, it is the 
best estimate the Corporation has at the present time. If I 
were to guess, I would say that it might be a little bit lower 
but I can't quantify that.
    Mr. Walsh. Ninety percent?
    Mr. Gianni. I can't quantify based on what we have. We are 
still going. The process is still going, and the Corporation is 
visiting these institutions on a regular basis. We just think 
that they need to do a little bit of strengthening of their 
process.
    Mr. Walsh. In the event that a dispute arose in the middle 
of this year over how far along they were between you and the 
FDIC, how would you make the Congress aware of that?
    Mr. Gianni. First of all, we would bring that issue to the 
Corporation and at the same time we would bring that to the 
congressional oversight committee monitoring Y2K.
    Last year we had testimony before the House Banking 
Committee on Y2K issues, and I understand that they might have 
another hearing as the year progresses, and we will be willing 
to participate in that process.
    Mr. Walsh. I have several other questions that I will 
submit for the record.
    Mr. Mollohan.
    Mr. Mollohan. Mr. Chairman, I would like to especially 
welcome Mr. Gianni to the hearing today. He is from Weirton, 
West Virginia, one of the outstanding communities in my 
district.
    Mr. Walsh. A West Virginian.
    Mr. Mollohan. He still has a lot of relatives who live 
there.
    Mr. Gianni. And they are voters.
    Mr. Walsh. Great wisdom in West Virginia legislators.

                               Audit Plan

    Mr. Mollohan. How do you choose your targets for audits and 
reviews? Do you have some way of prioritizing them?
    Mr. Gianni. We have what we call a risk focus, and on an 
annual basis we review all areas within the Corporation to 
decide which areas we think present the most risk and whether 
they have been looked at in recent periods of time, 3 to 5 
years. And so given that, we come up with an inventory. It is 
called our annual work plan. As part of that process we reach 
out to the Corporation and invite them to make suggestions for 
potential audit areas.
    Once the plan is put together, we distribute it to the 
Corporation and that then forms the basis for deciding which 
areas we review. I want to make sure that our resources are 
spread across the organization and into major areas. And so we 
have the information technology team that looks at information 
technology issues. We have a team that focuses in on 
supervisory, bank supervision and consumer affairs type issues. 
We have a team that focuses in on contract administration, and 
asset liquidation is another area. So we kind of spread our 
resources across the Corporation to give us some degree of 
comfort and to provide some value back to the Corporation.
    Mr. Mollohan. In keeping with Mr. Chairman's desire to move 
this hearing along, I ask to submit my questions for the 
record.
    Mr. Walsh. Without objection.
    Tom, did you want to make a request of order?
    Mr. DeLay. I would like to go out of order because I have a 
meeting with the Speaker in about 10 minutes.
    Mr. Walsh. If there is no objection, and I don't anticipate 
any.
    Mr. DeLay. Thank you. Nice to meet you, sir.
    Mr. Gianni. Good afternoon.
    Mr. DeLay. I am very interested in follow-up with the 
question that Alan is talking about. When you look to begin 
your work plan, do you look into actions by the FDIC that they 
may have taken that are either not in their statutory authority 
or beyond what the law gives them authority to do?
    Mr. Gianni. Up to this point in time, we have not looked 
into any situation like that. When these situations come to our 
attention, obviously we try to work that into our plan.
    But at this point in time, and in fact you can correct me 
if I am wrong, I don't believe that we have identified any of 
those type situations.

                              Legal Claims

    Mr. DeLay. I am going to help you, because it has come to 
my attention and I want to bring it to your attention, that the 
FDIC may have made decisions to pursue legal claims against 
private individuals which the FDIC knew were not likely to 
succeed on their merits. How common is it for the FDIC to 
pursue claims against a person or a company when both the 
FDIC's outside and internal counsel conclude that the suit has 
only a marginal, at best, chance to succeed?
    Mr. Gianni. That seems to fit outside the norm of what the 
current decisionmaking practices are within the Corporation.
    We are in receipt of your request in this particular area, 
and did like to make several points. Ordinarily, when a matter 
is in the judicial system, litigation, most IGs don't get 
involved in the litigative process. However, in this particular 
case, we have asked the Corporation to provide us information 
so that we can begin to assess the decisionmaking process 
leading up to going into court.
    At this point in time, we have not received any of that 
information however, the Corporation is pulling that 
information together.
    Mr. DeLay. Is it not the case for FDIC in making that 
decision they have basically two criteria before proceeding: 
One is the likelihood of success in bringing litigation and the 
other is cost effectiveness?
    Mr. Gianni. I believe the first decision is whether they 
think there is some criminality or merit in the matter. Then 
they consider the cost effectiveness of pursing the matter as 
the second part.
    Mr. DeLay. While you are looking at this, and obviously you 
cannot answer my question today but you can provide it for the 
record, can you also answer the question of how many times has 
the FDIC made this kind of decision, in what specific suits 
they have made a decision this way, and what has been the 
FDIC's rationale for taking those kinds of suits, if you could?
    Mr. Gianni. We plan to take the period of time in which 
this decision was made and making a comparison with other 
decisions during that period.
    Mr. DeLay. And in doing this, you would find if in this 
case the FDIC has violated its own internal policy guidelines?
    Mr. Gianni. Right.

                          FDIC Legal Authority

    Mr. DeLay. It has also come to my attention, and it is 
referenced in the letter that I sent you, that the FDIC may be 
involved in a new method of procedure in this administration, 
and that is taking one action to affect another action that has 
nothing to do with FDIC authority.
    Has the FDIC done this in the past, and how many times has 
it done it? Is this a new policy by this administration of 
bringing a suit against a person or a company in order to 
affect something that is way outside in some other department, 
some other agency? In other words, to bring pressure on that 
individual or company to make a decision that has nothing to do 
with the oversight or the authority of the FDIC?
    Mr. Gianni. I am aware of the concern surrounding the 
situation. At this point in time, I have no information to 
answer the question, but we certainly are going to look into 
that.
    Mr. DeLay. I am glad to hear that. Thank you, Mr. Chairman.
    Mr. Walsh. Thank you, Mr. Delay. Mr. Wicker?
    Mr. Wicker. No.
    Mr. Walsh. Mr. Sununu.
    Mr. Sununu. I will submit any questions I have in writing.
    Mr. Walsh. Thank you very much.
    Mr. DeLay. By the way, I have other questions for the 
record.
    Mr. Walsh. Without objection. Mr. Frelinghuysen.

                        Know Your Customer Rule

    Mr. Frelinghuysen. The Members of Congress need to know 
about the proposed, so-called ``Know Your Customer'' rule. I am 
not sure that we need to dwell on it, but all hell has broken 
loose. I assume that you have an opinion and some involvement, 
perhaps not in developing the rule, but perhaps reacting to it.
    I have a stack of e-mails here from people saying, What is 
going on? This is, I think, a concern to our committee and to 
many constituents. I would like a response.

                              Online Banks

    Secondly, I would like to know, since I understand you have 
approved the creation of some new online banks. What does that 
mean in terms of FDIC oversight? I will put a question in the 
record as to that point as well.
    Mr. Gianni. We would be happy to answer those.
    Mr. Frelinghuysen. Thank you, Mr. Chairman.

                           Know Your Customer

    Mr. Sununu. Mr. Chairman, if I might ask, I would be 
interested to hear at least a brief response to those two 
questions.
    Mr. Gianni. As you are aware, the ``Know Your Customer'' 
has caused a high degree of interest within our country. The 
Corporation has received unprecedented response to that. I 
believe the last count was over 25,000 respondees to it.
    I have not looked at the proposed rulemaking. As I 
understand it, many of the regulatory agencies now are of the 
opinion that they are going to rethink how that regulation 
should be implemented from a standpoint of what they were 
trying to achieve. There might have been some problems on the 
``how''; the ``what'' they were trying to achieve is certainly 
to implement the Bank Secrecy Act provisions. So now everybody 
realizes they have to go back and rethink how they are going to 
accomplish those provisions.
    Mr. Sununu. What is the next step for the Corporation?
    Mr. Gianni. I believe that the comment period ends in the 
middle of March. Once that happens, the Corporation will go 
back--and actually this is larger than just the Corporation. 
They will be working with their fellow regulators in the Fed, 
OCC and OTS to kind of figure out the next step on this.
    Mr. Sununu. It is their intent to take into consideration 
all of these comments?
    Mr. Gianni. Yes, sir.
    Mr. Frelinghuysen. Mr. Chairman, I do think that the FDIC 
needs to get back to us on the Hill in a more formal manner and 
maybe lay out some steps. We obviously have a lot of anger out 
there and logistical problem in terms of a timely response to 
our constituents. And, of course, if there is no timely 
response from you, we can count on a lot more angry letters 
being generated. Thank you.
    Mr. Walsh. This hearing is adjourned.
    Mr. Gianni. Thank you, Mr. Chairman.
    [Questions and answers received from panel three follow:]
    Offset Folios 349 to 394 Insert here



                                      Wednesday, February 24, 1999.

          U.S. CHEMICAL SAFETY AND HAZARD INVESTIGATION BOARD

                               WITNESSES

PAUL L. HILL, JR., PH.D., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CHRIS WARNER, GENERAL COUNSEL
DR. PHYLLIS THOMPSON, CHIEF OF STAFF

                     Opening Comments of Mr. Walsh

    Mr. Walsh. The hearing will come to order. We welcome the 
Chemical Safety Hazard Investigation Board this morning. First 
up will be Mr. Paul Hill, Dr. Hill.
    Budget request is $12.5 million and represents a $6 million 
increase above the 1999 appropriated level.
    I should note at this point that the Chemical Safety Board 
operates pursuant to a unique provision in the Clean Air Act 
which requires that the board simultaneously submit its budget 
request to Congress and the OMB. Although interpreted 
differently by OMB, the board believes this statute does not 
afford OMB the opportunity to change the request it submitted 
to Congress.
    Nevertheless, just to clarify any potential confusion on 
this issue, budget documents submitted to Congress by OMB has 
listed the Board's budget request at just $7.5 million, an 
increase of $1 million above the 1999 spending level.
    Testifying this morning on behalf of the Board is Chairman 
Dr. Paul Hill. Dr. Hill, this is the second time you have 
testified before the committee and we wish to welcome you back. 
In a moment I will ask you to introduce those colleagues who 
are accompanying you this morning and then ask you to summarize 
the statement, as you see fit.
    Your prepared statement will appear in full in the record 
but before doing so, I would like to ask my colleague, the 
ranking member Alan Mollohan, for any comments that he would 
like to make.

                    Opening Comments of Mr. Mollohan

    Mr. Mollohan. Thank you, Mr. Chairman.
    Nothing more than to especially welcome Dr. Hill. This is 
the second day in a row we have had a West Virginian testify 
before a subcommittee.
    Dr. Hill, I want to welcome you. You are doing a good job 
and you have certainly made everyone in Charleston, West 
Virginia proud of the job you are doing.
    Also I commend, Mr. Chairman, Congressman Bob Wise, who was 
very instrumental in conducting this activity with Dr. Hill and 
the setting up of the Chemical Safety and Hazard Investigation 
Board. He comes from an area that is heavily dependent upon the 
chemical industry for its economic base, as do I and all West 
Virginians, so he was particularly interested in this activity, 
in this area, as was Senator Byrd, who supported the effort.
    So this board has a lot of West Virginia fingerprints all 
over it and we are very proud of it. So I would like to welcome 
Dr. Hill. Thank you.
    Mr. Walsh. Thanks for your comments. He is always very 
partial to West Virginians. I am not sure why.
    Mr. Hill. I think we are just like that.
    Mr. Walsh. Well, let us see.
    Dr. Hill, your agency is, of course, very new and going 
through significant growing pains. Why do you not go ahead and 
give us your comments and then we will give ours.

                       Oral Testimony of Mr. Hill

    Mr. Hill. Thank you, Mr. Chairman and Mr. Mollohan. It is 
certainly a privilege to appear before the subcommittee today 
to discuss the $12.5 million fiscal year 2000 budget request of 
the Chemical Safety Board.
    Joining me today on my right is Mr. Chris Warner, who is my 
chief counsel, and Dr. Phyllis Thompson, who is my chief of 
staff and chief operating officer.
    Also in attendance today is Dr. Jerry Poje, who is a member 
of the board, as well as Dr. Irv Rosenthal, who is in the back 
and is also one of the board members.
    Mr. Chairman, in 1996 there were about 60,000 chemical 
incidents in the United States and there were about 60,000 
incidents the year before and the year before that and the year 
before that. In fact, there were an average of 60,000 incidents 
in commercial and industrial chemical incidents in each year 
between the years 1987 and 1997. But last year, when I appeared 
before this subcommittee, no one knew that. Not you, not the 
CSB, not the EPA, not the OSHA, no one.
    In 1996 chemical incidents claimed the lives of the 
equivalent of two fully loaded 737 passenger jets. That is 256 
people who perished. An average of 256 people died the year 
before and the year before that and above that. But again last 
year, when I appeared before this subcommittee, no one knew 
that, either. Not you, not the CSB, not EPA or OSHA, no one.
    My written testimony, which I have submitted for the 
record, as you just referred to, goes into great detail about 
the budget and our accomplishments of the CSB during the past 
14 months that we have been in existence, accomplishments of 
which I am extremely proud.
    Of course I am prepared to discuss with you any of the 
material covered in my written testimony, including our 
accomplishments of taking on nine full accident investigations 
and 21 reviews, our safety recommendations and the impact that 
those are having, our partnerships with others and the 
challenges that we have faced.
    But rather than summarizing the entire written testimony, I 
want to take an opportunity to summarize the importance of what 
we have learned and the critical nature of that knowledge as it 
relates to the resources that we currently have and what we are 
asking for.
    If this were a new story about our situation, the headline 
might say ``Frequent occurrence of U.S. chemical incidents 
overwhelms new safety board: agency needs additional 
resources.''
    But before you rush to the conclusion that I am about to 
criticize the Congress for not providing the necessary 
resources to the CSB, let me hasten to add: none of you, indeed 
no member of Congress, could have known just how much money or 
how many personnel were needed for the CSB to do the job that 
the agency was created for because no one really knew. Until 
today, the depth and breadth of the problem was unknown.
    Indeed when I came before you last year I told you that 
anecdotal information that we had developed in our first two 
months of operation seemed to indicate that the frequency of 
serious chemical accidents was much greater than we might have 
expected. But in February of 1998 I had no proof. But proof of 
the exact extent of the national chemical incident problem is 
precisely what you as appropriators must have in order to 
decide the appropriateness of the funding levels for the 
Chemical Safety Board.

                         Chemical Incident Data

    Indeed, you must know how bad the situation is so that you 
and the rest of the Congress can decide upon the funding for 
the 14 other federal agencies which exercise various types of 
responsibilities related to chemical safety in the United 
States. Many of those agencies, including EPA, OSHA, the 
Department of Transportation, and the U.S. Fire Administration, 
collected data but they did so for their own statutory and 
regulatory purposes. None projected what I call the big 
picture.
    But even when producing such a big picture of chemical 
incidents was considered at the urging of the Congress, the 
task was abandoned. The EPA said in 1993, ``Full merger of 
existing databases has been ruled out as being not realistic, 
feasible or preferable.''
    I beg to differ because today, at this hearing, I am able 
to share with you, this subcommittee, for the first time 
anywhere, the preliminary results of an unprecedented CSB 
analysis of federal government incident databases.
    There are five of these. The CSB has identified over 
600,000 chemical incidents in transportation and in industrial 
and commercial businesses over the past 10-year period between 
1987 and 1997. That is an average of 60,000 incidents per year. 
During this period, chemical accidents were recorded in almost 
every single county in the United States, as you can see in 
Exhibit C.
    During that 10-year period, 10,000 of these accidents were 
associated with at least one death or injury. Expressed another 
way, on the average each year, 256 people die as a result--
again that is equal to two fully loaded 737 passenger jets.
    With this new CSB data we can now identify the states which 
have experienced the largest number of incidents. California, 
as you can see in the exhibit, leads the list with more than 
100,000 incidents during this time frame. Texas is second with 
more than 55,000 incidents, and the top 15 states, as you can 
see, include over 380,000 separate chemical incidents.
    While these numbers are startling, they do not necessarily 
tell the whole story and they indeed may be misleading. For a 
variety of reasons, many chemical incidents that occurred over 
those 10 years never made it into the national records.
    Since there has been no coordination done between 
government agencies during the development of individual 
databases, the existing databases lack consistency in both 
completeness and in the nature of the data collected. Future 
CSB actions will address this problem and you may expect 
recommendations from us as a result of our analysis.
    Most importantly from a safety standpoint, existing 
databases do not contain information on the root causes of 
accidents or incident patterns, and causes are the most solid 
clue to prevention. That is really what we need.
    Despite these limitations, existing data confirm that the 
problem of chemical safety is large, widespread and not fully 
understood at the national level. In particular, phase one of 
our study is in agreement with similar conclusions that have 
been reached by industry, labor, environmental groups and 
public safety leaders that have separately reached this same 
conclusion.

               Limited Financial and Personnel Resources

    Mr. Chairman, I find myself with a predicament. I have very 
limited resources and I must make very difficult decisions 
about how to use those resources, even when human lives are 
lost. For example, you recall that a couple of weeks ago a 
major explosion ripped through the Ford Motor Company River 
Rouge plant in Dearborn, Michigan. Six workers have now died 
and others remain in critical condition. Hundreds of workers 
were briefly furloughed. Production at other Ford plants was 
threatened. Millions of dollars in property damage occurred. 
Yet I could not send an investigation team to Dearborn because 
of the overall investigative costs involved.
    Last Friday night at 8:25 an explosion leveled Concept 
Sciences, Incorporated in Allentown, Pennsylvania. Five people 
perished in that blast. County officials estimate property 
damage to the 11 businesses in the industrial park at between 
$4 and $5 million. Based on the initial information from 
officials over the past weekend, I dispatched a preliminary 
assessment team. But although I was able to get a preliminary 
assessment team to assess the incident scene, ultimately I may 
not be able to order a full investigation there, either.
    Last night while preparing my remarks for today, I learned 
of a refinery accident at the Tosco Avon Refinery in Martinez, 
California. I spoke with Congressman Miller's office, again 
conveying that this was a serious tragedy. We understand there 
are fatalities. Information is still coming in, but this is 
only four days after the Pennsylvania incident and again I am 
unable to respond appropriately.
    So I may have to tell the families of those who perished in 
Dearborn and in Allentown and in Martinez and in all the other 
locations where the CSB investigations will not be conducted 
that we will not find out why they died and we will not find 
out how to keep these incidents from happening again, perhaps 
in your own districts.
    This agency was given $4 million in its first year to begin 
an anticipated start-up period and gradually grow according to 
our business plan and the evaluation of our needs by the 
Congress. That initial $4 million CSB budget was $500,000 less 
than our sister agency, NTSB, spends each year to store the 
wreckage of TWA Flight 800. As you will see in the exhibit in 
my written testimony, our current appropriation is $49 million 
less than NTSB's was in fiscal year 1999.
    You will note that our budget is also significantly less 
than the Defense Nuclear Safety Board, a board which conducts 
no investigations of its own and which is responsible for only 
a small number of DOE nuclear facilities.
    Even with an incomplete accident picture in 1990, the 
Senate report on the CSB included an authorization for $12 
million for each year of fiscal year 1990 through 1994. A 
decade later that would be more than $15 million in today's 
dollars.
    As I said before, I do not fault the subcommittee or the 
rest of the Congress for providing us with what now proves to 
be wholly inadequate resources. We did not know the extent of 
this problem. Our sister agencies did not know. And, of course, 
you did not know. But now you do.
    When the Congress created the CSB in 1990, it identified a 
lack of national focus on chemical safety, saying, ``actually 
prevention has great promise, but is not given sufficient 
attention in the current federal programs.''
    The CSB was established to fill a national void on chemical 
safety issues. The CSB's powers and responsibilities differ 
greatly from that of other agencies to which we are most often 
compared--EPA and OSHA. As you can see in Exhibit F, there are 
quite a number of critical differences between CSB, EPA and 
OSHA.
    The CSB is, in effect, a sort of chemical safety General 
Accounting Office. The special independence of the CSB enables 
it to enhance chemical safety by looking at both the adequacy 
of federal regulatory and statutory performance and also at 
labor, industry and environmental practices affecting chemical 
safety.
    Mr. Walsh. Dr. Hill, could I ask you to summarize? We have 
two additional organizations coming in today and time is 
limited. I hate to do that.
    Mr. Hill. Certainly. I am right near the end.
    No other agencies really have this type of mandate. But if 
the Congress only approves the $7.5 million request, then 
certainly our work will be diminished. We will not be able to 
provide the type of activities that we have laid out in this 
plan, that have been laid out in my testimony today, and 
certainly our ability to do the job that Congress put before us 
will be diminished.
    I ask the members of the subcommittee to examine the 
challenges before us, before the entire Congress, before the 
Safety Board, in light of the information that I have put 
forward today. And we would be glad to answer any of your 
questions.
    [The information follows:]
    Offset Folios 407 to 462 Insert here



    Mr. Walsh. Thank you very much.
    Mr. Hill. Thank you, Mr. Chairman.
    Mr. Walsh. I would like to recognize the presence of our 
two newest members, Anne Northup of Kentucky--glad to have you 
with us.
    Mrs. Northup. Glad to be here.
    Mr. Walsh. And Bud Cramer of Alabama.
    Mr. Cramer. Thank you.
    Mr. Walsh. Who is also here.
    And the process that we established yesterday, Anne, was 
that I will begin with whatever questions I have and then we 
will go in the order that people come in. And since you are 
both here, you will go and we will have lots of opportunities 
because nobody else is here.
    Dr. Hill, thank you for your statement.

                        the growth of the agency

    Your agency is, of course, very new and I know that you are 
going through significant growing pains. There is a desire to 
gear up to what you refer to as fully operational as quickly as 
possible, while Congress, frankly, has attempted to control 
your growth until we get a better fix on where you are and 
where you are going.
    I know that you and your staff have responded in one form 
or another to multiple accidents and I can certainly understand 
and appreciate the fact that you and your staff have committed 
more than your share of hours to the work at hand.
    Experience such as that observed at FEMA might suggest that 
additional dollars and staff will not necessarily resolve this 
problem of overwork. Rather, the Congress and perhaps OMB as 
well have in the past suggested that what we want to see you do 
is make thoughtful, considered, measured judgments with respect 
to your growth.
    While I do not want to prejudice this committee or the 
Congress in any way with respect to your budget, it appears 
that you may be more eager to grow before you have truly given 
us a glimpse of what you can do and will do.
    What are your thoughts? How would you respond, if you would 
like to?
    Mr. Hill. Yes. Mr. Chairman, I think we came into this 
process saying that we would not approach the Congress and ask 
for a large sum of dollars to do the job all up front in the 
very first year. Rather, we developed a phased-in process in 
our business plan to suggest it would be very considered and 
measured growth based on growing into the job, rather than 
simply asking for large dollars to be pushed at us in a single 
time at the outset.
    So we believe that we have laid out a very good plan for 
attacking this problem. It just turns out that it is a large 
problem. We have laid down the foundation this first year. We 
have an infrastructure. We have some staff, which we had, I 
think, four or five at this time last year when we appeared 
before the committee. We now have 21, with four board members, 
including myself.
    We are now at a point to add the real technical growth in 
the agency, to get the real job done, and I think we are poised 
and up to doing that job and have taken a very methodical 
approach to getting there.

              From a Start-up to a Fully-Functional Agency

    Mr. Walsh. You asked for $12.5 million. If that were 
honored, that would be a 300 percent growth in the first three 
years.
    Consider, as well, that while we know you are working 
diligently on these difficult issues, we still do not have any 
real evidence of what you expect to accomplish.
    While none of this should in any way be considered 
criticism, I would ask you to consider these facts and then 
help us to justify the growth that you are proposing. And you 
might, for the benefit of the subcommittee, give us an idea of 
where you would like to be in five years in terms of budget, 
staff and role.
    Mr. Hill. Again referring to the business plan which we 
supplied the Congress last year, actually in late 1997 when we 
were first funded, we laid out the three-year period of again 
growing into this position, staffing up over a period of time 
to become a fully operational agency.
    We said that after three years, we would become a fully 
operational agency at around 100 federal employees. That is, we 
have asked for 30 additional this year and we would level off 
after the third year at around 100 employees. That is about the 
size of the Defense Nuclear Board, which, as I said in my 
testimony, conducts no investigations.
    We think that is a very reasonable approach to what is a 
very large problem. We are not suggesting that we would go out 
and try to investigate all those incidents. No agency could 
ever possibly do that. But what we are suggesting is that there 
needs to be more real-world information-gathering. The agencies 
that have been doing this work, any part of it in the past, 
have never focussed on the root of the problem; that is, cause. 
And what we are able to do now is to go after cause and only 
through understanding that will we be able to learn and 
prevent.
    If those agencies were doing a good job at addressing this 
problem, we think the numbers will go down. That is what GAO 
told us to focus on. If we can establish a baseline, which is 
what we have laid out before you today, and this is the first 
time the federal government has ever pooled its resources 
together to even look at baseline, then we can drive those 
numbers down if we are allowed to do our job.
    It will not happen overnight. It will not happen by leaps 
and bounds. If we can provide the safety information, we will 
be able to reach that goal.

                    Incident Investigation Criteria

    Mr. Walsh. You mentioned several incidents--Dearborn and 
there was another one where you said there were five deaths. I 
am not sure where that was.
    Mr. Hill. In Allentown over the weekend, Allentown, 
Pennsylvania.
    Mr. Walsh. The incident in Allentown. You made a decision, 
obviously a tough one, whether to go to Dearborn or to 
Allentown. It wasn't a choice between the two obviously but you 
chose to go to Allentown. What are the criteria?
    Also you mentioned that there are 14 other agencies with an 
interest in this sort of issue. Did members of those agencies 
go to both of these incidents?
    Mr. Hill. First, comparing the two incidents, the question 
with the Ford plant that was raised immediately: Were hazardous 
materials, some chemical compound, involved in the cause of the 
explosion? Obviously you cannot tell that when you have an 
explosion. You need to do a preliminary assessment. We chose to 
rather observe and collect information from the other agencies 
who were on the scene, rather than send a team.
    In the Allentown situation over the weekend, it was much 
clearer. We knew immediately that this was a chemical facility. 
It was described as such by all the preliminary information 
that came in.
    The other factor, quite frankly, is I could put staff in a 
vehicle and get them up there in about three hours from here. 
It was very inexpensive for me to at least conduct a 
preliminary on-scene assessment. Those were the two key things.
    Mr. Walsh. So since the Allentown was a chemical plant, it 
was obvious, whereas with Dearborn, there may have been some 
involvement of chemicals. So by order of prioritization, the 
primary mission is chemical facilities; we have to go there.
    Mr. Hill. That is correct. But as we are aware and that 
Congress pointed out when our statutory language was written, 
chemicals are everywhere. They are not necessarily the typical 
places that we observe, so we do not know, when the calls come 
in.
    But your other question regarding the other agencies, 
Congress clearly pointed out again in our legislative history 
and statutory language that there was never this focus. There 
is some portion of chemical safety that is spread among these 
14 agencies.
    I think the Congress at the time said we have been doing 
this piecemeal for the past 20 or 30 years; it is time we 
brought a focus to is, like we did in transportation safety. We 
brought a focus into the NTSB to say work on understandingwhy 
things occur, not just slapping the hands of people who have problems 
through enforcement.
    That works and it has improved safety but when you get to a 
plateau where you are not really improving any more, then 
Congress recognized that these agencies, while they take some 
action, they do not go for cause. They do not look for why it 
happened.
    An OSHA investigator----
    Mr. Walsh. Do not the local fire investigators determine 
what the cause was?
    Mr. Hill. They do not typically have the resources to do 
that. I just, within the past 24 hours, got a letter from 
Governor Ridge of Pennsylvania asking me to take on a full-
blown investigation in this case, urging me to do that because 
not even the state, not less the locals, have the capability to 
do what he thinks needs to be done in this case. And I tend to 
agree with him but again I am limited in what I can do.
    Mr. Walsh. Mr. Mollohan.

               Establishing a Chemical Incident Database

    Mr. Mollohan. Thank you, Mr. Chairman.
    Dr. Hill, I really am taken back by the idea that the 
government does not have a handle on scope with regard to this 
problem before you, as I understand your testimony, 
investigation of that during the past year. Could you elaborate 
on that a bit? That does seem to be a first step in getting a 
handle on this issue and trying to address it in a way that 
reduces incidents.
    Mr. Hill. Yes, Mr. Mollohan. Indeed, the Congress pointed 
out that this was spread over various agencies and it needed to 
be focussed, and there was some urging, particularly in the 
Clean Air Act Amendments of 1990, to get those agencies to 
assess the fact that they are all collecting information on 
these events but they are doing it for different reasons. Some, 
it is to record enforcement actions. Some, it is to simply 
track the calls that come in.
    What we did that the EPA, as I indicated, in 1993, said was 
not feasible or preferable to put that information together, we 
listened very carefully to what GAO told us, that we must have 
a baseline. We should not count our work on the number of 
products that come out--the reports--making widgets, if you 
will, but rather count on whether or not you can drive the 
numbers down.
    And no one else seemed to be putting together this big 
picture because they were not compelled by their own statutory 
language and what we did was take that on to make sure that we 
establish this kind of reference point.
    Mr. Mollohan. And you have done that during your first 
year?
    Mr. Hill. Yes. In fact, we did that over the past few 
months. I am very fortunate to have attracted some staff who 
are very capable and we were very impressed by what the FAA had 
done in this same regard of pulling in information from various 
agencies.
    Mr. Mollohan. Was the FAA your model?
    Mr. Hill. Yes, FAA was the model for the data program; that 
is correct.
    Mr. Mollohan. So the data program now that you have in 
place would provide us, if you accessed it, with a quantity of 
incidents, different types of incidents?
    Mr. Hill. Yes. We have some information that will tell us 
the initiating events, whether it happened on the highway or in 
an industrial facility, whether it might be human-caused or 
mechanical. There is some limited information in there that we 
can cut the data with but certainly we can provide it by state, 
by district, by county. We have enough information to do that 
right now.

              Focus on Issues Identified in Baseline Study

    Mr. Mollohan. And your next focus, if I understand your 
testimony, is to start developing some sort of cause patterns?
    Mr. Hill. Yes, we really want to begin to look at cause. We 
also want to look at industry sectors. As I testified before 
the committee last year, I cannot tell you today whether or not 
refineries are more of a problem than start-up operations in 
Allentown or food warehouses or just where chemicals are or 
whether it is a certain type of industry.
    What we are going to try to do is further refine this data 
so that we can target our efforts, again saying where the most 
problems are and also make those recommendations to the 
Congress.
    Mr. Mollohan. And the recommendations will be the third 
phase of this, which you may not talk about in those terms but 
just for purposes of my question, is that prevention?
    Mr. Hill. Yes, certainly.
    Mr. Mollohan. It is scope, cause and prevention, and you 
are into the cause analysis.
    Mr. Hill. Yes, we are into the scope right now and our 
efforts will be to try to understand cause because, as I state 
in my testimony, cause is the real key to prevention. If we 
know what fails, then we might be able to keep it from failing 
again.

                 Cooperation From the Chemical Industry

    Mr. Mollohan. In my former life I was the general counsel 
to the Institute of Makers of Explosives, which is a very 
dangerous business. They did and have a very close relationship 
with the agencies that regulate them.
    What kind of cooperation are you getting from the industry 
side of things, from the associations or from individual 
chemical manufacturing companies?
    Mr. Hill. I would have to characterize it as very good. The 
organization you just mentioned, IME, was one of the first 
recipients of our recommendations. We recommended that IME 
develop some safety training programs for employees who work in 
explosives manufacturing facilities. That was a result of the 
very first incident that occurred in January of last year, two 
days after we began operations. IME was very receptive to that. 
In fact, the entire industry was receptive.
    I think the Congress was wise in how they set this agency 
up. We do not have enforcement powers. We do not come into a 
facility with the threat of taking action against the 
companies.
    Mr. Mollohan. So the companies tend to be more receptive.
    Mr. Hill. Much more receptive.
    Mr. Mollohan. I could actually see that. IME is the 
Institute of Makers of Explosives. I could imagine that they 
would be probably lining up first to cooperate with you.
    Mr. Hill. They have sent back response to my 
recommendations saying that they were certainly going to pursue 
it and that they would keep me informed as to the outcome.
    You also know that our reports cannot be used in litigation 
against the companies. That is another big incentive that 
Congress put in there to ensure that there would be a much more 
conducive opportunity to work together and learn from these 
incidents.
    Mr. Mollohan. I was going to ask you, and you may have 
gotten to it but if you have anything to add to this question, 
I was going to ask you what value-added do you represent vis-a-
vis EPA, OSHA or any one of the great number of agencies that 
have tangential jurisdiction over this question? What value-
added do you represent toward solving the problem?
    Mr. Hill. I see us as a tremendous difference. I think that 
is why we have gained the support of the industry, particularly 
large organizations like CMA, API and IME, who all are the 
trade associations of some of the major manufacturing companies 
in the country.
    They all would like to learn from their mistakes but there 
has been a disincentive in this country, the way the regulatory 
programs have been structured, such that you know, as an 
attorney, that companies are reluctant to talk about their 
problems and even sketch those out on paper sometimes because 
they are used in litigation against the company when that is 
done.
    What they see as the incentives that we provide by not 
being able to take those actions against them, that this gives 
them the opportunity to learn, which they certainly want to do. 
No one wants to have an accident. The companies are very 
supportive. They have tried to do this within their own 
organizations over a number of years, but they have not been 
able to do so because of threat of litigation.
    Mr. Mollohan. They do not see you as the cop on the beat 
who is going to be writing cessation orders or anything of that 
nature. They see you as the cooperative group that is going to 
help them solve their problems.
    Mr. Hill. That is correct.
    Mr. Mollohan. Thank you, Mr. Chairman.
    Mr. Walsh. Thank you, Mr. Mollohan.
    Mrs. Northup.

               On-Scene Investigation Process and Mission

    Mrs. Northup. Thank you. Mr. Chairman.
    I would like to go back to the investigative process, who 
else is there. I sometimes have the feeling that when there is 
an accident, whose jurisdiction it is becomes almost more 
complicated than does a lack of resources. Maybe there is a 
surplus of resources. Competing resources may be a better word.
    So if you go back to the Ford plant in Dearborn, you did 
not send people there but it seems like certainly OSHA would be 
there, the local fire and police would be there. If it is a 
highway accident, you would have the National Transportation 
Safety people there. And then you have the private sector 
groups that are there--the insurance carriers and so forth.
    And while I believe there is a great need for your services 
in terms of being the connecting link between patterns of 
chemical involvement in accidents, I wonder whether or not it 
is so important that you are on the scene and how often that 
would be necessary unless chemicals are cited as one of the 
probable or overwhelming portion of the cause.
    Mr. Hill. Yes, indeed, that would be the primary time that 
we would be at the scene, when we determined that that indeed 
was the problem. Part of the problem in understanding is it is 
not always obvious.
    So we look at a variety of incidents. We track them as the 
information comes in--through the wire, through contacts with 
people who are at the scene, at the site, and we rely on their 
information for a number of hours before we can possibly make 
any decision about what we need to do.
    But your question about the other agencies, that is a 
common perception just about everywhere we go, that incidents 
are being investigated by various groups. But, as I said about 
the data aspects, they are doing it for their own purpose 
within their own statutory language.
    In other words, OSHA goes to a facility. They are 
prohibited from going beyond the rules that are on the books 
today. That is, did you violate a particular rule when this 
happened? That is all they need to know and they go. They do 
not look for well, why did these circumstances occur in the 
first place? Was there a management problem? Were these 
employees properly trained? Was there a breakdown in the 
overall safety system? Those questions do not get probed, which 
is what we do that is different from everyone else.

                   How the CSB Is Different From OSHA

    Mrs. Northup. I just have to ask you, as a member of the 
subcommittee that oversees OSHA, that is not the testimony I 
feel I hear, that OSHA is not constantly monitoring safety.
    First of all, I feel like my experience tells me that 
causes usually are established, that worker safety--OSHA does 
engage in was there enough training, what could have prevented 
it?
    And again I am not denying the importance of the work you 
do and your existence, but I do not think we need two agencies 
doing the same thing, and they certainly target those issues.
    Mr. Hill. You are correct. They do target them, and I did 
not intend to intimate that they do not look for them. But as 
you know, if a agency steps outside its jurisdiction in any 
way, looking beyond existing rules and standards, they become 
threatened by litigation from the companies. That is, you are 
exceeding your authority.
    What the Congress gave us was broad authority. We are not 
limited to an existing set of rules. We are not limited to an 
existing list of chemicals that EPA has. If you do not have 
that chemical, you are out of the picture.
    The Congress said to look at everything, not only what is 
going on at the companies but what we are doing and whether or 
not our regulations are appropriate.
    I met with Charles Jeffress right after he came on the job 
and I had just come on the job, in fact, myself. And Charles 
said, ``We are delighted that you are here. Anything that you 
can go to go beyond and help us improve what we do is a huge 
benefit to my agency.'' It has been a great working 
relationship.
    Mrs. Northup. And that is important. I guess what I hear 
you saying are things that do not go beyond. And if you have 
finite resources, it is extremely important to me that you do 
go beyond and not repeat or duplicate what is already being 
done.
    In most cases, in most accidents, there is quite an 
investigation to determine costs. There is quite an 
investigation to determine what could have been done to prevent 
it.
    I guess I believe that you all could also help prevent it 
in terms of a big picture, saying this happened in 
Pennsylvania, this happened in New York.
    The truth is no matter how mush OSHA we have, there are 
going to be accidents. The existence of the National 
Transportation Safety Board does not prevent me getting in my 
car and having a fatal accident.
    Mr. Hill. Absolutely.

                    Defining the Role of the Agency

    Mrs. Northup. What it does is help establish patterns, 
insight into overall changes that can be made to reduce the 
likelihood of those accidents. I did not realize the companies 
could sue OSHA if they got beyond their jurisdiction because 
certainly that is a question that is raised by a lot of 
companies these days.
    What I want to warn you of is not seeing so much that needs 
to be done and that may need to be done that you get out there 
and duplicate what is already being done but instead, spend 
finite resources in going a step further.
    Mr. Hill. Let me just say that I could not agree with you 
more. The fact is the working relationship with OSHA has been 
very, very good. In fact, in most cases, I said we have only 
taken on nine in the entire country in the past 14 months and 
most all cases, the first thing we do is talk to OSHA. Michigan 
OSHA is at Ford, for instance. We are relying entirely on 
OSHA's assessment of this situation.
    My only caution is that the data that we get back--we asked 
for information from OSHA, from the company, from the labor 
union, all those people who are looking at that scene, to give 
us their information, that we can assess it and include it in 
our records. That is about as much----
    Mrs. Northup. Is that not enough? Why wring our hands over 
the fact that you could not send a team in, too?
    Mr. Hill. Because the investigations are only one way. I 
want to go back to what we said earlier. The investigations are 
only one way to get good information, to get new information 
and new insights.
    You are absolutely right and that is one aspect of why we 
did it. It is the most visible because people see it. They see 
you out there. But we are putting a lot of emphasis on all the 
other challenges that Congress laid out for us. That is 
assessing the effectiveness of the other agencies, looking for 
trends.
    We are only now, for the very first time, able to do that, 
able to look for those trends, and we will spend much, much 
more time on that than we will on the investigations. The 
investigations are what get everyone's attention. And, as you 
see, there is only a very small number of those.
    Mr. Walsh. Thank you.
    Mr. Cramer.

             relationship with emergency response personnel

    Mr. Cramer. Thank you, Mr. Chairman.
    Dr. Hill, what relationship, if any, have you had with 
local and state emergency management personnel in the state and 
local government?
    Mr. Hill. We have very good relationships with those 
agencies, as well. In fact, we have tried to reach out to many 
of them through their national organizations over the past year 
and a half to inform them of who we are and what we do. We have 
developed a web page that would help them know and we have 
gotten lots of very positive support about it providing a 
resource for them.
    But we have encouraged relationships with them on how we 
would work together at accident scenes.
    Mr. Cramer. You can see that relationship growing?
    Mr. Hill. Absolutely.
    Mr. Cramer. My relationship with EMA personnel is very good 
and I find that they are most concerned about hazmat spills. 
And I would hope that there would be a relationship and even 
some of your budget would be committed to making sure that they 
are trained and that you provide technical assistance to them, 
and I just wondered if that was anticipated or if it is 
occurring already.
    Mr. Hill. Yes indeed, it is. In fact, I have met with the 
fire marshals from the states. Many of the emergency management 
associations have invited us to communicate our role to them in 
their national conferences. And when we are on scene, they have 
been very good.
    In fact, some of the states have volunteered to be pilot 
programs for helping us report incidents and being a 
communication channel.
    IAFF is actually using our first report on the Sierra 
chemical accident as a training tool for their emergency 
responders, so it is a growing, very positive relationship.

                   explanation of resource allocation

    Mr. Cramer. As your budget request is broken down, you want 
44 percent for incident prevention and 12 percent for technical 
information and assistance. Can you give me some examples as to 
how those percentages are broken down, how they are spent?
    Mr. Hill. I will ask Dr. Thompson to address that.
    Ms. Thompson. Incident prevention, first of all, cuts 
across the variety of types of work that we do, so it is not 
just doing an investigation. And if you are looking for 
specific types of work that might fall into that category, we 
are trying to make sure that information we get about incidents 
is quickly disseminated to people. We find ourselves in some 
instances where we actually call the company in one facility to 
let them know that another facility of theirs has had a 
problem. I have been in that phone conversation. It is a rather 
awkward situation to be in. But we do get a lot of information. 
We like to let people know when things are happening.
    We have data that we would like to be able to accumulate. 
For example, companies do not necessarily share information 
themselves amongst their own companies, their subsidiaries, but 
they might be very willing to provide us.
    The question was asked what value-added we provide. One of 
the things is that what we get on a voluntary basis, we believe 
we can protect, desensitize and deidentify to some extent and 
make it available so that people have wider access to 
information that companies themselves have available. So that 
would fall into the incident prevention area.
    We would like to be able to expand in the data arena, bring 
in additional data sources, build a better picture as the 
congressman suggested, so that we can add to the profile of 
what is known already about incidents.
    And all of that would fall into the prevention arena, 
finding various resources that are available elsewhere. The 
United Kingdom has some wonderful materials that they are quite 
interested in making available to us that probably are not well 
known in the United States. So we are working to get our hands 
on things that we think will be useful to people.
    So all of that falls into incident prevention, which is why 
we did not characterize it as investigation.

               providing technical information assistance

    Mr. Cramer. And what about technical information and 
assistance?
    Ms. Thompson. We are looking right now, for example, at two 
projects. Congress pointed out that human factors, for example, 
is a very weak area in the chemical arena, in terms of where 
problems tend to occur with human factors.
    We found a wonderful package over at the Nuclear Regulatory 
Commission which was designed for the power plants and we have 
taken some initial steps to modify that as appropriate for the 
chemical world. We are following what the Congress said, which 
was to mine the systems within the government, so we are doing 
that.
    We found a pattern of problems in the area of pressure 
vessel technology. We are looking at a package we are putting 
together on pressure release systems, which will be useful for 
our own investigative people but also for industry. That is 
more in the technical information----
    Mr. Cramer. But those budgets would include getting that 
information out.
    Ms. Thompson. Yes.
    Mr. Cramer. So with the EMA personnel making sure that if 
there is an expense factor there and you need to train or 
provide assistance or provide some of that information to them, 
that is covered under those budgets, as well?
    Ms. Thompson. That is correct. That is right. From the 
initiation to getting something through----
    Mr. Cramer. And is that a substantial part of your budget 
increase, those two categories?
    Ms. Thompson. Not so much in the technical information 
area. In the incident prevention area, yes, very much so. We 
did put in an additional piece of information subsequent to 
this to show the difference between the 12.5 and the 7.5, so 
that Congress would understand what they would be buyingfor the 
higher amount, versus what they would be getting for the lower.
    The large portion of that money will go into our database 
work and building on the baseline and providing a better 
picture and a more in-depth picture of what is possible, yes.
    Mr. Cramer. Thank you.
    Thank you, Mr. Chairman.
    Mr. Walsh. Thank you, Bud.
    Mr. Sununu.

                          Support From the EPA

    Mr. Sununu. Thank you, Mr. Chairman.
    Dr. Hill, in your testimony you describe your relationship 
with the EPA, not necessarily being adversarial but in that the 
statute calls for the administrator to provide the board such 
support and facilities as may be necessary for operation of the 
board and that assistance with that support and facilities have 
not been forthcoming.
    What kind of support and facilities would EPA have the 
ability to provide you that you have not been able to gain 
access to?
    Mr. Hill. That is the pressing question, actually, as you 
put it. We have tried to work with EPA to interpret what that 
Subsection P of 112(R), what the meaning was as written by the 
Congress.
    We went back and looked at the legislative history and 
indeed it said that the Congress was considering imbedding our 
agency within EPA or----
    Mr. Sununu. I am sorry; I appreciate the difficulty in 
interpreting any statute that Congress passes. Regardless of 
how we interpret it, are you aware of, can you cite any 
specific areas where you think there would be facilities or 
administrative support that you would like to gain from EPA 
that would make a difference in your ability to do your job?
    Mr. Hill. Yes, indeed. Rental property was one of the first 
things that we approached EPA about, facilities, because that 
is specifically mentioned. That was a major problem that we 
went around and around about, determining if indeed this 
provision could lend itself to getting us a place to be housed.
    Mr. Sununu. You ended up getting your own facilities?
    Mr. Hill. We ended up getting our own space.
    Mr. Sununu. Any other areas?
    Mr. Hill. We had to use our scarce resources to do that.
    Other areas, it mentions administrative support, 
infrastructure support. We had no infrastructure when we began. 
Therefore there could have been assistance but there was none 
forthcoming.
    Mr. Sununu. Are you renting facilities, space, from GSA?
    Mr. Hill. No. Actually we have acquired space not through 
GSA but through our own----
    Mr. Sununu. You are occupying private sector space?
    Mr. Hill. Yes.

                       Relationship With the OMB

    Mr. Sununu. You also testified with regard to OMB's 
handling of your budget request, that you provide your request 
to Congress but that the OMB reduced your request by $5 million 
and you suggest that that is in violation of the statute, that 
the statute calls for the administration to pass on your budget 
request without change.
    Am I interpreting your testimony correctly? Is it indeed in 
violation of the statute?
    Mr. Hill. Yes indeed, that is our belief, as was in the 
comments of the chairman this morning.
    Mr. Sununu. I would only add for the record that I also sit 
on the Budget Committee and that kind of a violation of the 
budget process if very problematic in that I think, as I 
understand it, a similar concern was raised by the judiciary 
that also has a similar statute, that they pass on their budget 
request regarding courthouse construction and that it is a 
requirement that the OMB pass that information on in the 
administration's budget request without change and that those 
requests have been changed.
    And that does not reflect on whether or not your budget 
request is a good one or a bad one. It may well be a bad one, 
but the administration is obliged by the statute not to change 
it and I hope that the subcommittee would look into that.

                 Explanation of Chemical Incident Data

    On Chart D you are counting total incidents and you showed 
that most incidents were in the State of California, obviously. 
My theory is it has a lot to do with the number of people that 
live in California.
    Mr. Hill. I think you are right.
    Mr. Sununu. Seriously though, have you tried to look at 
incident rates on a basis that is more apt for comparison, for 
example, a per capita basis, per worker basis, per labor hour 
basis, so that we might be able to compare apples to apples and 
begin to find out where we have problematic patterns?
    Mr. Hill. I will ask Dr. Thompson. She is more familiar 
with the database.
    Ms. Thompson. That is an issue right now that we are 
dealing with, which is to establish the correct basis on which 
to compare the data--number of hours worked, number of workers, 
but we have not gotten to that yet.
    Mr. Sununu. But you have not gotten to that point yet?
    Ms. Thompson. No, we have not. We will. That is definitely 
something we will be doing.
    Mr. Sununu. On Chart E you show fixed facility and 
transportation incidents and I suppose the good news of this 
chart is the reduction in incidents from 1994 to 1996. I hope 
the trend continues in 1997 and 1998, but the reduction in 
fixed facility incidents is pretty significant and in 
transportation it is significant, as well, approximately 10 
percent reduction in incident rates over those two years.
    Do you have any information, hypothesis that you are 
pursuing regarding why this reduction may have taken place?
    Ms. Thompson. We are trying to find out. Everything we 
checked into so far does not indicate what the change was due 
to.

                         Board Member Salaries

    Mr. Sununu. Finally, you lay out your budget request, 44 
percent for incident prevention, 12 percent technical 
information, et cetera.
    The Scientific Advisory Board, are those volunteers? Are 
they paid personnel?
    Mr. Hill. No, the board members are appointees of the 
president.
    Mr. Sununu. And are they paid a salary?
    Mr. Hill. Yes.
    Mr. Sununu. What is it?
    Mr. Hill. It is set by law.
    Mr. Sununu. What are they paid?
    Mr. Hill. They are Executive Service level 3, roughly 
$118,000.
    Mr. Sununu. Wow. Is that GS-3?
    Mr. Hill. Yes.
    Ms. Thompson. Executive level 3.
    Mr. Sununu. So the $1.25 million for their pay obviously 
includes that salary and then some administrative costs.
    Mr. Hill. That is correct.
    Ms. Thompson. That is correct.

                             Indirect Costs

    Mr. Sununu. And last question, what are indirect costs? 
Sixteen percent of your budget is allocated for indirect costs. 
What are indirect costs?
    Ms. Thompson. They are expenses that we cannot easily 
assign to a particular function. It might be the cost for a 
report, a CPA firms on financial review. It would be something 
that we just cannot attach to an investigation.
    Mr. Sununu. That amounts to roughly $2 million. Is there an 
itemization in the budget request of what those indirect costs 
are?
    Ms. Thompson. I believe we do have that and if we do not, 
we can provide that for you.
    Mr. Sununu. There is an itemization in the detailed 
justification, so I will take a look at that. Thank you very 
much.
    Mr. Hill. Certainly.
    Mr. Sununu. Thank you, Mr. Chairman.
    Mr. Walsh. I thank the gentleman.
    Mrs. Meek.

                    Involvement in Counter-Terrorism

    Mrs. Meek. Thank you, Mr. Chairman.
    Welcome to each of you. I understand that your job is 
chemical safety and hazard investigations.
    Yesterday I attended a very interesting hearing with the 
AFT, the alcohol and firearms and terrorism. And they had a 
display on chemicals. I am wondering if your agency has looked 
into any aspect of counterterrorism.
    Mr. Hill. Yes indeed, Congresswoman. In fact, that is one 
of the aspects where we have developed at least a preliminary 
association with the law enforcement agencies, primarily FBI 
and other agencies. The Department of Defense in particular is 
interested in how we may assist them in understanding better 
what types of materials are contained in industrial facilities 
here in the United States domestically and how we may be able 
to work with them on preventing acts of terrorism in some way.
    Again it seems to be a win/win opportunity where we might 
be able to supply them with more information about the domestic 
program and they have some quite sophisticated computer 
software that may be able to assist us in our job.
    Mrs. Meek. Thank you, because they used several household 
chemicals, just things that you see every day, in their hearing 
to show how these chemicals could be combined, put together and 
used for terrorist activities. I thought that was interesting 
and it sort of ties in with what you do and I am just wondering 
if you have been able to get cooperation, as you just 
mentioned, from some of these other agencies.
    Mr. Hill. Yes, indeed. In fact, they came to us. We have 
been very encouraged by the discussions thus far that there may 
be the development of a strong relationship there.

                    Utilization of Additional Staff

    Mrs. Meek. I also notice that you will be able to double 
your staff, according to your budget request.
    Mr. Hill. Yes.
    Mrs. Meek. How do you plan to utilize these workers?
    Mr. Hill. As you know, right now we have 30 FTEs allocated. 
There are 25 of those filled right now. We are in the process 
of filling some additional ones.
    The new FTEs would be devoted to two primary areas. One is, 
as I said, we really have the foundation of the agency now 
laid, the infrastructure. This would grow the technical 
capability. That is we would be able to conduct more on-site 
investigations and we would do more work in the data area, to 
better understand what the national trends are.
    So all of those would be dedicated toward technical 
services development.

        Recognition and Visibility of the Agency and Its Mission

    Mrs. Meek. One last question, Mr. Chairman.
    You are a relatively new agency. Does anyone know that you 
are around?
    Mr. Hill. Sometimes we have trouble. I think we missed 
being included in the federal yellow book this year. We are 
small and indeed part of our job is making others aware that we 
do exist and what a unique job that Congress has given us to 
do. We have used our web site and many other ways to reach out 
and help people understand the unique role.
    In fact, usually when we say we are like NTSB, that helps 
people understand who we are and what we do.
    Mrs. Meek. Thank you.
    Thank you, Mr. Chairman.
    Mr. Walsh. Are there any other questions of the board 
members?
    Mr. Mollohan. Mr. Chairman, I have some to submit for the 
record.
    Mr. Walsh. As do I. And anyone else who has questions they 
wish to submit for the record, we will do so without objection.

          Letter of Support From Representative George Miller

    I have a letter here from Congressman George Miller of 
California that he would like entered into the record. If there 
is no objection, we will do that.
    [Letter from Mr. George Miller follows:]
    Offset Folio 494 Insert here



    Mr. Walsh. And we thank you very much for your time and for 
your presentation.
    Mr. Hill. Thank you, Mr. Chairman.
    Mr. Walsh. We will take a brief recess and come back in 
about five minutes.
    [Recess.]
    [Questions and answers of this panel follow:]
    Offset Folios 496 to 563 Insert here



                                      Wednesday, February 24, 1999.

                    COUNCIL ON ENVIRONMENTAL QUALITY

                                WITNESS

GEORGE T. FRAMPTON, JR., ACTING CHAIRMAN
    Mr. Walsh. The hearing will return to order. This morning's 
hearing will begin its next step by reviewing the budget of the 
Executive Office's Council on Environmental Quality and Office 
of Environmental Quality. For fiscal year 2000 their budget 
request is $3,020,000, 23 full-time equivalent positions at an 
increase of $345,000.
    Testifying for the first time before our subcommittee is 
the acting chairman of the CEQ, Mr. George Frampton. Welcome, 
Mr. Frampton. It is good to have you with us today. It is my 
understanding that you expect your formal nomination to be 
submitted to the Senate very soon.
    I would like to welcome you this morning and after Mr. 
Mollohan offers any opening comments he may have, we will ask 
you to introduce any of your associates that are with you this 
morning and then summarize your testimony as you see fit.
    It is now my pleasure to call on my colleague, Mr. 
Mollohan.
    Mr. Mollohan. I have no statement, Mr. Chairman.
    Mr. Walsh. He is not from West Virginia, so we can dispense 
with that. I assume he is not. I mean, I am sure he is not, 
since you did not mention it.
    Mr. Mollohan. Let us get right down to it.
    Mr. Walsh. I apologize that he is not from West Virginia. 
We will try to do something about that.
    Mr. Frampton, please.
    Mr. Frampton. Thank you, Mr. Chairman, Mr. Mollohan, Mrs. 
Meek. I appreciate the opportunity to appear here this morning. 
A number of CEQ staff members are behind me. I will introduce 
them if I might. I think some of you have met them before.
    Wesley Warren is chief of staff. Carolyn Mosley is our 
administrative director. Robert Kapla on this end. Judy Jablow, 
our legislative director. Dinah Bear, general counsel. And 
Ellen Athas, who is the deputy general counsel. And we all 
appreciate the opportunity to be here.
    I apologize for coming off a cold. I probably sound worse 
than I feel.
    I just want to inform you that I understand that my 
nomination actually did go up on Monday or yesterday morning to 
the Senate.
    Mr. Walsh. Good luck.
    Mr. Frampton. Thank you. And I have submitted written 
testimony. I assume that will be made part of the record.
    Mr. Walsh. We will include your entire statement in the 
record.
    Mr. Frampton. As you know, CEQ was created in 1970 by the 
Congress to advise the president on environmental policy, to 
oversee the implementation of the National Environmental Policy 
Act, including the preparation of environmental impact 
statements by federal agencies, and to coordinate the work of 
the departments and agencies of the federal government on 
environmental policy. And I really want to focus on the third 
of those because from my point of view, coming in in the last 
couple of months, that is an enormously important part of what 
CEQ does and it is the reason why we are asking for a budget 
increase for fiscal year 2000.
    CEQ is charged with making sure that agencies with 
individual missions, statutes and priorities work together on 
cross-cutting environmental and natural resource issues. Today 
virtually every significant environmental and natural resource 
issue that the federal government works on is a cross-cutting 
issue.
    Basically CEQ, as I see it, is there to provide some 
balance, to make sure that environmental priorities, 
environmental goals are achieved, consistent with economic and 
social needs of the country, to make sure that the federal 
government agencies are all working off the same page to 
resolve disputes, and to solve problems. We are a very 
practical problem-solving organization.

                          Partnership Program

    What I think is new, about CEQ's work and I have had a 
chance to talk with some of you about this in the last couple 
of weeks, is that, in the last few years, virtually every 
significant environmental initiative that the federal 
government is involved in requires not only coordination 
between federal agencies but some kind of partnership between 
federal agencies, state and local governments, private 
landowners and other stakeholders.
    I served as assistant secretary at the Department of 
Interior for four years with responsibility for the National 
Park Service and the U.S. Fish and Wildlife Service and 
virtually everything I did in those four years involved 
partnerships and interrelationships with governors, mayors, 
county executives, private landowners, and nonprofit 
organizations. I worked on Everglades restoration, chaired a 
committee which had nine federal agencies, the governor's 
office--Mrs. Meek knows this very well--an independent state 
water board, two state agencies, industry, and scientists. I 
also worked on making the Endangered Species Act work in 
Southern California with planning for the whole area between 
San Diego and Los Angeles through a state-initiated process 
that involved counties, cities, developers, environmental 
groups, state agencies, as well as the federal government. I 
also worked on California water, Exxon Valdez oil spill 
restoration, in addition to working with the military services 
and forest products companies in the Southeast on habitat 
protection.
    Virtually everything that I did at Interior involved some 
kind of partnership with state and local government and 
stakeholders. And coming to CEQ, I see that on a larger scale.
    In the federal government, there is only one place that you 
can come to if you have a problem about federal agencies not 
being on the same page or if you are in federal or state 
government and you want to see the federal departments work 
together and work with state and local government. Basically 
there is only one place you can come and that is CEQ.
    So we are at the crossroads of work that has to go on and 
partnerships that have to be created and maintained between 
state and local government and the federal agencies.
    Mr. Chairman, I think I mentioned to you that in November, 
the first week I was at CEQ, I went out to meet with the 
Western Governors Association in Phoenix. The one thing that 
the governors said, and I did a public breakfast with them, was 
the thing that we need from the state point of view is we need 
the federal agencies to be working together. We need the 
federal family to talk to us with one voice. And CEQ is the 
place we come when two or more federal agencies are at odds and 
we are caught in the middle. CEQ is the place where we come to 
make sure the federal family is speaking with one voice.
    And we would love you to have more resources to do this and 
we would support your having more resources to do this. We 
think this is a very important function.
    For those of us who are out there in counties and states 
having to make programs work, CEQ is our troubleshooter, our 
ombudsman. If we have a problem with EPA that we cannot solve 
going up the ladder at EPA or if EPA is at odds with the Army 
Corps of Engineers, we come to CEQ.
    So we want you to succeed. We want you to do a good job. We 
want you to be well staffed.

                           CEQ FY 2000 Budget

    We are a very small agency. We have 18 full-time people on 
staff right now. We have 23 authorized FTEs. We do not actually 
have the money right now to hire that number. We are asking for 
an increase of $345,000 for next year. It is a big percentage 
increase but basically it is only enough money to allow us to 
hire up to our authorized FTE level of 23 people, which is all 
we are asking for.
    And my goal is to use those extra resources, whatever you 
are able to provide for us, on staffing to try to support the 
sorts of partnerships with state and local governments that I 
have talked about because if there is one huge need that CEQ is 
not fulfilling right now, it is that need.

                       President's FY 2000 Budget

    Let me give you one example in the president's proposed 
budget for fiscal year 2000. The governors of the West Coast 
states--California, Oregon, Washington and Alaska--wrote the 
president and said we would like you to create a coastal salmon 
restoration fund for the entire West Coast and we would like 
you to provide $200 million a year for six years in the form of 
grants to the governors' offices to be used by state and local 
government in a partnership with the federal agencies to try to 
promote salmon restoration and habitat restoration in Oregon, 
Washington, California and Alaska.
    And in the president's proposed budget there is a proposal 
for $100 million to be split between the four states and the 
treaty tribes of the Northwest to begin this partnership 
program. And the four governors have said that we do not want 
red tape. We want to have this money directly, but we want to 
make sure that there are standards, that this is done in a 
scientifically valid way, and we want it to be coordinated by 
CEQ because CEQ we view as the best single partner in the 
federal government.
    If that program is enacted and the money is provided, we do 
not have anybody on staff. If we have to coordinate that 
program, we will have to shift responsibilities and find a way. 
And I could mention six or seven more partnerships like that 
that we really cannot address.

                          CEQ Problem Solving

    Let me just close by giving you an example or two of the 
kinds of people who come to CEQ. I use these two examples 
because I think they are not the kinds of examples you will 
think of, at least not for people who may think of CEQ as 
solely an environmental organization.
    Last week a fellow named Denny Scott came to see us. Denny 
Scott is in the organizing department of the Brotherhood of 
Carpenters in Oregon and worked very hard from a labor point of 
view five years ago when the administration was developing its 
Northwest forest plan.
    And Denny Scott came to see us at CEQ because he wanted us 
to try to find a champion for expanding the Jobs in the Woods 
program in the Northwest from forest restoration and from 
dislocation caused by changing timber patterns, to try to 
create a program in which salmon restoration and particularly 
any money that went from the federal to the state government 
for salmon restoration would be tied to creating new quality 
jobs, professional jobs, trained people to work on salmon 
restoration, groups of workers who would ally with a contractor 
who would be able to do specialized work.
    And I said to him, well, why did you not come to the Labor 
Department? Why did you not come to the Commerce Department? 
Why are you coming to CEQ? He said that CEQ is charged with the 
responsibility for overseeing the implementation of the 
president's forest plan of the Northwest. CEQ has the big 
picture. CEQ is the place where you see these things come 
together. And if the original Jobs in the Woods concept is to 
be expanded to salmon restoration, then somebody who really 
sees the big picture has got to make that happen.
    And you can make this happen with the Labor Department and 
you can make this happen with Commerce and you are the people 
who can say to the governors if we are going to give you grant 
money for coastal salmon restoration, a key criteria here has 
to be that some of the money goes for those projects that 
create new, high quality jobs. So we are coming to you at CEQ.
    Similarly, the longshoremen in New Jersey came to us when 
they feared that conflicts between federal agencies were going 
to prevent dredging in New Jersey and New York harbor and that 
new port facilities were going to go elsewhere. They could not 
get any satisfaction from the individual agencies.
    So they came to CEQ and said look, our jobs are 
jeopardized. The problem is that the federal agencies are not 
speaking with the same voice. See if you can fix this. And we 
were able to fix it. And over the last two, two and a half 
years, in fact, we have had a situation in which between EPA 
and the Army Corps of Engineers and various other federal 
agencies, the dredging has been allowed to go forward.

                             CEQ's Mission

    So I give you those examples as perhaps nonconventional 
examples to show that CEQ is not simply an environmental 
agency. We solve problems. We try to harmonize environmental 
and economic factors. We try to make agencies work together. We 
try to promote partnerships. And we are the one place, if you 
are a governor or a mayor or a county executive and you are 
having problems with the federal government, where you can come 
to see if you can find somebody to fix those problems.
    And I think that is the way I see the core mission of CEQ 
right now and over the next couple of years. We could easily 
put three or four times as many people to work. As I said, we 
have an authorized limit now of 23 FTEs. I think in the 1970s 
at one point CEQ had 60 people, something like 49 at the end of 
the Carter Administration, 40 at the end of the Bush 
Administration. So, we are an agency that gets increasing 
demands but our budget and our staffing is a lot smaller than 
it has been historically.
    I hope that you will look favorably on the very small 
amount of money that we are asking for to hire another couple 
of people to be problem-solvers in the next couple of years. 
Thank you, Mr. Chairman.
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    Offset Folios 575 to 585 Insert here



    Mr. Walsh. Thank you. Thank you for your testimony.
    We obviously have oversight responsibility primarily for 
funding your department but in the course of your conversation, 
and I apologize for not giving you an opportunity to prepare 
for this question but just take a whack at it, if you would. We 
had a conversation in the office and I neglected to run this by 
you but as you talked about providing big picture solutions to 
things, let me just run this one by you.

                     onondaga lake clean-up project

    I think I may have briefly mentioned that we have a major 
clean-up project in my constituency, Onondaga Lake. After the 
county and the environmental community and the state signed a 
consent decree to resolve this issue, which they all signed and 
testified for and to, we ended up with an agreement it would 
have to be implemented in a period of time that includes the 
EPA, New York State DEC, the state attorney general's office 
because there are some private pollution that needs to be 
resolved that is in litigation, something called the Onondaga 
Lake Management Conference--they set up a not-for-profit 
organization called the Onondaga Lake Clean-up Corporation--the 
Onondaga County Drainage and Sanitation Department. And I 
notice the fortress-like label pin of the Army Corps of 
Engineers here; the Army Corps of Engineers was also included.
    Basically it is a major CSO improvement, upgrade to the 
wastewater plant to reduce a number of chemicals, ammonia and 
others, phosphorus, nonpoint source solution. There is an 
aeration project that is sort of an experimental project, and 
littoral zone improvement and a lot of other things going on 
around the lake.
    So the Army Corps came to me and they said if you let us 
manage this project for you, we will get it done ahead of time 
and under budget. And I am tempted, although I know that the 
Army Corps is noted for dotting all the i's and crossing all 
the t's and making sure that every step is fulfilled along the 
way.
    Just your comment. We have a lot of cooks in the broth 
here. The broth, by the way, is getting better but it is still 
not very nice.
    Mr. Frampton. Well, I am not that familiar with----
    Mr. Walsh. I know you are not.
    Mr. Frampton. And my impression of that particular clean-up 
project is that the principal source is still waste treatment.
    Mr. Walsh. It is primarily wastewater but----
    Mr. Frampton. I know that USDA, for example, I believe has 
done dairy BNPs.
    Mr. Walsh. Yes.
    Mr. Frampton. A variety of----
    Mr. Walsh. Yes, in that watershed they have.
    Mr. Frampton. My own experience with this and a half a 
dozen somewhat similar situations at Interior, whether on the 
West Coast or Florida, is that you need a head chef and you 
need a crew that is willing to work for the head chef.
    Mr. Walsh. You almost need a crew that has to work for the 
head.
    Mr. Frampton. And if you have agencies that are willing to 
work together, then you can create a structure or a process 
that is well fitted to the particular problem and save years 
and a lot of dollars doing it.

                         everglades restoration

    When I started at Interior there was no model for 
Everglades restoration, South Florida Restoration Task Force. 
We put that together, in part because of the partnership 
between Secretary Babbitt and the Army Corps of Engineers. The 
Army Corps of Engineers has taken the lead on that and it has 
been absolutely a breathtaking project. You have scientists and 
environmental groups and state sugar industry, federal and 
state agencies, the public, urban communities that need an 
assured clean drinking water supply all on board.
    So I think that it sounds like the sort of challenge that 
can be addressed.
    Mr. Walsh. So when they sit down and they run through the 
percolation charts and the implementation charts, the Army 
Corps is sitting at the head of the table in the Everglades 
meetings?
    Mr. Frampton. In the Everglades meetings we created a task 
force that works by consensus. But the Army Corps of Engineers 
has been the leader and the Corps made a fundamental commitment 
at the beginning to operate the project with the resource 
agencies at both the state and federal level as their clients 
and their advisors. That is what it took to get everybody 
together.
    Mr. Walsh. Fair answer. All right, back to our 
responsibilities here. And thank you for that. That is helpful.

                           ceq fy 2000 budget

    You have asked for $3,020,000, which is exactly what you 
asked for 1998, 1999 and 2000. Congress did provide an 
additional sum over the 1998 level and stipulated that at least 
$100,000 of that $175,000 be directed toward NEPA reinvention.
    Have you used any of this increase to hire additional 
staff?

                            nepa reinvention

    Mr. Frampton. We have not yet, Mr. Chairman. What we have 
done is to try to shift around responsibilities among existing 
staff, to try to do more of the NEPA reinvention work. 
Originally, I believe, a year ago there was a proposal for a 
significant amount, more than the $100,000. What we are going 
to do is hire a staff person, an additional staff person, in 
the spring, in the next couple of months.
    One of the major things that I think the committee wanted 
us to do on NEPA reinvention with this additional money, and we 
have gone forward to do this in the last few months, is to try 
to address the issue of pipeline construction, specifically, 
permitting and NEPA work.
    We have done that with the agencies and we have pursued a 
number of other NEPA reinvention projects, but we have not yet 
hired any new staff. Partly, I have to say, that is the result 
of my coming on in November when we got the money and trying to 
do a two-year set of priorities, to look at what we need to do 
and what kind of staffing we need in the next two years. 
Unfortunately, that has probably delayed by a couple of months 
the process of new hiring.
    Mr. Walsh. So your intent is to hire an additional person 
with this expanded natural gas pipeline network?
    Mr. Frampton. No, we are doing that with existing staff. 
What we have done is to meet with the industry, learn what 
their concerns are, and I can go into that in more details, but 
we met with the agencies, we drafted an MOU, so we have moved 
ahead using existing staff on that particular reinvention 
project.

                        ceq partnership program

    Mr. Walsh. You noted in your budget justification that the 
key new initiative for CEQ in fiscal year 2000 will be a 
partnership program. Would you please explain that?
    Mr. Frampton. Well, Mr. Chairman, I see the great expanding 
area of demand on CEQ to be the demand from state and local 
government for some voice to make sure that on virtually every 
issue of federal environmental policy that there is effective 
partnership between state and local government and federal 
agencies, and the example I gave of the salmon program is one.
    But we probably get three times as many requests for help, 
working with state and local government and the ways in which 
the federal agencies relate to them as we can even address.
    And as I think you are aware, in the president's budget, 
proposed fiscal year 2000 budget, there are a number of major 
new partnership initiatives that have been proposed. One is the 
Lands Legacy program. The president has proposed that the Land 
and Water Conservation Fund be authorized at a full level of $1 
billion a year, of which about $450 million would go for 
federal land and water conservation acquisitions. But about 
$550 million would go for various partnership programs with 
state and local government to acquire park land, green space, 
ag land protection, coastal restoration. The vice president 
also announced, with the president, a very large new initiative 
on livability and smart growth.
    There are about a half a dozen proposed programs or 
vehicles there, all of which require federal agencies to work 
with state and local government.

           partnership programs in president's fy 2000 budget

    Mr. Walsh. Air, land, water? There are a number of these. 
From your perch atop the CEQ, how much do you believe has been 
proposed to be appropriated for these partnerships total, 
systemwide?
    Mr. Frampton. Well, the Lands Legacy is about $600 million 
of money that would go to state and local government for smart 
growth, land acquisition and restoration activities.
    The livability initiative, for example, includes a proposal 
for Better America Bonds, which would be in the tax bill, which 
is a proposal over five years to authorize close to $10 billion 
of bonding authority for state and local government, not only 
to do smart growth but also brownfields restoration and clean 
water.
    So there is another program that would require a fair 
amount of interagency coordination. And right now that will 
come to CEQ if Congress enacts it.
    We have proposed in the EPA budget a new Clean Air Fund, 
which is like an SRF for clean air. It is a $200 million a year 
fund that would allow state and local government to provide 
favorable financing to companies that invest in clean air 
technology and also technology that reduces carbon emissions.
    So there alone is billions of dollars of new partnership 
programs. In each case, money goes to state and local 
government but there is going to be some federal coordinating 
role in this. And right now there is no other place in the 
federal government where there would be any obvious oversight 
or involvement here, other than CEQ.
    Mr. Walsh. This is all new spending. Staff says it is about 
$2.7 billion. All new spending?
    Mr. Frampton. There are new programs. I do not know whether 
$2.7 billion is the total but it is all spending that is 
obviously paid for within the president's budget.
    Mr. Walsh. We have budget caps. I just wanted to throw that 
out, let you think about it for a while. I will then defer to 
Mr. Mollohan.
    Mr. Mollohan. Thank you, Mr. Chairman.
    Welcome, Mr. Frampton. I appreciate your appearance here 
today.

                         clean coal technology

    I have read through your budget justification and your 
testimony and I listened to your oral testimony. I think it 
would be a good thing if the Council on Environmental Quality 
would take up as an issue of concern, in trying to coordinate 
policy with private sector and come out with the right 
solutions, the question of how we use coal in environmentally 
sound ways into the future.
    I am just going to note that you do not mention the word 
``cool'' in your oral or written testimony. Neither is it 
mentioned in your budget.
    My only purpose today is to express the intention on my 
part to open a dialogue with you to get this subject on your 
agenda, to try to work cooperatively with you, and to use the 
good offices of your council--that you market as having real 
expertise in facilitating these balanced policies--to get coal 
into the agenda.
    And just by way of doing that, do you have an appreciation 
for how much power consumed in this nation today is generated 
by coal-fired power plants?
    Mr. Frampton. I do not know the exact number, but I think 
something like 45 percent or 47 percent of our power generation 
is coal. That may be a little high, but that is the number that 
sticks in my mind.
    Mr. Mollohan. Could it be a little low?
    Mr. Frampton. It could be low.
    Mr. Mollohan. I am not going to go into that much further, 
but you ought to familiarize yourself with that subject. It is 
really considerably higher than that.
    Do you have an appreciation for how many years into the 
future it is estimated that we will rely upon coal-fired power?
    Mr. Frampton. I do not have--it is not an area of 
expertise.
    Mr. Mollohan. I certainly understand that.
    Mr. Frampton. I have seen various models of scenarios of 
the likely percentage of electricity generation, let's say, 
that will still be coal-fired twenty, thirty, forty years from 
now, and it will be very substantial under any model.
    Mr. Mollohan. If I would suggest to you it might be almost 
as much as twice the number that you think is now would that 
surprise you?
    Mr. Frampton. Well, if 30 years from now 95 percent of our 
electricity is produced from coal----
    Mr. Mollohan. Well, how about eighty?
    Mr. Frampton. Eighty percent?
    Mr. Mollohan. I said almost twice as what currently was 
produced. I think you said about forty or forty-five. Would 
that surprise you?
    Mr. Frampton. If 25 years from now 80 percent of our 
electricity production came from coal?
    Mr. Mollohan. Right.
    Mr. Frampton. That would surprise me.
    Mr. Mollohan. And that would surprise you that we have 
projections to that extent?
    Mr. Frampton. That would surprise me.
    Mr. Walsh. Would you yield?
    Mr. Mollohan. Yes.
    Mr. Walsh. Are you talking about the United States or 
worldwide?
    Mr. Mollohan. The United States. My point is that we are 
going to be relying upon coal-fired electricity far into the 
future. And if you start with that premise, then it seems to me 
that the only way you are going to get around that is to 
dramatically change the lifestyle and the standard of living of 
Americans. And what do I mean by that? You are going to turn 
out a lot of lights. And people are not going to do that.
    So, with that as a starting point, it seems to me that we 
need to bring the subject of using coal into the debate. Weneed 
to bring it into your considerations--how you balance policy, and make 
it a priority concern. This should be your council, because as you 
advertise yourself, you are in the business of setting policy and 
accommodating conflicting interests. And so I would really invite you 
to do that, and I intend to follow up on that with you.
    As I note, this does suggest that there is a conscious 
decision on somebody's part to not even mention the word 
``coal.'' You are a nuts-and-bolts, council, working people's 
water problems, salmon issues and the like, I am impressed with 
how hands-on you really are in solving problems.
    However, this is a huge problem. I think I am giving you a 
lecture instead of the question, but I think that may help us 
establish the kind of relationship I want. The issue is how do 
you get power companies to either retrofit old power plants, 
which is a very difficult issue, or to build new power plants, 
which is easier to incorporate clean coal technology into? How 
we incentivize them to do this--that is really the solution to 
the problem.
    But what we are also talking about is reducing emissions, 
and how that cost is borne. You talk about environmental policy 
as being an economic boon to the economy. In the aggregate, you 
may have a good argument. As it relates to sectors of the 
economy, however, you have a very bad argument because it has a 
devastating effect on certain sectors of the economy.
    Mr. Frampton. Well, I would welcome opening a dialogue with 
you on this. I would just like to say that this is not my area 
of expertise, but my impression both from the Interior 
Department and coming back into the Government in the last few 
months is that this administration has made a pretty 
significant commitment to the clean coal program. Just speaking 
before the hearing--and you mentioned the administration has 
asked for less money for 2000, but in a way, the reason for 
that is the success of the program; because of the 40 selective 
clean coal technology projects, 38 are fully funded. The other 
two do not need money for 2000. They need construction money 
for 2001.
    Mr. Mollohan. What is the measurement of success of the 
clean coal technology program?
    Mr. Frampton. Well, I think one measure of success is that 
a very substantial percentage of coal plants now in the United 
States use cleaner burners that came out of this program. But I 
will say that another measure of success is going to have to be 
whether American companies are able to be competitive in world 
markets, because the last time I really looked at this, which 
was 2 or 3 years ago, when you look at the huge demands 
internationally--China, India--for clean coal, and I know you 
are skeptical about climate change issues, but----
    Mr. Mollohan. Well, I do not----
    Mr. Frampton. You know, coal is--China is going to develop 
with coal, and clean coal is absolutely key here. The companies 
that are competing in those technologies, the ones that are 
actually--the technology for some of the clean coal 
demonstration projects in this country are coming from Germany 
and France and the Scandinavian countries. So I think a big 
test of this is not only whether the technologies, which are 
not, by and large, able to compete in the market, or they were 
not 4 or 5 years ago without government funding, whether they 
emerge as market technologies and whether American companies 
benefit competitively from these projects. I think those are 
probably the two biggest measures. Obviously the jury is out.
    But my impression is--I mentioned to you that the first 
year that I was at Interior, I worked very hard to make sure 
that one of the first of these projects, the clean coal plant 
on the border of Denali National Park, actually went forward, 
which it was not going to do without some intervention by the 
Interior Department. And that has been a terrific success.
    So I appreciate the value of this program, and there is the 
advanced coal technology program, and there are other areas 
that--carbon sequestration, we have asked for additional money 
in the context of that program.
    My impression is not that the administration is ignoring 
this issue, but it has made a commitment to clean coal and the 
advance of clean coal technology. We may disagree about that, 
but that is my impression.
    Mr. Mollohan. Well, I hope we are not disagreeing about 
anything at this point. If you start from the premise that 
everything is okay with the administration's policies regarding 
the use of carbon-based fuels for the generation of 
electricity, then we do not have any place to go with this. To 
what extent are power companies retrofitting or building new 
power plants, incorporating technologies that really would 
achieve desired and required results?
    That is the more direct measurement, not whether we are 
doing a project up in a wildlife refuge, to be honest with you. 
There is a more practical measurement in terms of scale and 
meaningfulness to the economy than whether we have a successful 
demonstration project in a particular place. Can we 
economically incorporate these technologies and use our coal 
resources?
    I have taken up too much time to get at this, but I do look 
forward to working with you on these issues. They are 
enormously important as the Administration pursues a very 
aggressive environmental policy. I may agree with you on a lot 
of these things. My concerns are how we implement them and that 
we are sympathetic to the economic effects.
    Thank you, Mr. Chairman. Sorry to take up so much time.
    Mr. Walsh. Thank you.
    Mr. Sununu?

                            nepa reinvention

    Mr. Sununu. Thank you. Good morning, Mr. Chairman.
    A point of clarification. You mentioned $175,000 for NEPA 
reinvention, but you have not hired any staff with those funds. 
What did you use those funds for?
    Mr. Frampton. I did not mention $175,000. I believe that 
the committee--I may be wrong----
    Mr. Walsh. If you would yield for just a second, the 
subcommittee provided an additional $175,000 and earmarked 
$100,000 for NEPA reinvention.
    Mr. Frampton. That is for fiscal year 1999.
    Mr. Sununu. And the question stands. If not used for new 
staff, what were the funds used for with regard to NEPA 
reinvention?
    Mr. Frampton. Well, the funds have been used so far to try 
to move existing staff onto these projects within the overall 
allocation. To be honest about it, $100,000 does not allow this 
agency to hire, necessarily to hire a new person on an 
annualized basis. But we do have money to hire new staff, and 
as I said, that is partly a weighted sort of planning for the 
next 2 years, developed over the last 60 days since I started. 
But what we have done is gotten to work not only on the project 
that the committee wanted us to work on, which relates to 
trying to make gas pipeline permitting, not only the NEPA 
process but the permitting process, streamline it and make it 
work better, but on a handful of other projects as well.

                           SALMON RESTORATION

    Mr. Sununu. You mentioned the Governors' request, the four 
Governors on the west coast, for the salmon project. They 
requested that you participate. Was that request made in a 
formal way?
    Mr. Frampton. Yes, in a letter to the Vice President and 
the President, asking that the Chair of CEQ and CEQ staff 
actually supervise or coordinate both the fund and the 
relationship between the Federal agencies and the States.
    Mr. Sununu. It was done in a letter that the four did sign?
    Mr. Frampton. Yes.

                         CEQ Breaking Gridlock

    Mr. Sununu. You described the situation with the 
longshoremen where you fixed a problem on behalf of the 
longshoremen. In that particular case, my question is: What was 
the nature of the fix? Was it that agencies were 
misinterpreting existing statutes or that you found a way to 
avoid the statute?
    Mr. Frampton. Well, I do not think CEQ has been engaged in 
any strategies to violate or avoid environmental laws. This was 
a little bit before my tenure. The fundamental problem was that 
over a period of time, environmental lawsuits had prevented any 
further dumping of dredge fill in a site in the Atlantic, which 
made it impossible to keep dredging in the harbor. And CEQ 
basically worked with the parties to the lawsuits and the 
Federal agencies to find an alternative and a scientific 
validation of the alternative for the deposit of the dredge 
fill in a different place that would be environmentally 
appropriate, and so the dredging could go forward. That is the 
shorthand of my understanding.
    I am not saying that this is rocket science. I am saying 
that sometimes you just have gridlock, and it takes somebody to 
come in and work on the problem. That is what we did.
    Mr. Sununu. Did that experience in your mind reveal any 
underlying problems with the existing statutes that a project 
or process--in this case, dredging--would have, without your 
intervention, been prevented from moving forward?
    Mr. Frampton. Well, we have an underlying structural 
problem which is created by the fact that many of the 
environmental laws, regulatory laws that help keep our air and 
water clean were passed in the late 1960s and the early 1970s, 
at times when we were focused on one issue at a time. And now 
we find that the kinds of problems that we are dealing with--
the easy problems got solved to some extent in the last 25 or 
30 years. The problems we are dealing with now run across these 
laws. But there is no institutional framework for agencies with 
different laws and different missions trying to get together to 
tackle these systemic regional problems. This is a perfectly 
good example.
    CEQ was not designed with this in mind. It was not enacted 
with this function in mind, but it has come to be the one place 
in the Federal Government that can play this role.
    Mr. Sununu. Notwithstanding the fact that----
    Mr. Frampton. It is not very specific, but that is the 
nature of the problems that we work on, is that we have not re-
enacted our individual environmental laws to take account of 
the problems we face today.
    Mr. Sununu. But notwithstanding the fact that I am sure you 
enjoy your current position, don't you find it bothersome as a 
citizen that we have a regulatory structure that allows for 
progress only when an agency like yours is empowered to cut 
across all of these lines or to find solutions or cut through 
red tape? Isn't that an indication that there is a very 
significant institutional problem with the laws and regulations 
that you alluded to?
    Mr. Frampton. Well, I cannot agree that we have a 
regulatory system that works only in those cases because I 
think our regulatory system has worked terrifically well to 
provide cleaner water and cleaner air and to deal with some 
very important public health problems. But, yes, we do have a 
systemic problem, but it is a systemic problem that could only 
be remedied by an extraordinary cooperative collaboration 
between the executive and legislative branches.
    Right now we are in a situation where even these basic 
laws--the Clean Water Act, the Endangered Species Act--cannot 
be reauthorized--Superfund--because there is not enough 
collaboration between the executive and legislative branches to 
get to the point where everybody is ready to do what I would 
call sort of a centrist reform reauthorization of the 
individual laws. We are far short of any kind of a 
comprehensive new generation of environmental and natural 
resource regulation. We are not even close to that. But I do 
not know that either branch of Government is to blame for that. 
But we do have a systemic problem, but I am not embarrassed 
about that from--from the country's point of view, perhaps, but 
not from the executive branch's point of view.

                          SUPERFUND LITIGATION

    Mr. Sununu. As an advisor to the President on these 
environmental matters, do you have an opinion, with regard to 
the application of joint, several, and retroactive liability to 
municipalities in the Superfund litigation?
    Mr. Frampton. Well, I want to make sure that that is a 
question that I have a chance to respond to in writing 
[Laughter.] But I will tell you what my----
    Mr. Sununu. Duly noted.
    Mr. Frampton. I will tell you what my impression is of the 
status of Superfund from another vantage point. This 
administration worked very hard in 1993 and 1994 to help to put 
together a centrist reform package in Superfund, and there were 
big polluters and there were insurance companies, there were 
environmentalists, there were State and local government people 
who were all on board. And then after the 1994 election, that 
effort fell apart.
    At this point, you know, it is not clear that there is ever 
going to be reassembled that kind of centrist coalition for 
reform. In the meantime--
    Mr. Sununu. I appreciate the difficulty----
    Mr. Frampton [continuing]. The administration is not an 
administrator.
    Mr. Sununu. My question is a very specific one, and please 
respond in writing, sort of what is your position as an advisor 
on these issues as to whether or not municipalities should be 
subject to the often very damaging impacts of joint, several, 
and retroactive liability.
    Mr. Frampton. I would be happy to respond in writing.
    Mr. Sununu. Thank you very much.
    Mr. Frampton. Thank you.
    Mr. Walsh. Mrs. Meek.
    Mrs. Meek. Thank you, Mr. Chairman.

                        HOMESTEAD AIR FORCE BASE

    Welcome to our committee. I am following up on something 
that has been sort of in my purview since I started on this 
subcommittee, and at this point I have been unable to get it 
resolved. I am beginning to feel badly about my inability to 
get these problems resolved. Each of us as Congresspersons have 
a very strong local and State responsibility in trying to 
coordinate the Federal piece with the local officials.
    My problem comes up as a result of the former Homestead Air 
Force Base, which is now a Homestead Air Reserve Base. I have 
not been able to get the coordination which you so strongly 
emphasized today, that you are striving so hard to reach, from 
CEQ and the local officials in my jurisdiction.
    Let me explain it to you, and I will submit it for the 
record.
    You have emphasized in your presentation a new way of doing 
business, and I welcome you to CEQ with this new way of doing 
business. I just want you to be sure that there is some policy 
coordination, if possible, between the agencies which you seek 
so stridently to try and coordinate.
    I know we have a vote coming up, Mr. Chairman, and it is 
going to take me longer to do this.
    Mr. Walsh. We have 10 minutes, so after about 5, we will 
break.
    Mrs. Meek. Okay. I have been disappointed with CEQ's 
ability to coordinate in most of the problems we are having in 
South Florida. You have done a good job with the Everglades. I 
want to commend you on that. But the other big problem which is 
continually there is the one of the Homestead Air Force Base.
    There has been a longstanding dispute in that area between 
the FAA, the Federal Aviation Administration, and the 
Department of Interior over acceptable noise levels at this 
base. What, I wonder, has prevented CEQ from taking a higher 
profile in trying to negotiate and trying to help in this 
instance? Because it is an interagency dispute.
    My people back home tell me that CEQ has taken no impact on 
this issue. This has no relevance to you because you were not 
there at the time. But I am bringing it up so it becomes very 
high on your list of looking to see why hasn't CEQ taken a 
stronger impact on this issue. It took 8 months for these 
agencies to even agree on the fact that there should be an 
acceptable noise level measurement. It took them that long on 
noise measurement. They have yet to come to the levels which 
everyone could depend on.
    Then the second thing. There is a canal there called 
Military Canal, which everyone knows about. It has taken so 
much time to resolve the issue of the Military Canal. EPA 
became involved just 3 months ago, but the settlement solution 
to Military Canal has been an issue since I came to Congress 
over 4 years ago.
    So it is really weighing on me now, the fact, Mr. Frampton, 
that CEQ is supposed to be the agency that tries to resolve 
these issues. The Senators from my district have also tried, 
and they are still trying. But we cannot seem to do it.
    Now, I want to talk a little bit about the SEIS at the 
base. We have been praying that the supplemental would 
sometimes happen, at some times. My local people tell me it is 
over 6 months now behind schedule. I read a report from one of 
my Senators which showed that it will not even be completed 
before the year 2000, if then. And this is something that 
started some time ago.
    All I am asking you, Mr. Frampton, is, please, under your 
leadership try and see that CEQ's lead role in this is a 
stronger one and more timely. We are losing sort of a little 
credibility in our district in our area in South Florida, and 
that includes the two Senators and the four representatives 
that are in that area. We have the Defense Department, the 
Interior Department, the EPA, the Fish and Wildlife Service, 
the Park Service--all these agencies are involved in this 
supplemental.
    Now, that may be the reason why we are having such a big 
problem, but since you are on your milky steed now, you are 
supposed to ride in and do something about this. I am calling 
on you and all your staff as a last resort--from what I am 
hearing you say and what I have been able to perceive, you are 
the last court of resort. And we have been there, and we have 
not gotten very far.
    I am appealing to you that you do everything you possibly 
can to not speed up, but just be sure this does happen.
    Mr. Frampton. Well, Congresswoman, I have become aware in 
the last few weeks how frustrated you are about the case of 
Homestead, and I understand that. And as you know from our work 
together on Everglades restoration, sometimes things do not 
happen as fast as you would like. I do have a strong impression 
from the day the President was there with you on the base that 
the administration has really kept its commitment to make this 
base development airport project happen.
    Now, you may look at some of the things that are going on 
and say, well, but it is taking forever to honor that 
commitment, what kind of a commitment is that, and I understand 
your frustration. And I will work with you on this.
    But I think my impression coming in and from being at 
Interior the last couple of years is that the White House's 
commitment and the administration's commitment to make this 
happen remains--and it was firm at the beginning and remains 
firm.
    Now, one of the problems is with the SEIS. You know, I know 
you were not happy with the decision to do it in the first 
place, but my impression is, this is the way we had to do it to 
do it right. And look what happened at the State and local 
level where there were, arguably, some shortcuts in the 
planning process, and now we have the courts set that back 
maybe several years because they did not do it right. I am 
suggesting that----
    Mrs. Meek. If I may intervene for a----
    Mr. Frampton. We are not going to take any shortcuts, but 
we are going to try to----
    Mrs. Meek. If I may intervene, I have read very carefully 
your testimony today, and you mentioned some other areas where 
you were able to come forward with some changes because of CEQ. 
That has not happened in my area, and it has not happened 
because of the lack of coordination between the agencies that 
are involved there. One says one thing, the other says the 
other thing.
    If the administration is committed, as they keep saying 
they are, I am saying get off the dime and be sure that 
something is done. It has just taken an inordinate amount of 
time to get this done. I know we have to wait. We cannot get 
everything done overnight. But I strongly believe that a better 
schedule or sequence of things could be done than were done in 
the past.
    Mr. Frampton. Well, I promise to work with you on this and 
see if we cannot deliver.
    Mrs. Meek. Thank you. I have something else, but I do not 
have the time, Mr. Chairman. I will submit it.
    Mr. Walsh. You better go vote. You have about 3 minutes.
    All right. Mr. Knollenberg?
    Mr. Knollenberg. Mr. Chairman, thank you.
    Mr. Frampton, good to see you again. I want to thank you 
for making an appearance in my office a few days ago. We got 
into some discussion about some items that are of importance to 
both of us. And I remember at that meeting I think you 
described the CEQ as the umbrella that coordinates the 
administration's environmental policy; in other words, you work 
with other agencies in order to ensure some kind of coherent 
environmental policy. That is briefly, I think, what you said. 
Does that sound----
    Mr. Frampton. I hope----
    Mr. Knollenberg. It sounds reflective of what you did say? 
Okay.

                             CLIMATE CHANGE

    Let me talk a little bit about an issue that I know has 
come up probably previously--I was tardy, attending another 
hearing--and that is the climate change issue. No stranger to 
either one of us.
    In the 25th anniversary report of the Council on 
Environmental Quality, your agency states--and I want to kind 
of paraphrase that--in fact, I am not paraphrasing. I am 
reading it literally, and I will include that, of course, in 
writing for the record. ``Despite the substantial success of 
actions under the plan, it now appears likely that the U.S. 
will fall far short of the original goal of returning net 
greenhouse gas emissions to 1990 levels by the year 2000.'' You 
are well aware of that, I know.
    ``Stronger than expected economic growth and lower than 
expected energy prices have pushed energy use higher, thus 
requiring greater reductions than initially called for in the 
plan to achieve stabilization at 1990 levels.'' That is on page 
218 of book which I have right here.
    Although I know this was written 4 years ago and it was not 
under your watch, this passage alarms me substantially. It 
sounds to me like the CEQ would prefer a weak economy or a 
stagnant economy with little or no growth. And, you know, the 
President is happy with the economy, the Republicans are happy 
with it, the Democrats are, and I think the people are. It 
appears from this passage that CEQ appears to be one of the few 
that is disheartened by this.
    Russia, for example--I bring Russia up as an example--is 
going to be able to meet the 1990 target or the Kyoto Protocol 
targets. But, obviously, you know Russia is in a shambles 
economically, environmentally, and otherwise. And that is how 
Russia is able to meet these targets.
    I could point to some more industrialized progressive 
countries who are meeting it in other ways, nuclear being one, 
but it almost appears to me that the CEQ likes the Russian 
model of economic disaster. And I presume they do not, but I 
would like for you to tell me: Does CEQ still stand by that 
passage? I know it was not on your watch, but it is in the 
book. I would like to have your reaction.
    Mr. Frampton. Well, from your quotation, Congressman, I do 
not hear that----
    Mr. Knollenberg. It is in the book.
    Mr. Frampton. I do not hear that as a value-laden 
statement. I hear that as an observation that was made about 
economic trends and prices and carbon emissions, which 
continues to be a true, factual statement of what is happening. 
We have had terrific growth in this country, we have had low 
energy prices, and we have had increasing carbon emissions 
rather than reducing carbon emissions.
    Mr. Knollenberg. And a booming economy.
    Mr. Frampton. And a booming economy. But that is not--I do 
not read that as a value-laden statement.
    Let me say this: I think everybody recognizes, whether or 
not they agree that the administration is implementing these 
values, that the environmental program of President Clinton 
from the beginning has been to try to meet significant 
environmental goals while still meeting economic and social 
needs of the country. And I think----
    Mr. Knollenberg. Let me talk about that point--
    Mr. Frampton. You asked about the climate program. I think 
our climate program actually embodies those values when you 
look at what the administration is doing on this subject, 
whether it is investment in technology or renewable energy, tax 
credits for efficient building equipment and automobiles, or 
this year's new proposed----

                             KYOTO PROTOCOL

    Mr. Knollenberg. Let me interrupt you. I understand the 
direction you are going here. I am going to remind you of a 
couple things, one being the Byrd-Hagel resolution which says 
very directly--and it was passed by a vote of 95-0--that the 
Kyoto agreement should not be signed if it does two things, 
very simply: one is if it impacts negatively the American 
economy; and, number two, it does not include the developing 
world, it includes just the industrial world. And the 
administration signed that treaty. They looked the other way 
from the Senate.
    Subsequent to that, in the 105th Congress, in last year's 
bill there is language worked out by Mr. Mollohan, myself, and 
Senator Byrd that prohibits--and we can read that language, 
too. I know you are familiar with it. I notice that it is 
bracketed in the bill that the administration--I should say the 
budget that the administration had submitted, suggesting to me 
that it is being deleted, that that language is being deleted.
    It tells me, then, that there is some movement afoot to 
implement, as you and I have talked about, the Kyoto agreement 
through the back door via a number of methods.
    Now, you and I have talked, and you have said that the 
administration is going to lean away from implementation. But 
these are steps that bother me, that concern me, and I believe 
that it points out that while it may not be the Russian model 
you are subscribing to here and that was in the book, it 
suggests that there is still a movement to in some fashion 
craft, confect, or carve out ways to implement this treaty.
    Let me just very quickly remind you, too--and I know you 
know this--that this language that was worked out that is in 
the bill passed the House by 409-14. It was overwhelmingly 
supported in the Senate by a vote of 96-1. So this prohibition 
is, I think, pretty clear. It is bipartisan. The President 
signed it. And so I stop there and say to you, maybe with a 
question: Is CEQ planning to issue any rules, regulations, 
decrees, or orders for the purpose of implementation--and I am 
just reading the words--or in preparation for implementation of 
the Kyoto Protocol? That was the language worked out with Mr. 
Mollohan, with SenatorByrd, after a considerable length of 
time.
    So the question is: Does CEQ plan to issue any regulations, 
rules, decrees that would implement it?
    Mr. Frampton. The answer to that is no, and I am glad you 
asked this question so that I could put our position once again 
on the record and reiterate the conversation you and I had when 
we were off.
    Neither CEQ nor any other----
    Mr. Knollenberg. Nor EPA?
    Mr. Frampton [continuing]. Department or agency of the 
executive branch has any intention to do anything to pre-
implement the Kyoto Protocol, and as I said to you, I think the 
administration is very clear and very conscious of not only the 
law, but the policy dictate. It has adopted the policy dictate 
that we are not going to pre-implement the Kyoto Protocol; that 
there is a bright line between steps to pre-implement the 
protocol on the one hand and the things that the administration 
is doing right now, it proposes to do.
    In fact, I said to you that I was going to convince you and 
get you to agree with me by this summer that everything that we 
are doing----
    Mr. Knollenberg. Are you watching your clock?
    Mr. Frampton [continuing]. Falls far short of pre-
implementation, including our investment program, our clean air 
fund, and even the actions that the Senate is beginning to take 
a look at the credit for early action.
    So we are very conscious of that bright line, and we are 
going to stay on the side which the President laid out last 
year. It was 5 years of voluntary incentives and other actions, 
investments and incentives and voluntary actions to try to 
reduce greenhouse gas emissions, which is a goal of a ratified 
treaty.
    Mr. Knollenberg. Yes. Well, there are two questions.
    Mr. Frampton. We are aware of that, and we are going to 
stay short.
    Let me respond to your questions about why that is----
    Mr. Knollenberg. Why the language is deleted?
    Mr. Frampton. Correct.
    I think it says very clearly in the President's budget that 
we have no intention of doing anything different, but in the 
view of the administration, it is a matter of comity between 
the executive and the legislative branch. We regard that as a 
rider. We took a very strong position last year and continue to 
take a strong position about the riders, and we are, therefore, 
not proposing----
    Mr. Knollenberg. Well, if the President signed it, why not 
just keep it in there? It is in there now.
    Mr. Frampton. Well, in the final analysis, the President 
signed a bill that included a lot of things that the 
administration does not support and would not propose.

                    CO2 Green House Gases

    Mr. Knollenberg. Let me ask you one final question here. 
This attaches itself specifically to the CO2 
question. Is the CEQ planning to issue again--and I am going to 
read the rule or read the language as it is stated in the bill: 
``any rules, regulations, decrees or orders regarding 
CO2 or greenhouse gases or climate change.'' This is 
a bit of expansion on the previous question because now we are 
talking more specifically about CO2.
    I asked you the question in my office with respect to is 
there an effort being made to include CO2 as a 
pollutant, consider it as a pollutant under the Clean Air Act. 
I think at that time, it was kind of murky. You were not clear 
as to where I had heard that or why that would be something 
that we would be thinking about, but, very honestly, we have 
heard a fair amount about it, if not through Chafee and 
Lieberman, that bill perhaps through some other potential 
legislation which may or may not have been introduced or may 
still be in the formative stages, but is there any plan to 
bring CO2 under the CEQ, or, to your knowledge, 
under EPA?
    I know EPA is one of those agencies you work with to 
umbrella all of these things. So that is why I ask the question 
to you.
    Mr. Frampton. Well, CEQ is not a regulatory agency, sir. 
When you asked whether there is any plan to create 
CO2 within the gambit of the Federal Government, the 
administration has a very aggressive plan of including climate 
change technology initiatives and various other programs that 
are in the budget that are designed to structure programs of 
health, reduce CO2. So, obviously, carbon dioxide is 
an issue in DOE's budget, in EPA's budget. It has been for many 
years.

                        Credit For Early Action

    On the question of the credit for early action legislation, 
you and I discussed the proposal that was introduced last year 
that is going to be reintroduced for credit for early action in 
the Senate Environment and Public Works Committee by Senators 
Chafee, Mack, and Lieberman, they take jurisdiction because of 
their jurisdiction over EPA and the Clean Air Act.
    The President did say in his State of the Union message 
that we would like to work with the Congress to consider credit 
for early action legislation, but how that would be done, 
however, is really up to the Congress. It will be done only if 
there is bipartisan support for it.
    Mr. Knollenberg. Yes. The Congress' concern, there is a 
strong correlation here between all the studies that have been 
conducted. The Department of Energy, in fact, has had six lab 
studies that prove that this is going to be, if it is 
implemented--and that is why we are so concerned about what 
back-door potential there might be for implementation, what the 
impact would be on the economy if we do not include the 
developing nations of the world in some fashion.
    I mentioned China and India and Mexico and Brazil as coming 
to a component of some 40-plus percent of the world's 
population who are getting a free ride.
    So it is a concern of ours, and we do not want to see a 
policy, a directive, that looks in the direction of making a 
punk economy the goal, and if any of this were to move in that 
direction--I know that you will tell me that that is not the 
intention, but that is our concern about why this language is 
deleted, why it is bracketed. Why not just leave it alone? 
Because, frankly, with the voluntary actions that are being 
taken, we could probably reach a goal that you and I would both 
agree is on the right track, and it does not harm the economy 
because we know it does not.
    Mr. Frampton. Congressman, we have differences over issues 
related to climate, you and the administration, related to 
climate policy, but how could anyone say, given particularly 
your view that this has been an administration that has pushed 
hard on climate issues, harder than you would have liked 
perhaps, been pushed hard on a number of other environmental 
issues--this administration has been very directly and very 
aggressively identified with environmental protection. I think 
that is fair to say.
    Look at what has happened with the economy in the last 6 
years. How could any reasonable person----
    Mr. Knollenberg. You attribute that to the economy? Could I 
interrupt you? I think you and I have a difference of opinion 
on that one, too.

                  Economy and Environmental Protection

    Mr. Frampton. But how could any reasonable person say that 
this administration has not only held up the value, but 
realized the value of having a strong economy and environmental 
protection at the same time when you look at the last 6 years? 
What other administration in the last 25 years has been able to 
say we took aggressive steps to protect the environment and we 
made the economy go? And those two things happened.
    Mr. Knollenberg. I think we could carry this on for some 
time. I do not want to get into somebody else's time, but let 
me just say, you have given me the assurance that you would not 
cross that line, and I would just tell you that our 
responsibility is to make sure that you do not. We will be 
watching every step of the way, as I am sure that you will be 
pushing from the other direction. I guess good policy is a 
result of opposing forces, but I do see some opposing forces 
here that I think we may be able to soften a little bit so that 
there is progress, but it is done in a fashion that is 
voluntary and not so much pushed by targeted tax cuts that very 
honestly costs. That costs money in the end, and taxpayers are 
floating that bill. It only benefits a few. It does not benefit 
as many as we could possibly do under, say, some other methods.
    Anyhow, I think you have answered the questions to the 
extent that I would expect at this time, and I look forward to 
working with you.
    Mr. Frampton. Thank you.

                               Clean Air

    Mr. Walsh. I have two observations before I go to Mr. 
Price.
    One, having just visited India and having been there 30 
years ago, they are going backwards fast, and we really do 
need--if there is going to be an international agreement on 
air, we have got to do something if, for no other reason, to 
help those poor people deal with the emphysema and all the 
other lung diseases that are occurring where the air is 
absolutely foul in any city more than a half-a-million people 
in India. I am sure that is throughout Asia.
    By the way, we may agree environmentally on more than Joe 
and I agree on, but I have to say that there is no question 
that some of our environmental policy has pushed a lot of the 
dirty business out of the United States overseas or offshore, 
so that while we have improved our own environment, we have 
damaged in some instances the industrial sector of the country.
    If you would care to respond, go ahead. If not, I will go 
to Mr. Price.
    Mr. Price? [Laughter.]
    Mr. Frampton. That sounds like another half-hour dialogue, 
Mr. Chairman.
    Mr. Walsh. It does.
    Mr. Price. I will be very quick. I apologize for my late 
arrival. We have multiple hearings going, but I do want to add 
my welcome to you as the prospective chairman of the Council on 
the Environmental Quality. I have had positive interactions 
with your office in the past, and I look forward to that 
continuing.

                        American Heritage Rivers

    One CEQ program I have been particularly interested in is 
the American Heritage Rivers initiative. There was initially, 
and may still be, some misunderstanding about the scope of this 
program and some suspicion about its intent. From my point of 
view, I think it is a good program, and it, in fact, is an 
example of how the Federal Government can work cooperatively, 
providing local communities with the resources they need to 
help achieve locally defined goals. That seems to be the way 
the program is designed, and in my experience the way it has 
worked.
    I was very pleased to learn last year that the New River in 
North Carolina would be one of the first American Heritage 
Rivers. The new river does not flow through my district, but it 
is an important waterway in the western part of our State, as 
well as in Virginia and West Virginia.
    I am not sure if you have already touched on this American 
Heritage Rivers program this morning, but in any event----
    Mr. Mollohan. It is the oldest river in the Nation.
    Mr. Price. Yes. As Mr. Mollohan says, it is the oldest 
river in the Nation, and it is one of 10 in this initial group 
of designated rivers.
    I wonder if you could briefly give us an update on how this 
program has worked so far, and I hope you can comment 
particularly on any successes or challenges associated with the 
New River.
    Mr. Frampton. Well, Congressman, thank you for asking the 
question.
    I gather that last year, there was some suspicion about the 
American Heritage Rivers program as some sort of threat to 
private property rights. Frankly, I just cannot understand that 
because it seems to me that a program that is lighter on 
Federal involvement, with no new Federal programs, no new 
Federal money, that is more voluntary and more designed to rely 
on local action could hardly be imagined I think this is a 
terrific program.
    It is basically designed to encourage and catalyze local 
governments, private businesses, non-profits to organize around 
river segments and both clean up and economic development, come 
forward with a promise that the people who did that would 
hopefully get some opportunity to get a little more coordinated 
Federal help.
    In fact, the experience with the program has been terrific. 
I think there were 120 or 125 applicants from what were 
originally going to be 10 designated rivers, 500 mayors, 200 
members of Congress, more than 20 Governors sponsoring these 
applications, and we ended up picking 14 rivers to designate, 
not 10.
    I went to the first signing of a memorandum of 
understanding about a month ago for the Rio Grande River. It 
was in the Old Executive Office Building. It was a signing of a 
piece of paper. There were hundreds of people there, 
Congressman Reyes and three or four mayors, business people 
from Mexico and the United States, environmentalists, and 
Federal officials. They thought this was great, and they are 
focussing on education. That is one of the three or four things 
they are focussing on.
    So we are getting going with this program, and I think what 
we have done is we have created a tremendous amount of impetus 
for local people to work together.
    I know that the New River has gotten a Federal grant, but, 
actually, I think on the New River, one of the major things 
that has happened is State money has been forthcoming, at least 
a $350,000 or $400,000--I do not remember exactly--grant that 
came primarily because of the action plan that was put together 
by the parties there.
    So it is not just a matter of people applying for Federal 
goodies. When you have people at the local level getting 
together and saying how can we get organized and do something 
good in our community, around a river, that you never know 
where the benefits are going to come from.
    Mr. Price. Just briefly, what are the plans beyond this 
initial 14 designations?
    Mr. Frampton. Well, right now, we have no plans to 
designate any additional rivers, as far as I know. We really 
need to show that this can be effective, and what we are in the 
process of doing is trying to complete the memorandums of 
understanding between Federal agencies for each of the rivers, 
to find so-called river navigators, the Federal coordinating 
person for each river, and an agency that adopts the river and 
helps to coordinate Federal programs.
    So I think for the next year, we are really going to focus 
on showing these 14 can make a difference.
    Mr. Price. Good. Thank you.
    Mr. Walsh. Thank you, Mr. Price.
    Unless anyone else has any further questions----
    Mr. Knollenberg. Mr. Chairman, I do have a couple of 
questions. I will submit them in writing for your response.
    Mr. Frampton. Thank you.
    Mr. Walsh. Without objection.
    Mrs. Meek also had a question, and we do, also.
    So thank you very much, Mr. Frampton for your time today, 
and we will do the best we can.
    Mr. Frampton. Thank you. Thanks for the water glass, too.
    Mr. Walsh. No problem.
    [Questions and answers of this panel follow:]
    Offset Folios 632 to 715 Insert here



                                      Wednesday, February 24, 1999.

                  AMERICAN BATTLE MONUMENTS COMMISSION

                               WITNESSES

GENERAL FRED F. WOERNER, USA [RET], CHAIRMAN
KENNETH S. POND, SES, EXECUTIVE DIRECTOR
COLONEL ANTHONY N. COREA, USAF, DIRECTOR, OPERATIONS AND FINANCE
COLONEL DALE F. MEANS, USA, DIRECTOR, ENGINEERING AND MAINTENANCE
JAMES AYLWARD, EXECUTIVE DIRECTOR, WORLD WAR II MEMORIAL PROJECT
    Mr. Walsh. Our final hearing this morning will focus on the 
budget request of the American Battle Monuments Commission.
    By way of very brief background, the Commission operates 
and maintains 24 permanent American military cemetery 
memorials, 31 monuments, memorials, markers, and offices in 15 
countries around the world.
    Within the United States and the U.S. Commonwealth of the 
Northern Mariana Islands and in the British Dependency of 
Gibraltar, such operation and maintenance requirement include 
care and upkeep of 131,000 graves and headstones, 73 memorial 
structures, 41 quarters, utilities, and maintenance facilities, 
67 miles of roads and paths, 911 acres of flowering plants, 
fine lawns and meadows, 3 million square feet of shrubs and 
hedges, and 11,000 ornamental trees.
    I am not sure why I am reading all of this, but it is here. 
So it is in the record.
    In short, this is a very big and, I should say, very 
important mission in light of what these following men and 
women have sacrificed to preserve the freedom of our Nation.
    For fiscal year 2000, the ABMC has requested $26,467,000, 
an increase of just $36,000 above fiscal year 1999.
    Testifying on behalf of the Commission again this year is 
General Fred Woerner, United States Army [RET].
    General Woerner, we welcome you back to the committee. I 
would note for the record that the Commission's Secretary, 
Major General John Herrling, is ill.
    General, I had a long day yesterday, and I apologize. I did 
not get to my notes until about 10:30 last night.
    General Woerner, please convey the best wishes of the 
committee to General Herrling for a speedy recovery.
    General Woerner. Thank you, sir.
    Mr. Walsh. In a moment, I will ask you to introduce your 
colleagues and summarize your statement. Your full statement 
will appear in the record, and before doing so, I would yield 
to the ranking member, Mr. Mollohan, for any comments he may 
have.
    Mr. Mollohan. I do not have any comments. Thank you.
    Mr. Walsh. Thank you.

                           Opening Statement

    General Woerner, it is your turn.
    General Woerner. Thank you, sir.
    Mr. Chairman and members of the committee, on behalf of the 
commissioners of the American Battle Monuments Commission, I am 
pleased to be appear before you today, and I congratulate you, 
sir, on your appointment as chairman of this committee, and I 
thank you and the Members of the committee for your support 
over the many past years, and in particular for your budgetary 
augmentation of the last 2 years which I will return to.
    With me today are Mr. Kenneth Pond, executive director of 
the American Battle Monuments Commission; Colonel Tony Corea, 
to my rear, Director of Operations and Finance; along with 
Colonel Dale Means, Director of Engineering and Maintenance. 
Mr. Jim Aylward is the executive director of the World War II 
Memorial Project that I will comment upon.
    Gentlemen, the special nature of the American Battle 
Monuments Commission does place it in a unique and highly 
responsible position to the American people. Simply, the manner 
in which we care for our honored war dead reflects the regard 
with which we, as a Nation, hold their service and sacrifice.
    We do this through the establishment of memorial shrines, 
monuments, and military burial grounds on foreign soil.
    The American Battle Monuments Commission maintains 24 
permanent cemeteries and numerous monuments, memorials, and 
markers, as you have said, sir, in 15 countries around the 
world.
    We have eight World War I cemeteries, 14 World War II 
cemeteries, and these are located in Europe, the Mediterranean, 
North Africa, and the Philippines.
    We also, in addition to these, are responsible for American 
cemeteries in Mexico City and in the Republic of Panama.
    Interred are approximately 125,000 service men and women 
from the Mexican War, World War I, and World War II. Also, 
there are about 5,000 American citizens interred in our 
cemetery in Panama.
    Finally, we have honored 94,000 more service members by 
inscribing their names on the walls of the missing, those that 
were missing in action, lost, or buried at sea.
    The care of these cemeteries and memorials requires a 
significant annual program of maintenance, repair of 
facilities, equipment, and grounds. This maintenance is 
extraordinarily labor-intensive, and therefore, our personnel 
costs account for a full 62 percent of our budget that we are 
requesting for fiscal year 2000.
    The remaining 38 percent of our budget must fund our 
operations in total, engineering, maintenance, utilities, 
supplies, equipment, and administrative costs.
    During fiscal year 1998, as part of our Strategic Plan, and 
at the request of the Office of Management and Budget, we 
conducted the first comprehensive manpower survey of the 
European and Mediterranean cemeteries since 1982. This study is 
helping us define manpower requirements for each of our 
cemeteries.
    To ensure that we continue to maximize the streamlining 
opportunities and to take advantage of technology, automation, 
and outsourcing, we are going to conduct this year, along with 
OMB, a joint review of this manpower survey. It is our 
intention to constantly work towards the improvement of 
management to maximize savings.
    The Congress has been extraordinarily instrumental in our 
success in maintaining a high standard of excellence by 
providing the funds required to accomplish our objectives. The 
additional funding of $3 million in fiscal year 1998 and $2.5 
million in fiscal year 1999 for engineering and maintenance 
projects has allowed us to enhance the safety, the security, 
the efficiency, and the beauty of our cemeteries. It has also 
enabled us to reduce significantly our backlog of critical 
projects.
    In order to keep this momentum going, sir, in fiscal year 
2000, we are requesting as part of our budget, $4.3 million for 
engineering and maintenance projects. This level of funding 
will allow us to continue to reduce our backlog and stay 
abreast of the new maintenance requirements, an inherent 
challenge associated with aging facilities and infrastructure.
    In addition, we are requesting funding support on three 
managerial improvements, an information systems contract, the 
aforementioned OMB-directed study of our personnel survey 
findings, and finally, the development of a maintenance 
database.
    In 1996, Congress specifically directed that we prepare an 
agency-wide financial statement annually beginning with fiscal 
year 1997 and that the financial statements be audited in 
accordance with Government auditing standards.
    As reported, we received an unqualified opinion or, in my 
language, a clean audit on our balance sheet, an achievement we 
are told not normally earned on initial financial statement 
audits.
    We have just completed our second audit and are awaiting 
the results.
    During fiscal year 1997, we contracted with the Department 
of Treasury's Financial Management Services Center regarding 
replacement of our accounting system. We selected an operating 
system during the next fiscal year, and will implement the 
system next month.
    Our field offices are extraordinarily enthusiastic about 
the enhanced efficiency we will gain through the integration of 
multiple outdated systems into a single comprehensive system, 
which will allow us to take full advantage of the most current 
financial systems technology.
    With continued success in auditing and the parallel 
implementation of a new integrated financial management system, 
we expect that our organization will achieve yet a higher level 
of management excellence.
    In addition to our overseas missions, we have been mandated 
by Congress to construct the World War II Memorial. In November 
of 1995, President Clinton dedicated the Rainbow Pool site at 
the east end of the Reflecting Pool, between the Lincoln 
Memorial and the Washington Monument.
    A little over a year later, the President unveiled the 
winning design by Professor Friedrich St. Florian. This design 
was reviewed in accordance with law by the Commission of Fine 
Arts and the National Capital Planning Commission. This review 
resulted in the requirement to modify the design in order that 
it would more appropriately fit the Rainbow Pool site.
    In April of 1998, we forwarded Professor St. Florian's 
revised design concept to the Commission of Fine Arts and the 
National Capital Planning Commission for their consideration 
and approval. In a public hearing, the Commission of Fine Arts 
unanimously and, in their words, enthusiastically approved the 
location, site plan, and revised design concept, and two months 
later, also in public hearing, the National Capital Planning 
Commission approved the revised design concept of the World War 
II Memorial.
    Our fund, raising chairman, former Senator Robert Dole, and 
co-chairman, Mr. Fred Smith, founder of FederalExpress and CEO 
of FEDEX, continue to work diligently to raise the funds 
required for construction of the memorial.
    To date, we have raised slightly over $40 million. New 
films on World War II, for example, ``Saving Private Ryan,'' 
have substantially raised the awareness of the sacrifices of 
the World War II generation and hopefully will stimulate 
generosity.
    Mr. Tom Hanks, star of ``Saving Private Ryan,'' has 
volunteered his support to the World War II Memorial Project in 
the field of public service advertising. He will be featured, 
in television, radio, and print, public service ads.
    The Commemorative Works Act requires that all necessary 
monies be on hand prior to breaking ground. We are cognizant of 
the accelerating loss of the World War II generation, and thus 
our determination to achieve our financial goals expeditiously 
so that we may begin construction as soon as possible.
    The current authority on the memorial's construction lapses 
in May 2000. Therefore, the American Battle Monuments 
Commission is proposing legislation which would extend the 
authorization to obtain a construction permit for the memorial 
until the year 2005.
    OMB advises that the administration has no objection to the 
presentation of this proposal for the consideration of 
Congress.
    In summary, sir, since 1923, the American Battle Monuments 
Commission cemeteries and memorials have been held to a high 
standard in order to reflect America's continuing commitment to 
its war dead, their families, and the U.S. national image. The 
Commission intends to continue to fulfill this trust, while 
striving to improve overall management and operational 
efficiency.
    Our appropriation request for fiscal year 2000 is $26.5 
million.
    Mr. Chairman, this concludes my statement. I am pleased to 
respond to your questions, sir.

                         world war ii memorial

    Mr. Walsh. Thank you very much for that fine statement and 
for the important work that you do.
    General Woerner. Thank you, sir.
    Mr. Walsh. What is the overall estimated cost--I guess it 
is not an estimated cost. What is the cost projection for the 
World War II monument?
    General Woerner. Sir, in total ignorance, having no idea 
where or what we were going to build, but looking at the cost 
of past structures, we put a mark on the wall of $100 million.
    On April 21st and May 6th of this year, we will go before 
those two commissions with our preliminary design concept, 
taking it much further than the original concept.
    On their approval, hopefully, we will then be able to turn 
to the professionals and say this is what we are going to do 
and we will have a much more refined figure.
    We are still using $100 million, but I would be 
uncomfortable at this stage to depart from that until we have 
the benefit of revision of our design and the contributions of 
the experts who can put dollar values on it, sir.
    Mr. Walsh. On the reauthorization of that time limitation 
that you have----
    General Woerner. Yes, sir.
    Mr. Walsh [continuing]. I am sure the Veterans Affairs 
Committee will get that work done. In the event that they did 
not, I am sure Mr. Mollohan and I could work together to make 
sure that reauthorization would be included in this bill, if he 
had any problem.
    General Woerner. Thank you very much, sir.
    [The information follows:]
    Offset Folios 727 to 731 Insert here



    Mr. Walsh. I cannot guarantee that, but I think I am pretty 
close. But I do not anticipate any problem, which is a Plan B 
sort of situation.

                      maintenance and engineering

    Now, on the backlog, this maintenance issue--and 
apparently, this is really the only real current issue that you 
have. You are obviously doing a good job of knocking it down. 
The funds that you are putting toward that part of the budget, 
do you think that will get this behind you?
    General Woerner. What we anticipate, we started out in 
1998, sir, with $14.7 million. Thanks to the support of this 
committee, we took it down in one year to $10.5 million, down 
and the beginning of this year to $6.2 million. Our best 
projection right now is that by the end of fiscal year 2000, we 
will be down to $3.0 million.
    Mr. Walsh. By the end of fiscal year 2000?
    General Woerner. By the end of the fiscal year.
    Mr. Walsh. Okay. How will those funds be spent? What are 
your priority projects?
    General Woerner. Yes, sir. We have worked up a list. We 
know precisely what we want to do, a prioritized list of 526 
projects that I have right here, that have been developed 
through a three-tier review, by the cemetery superintendents, 
the overseas headquarters, and the national headquarters here 
in Washington, D.C., all constantly scrubbing this list.
    We have given priority to safety, first and foremost, to 
health, welfare, and environmental considerations second, to 
the high priority enhancements and repairs, and then to a 
secondary level. That has been the framework in which we make 
judgments in putting these projects on our priority list.
    Of course, if something breaks down and it becomes an 
emergency, then we have to divert funds to reprogramming and 
get it done.
    What I can assure you, sir, is, one, we are confident in 
the integrity of this list. There is no gold-plating in that, 
and second, that it is receiving micromanagement to respond to 
the trust that you have shown in us with that $3.0 million and 
$2.5 million plus-ups over the last two years.
    We welcome inspections of these sites, and we can take you 
down to the dollar on how we have used your money.
    Mr. Walsh. I would like to take that opportunity at some 
point. I do not know when, but I would like very much to see, 
especially the projects that will be worked on.
    General Woerner. We will be in contact with your office and 
make that happen.
    Mr. Walsh. Thank you.
    Mr. Mollohan.

                             cemetery visit

    Mr. Mollohan. Mr. Chairman, I want to compliment the 
General on his testimony and also the good work he is doing. I 
had an opportunity to visit the cemetery when we were in France 
last year, and I was very impressed with the operation. I was 
also impressed with the maintenance concerns, and the program 
you have undertaken to deal with those concerns.
    General Woerner. Thank you.
    Mr. Mollohan. The chairman has already explored that area. 
So I do not have any further questions for the General. I 
appreciate his testimony, Mr. Chairman.
    Mr. Walsh. Thank you.
    I will just leave you with one impression of mine. I served 
in the Peace Corps after college, and I returned home. It took 
me about 2 months to get home from Asia. I took my time, saw a 
little bit of the world on the way back, and as I was traveling 
from Paris, on my last leg home, to the English Channel to 
cross, I went through Northern France. I think I was sleeping 
in the truck. There was a fellow I had met and offered to give 
me a ride to England. So I took it. The price was right. I woke 
up, and it was around dawn. I looked out and I just saw row 
after row after row after row after row of white cross. I can 
still see it.
    I do not know whether that was one of ours or----
    General Woerner. That is one of ours, sir. I can guarantee 
you that was ours.
    Mr. Walsh. It was one of the most remarkable things, 
manmade in many respects, one of the most remarkable things I 
have ever seen in my life. It was profound.
    General Woerner. There is no nation on the face of the 
earth that takes care of their War Dead as does the United 
States. None can compare to us.
    Mr. Walsh. Well, it is a commitment that we have to keep.
    General Woerner. Yes, sir.
    This organization has a passion about what it does, and 
many of the men and women working in it are doing so out of 
that compassion and passion, which are other than any salary 
interests.
    Mr. Walsh. Well, we are in good hands, then.
    General Woerner. Thank you very much.
    Mr. Walsh. Thank you very much, General.
    Thank you all.
    This hearing is recessed until tomorrow morning at 9:30.
    [Questions and answers received from panel follow:]
    Offset Folios 736 to 777/1200 Insert here



                                       Thursday, February 25, 1999.

                 NEIGHBORHOOD REINVESTMENT CORPORATION

                                WITNESS

GEORGE KNIGHT, EXECUTIVE DIRECTOR
    Mr. Walsh. Good morning. The hearing will come to order. I 
would like to welcome the ladies and gentlemen, the leadership 
of the Neighborhood Reinvestment Corporation, for their budget 
review for the Year 2000, Executive Director George Knight is 
testifying today, and I would like to extend from the 
subcommittee a welcome to him and his staff.
    My colleagues and I look forward to having very substantive 
discussions with you about this year's budget request.
    This year NRC's budget request is unchanged from last 
year--$90 million--although there is an increase, a request for 
three FTEs. Personally I have always been very impressed with 
the performance of Neighborhood Reinvestment Corporation and 
its local NeighborWorks' organizations. Routinely 
the organization maximizes the taxpayers' investment by 
promoting home ownership and by making neighborhoods stronger 
and more sustainable.
    As I mentioned, just in a cursory conversation before we 
began, I was a city councilman. I was the city council 
president. My dad was the mayor of that same city a generation 
before. This is what it is all about for me--home ownership, 
strengthening neighborhoods, reinvesting in our cities. I have 
had the good fortune of travelling world-wide. I was a Peace 
Corps volunteer after college. I visited all the great cities 
in Asia, all the great cities in Europe. Those cities are five 
and six and ten times older than our cities and they are the 
centers of the culture. They are the centers of industry. They 
are the centers of intellectual activity all over the world.
    Our cities are babies. They are a hundred or two hundred 
years old at most and we can't throw them away--sort of our 
ethic in this country is to keep moving west, you know, use it 
up and move west. Now they are kind of circling around through 
the Southwest and headed back maybe, but we have got to take 
care of our cities and you folks help us to do that. It's very 
much appreciated.
    I am going to allow Mr. Knight to make his presentation but 
first I would like to yield to Mr. Mollahan for any remarks he 
might have.
    Mr. Mollohan. Mr. Chairman, I don't have any remarks. I do 
compliment this organization for the fine work they do and 
appreciate Mr. Knight's testimony.
    Mr. Walsh. Thank you. Please proceed.
    Mr. Knight. Thank you, Mr. Chairman and members of the 
committee. We thank you for your support of the 
NeighborWorks' Network and the Neighborhood 
Reinvestment Corporation.

                 the neighborworks' network

    Perhaps I don't need to summarize in detail the work of 
Neighborhood Reinvestment and the NeighborWorks' 
Network, other than to share with you that the 184 members of 
the NeighborWorks' Network now serve 825 communities 
ranging from very rural to very urban. They do share certain 
common characteristics however. Local residents, members of the 
private sector, members of the public sector form the Board of 
Directors. They are all state chartered, nonprofit 501(C)(3) 
organizations and each of them manages a flexible locally 
managed revolving loan fund.
    They work with local lenders and insurers to make sure that 
there is conventional lending and insurance products available 
and if necessary find flexible and alternative products to meet 
the needs of their community.
    They promote the physical, social and economic health of 
the neighborhood. As we were discussing before the hearing 
began, it is a faith statement to purchase a home in a 
distressed neighborhood and one has to bolster that through the 
physical and social sides as well as the financial package that 
one puts together for the homeowner.
    They must meet Neighborhood Reinvestment's chartering 
andongoing performance standards and we work to develop strong local 
leadership.

                       neighborhood reinvestment

    We were founded in 1978 and we provide technical assistance 
delivered by a series of practitioner experts scattered across 
the country. We provide flexible grants through revolving loan 
funds to both lend, re-lend, user's equity, and to operate 
those funds. We provide training, nuts and bolts, how-to 
training, and through NHSA, Neighborhood Housing Services of 
America, headed by Mary Lee Widener, a unique secondary market 
that stands ready to purchase the loans made by local 
NeighborWorks' organizations, thus ensuring local 
liquidity and enabling them with confidence to continue lending 
on a basis that is tailored to the family's ability to repay 
the loan.

                            fiscal year 1998

    1998 was truly an amazing year! The 184 
NeighborWorks' organizations were able to assist 
13,769 families into home ownership or substantially 
rehabilitate their homes so they could stay as home owners or 
acquire mutual or rental properties. This was a 20 percent 
increase over FY'97. To do this they had to secure nearly $820 
million worth of private and public financing to accomplish 
that. A 48 percent increase.

                            fiscal year 1999

    In Fiscal Year '99 you were gracious enough to accord us 
some extra money to support the NeighborWorks'' 
Campaign for Home Ownership 2002 and we worked through a home 
ownership pilot to expand that campaign from 25,000 to 35,000 
new home owners. The two-year pilot requires a significant 
increase in productivity at the local level. It requires 
strengthened systems and increased conventional capital and I 
am very pleased to tell you this morning that our major 
financial partners are stepping up to the plate with 
enthusiasm. We believe that the additional $700 million in 
private lending capital necessary to accomplish the goals we 
have set is very, very achievable.

                            fiscal year 2000

    Turning to FY 2000, you'll see that our objectives seek to 
balance our resources to meet the highly-varied and diverse 
needs of the communities served by NeighborWorks' 
organizations. We plan to expand the number of communities 
served. We plan to charter a few more organizations. We will 
continue to offer training. We will continue to make grants to 
revolving loan funds and of course we will continue to support 
the secondary market, NHSA.

                      supporting local initiatives

    We will provide our technical assistance on a needs-
specific basis at the local level and in three initiatives. The 
first initiative the committee is well familiar with--the 
NeighborWorks' Campaign for Home Ownership 2002. We 
propose to expand it by 7000 families to a total of 42,000 by 
the end of the campaign, the year 2002.
    The second effort, a multifamily initiative, focuses on 
strengthening the asset management of local 
NeighborWorks' organizations, developing their 
resident services, and raising $600 million in private sector 
and other investment to enable them to acquire a further 10,000 
units to add to their existing 19,000 units.
    Finally we will continue to meet the needs of rural 
communities in small towns through the Rural 
NeighborWorks' Alliance. This creative group formed 
by 25 organizations in 1991 has come together to fund creative 
and innovative ways to meet the unique needs of rural areas.
    In Fiscal Year 2000 we look forward at Neighborhood 
Reinvestment Corporation and speaking for Mary Lee at 
Neighborhood Housing Services of America to continue our 
mission to support NeighborWorks' organizations. We 
think that the building of partnerships between residents, the 
private sector and the public sector who form strong local 
Boards of Directors, manage a revolving loan fund, and make 
their own decisions in terms of strategies and approaches makes 
the most sense for revitalizing areas in rural, small town 
suburban and urban America.
    I look forward to your questions.
    [The information follows:]
    Offset Folios 1209 to 1217 Insert here



    Mr. Walsh. Thank you very much for your clarity and brevity 
and for the work that you do. It's very, very important. By the 
way, you were kind enough to introduce your staff to me. Maybe 
you would like to introduce them to the rest of the 
subcommittee.
    Mr. Knight. I would be delighted.
    To my left is Mary Lee Widener, who is the founding 
President of Neighborhood Housing Services of America, and our 
sister organization that backs up the revolving loan funds and 
is headquartered in Oakland, California.
    To my right is Roy Davis, who is our Director of Finance 
and Training. He is our utility player--research and human 
resources.
    In the green sweater is Margo Kelly, who is our Deputy 
Executive Director of Field Operations and to her right is 
Clarence Snuggs, who is our Deputy Executive Director for 
everything else.
    Behind me, where I can't twist so well, is Julia Galdo, our 
Director of Communications and Information Services and Carlos 
Porrata, who is Director of Information Technology, Program 
Review and Internal Consulting.

                         fy 1999 appropriation

    Mr. Walsh. Great. Last year the subcommittee was able to 
increase NRC's appropriation by $25 million--from $65 to $90 to 
fund this new home ownership pilot. Is there anything you would 
like to say about how the implementation of that has gone, 
other than what you have already said?
    Mr. Knight. The challenge to us in setting a 10,000 home 
owner increase over a two year period was how can you step it 
up that fast. We felt that it was incumbent upon us to make the 
commitments to local organizations as quickly as possible.
    Within about 10 days of receiving the appropriation we 
issued the RFP--the Request for Proposals to the 
NeighborWorks' Network. They had to submit those 
proposals by early December, I believe, and we made decisions 
in early January. The 12th of January our Board Committee met 
to finalize decisions.
    We are right now in the process of disbursing the funds to 
them and I think that that will give us the leg up that we need 
to achieve that 10,000. I am fully confident we will be able to 
do it based on the applications that came in. There was a great 
deal of excitement. I can't tell you how much excitement there 
was at this real opportunity to meet enormous pent-up demand.

                neighborworks' organizations

    Mr. Walsh. Could you describe to the subcommittee the kinds 
of things that the NeighborWorks' organization does 
in the communities to assist them?
    Mr. Knight. It is a wide range of activities.
    Fundamentally at the heart of every 
NeighborWorks' organization is a flexible revolving 
loan fund. The RLF, directed by a local Board of Directors 
consisting of residents, financial leaders, and the public 
sector, very frequently serves as the gap filler in order to 
effectively execute a revitalization strategy for a designated 
target area.
    If you are in the seat of a member of the Board of 
Directors or you are an Executive Director, you look out on a 
large panoply of programmatic resources but they often don't 
quite mesh. You need that little bit of gap financing, that 
little bit of gap money to assist someone on the street. Gap 
money can fulfill a function that no one else is providing. 
That is what a local NeighborWorks' organization is 
able to do, so it varies enormously based on each individual 
community's needs.
    It might be buying the largest, ugliest house left in the 
area. It might be extending second mortgages to elderly 
families on fixed income who otherwise would lose the home or 
who can't purchase the home in a very depressed market because 
no one will lend to them the total cost needed to purchase and 
fix up.
    It might be money to buy a piece of land and hold it for 
future development. In rural areas, frankly, it is often used 
to buy land to put in the infrastructure so that a builder will 
come and build new homes.
    Ms. Kelly. Can I add to that answer?
    Mr. Knight. Yes.
    Ms. Kelly. But I think it is important to say that each 
NeighborWorks' organization starts with organizing 
the neighborhood to have a strategy for upgrading it and then 
market that strategy to all of the residents and gain their 
involvement and investment in the neighborhood, and so in doing 
that it is extremely important that if they say to people--
``invest in your homes, we are going to be there for you, work 
with you in getting the resources that you need,''--then it is 
very important that the resources be there when people--when 
those expectations are raised, so in the raising of those 
expectations then the tight money that George just described 
needs to be there.

                         multifamily initiative

    Mr. Walsh. On your multifamily initiative, how would you 
say this aspect of the program is going?
    Mr. Knight. For many years NeighborWorks' 
organization have been in the multifamily ownership position. 
In many cases they have sort of backed into it. For example, 
there was no one else to purchase the small, four unit, eight 
unit, twelve unit building in the neighborhood and so the 
NeighborWorks' organizations ended up acquiring it.
    We watched the numbers grow past 5,000 units, to 10,000 
units. Some NeighborWorks' organizations decided to 
specialize in multifamily and set out to acquire large numbers 
of units. In fact, our affiliate in Anchorage now owns over a 
thousand units principally purchased when the market would go 
down. The units were really very distressed. They would go in. 
They would acquire them.
    So the initiative came together by the 
NeighborWorks' Network saying we need to do certain 
things. We need to have some common asset management 
understanding, we need to understand how we can better manage 
these properties financially, from a property management point 
of view, and from a social point of view.
    That led them to also be interested in resident services. 
Many of them run a day-care center, an after school program. 
Those are areas where Neighborhood Reinvestment has not had 
particular expertise and so they ask us to put them in touch as 
a group with folks who do have expertise in those areas. 
Finally they look out and they see that there are a lot of 
distressed multifamily properties and their interest is in 
acquiring some of those properties.
    When owners own portfolios across several states it is very 
hard, if you are located in one place, to acquire just a piece, 
so their thinking is maybe they can do some joint acquisition 
and then redistribute among themselves.
    Ms. Kelly. George, can I just add, using Syracuse as an 
example because it is a good one. The Syracuse NHS through its 
Model Neighborhood Corporation as you know has been in the 
business for a long time. They really focused on the 
neighborhoods, not just on individual homes but on 
strengthening neighborhoods and they recently purchased 105 
units of housing in 49 properties owned by a gentleman who was 
notoriously not caring for those properties, and it was 
something that they felt they needed to do because these were 
having such a blighting influence on the neighborhood that they 
are now suddenly in the business of owning and managing 
multifamily properties.
    By participating in this multifamily initiative they get 
training and expertise in asset management. They get access to 
funds that they wouldn't have had access to otherwise for 
repairs, so we see it as a way of helping not just the large 
producers but the organizations that are getting into this 
business because it is critical for their neighborhoods.
    Mr. Walsh. Thank you. Now I'll turn to my colleague and 
ranking member, Mr. Mollohan for questions.

                 neighborworks' communities

    Mr. Mollohan. Thank you, Mr. Chairman. Again, welcome to 
the committee.
    I am curious. You can't work in every neighborhood. You 
can't work in every town or every rural area. How do you choose 
the communities in which you work? I know how you chose the 
ones in my area in which you work.
    Mr. Knight. Well, we look obviously where there is need. 
That's a lot of places that meet that criterion. We look for 
frankly where there is the possibility of a strong, enduring 
partnership because we are not the long-term funder of their 
operating budget. So we look where we think there is a strong 
enduring partnership and ongoing local support.
    I would have to probably say there is a certain level of 
persistence that is needed when you have hundreds and hundreds 
of requests, and we can't meet them all. So some organizations 
just get really persistent and bring their need to the table in 
that kind of way.
    We try to balance out geographically, because we have a 
limited staff. We try and balance out where we have staff 
energy across the country so if we are going to be starting a 
dozen organizations, working with a dozen organizations a year, 
they are probably going to be scattered across the country 
where we have staff that are able to respond. For example, 
let's look at a situation--Roswell, New Mexico comes to mind--a 
town of great need, a town that was very persistent. We just 
didn't think that they could sustain a partnership over time. 
So we turned to the Santa Fe NeighborWorks' 
organization and said, is there anything that you can do? Can 
you talk with these folks? And now, about a year-and-a-half 
later, the Santa Fe NeighborWorks' organization is 
working in Roswell and meeting a lot of those needs. This is an 
increasing trend, I would say, of how we meet the need.
    Montana is another example that is working out in a 
slightly different way. We, for a number of years, had had 
requests from Eastern Montana, very small communities. Many of 
them are less than 5,000 people, who couldn't meet the test of 
an ongoing organization, and yet had desperate need. Our Great 
Falls affiliate, working with rural conservation anddevelopment 
association folks, have now worked out a very innovative partnership in 
much of rural Montana. The rural conservation folks, who are located in 
small communities, do a lot of preliminary home ownership counseling. 
When they feel a family is ready to borrow funds, whether it is from a 
conventional lender, that is in an area that is not terribly well 
served by conventional lenders either, the Great Falls NHS will come 
out to them, work with those families, and complete the loan package 
and secure the resources.
    The rural conservation folks are quite expert in watching 
the rehab being done and making sure it is done well. So in 
each place, we are watching these different partnerships evolve 
and they are really fun, but there is no common answer.
    Ms. Kelly. George, we do things, just from a procedural 
standpoint, we do on annual basis----
    Mr. Walsh. Why don't you come on up and sit at the table? 
We have got an extra seat. Come on up.
    Ms. Kelly. We do, on an annual basis, advertise, to let 
communities know that our services are available. We have an 
application process. We exchange a fair amount of information. 
We have a relatively straightforward application. We do on-site 
assessment, certainly, on more sites than we are able to 
develop organizational affiliates. Last year, for example, we 
had 16 new organizations. They were in 12 different states and 
Puerto Rico. Over half of them were in rural environments, 
another third were in small cities.
    So it is really, a stretch across the country. And the 
wonderful thing is that with the revolving loan fund and the 
sort of partnership based approach, we haven't found an 
environment where that can't be successful.
    Mr. Mollohan. It doesn't work unless you have a local 
organization that is capable of interfacing with you.
    Ms. Kelly. Exactly.
    Mr. Knight. Local energy, local drive, and local 
management.

 neighborhood reinvestment's relationship with neighborworks 
                             organizations

    Mr. Mollohan. Do you tend to maintain your relationships 
with an organization once it is established?
    Mr. Knight. We are there till death. Neighborhoods 
typically do not become distressed or disinvested over night, 
and they typically do not turn around overnight.
    Mr. Mollohan. But what is the trend? Once you establish a 
relationship with an organization, how many of these 
organizations themselves endure?
    Mr. Knight. This year is the 25th anniversary for the first 
large set of NeighborWorks organizations. We have a 
number of organizations that have been around for 25 years, a 
number that have been around 20 years, 15 years, 10 years.
    Mr. Mollohan. My question, I just want to get a sense of, 
once an organization, a local organization, is created, and you 
establish a relationship with them, I am just interested in 
understanding, do they tend to stay around?
    Mr. Knight. Absolutely. The overwhelming majority. Now, 
there are cases where--we have had cases where an organization 
has said, ``we felt we have accomplished what we set out to 
accomplish, and there are other priorities in this community'', 
and that is a good ending, a celebration. There are some bad 
endings at times, an organization that gets in deep, deep 
trouble.
    Mr. Mollohan. But typically?
    Mr. Knight. Typically, the overwhelming majority have been 
around a long time.
    Mr. Mollohan. That really speaks well for the local 
initiative, empowered with a little expertise. It is a nice 
model.
    Mr. Knight. Yes.
    Ms. Kelly. And they, they go through periods. I mean these 
are small organizations, an executive director leaves, they 
have a void in leadership. That is where we can be particularly 
helpful, step in, provide some interim leadership while the 
board regroups. That is essentially what has occurred in Miami. 
I think that organization will be doubly strong coming back as 
a result of that.
    Mr. Mollohan. I didn't get into the questions I was going 
to ask, Mr. Chairman, but I am going to submit them for the 
record. There's a lot of secondary market questions, that kind 
of thing, that I had, but I will submit them for the record.
    Mr. Walsh. Without objection.
    Mr. Mollohan. Thank you, Mr. Chairman.
    Mr. Walsh. Mrs. Northup.
    Mrs. Northup. Sorry.
    Mr. Walsh. We can go to somebody else.

              enterprise zones and enterprise communities

    Mrs. Northup. No, I do have my questions here.
    Now, I wondered how closely you all work with the 
enterprise community, with the enterprise zones in those 
communities that actually have those?
    Mr. Knight. The Neighborhood Reinvestment works, with a 
local organization. In Louisville, it is the Neighborhood 
Housing Services. Many of them are very involved in enterprise 
communities in enterprise zones. We really take our cue, if you 
will, from those local organizations. If there are particular 
things that they are interested in, then we will respond to 
that. We do not generally attempt to require them, because we 
can't, to get involved in a particular activity. We may 
encourage them or provide them with information.
    Mrs. Northup. I am new to this Subcommittee, and so I may 
be asking fairly basic questions.
    Mr. Knight. No, no.
    Mrs. Northup. But I was not familiar with the one in 
Louisville and I was sort of surprised about that. I recognize 
a lot of the people that are on the board. But I am trying to 
get a feel for, but it might work in several neighborhoods, I 
assume, not just one.
    Mr. Knight. Correct. Again, that is a local decision. Some 
organizations start off focusing on a very defined area. Some 
start off in a wider area. Often, as they grow, they may begin 
to operate in different parts of town. We have had some now, 
that, as I was describing earlier, have grown beyond the town 
to the rural area. Des Moines, for years and years, worked in a 
couple of sections of the city of Des Moines. It is now serving 
12 rural counties.
    Mrs. Northup. The reason I asked my original question about 
the enterprise communities, enterprise zones is to--we did not 
get the enterprise zone classification, much to our 
disappointment, but we do have a Community Development Bank, 
and it seems to me like much of what they are trying to 
accomplish is also neighborhood by neighborhood, very engaged 
with the community. I wondered if there was any duplication,you 
know, if you feel like you just can't have enough energies out there, 
or whether there is a need for better communication and coordination 
between organizations that have the same goal?
    Mr. Knight. I am not familiar with the particulars of your 
situation, but, in general----
    Mrs. Northup. More overall.
    Mr. Knight. In general, I think, from our perspective, and 
I think from virtually every NeighborWorks 
organization's perspective, duplication is just a waste of 
energy and time. There is a lot of need. These are very block 
and street oriented organizations that are looking for 
resources which meet this person's need, that person's need, 
this corner property's need, this vacant lot's need. So if 
there is a development bank there that meets certain needs, 
hey, that's great, that's the place to go to.
    The revolving loan fund is really the gap filler, it is 
never the first resource, it is always the second or third 
resource. The first resource is typically going to be a private 
lender, a development bank. The second resource may be a public 
program that is available. But what we have found over the 
years is that no matter how well designed those little programs 
are, with their individual boxes and categories, there are 
situations that fall between the gaps. You have got to have 
some funds that the local board of directors can lend, tailored 
to the family's ability to repay or the individual situation.
    And then, once they lend them, they have got to be able to 
lend them without worrying about--Can I get my money back? Am I 
running out of money? Do I have to push the person to a little 
higher interest rate so that I can sell the loan and get some 
of my money back? And that is where NHSA comes in, if the local 
board makes a 3 percent loan to somebody for $7,000, they can 
turn to the NHS secondary market and say, here is the loan, and 
NHSA sends them the $7,000. The local NeighborWorks 
organization sends NHSA the 3% interest collected from the 
loan.
    If the loan goes bad after 90 days, the local NHS has to 
take the loan back or replace it with a performing loan. That 
keeps the local folks responsible for servicing the loan. It 
also makes them responsible in the first place, when they sit 
down with the family, to create a loan based on what the family 
can afford.
    We carried the same principles into the 
NeighborWorks campaign for home ownership. So, the 
typical--in the first campaign that ended in 1998 and produced 
16,000 new homeowners, the typical family spent 20 percent--I 
think it was 21 percent of their income for principle, 
interest, taxes and insurance, because we are working with 
lower income families.
    Mrs. Northup. Right.
    Mr. Knight. So it is a gap filler.
    Mrs. Northup. Yes.

                               fannie mae

    Mrs. Northup. What sort of coordination is there with, for 
example, Fannie Mae?
    Mr. Knight. Oh, at the local level, a tremendous amount. 
Fannie Mae, of course, is the principal buyer of mortgages from 
the conventional lenders. Any conventional lender that is 
making loans in a neighborhood is probably going to use the 
Fannie or Freddie guidelines to purchase.
    Mrs. Northup. To purchase.
    Mr. Knight. If you are in a depressed neighborhood, a 
neighborhood in which a home might be purchased for $30,000, 
but need $20,000 in rehabilitation, a lender is not going to 
make that loan, because $50,000 is going to put you over the 
market price. So a lender will make maybe 80 percent of an 
after-rehab value, say, $35,000. Well, who makes up the 
difference? That is the revolving loan fund's role.
    Mrs. Northup. I see.
    Ms. Kelly. George, it might be worth just mentioning, in 
terms of Fannie Mae, in particular, because they have 
established local partnership offices. Most of our 
organizations are very closely connected I am thinking of Miami 
as an example where Fannie Mae, the Federal Reserve, 
Neighborhood Reinvestment and the Housing Finance Agency are 
together looking at establishing a city-wide home ownership 
center, which really could expand home ownership production and 
activity in that city beyond what anyone could do alone.
    So we really work very hard to mesh with whatever is going 
on locally so we can capitalize on it.
    Mr. Knight. And there is another role for Fannie Mae, in 
that many smaller lenders are not seller-servicers to Fannie 
Mae or Freddie Mac. They don't have enough volume. They don't 
have the staffing. So we have worked out with a lot of those 
smaller lenders that if they will make the conventional loan, 
because that is what we are interested in, there is so much 
more conventional capital than there is, with all due respect, 
public capital.
    Mrs. Northup. Right.
    Mr. Knight. There is so much more conventional capital. We 
want them to make the loans. Unless they have an outlet, even 
they get choked, particularly, the smaller lenders. So for 
capital, NHSA will actually purchase their loans, package them 
in a correct Fannie Mae, Freddie Mac way, and then sell them to 
social investors.
    Ms. Widener. In bulk.
    Mr. Knight. In bulk. They don't want to buy onesies and 
twosies on a small basis.
    Mrs. Northup. Is my time up?
    Mr. Walsh. You are getting there.
    Mrs. Northup. Do I have time for one more? Why don't we go 
on, because we have a vote. That's fine, I will submit.
    Mr. Walsh. All right.
    Mrs. Meek. I am going to vote, Mr. Chairman.
    Mr. Walsh. All right. Why don't we all go and vote then. 
Since it is Mrs. Meek's turn, why don't we vote and come back 
right after we vote. It will just take a second.
    [Recess.]
    Mrs. Northup (presiding). I think our chairman, Mr. Walsh, 
will be back in short order, but I am going to go on and turn 
to Mrs. Meek.

                                training

    Mrs. Meek. Thank you. I don't think I need the mike, but 
I'll get it anyway.
    First of all, Mr. Knight, we're very happy to see you and 
your staff back. We want to thank you for the excellent work 
which you have done in the past, and looking at your budget it 
appears that you are prepared to go forward in the future.
    I just--I think what you have been able to do with the 
amount of money you have received is really exemplary. I have 
been aware of your organization and working with your 
organization for many, many years. I want to commend you for 
having the capacity to hang in there sometimes when things got 
a little rough and gave the kind of assistance that you needed 
to give, technical assistance, as well as the loan fund to my 
local NHS. And this organization is really needed, very much 
needed, particularly in cities. And I wantthe chairlady to 
realize that in these cities where housing is so very, very important, 
many times your organization is sort of the spark to begin it, because 
you were there earlier than most other groups.
    In my city you have made a very good contribution. You have 
combined with the housing finance authority, with the Coalition 
of CDC's, they all kind of work together, and the private 
sector has come in to help, not as much as we would like now, 
in that there are many more organizations now pulling for the 
same dollar.
    My question to you is, NHS is not going to last forever. 
You cannot. And even if you are around forever, you will find 
other cities and other neighborhoods that you might want to 
invest in. What kind of training and what kind of initiative is 
your agency making to make your units more self-sustaining? 
That is a problem that comes up all the time. Where will we be 
in the year 2005? What can we do now that will make us more 
self-sustaining at that time?
    Now other groups like the Housing Finance Authority, they 
do not have that problem. They have seed capital and everything 
to last. Tell me what plans do you tell your affiliates, what 
do you tell them? What about planning? What are you putting in 
their heads for the year 2005 and beyond?
    Mr. Knight. Well, first I want to thank you particularly 
for that afternoon on the map where you were able to provide 
your local intelligence of what was going on in Miami. That was 
enormously helpful to us, and we really appreciate it very 
much.
    The self-sustaining question and the training is something 
that I think goes to the heart of a lot of our current work. By 
building up the revolving loan fund, by focusing on loans, when 
you get to a certain size, you can become self-sustaining. It 
takes a long time to get to that size. We now have several 
organizations that are virtually self-sustaining. Some of them 
own property and they have bought it in ways that the rents 
from the property help them become self-sustaining. The 
revolving loan fund, growing to a very large revolving loan 
fund, can also be self-sustaining.
    I think the question you are asking really is the question 
we direct back to the local board. The strong local board takes 
responsibility for the organization's long-term history, growth 
and development. That is what we press on the local board, to 
think through for themselves what in their environment will 
make the most sense, how can they be self-sustaining over the 
very long term.
    Our pledge when we start to work with an organization or 
community or those partners is to be there for them as long as 
they are there for the neighborhood.
    We want to be supportive of that organization as long as 
they are working to improve conditions in the neighborhood. 
When that stops, then we really have to look around for other 
organizations. But we have been with organizations many, many, 
many years, and quite a few of them are approaching a point 
where they are self-sustaining, if not for their whole budgets, 
at least for a portion of their budget.

                                  hud

    Mrs. Meek. And HUD has changed its policies. The new 
federalism in HUD is going to make your organization much more 
significant. I know in my neighborhood, Madam Chairlady, HUD 
has decided to break down all the public housing projects. In 
doing so, they are saying to the people in those public housing 
projects we are going to tear this down, you have got to go 
someplace else to find a home. And we are going to--they are 
going to take like 250 units out of the largest one in my 
district. Right now there is a lot of furor about this.
    So the kinds of things that you are doing to stimulate home 
ownership is going to help HUD. And I am just wondering if you 
are involved in that continuum of working with local HUD as 
well. I know the board is trying to work with them, but it is 
very difficult when you face 300 people in public housing that 
know they have got to go, they do not know what is going to 
happen, they have been told they will be given a voucher. Well, 
I know about vouchers and you do too. I mean, give me a voucher 
and I cannot find anything. So that is what they are doing, and 
I wanted you to be aware of this new federalism and what is 
happening in HUD, because there is a spillover into what you 
are doing.
    Mr. Knight. It definitely does. I think that this is where 
the income mix of the home ownership effort helps. We are 
working with HUD on section 8Y, which allows some folks to take 
the vouchers and use them for home ownership purposes. In 
distressed neighborhoods that can work. In the 
NeighborWorks Campaign for Home Ownership we helped a 
number of families earning less than $10,000 become homeowners.
    But some families are not going to be homeowners, they do 
not want to be homeowners, they cannot be homeowners. That is 
where we think the multifamily initiative comes in, to help 
organizations acquire and manage multifamily property without 
dependence upon a long-term Federal subsidy. We much prefer if 
you are going to subsidize a multifamily property to do it up 
front so that it can be managed on a long-term basis on the 
incomes that the families bring to the table.
    Mrs. Meek. One last thing is to compliment you on the way 
you have--your structure, showing what your goals are and the 
objectives and how to get there. I congratulate you.
    Mr. Knight. Thank you.
    Mrs. Meek. Thank you, Madam Chairlady.
    Mrs. Northup. Thank you, Mrs. Meek.
    In following the guidelines established by the chairman, we 
are going in order of how people came into the room, and, Mr. 
Cramer, I believe you are next.

                  capacity-building and equity grants

    Mr. Cramer. Thank you. And thank you for your presentation 
today.
    I also want to thank you for making your staff available to 
my office. As also as a new member of the committee, I think it 
is important that I be given those kind of opportunities, and 
you did that and did that very well.
    And you may have had some opportunity earlier, before I got 
here, to go into some of the questions that I have for you 
today. But your capacity-building and equity capital grants, 
would you give the subcommittee some idea as to the average 
size of these two type of grants and the purposes of those 
grant programs?
    Mr. Knight. The purpose of the equity capital grant is to 
build the revolving loan fund, which is a fund owned by that 
local board of directors. They own that fund and use it for any 
legitimate capital purpose that they see fit. It may be for the 
second mortgages we talked about. It may be used for the 
purchase of a building. And we encourage the Board to do it in 
a way that enables them to move towards self-sufficiency.
    Last year I believe the average capital grant was somewhere 
around $70,000. We can get you the exactnumber. The capacity-
building grant deals with the other side of the equation. Some gaps 
that one faces in the neighborhood are capital gaps, that little piece 
of second mortgage money or the ability to buy that piece of land so 
you can get a contract to build a home. The other gap that is often in 
the neighborhood is somebody who can do the financial counseling, 
somebody who can do the rehab counseling, somebody who can do the 
organizing, as Mary Lee Widener mentioned. Somebody in a multifamily 
property who can work with the residents on an after-school program so 
that when the children come home from school they have something 
constructive to do, which is of course good for the children. It is 
also good for the property, because they are not doing stuff that would 
hurt the property.
    Capacity-building grants allow them to meet those needs. We 
do it in a way that enables them to meet the need that they 
feel is most appropriate to them. So we do not have categories 
or give grants for specific ``programs.'' It appears as if--the 
median capital grant last year was $70,000. The average was 
$100,000. And on the expendable side it was $60,000.
    Mr. Cramer. All right.
    Ms. Kelly. I would just say one thing on the capacity-
building grants. I think the wonderful thing about the 
capacity-building grants is that they are not entitlement 
grants. They are not distributed in equal amount each year to 
each organization. They are targeted toward what it is that 
this organization locally needs the most. And in some cases, 
for example, if an executive director is leaving. Nonprofit 
organizations are not richly staffed, and the absence of an 
executive director can make a big difference as the board of 
directors struggles at a volunteer level to keep the 
organization solid.
    We have used our capacity building grant very effectively 
in providing some interim assistance when boards are going 
through a transition. That's been a very critical use for the 
NeighborWorks' organizations.

              NEW NEIGHBORWORKS' ORGANIZATIONS

    Mr. Cramer. I want to come back to the addition of new 
organizations and your history of doing that. Did I understand 
you to say was it last year 16 were added?
    Ms. Kelly. Sixteen were added last year.
    Mr. Cramer. And this year among your goals are to add 12.
    Ms. Kelly. No, well, this fiscal year 1999 it is 16; in '98 
it was 16; for the year 2000 it is 12.
    Mr. Cramer. All right. How proactive are you about that? 
Are you reactive mainly, or are you able to be proactive about 
identifying maybe the geographic bounds with urban-rural 
balance programs?
    Mr. Knight. We are very proactive in that regard, partly 
out of self-interest. We need to balance geographically across 
the country because we do not have the staff, the depth of 
staff to respond to the vast number of requests that come to 
us. As the banking world has become increasingly regional, 
banks have regional interests and needs, and so we try and get 
some geographic balance. And then we like to work with 
organizations or special situations. Sometimes we create an 
organization from scratch, where there is a real need and the 
potential for a terrific partnership but for some reason it 
just hasn't come together.
    Mr. Cramer. You make reference to advertising. Is that by 
Federal Register or how is that?
    Ms. Kelly. Well, we have a very substantial list of folks 
who are very interested. Each of our district directors, who 
are located within a geography----
    Mr. Cramer. You have nine district directors?
    Ms. Kelly. We have nine district directors, correct. They 
are geographically situated. They know their region of the 
country very well. They know who the players are. They send 
material to municipal governments, to community groups, to 
private-sector organizations, to solicit----
    Mr. Cramer. Are there deadlines, for example, for 
responding?
    Ms. Kelly. Yes, there are, but we accept applications in 
the interim on an ongoing basis--we have a formal period during 
the year when we evaluate applications, but we are talking to 
people all year long.
    Mr. Cramer. How many might you evaluate to determine those 
16 or those 12? Hundreds?
    Mr. Knight. Well, we have several hundred requests every 
year, and we evaluate on site probably 70 or so.
    Ms. Kelly. I would say yes--hundreds.
    Mr. Knight. We run training sessions that are nuts and 
bolts sort of like a community college in a week long event. A 
lot of folks come to the training session, they are not at all 
connected to us, and that is where we really get the 
opportunity to sit down with people, listen to what they are up 
to, have a sense of whether this going to be a fit? Are they a 
nonprofit? Are they interested in a partnership between 
residents and the financial sector? Some organizations just 
want the financial sector to run the organization. Some places 
people just want the residents to run the organization. We 
always want a local partnership to run the organization. So we 
listen and have the opportunity to personally interact at our 
training events.
    Mr. Cramer. Thank you.
    Here is a list of folks who have attended from I believe 
your State in the last couple sets of training institutes, and 
here is a brochure for the March, Philadelphia training 
institute. We do these five times a year.
    Ms. Kelly. And sometimes the training is what they need 
most. It's not to establish an organization, it is to get 
organizations that are already established and working well 
access to those kinds of training resources.
    Mr. Knight. That is right. Yes. The training sometimes is 
all an organization wants or needs.
    Mr. Cramer. Thank you.
    Mr. Knight. We were just in Atlanta in February, in March 
we will be in Philadelphia and in June we will be in Chicago, 
and then we will be on the west coast again in the fall.
    Mr. Cramer. New Orleans?
    Mr. Knight. Oh, New Orleans in August, yes, New Orleans in 
August. [Laughter.]
    Mr. Walsh. Mr. Knollenberg.
    Mr. Knollenberg. Thank you, Mr. Chairman, and I thank you 
and your colleagues for coming this morning.
    I have just a couple of quick questions I believe on what I 
have heard, and I think that you do a consistent and a good job 
in your efforts to leverage money.
    Mr. Knight. Thank you.

                             LEVERAGE RATIO

    Mr. Knollenberg. I think that I want to just focus on that 
area.
    What is your leverage ratio? I know this doesn't takeinto 
consideration the Californias of the world or the Massachusetts or 
Michigan. I am going to talk a little bit about Michigan. What is your 
leverage ratio?
    Mr. Knight. Sir, I do not have a single leverage ratio. I 
frankly find them one of the most misused numbers going. There 
is really a series of leverage ratios. We put last year $7 
million into the secondary market. That provided for all the 
staff so they could purchase loans at par with recourse, manage 
a $196 million portfolio, and purchase $42 million in loans. 
But more importantly, to secure another hundred or so million 
dollars in future investments so they could continue to 
operate.
    Mr. Knollenberg. The reason I bring that question up, I 
think I recall the former ranking member or chairman of this 
committee, Mr. Stokes, who used a figure of around 12 to 1. Now 
that is a local----
    Mr. Knight. Ten to 15 to 1, a local situation, yes, because 
there is so much private capital that it can be leveraged.

                       PRIVATE SECTOR INVOLVEMENT

    Mr. Knollenberg. Well, that is what I want to talk about. I 
have some numbers here, for example, from Michigan--these are 
your numbers--and it is interesting to me that in Michigan 
there is close to 12 million, over 9 of which is in Battle 
Creek. And what is interesting to me is in Detroit it is 
355,000. I look at Detroit and I compare it to some other 
cities on here, and I know that the populations are not exactly 
in the same arena, but Boston is well over 2 million, Baltimore 
is 6 million, St. Paul, Minnesota is 12 million. And I am 
looking at Detroit, and there is a contrast with Battle Creek 
at over 9 million, Kalamazoo, smallish in many ways, is well 
over a million and a half. I know the answer, but I would like 
for you to tell us why do those numbers come up the way they 
do. And I suspect it has to do with private aid.
    Mr. Knight. Absolutely. There are two--at least two driving 
factors. First, the numbers you are looking at are sales to the 
secondary market, so that is at local option. If you were to 
look at a large city like New York City, you find 700,000. Why? 
New York City can take care of its needs through available 
private resources.
    Syracuse is at a million eight. So it is very much a local 
option whether to sell to the secondary market.
    Battle Creek has the enormous benefit of having the Kellogg 
Foundation there. The Kellogg Foundation was extremely generous 
when we were starting in Battle Creek and wrote basically a 
check for I think it was 5 or 7 million dollars to fund the 
revolving loan fund right off the bat. And so they have been a 
very aggressive user of the secondary market.
    Mr. Knollenberg. Is there anything that you are doing or 
you can do to let us say encourage greater involvement by the 
private sector in Detroit?
    Mr. Knight. Well, just because it is a local option, this 
really does not accurately portray what the activity at the 
local level may be. The activity at the local level may be much 
greater than is portrayed in their sales to the secondary 
market, because they choose not to sell and rather hold those 
loans in their own portfolio.
    In the case of Detroit, in the last two years they have 
been undergoing a leadership change, and their activity has not 
been as great as we would hope. We are in the process of 
rebuilding the leadership, and we hope they will be very 
active. Very typically the larger cities are not major users of 
the secondary market. They have more resources available to 
them.
    Mr. Knollenberg. Thank you, Mr. Chairman.
    Mr. Knight. The secondary market is used as a backstop. We 
do not ever require anyone to use it. It is there if you need 
it.
    Mr. Knollenberg. Mr. Chairman, that is my final question.
    Mr. Walsh. Thank you, Joe.
    Are there any other questions of our guests today?
    If not, thank you very much. You are excused.
    Mr. Knight. Thank you.
    Mr. Walsh. There will be questions submitted for the 
record, and we would like you to respond to those as quickly as 
you can.
    Mr. Knight. We will.
    [Recess.]
    Offset Folios 1249 to 1485 Insert here



                                       Thursday, February 25, 1999.

                  NATIONAL CREDIT UNION ADMINISTRATION

                               WITNESSES

NORMAN D'AMOURS, CHAIRMAN
CAROLYN JORDAN, EXECUTIVE DIRECTOR
DAVE MARQUIS, DIRECTOR OF EXAMINATION AND INSURANCE
HERBERT YOLLES, PRESIDENT, CENTRAL LIQUIDITY
    Mr. Walsh. All right. If everyone will take your seats, we 
will begin the second leg of this journey, and we will continue 
the hearing by taking testimony on the fiscal year 2000 budget 
request for the National Credit Union Administration.
    I want to welcome back to the House of Representatives Mr. 
Norm D'Amours, Chairman of the NCUA and a former Member of 
Congress from New Hampshire, the great State of New Hampshire. 
Live free or die, right? Is that not what they say up there?
    Mr. Sununu. Yes.
    Mr. Walsh. This year NCUA has requested a rather dramatic 
change to its budget submission for the Central Liquidity 
Facility. Though not included formally in the President's 
budget request, NCUA is requesting the elimination of the $600 
million cap on CLF's borrowing authority. The formulaic 
statutory limitation remains. Additionally, the administration 
expenses increase from 176,000 to 257,000, a fairly substantial 
increase.
    The subcommittee is interested in understanding NCUA's 
rationale for advocating the elimination of the $600 million 
limitation, and nevertheless I want to observe that the 
proposal is an authorization matter that falls within the 
jurisdiction of the Banking Committee. After learning more 
about the proposal from NCUA, we hope to have the benefit of 
Mr. Leach and Mr. LaFalce's views on this matter.
    Of the complex issues that surround this matter, I observe 
that one of the most difficult is the attempt to predict the 
behavior of depositors and whether they will withdraw large 
sums of cash to get through the Y2K transition period. Put 
simply, it is almost impossible to quantify the confidence 
level of credit union depositors. Nevertheless, it is 
undeniable that the Government must formulate contingency plans 
and formulate them quickly if this problem is to be resolved in 
a way in which consumer confidence in the credit union system 
is not undermined.
    My colleagues and I look forward to having substantive 
discussions with you about this issue and others. After Mr. 
Mollohan offers any opening comments that he may have, we will 
ask you to introduce your associates and summarize your 
testimony as you like.
    And I will call upon my colleague, Mr. Mollohan.
    Mr. Mollohan. I have no opening comments.
    Mr. Walsh. No questions, no comments, and we will begin. 
Sir, please proceed.
    Mr. D'Amours. Thank you very much, Chairman Walsh and 
members of the committee, and ranking member Mollohan and 
Congressman Sununu, whom I have to point out, because I used to 
hold that seat in New Hampshire when it was still possible to 
elect Democrats in the State of New Hampshire.
    I am very pleased to be here with you today representing 
the National Credit Union Administration request relative to 
our Central Liquidity Facility and to update you on the 
progress of our revolving loan fund which is administered by 
our Office of Community Development Credit Unions headed by 
Joyce Jackson.
    Appearing with me today, Mr. Chairman, are Carolyn Jordan, 
seated to my right--she is the executive director of the 
agency; Dave Marquis, our director of examination and 
insurance, who is seated behind us; Herbert Yolles, who is the 
president of the Central Liquidity Facility; and, as I said, 
Joyce Jackson, seated immediately to my left.
    If possible, Mr. Chairman, during the question-and-answer 
session should it become relevant I would hope that perhaps Mr. 
Yolles could approach the table and sit with us, because he is 
the president of that facility.
    Mr. Walsh. Absolutely.
    Mr. D'Amours. I understand we are short of seating right 
now.
    Mr. Walsh. Well, yes, when we get to that point, bring him 
up.
    Mr. D'Amours. Thank you, sir.
    Mr. Chairman, as you and members of this subcommittee know, 
the CLF was established in 1979, and it serves as a liquidity 
source for credit unions. It is funded by its credit union 
members, and it may borrow from any source. It currently has a 
borrowing arrangement with the Federal Financing Bank.
    As you also know, Mr. Chairman, NCUA is not requesting an 
appropriation for the CLF, merely removal of the appropriations 
cap on the CLF's borrowing authority. Removal of this cap has 
no budgetary or scoring impact. The limit on CLF borrowing for 
new loans to credit unions has remained at $600 million for the 
last 18 years. The budget submitted by the Office of Management 
and Budget requests a $600 million limit on borrowing and a 
$257,000 limit on administrative expenditures for fiscal year 
2000.
    Removing the appropriations cap on CLF borrowing does not 
mean that there is no cap on CLF borrowing, but rather that the 
cap contained in the Federal Credit Union Act would apply. 
Under the provisions of the Federal Credit Union Act, which 
establishes the CLF, the CLF borrowing is capped at 12 times 
its subscribed stock and surplus, currently about $18\1/2\ 
million. While the $600 million appropriation limit has in the 
past been adequate to address isolated liquidity needs in 
credit unions, this amount represents less than 3\1/4\ percent 
of the 18\1/2\ million which the CLF would be permitted to 
borrow under its enabling legislation.
    When that 600 million limit was first inserted into the 
appropriations measure in 1980, the 600 million amount exceeded 
the 12 times subscribed stock and surplus of the CLF. Clearly, 
Congress did not intend to restrict the borrowing ability of 
the CLF to a level below the cap contained in the Federal 
Credit Union Act. And despite the dramatic growth in credit 
unions and increase in the CLF subscribed stock since 1980, the 
appropriations limit has never been adjusted. The approach of 
the year 2000 may trigger a systemwide increased demand for 
liquidity and the 600 million limit could prove inadequate to 
address credit unions' short-term liquidity needs at the end of 
this year.
    Before I go any further, I want to emphasize that credit 
unions are quite prepared for the year 2000 transition. As of 
December 31, 1998, 97 percent of all federally insured credit 
unions were Y2K compliant or on schedule to becoming so. 
Although NCUA sees no need for credit union members to withdraw 
larger than usual amounts of cash before the year 2000, it is 
possible that excessive media focus on the date change would 
cause an increased demand for cash at the end of the year.
    I repeat, there is absolutely no logical reason to panic, 
but we all know that sometimes human reactions are not based on 
logic, and NCUA has a responsibility to ensure that credit 
unions have available liquidity to deal with any threat of 
increased liquidity demands that could possibly arise at the 
end of 1999. The 600 million limit on CLF borrowing could 
impede our efforts in that regard.
    Turning to another subject, Mr. Chairman, I would like to 
thank the subcommittee very much for providing an additional $2 
million for the Community Development Revolving Loan Fund in 
fiscal year 1999. As you know, the fund makes loans at below 
market rates to low-income credit unions. The demand for such 
loans still outstrips supply. Low-income credit unions are 
receiving more assistance than ever before, thanks in great 
part to this subcommittee's efforts at funding our revolving 
loan fund. And the earnings from that loan fund are used to 
provide technical assistance to low-income credit unions in 
order to shore up their operations and to help them avoid 
problems that could result in a loss of services to people in 
low-income areas.
    Let me just conclude, Mr. Chairman, by saying simply that 
NCVA and the credit union system will be able to address any 
possible Y2K liquidity needs if the cap on CLF borrowing is 
removed.
    And I thank you for your attention to my statement.
    Mr. Walsh. Thank you very much. Good comments.
    Are you suggesting that the news media might possibly blow 
something out of proportion?
    Mr. D'Amours. Heaven forbid that I should make such a 
suggestion, Mr. Chairman.
    Mr. Walsh. You described or alluded to the growth in credit 
unions since 1980. Do you have any idea what that actual growth 
is in number of credit unions and the number of members of 
credit unions since 1980?
    Mr. D'Amours. I do not have those numbers at my fingertips, 
but I am hoping somebody on our team does.
    Mr. Walsh. Well, we will wait for those.
    Mr. D'Amours. We will be happy to supply them to the 
committee.

                              Role of CLF

    Mr. Walsh. I am sure it will be part of the discussion when 
we get to this CLF cap issue.
    Are there comparisons that can be made between the NCUA and 
its relationship to credit unions and the Federal Reserve and 
its relationship to banks?
    Mr. D'Amours. Well, to the extent that the discount window 
offers a relatively inexpensive source of liquidity to banks, 
yes. The CLF offers through its arrangements with the Federal 
Financing Bank offers a source of liquidity to credit unions, 
but not a subsidized source of liquidity as some people think, 
because of the fact those borrowings are marked up about 12\1/
2\ basis points, so that the Treasury actually does make a 
spread on those advances. I think in the case of the Federal 
Reserve Board----
    Mr. Walsh. To NCUA.
    Mr. D'Amours. To the----
    Mr. Walsh. To the members.
    Mr. D'Amours. To the CLF.
    Mr. Walsh. Okay. Right.
    Mr. D'Amours. The CLF borrows from the Federal Financing 
Bank. The Federal Financing Bank marks up its costs about 12 
basis points----
    Mr. Walsh. Right.
    Mr. D'Amours. Then passes those moneys on to the CLF, which 
through the corporate network distributes them to credit 
unions.

                      CLF Administrative Expenses

    Mr. Walsh. On your administrative expenses, that is a 
fairly substantial increase. Can you explain why?
    Mr. D'Amours. Because we added a staff person this year, 
Mr. Chairman. As a matter of fact, we traditionally have been 
coming in considerably below our appropriation level, and we 
did again this year. But we had to add a staff person this 
year, and that accounts for the difference. But overall, when 
you go back say 1993 to today, we're still several hundred 
thousand dollars below where we were. I think we've been quiet 
frugal in that regard.

                               OIG Budget

    Mr. Walsh. Unlike other agencies, NCUA's Office of 
Inspector General does not receive a separate line item. How is 
the OIG funded?
    Mr. D'Amours. Well, we are not required, as some other 
agencies are, to fund our inspector general through a separate 
line item. However, in effect the IG at the NCUA is separately 
funded because that budget does not go through staff, it goes 
directly to the NCUA board, and we have never--we have always 
implemented the budget that the Inspector General's office has 
requested. So there is no filtering system where the IG has to 
go through our staff.
    Mr. Walsh. You think this process the way it is established 
now assures the independence of that OIG?
    Mr. D'Amours. I believe so, sir; yes. And I believe our 
Inspector General is like-minded, but I would not deign to 
speak for him at this point.
    Mr. Walsh. We may submit a question to the Inspector 
General on that.

                 growth in credit union assets, members

    Mr. D'Amours. I have the answer to your question if you 
want it now, Mr. Chairman.
    Mr. Walsh. Okay.
    Mr. D'Amours. My staff informs me that in 1980 the assets 
of credit unions were $57.8 billion. In 1998 they are over $380 
billion, a 600-percent increase.
    Mr. Walsh. The first figure was about----
    Mr. D'Amours. $57.8 billion in 1980; in 1998, $380 billion. 
As for members, in 1980 there were 20 million credit union 
members; in 1998 there are 76 million credit union members.
    Mr. Walsh. Substantial, yes.
    Mr. D'Amours. Quite a dramatic increase.

                       Credit Union Y2K Readiness

    Mr. Walsh. Thank you. You said that on risk assessment your 
industry, the industry that you regulate, or that you oversee, 
is 97 percent Y2K compliant. You are confident in that figure?
    Mr. D'Amours. Yes, sir, we are fairly confident in that 
figure. We are--if you would like me to expand on that, we are 
97-percent compliant. Only about one-half of 1 percent of 
federally insured credit unions are not performing 
satisfactorily, and fully 34 percent are already fully 
compliant, ready to go.
    Mr. Walsh. In your quarterly report to Congress the number 
of credit unions receiving an unsatisfactory assessment for Y2K 
actually went up, a small number, but from 29 to 35. Could you 
explain why?
    Mr. D'Amours. I could not at this time. Perhaps my director 
of examination and insurance could answer that question, if you 
would permit.
    Mr. Walsh. Sure.
    Mr. D'Amours. This is David Marquis, the director of our 
examination and insurance office.
    Mr. Marquis. Actually, the current number of credit unions 
rated unsatisfactory is 54 as of today. And that is because our 
examiners continuously go on site. In fact, we are on track now 
to have our examiners touch every credit union on the testing 
issue by the end of March. Credit unions have to be through 
their testing by June 30. If we find that their testing is not 
progressing satisfactorily, we will issue anadministrative 
record or in terms of the LUA or a published LUA on those credit 
unions.
    The next phase of course will be implementation, and that 
will be a whole new series of analysis.
    Mr. Walsh. Does that trend belie your estimate of 97-
percent compliant?
    Mr. Marquis. No, because, I mean, the number--that number 
is such a small number in terms of the credit unions that are 
actually rated satisfactory by our examiners, which is 10,642, 
whereas the number of what we call ``needs improvement'' has 
actually gone from 895 in September to 512 in December to 238 
today. So that number goes down dramatically, and a couple of 
those have bumped into the unsatisfactory category. Most of 
them have gone back into the satisfactory.
    Mr. D'Amours. I would like to add, Mr. Chairman, for the 
record, that 10,642 is out of a universe of 11,000.
    Mr. Walsh. Yes, it is a very small number.
    Excuse me, on the Central Liquidity Facility, I have some 
specific questions as to its role that I will submit, but based 
on what--in the discussions that I have had with credit unions, 
with staff and with other members----
    Something will have to happen this year. We are waiting, 
excuse me, Treasury has already weighed in on this. Federal 
Reserve has not yet but will soon.
    Obviously what they have to say is important. It is not the 
determining factor but if the Federal Reserve comes back and 
they say this is not a good idea, we have a better idea, and 
they can implement that idea this year, then we are going to 
have to take a serious look at it, but I am of the opinion and 
I can't speak for everyone on the subcommittee, that we do have 
to take some action on this so if that is of any comfort----
    Mr. D'Amours. Well, if I might say, Mr. Chairman, we have 
been working with the Federal Reserve quite closely.
    Our Executive Director, Carolyn Jordan, and Mr. Yolles have 
spent many hours with the Federal Reserve and of course we have 
spoken to the Treasury also. I am not aware of any antipathy on 
the part of the Federal Reserve towards our initiatives and I 
sense--I don't know what information you are going to 
ultimately receive--but I would not be at all surprised if in 
fact removal of the ceiling was not determined by most 
interested parties to be the most expeditious, the neatest and 
the most efficient and safest way to approach this problem.
    I don't know that Treasury will come in with that 
conclusion, but on the other hand, Treasury has generally been 
against any accesses to liquidity that are beyond the 
traditional channels.
    Mr. Walsh. I just have one last question I will ask and 
then I'll go to Mr. Mollohan, but have you analyzed what you 
estimate, and this is a guesstimate I guess is maybe a better 
word, what you will need--what the need will be for cash flows 
in the fourth quarter of '99 for credit unions?
    Mr. D'Amours. It is very difficult to do, but we took for 
instance an estimation that every credit union member who uses 
the credit unon as their primary financial institution would 
make a withdrawal of $500 to get them through the last few 
months of 1999 and that comes to approximately a $7.5 billion 
liquidity need. We may, given our current----
    Mr. Walsh. Is that worst case?
    Mr. D'Amours. Oh, no. No, that is probably a not 
unreasonable assumption, but any assumptions are at best 
guesses, but if you are going to start guessing that might be 
not an unreasonable guess to make.
    We might be able to cope with that level of liquidity need 
in the current system but if anything worse than that were to 
occur, and as I said, depending on how this is hyped up at the 
end of the year and what sense of panic may unnecessarily and 
unreasonably arise, going beyond that would be a problem, we 
think we owe to our members and to the American financial 
system to be ready for that.
    Mr. Walsh. Thank you. Mr. Mollohan.
    Mr. Mollohan. Norman, when the Treasury lends money, when 
they lend money to the Central Liquidity Facility, what 
protection does the Treasury have against default?
    Mr. D'Amours. These are all collateralized loans and the 
problem isn't the--I don't think the problem is a credit 
problem. I think the problem is a liquidity problem, 
Congressman Mollohan.
    Mr. Mollohan. Well, the Treasury Department, I am advised 
has said that the Central Liquidity Facility has a gravely 
deficient capital structure. What do they mean by that? Are 
they correct? What do they mean by that?
    Mr. D'Amours. We believe that they are incorrect and that 
their premises are not valid, but if you want more than that I 
would ask Mr. Yolles to comment.
    Mr. Yolles. Congressman Mollohan, credit unions are 
required to purchase stock in the facility as a condition of 
membership and they all have done so in accordance with the 
requirement and statute.
    The corporate credit unions, which own the bulk of the 
stock in the CLF, have used their wholesale credit union, which 
is known as US Central, as a vehicle for purchasing the stock 
and this is basically a wholly-owned subsidiary. The stock has 
been purchased and it amounts on deposit today to about $700 
million.
    The CLF's capital was never intended as a source of funds. 
It would be loaned to credit unions if we had a liquidity 
emergency. Indeed, if you look at the worst case scenarios for 
Y2K, perhaps the extreme scenario might be a $20 billion 
outflow. The CLF's capital of $700 million does pale in 
comparison but it was never intended to be the source. That is 
why the CLF was given its borrowing authority by Congress of 12 
times subscribed stock and that is its true benefit, so I would 
characterize this as a philosophical disagreement with the 
Treasury Department on whether the CLF's capital would be the 
only source available for lending.
    Mr. Mollohan. So why are they described as gravely 
deficient?
    Mr. Yolles. I certainly can't speak on behalf of the 
Treasury Department. I have had numerous discussions with them 
and this accrues to again a philosophical difference. I 
understand that the Treasury Department is opposed to any 
entities that are known as government-sponsored enterprises--
GSEs--and they feel that the CLF, while not strictly GSE, 
functions like one and I think that is the nature of our 
difference of opinion on this issue.
    Ms. Jordan. You might want to know we have never seen 
anything in writing from the Treasury detailing what they are 
comparing the CLF to. Maybe they are comparing it to some 
market-based company or corporation that does lending. We have 
no idea what economic basis. We have seen no studies, no 
economic analysis that supports their view.
    The CLF meets the capital structure that Congress set up 
for it, so it is in compliance with the law. We have no idea 
what they are referring to.
    Mr. Mollohan. I guess that's what we are asking--that is an 
expression of concern by Mr. Rubin in a letter to Chairman 
Leach in January of this year that you are familiar with?
    Ms. Jordan. That's a statement from their credit union 
study that they did in 1997, but we have never seen any study, 
any economic analysis--I mean market-based analysis of those 
statements. They are simply their opinion as far as we are 
concerned.

                         Member Business Loans

    Mr. Mollohan. Thank you. Let me ask you a question. I visit 
with my credit union--one of my credit unions, one of my fairly 
large credit unions which perhaps is not that large if compared 
nationally but it is pretty large in my state, and they do do a 
lot of business loans. They are very concerned about the 
restrictions on business loans and the agreement last year that 
put those restrictions on it and I just wondered if you would 
comment on that generally and whether you see it as a problem 
with credit unions generally and what you see down the future 
if that limitation continues?
    Mr. D'Amours. I'd be glad to, Congressman Mollohan.
    We were--as the Chairman of the NCUA I was in the process 
of trying to expand credit union member business lending and we 
were just--that's two boards ago I think we began this--and we 
were just ready to put forth a new member business lending rule 
out when Judge Ginzberg's decision came out and an injunction 
was issued against us, so we were prevented from doing that. 
Then, as you know, Congress included a new statutory limit on 
member business lending as part of the Credit Union Membership 
Access Act.
    I've felt for years, Congressman, that credit unions could 
add a lot to smaller business, micro-enterprise efforts in 
inner cities, and isolated rural areas where many smaller loans 
are needed but not being funded, so we are in the process today 
of drafting regulations that we will be issuing soon affecting 
member business lending but constrained by the provisions of 
the 1151 that Congress just passed.
    I would like to see credit unions being able to get more 
involved in member business lending, not to compete with other 
financial institutions that get involved with large tract 
enterprises and the like, but to do small business lending. 
There is a need for small business lending that is not being 
met I think today that credit unions could help to meet. We are 
going to be interpreting the statute as expansively as we 
legally can to make that possible but the statute limits to 
12.5 percent of assets the member business lending that credit 
unions can do and categorizes any loan over $50,000 as a loan 
that has to be added into that category, so we are restricted. 
I don't know who you spoke to--what the credit union is----
    Mr. Mollohan. Steel Works Credit Union.
    Mr. D'Amours. Well, without having a specific knowledge of 
that credit union, I couldn't comment, but I could say that in 
general I think that credit unions should be given more 
latitude to make small member business loans than they are 
currently given.
    Mr. Mollohan. Well, there is really a certain foreboding in 
their description of what this is going to mean to them. Is 
there a solution short of a statutory--revisiting the statute? 
Are you alluding to an administrative remedy?
    Mr. D'Amours. We are going to do--I don't think anybody is 
very anxious to getting back into the statutory arena, but I 
think things could be done statutorily that would be very 
helpful. At our level, we are going to interpret the current 
statute as expansively as we legally can, but we are 
constricted of course by the statute. That would be within the 
purview of Congress to decide whether or not there are changes 
to be considered.
    Mr. Mollohan. You are right now in the midst of that 
consideration?
    Mr. D'Amours. Oh, yes. Yes.
    Mr. Mollohan. When will you be----
    Mr. D'Amours. Well, the comment period closed, as I recall, 
at the end of January, so I would think that by this spring we 
could be out with something.
    Mr. Mollohan. Thank you, Mr. D'Amours.
    Mr. Walsh. Thank you. Mr. Knollenberg.

                          CLF Borrowing Limit

    Mr. Knollenberg. Well, I'll try to be very brief. This 
whole thing about the Y2K problem I know is upsetting and 
concerns you as it is a concern to people around the world in 
the various countries. I just had a conversation with a person 
who is a consultant not for agencies such as yourself, but for 
private business, and there are some concerns out there.
    The whole question though that it comes down to is the 
impact that might have on the CLF and the reason, and maybe you 
know the history as to what is the reason for the ratio to 
exist? What is it, 12 to 1? Why not 15 to 1? Why not 20 to 1? 
Or some other number--10 to 1, I guess.
    Mr. D'Amours. That was done in 1980, Congressman, and 
although I was in Congress at that time I was not much focused 
on this issue. I couldn't say, except that it--at a 12 to 1 
ratio everybody seemed satisfied that that would be more than 
sufficient to meet any projected liquidity needs, and in fact 
that was a judgment that I think was correct.
    I think at that ratio we still would be amply able to meet 
any projected expected liquidity needs.
    Mr. Knollenberg. Would we be having this conversation if 
there wasn't a Y2K problem?
    Mr. D'Amours. As a matter of fact, Congressman, we might 
be, because the agency has felt for a number of years that the 
level set by the cap, the $600 million cap, was arbitrarily low 
and has never been adjusted for growth, for inflation, and 
needed to be changed, so we would have supported a lifting of 
the cap under any circumstances.
    Mr. Knollenberg. If you don't have access to this extra 
liability, through the CLF, why even have a CLF? Is that a fair 
question?
    Mr. D'Amours. Would you repeat the question?
    Mr. Knollenberg. If you don't have this increased backup 
liability through the CLF, do we even need a CLF?
    In other words, that cap is there now, but if you are 
concerned that you are going to perhaps exceed that cap, if the 
CLF is not going to be a vehicle that you could use to get this 
extra security or liability then do we need a CLF?
    Mr. D'Amours. The CLF is fine. There is no other liquidity 
source for credit unions. The reason the CLF was passed in 1980 
is precisely because Congress recognized that credit unions 
didn't have access to any other liquidity source to meet 
extraordinary demand.
    Mr. Knollenberg. That is the extent of my questions, 
Mr.Chairman. I might have one other question, which I will submit for 
the record rather than to the witness, but I thank you.
    Mr. D'Amours. Thank you, Congressman.
    Mr. Knollenberg. Thank you, Mr. Chairman.
    Mr. Walsh. Mrs. Meek.

                         CLF Reserve Structure

    Mrs. Meek. Mr. Chairman, I have been listening and reading 
the reports here and I am just trying to understand what these 
significant weaknesses are that Treasury has pointed up--the 
structural weaknesses that they keep referring to.
    I don't know whether you have done any studies or anyone 
else that showed this to be a reality with credit unions. Do 
any such studies exist on your part showing these structural 
weaknesses?
    Mr. Walsh. No.
    Mrs. Meek. Or has Treasury come up with any substantive 
information regarding these weaknesses?
    Mr. D'Amours. There are certainly no structural weaknesses 
within the credit union system. We have been audited by the 
General Accounting Office on a couple of occasions and given a 
clean bill of health, as has the CLF and as our Executive 
Director, Ms. Jordan, has just pointed out, we share your 
bemusement at the rationale that the Treasury has advanced.
    Mrs. Meek. So this is obviously an opinionated version by 
Treasury regarding----
    Mr. D'Amours. Well, I have a great deal of respect for the 
people at Treasury and they do very good work. This is an issue 
however where we are having difficulty in coming to an 
understanding as to what the needs and the realities are.
    Mrs. Meek. Thank you.
    Mr. Walsh. Thank you, Congresswoman.
    Mr. Walsh. Thank you, Mrs. Meek. Mr. Sununu.
    Mr. Sununu. Thank you, Mr. Chairman. It is a pleasure to 
welcome you, Mr. D'Amours. Very distinguished predecessor, as 
we were talking earlier. The former Congressman pointed out 
that he held my seat for five terms, which may certainly be a 
record for a Democrat, but it is quite distinguished for a 
member of either party. [Laughter.]

                             Recent CLF Use

    Mr. Sununu. A few brief questions. How much use during the 
past two years has the CLF received or maybe more narrowly what 
was the cashflow for the fourth quarter of last year, 1998?
    Mr. D'Amours. We haven't accessed--we haven't used the CLF 
for four years, Congressman.
    Mr. Sununu. And I guess that would be considered good news 
that your members haven't required the liquidity.
    Mr. D'Amours. Yes, that's right.

                    Federal Reserve Discount Windows

    Mr. Sununu. Why not--the original formation, do you recall 
what the argument was for not just allowing members direct 
access to the Fed window?
    Mr. D'Amours. Well, Congressman Sununu, 42 percent of 
credit unions would not qualify for access to the discount 
window.
    Mr. Sununu. On what basis?
    Mr. D'Amours. They don't have transaction accounts, 
Congressman. Of those who do qualify, only 300 have applied for 
such access, and out of that, to date, only 20 have been 
granted access to the discount window, and, again, that is out 
of a universe of 11,000 institutions.
    Mr. Sununu. So access to the discount window is allowed, 
but it is on a credit union by credit union basis, and it is up 
to them to apply?
    Mr. D'Amours. That's correct, and 42 percent would not 
qualify under existing parameters.

                         CLF Reserve Structure

    Mr. Sununu. Mr. Mollohan talked about the Treasury's 
opinion that the Reserve structure was weak. Has the Fed issued 
a specific position on the proposal?
    Mr. D'Amours. No, we had met with the Fed and we have 
received no negative reactions from them. And as Mr. Yolles 
pointed out, if one were to take the CLF's equity and capital 
as the source of liquidity, of course, it wouldn't be 
sufficient, but on the other hand, then you wouldn't need 
borrowing authority and Congress gave it borrowing authority. I 
don't think it was intended to work as that argument seems to 
expect that it was.
    Mr. Sununu. Mr. Chairman, will whatever information is 
provided by the Fed, will that be part of the record?
    Mr. Walsh. Well, it will come after this hearing, 
obviously. Valerie, when do we expect a response from the Fed?
    Ms. Baldwin. Hopefully, before the end of March.
    Mr. Walsh. And that would be, obviously, the public record.
    Did you want to add something?
    Mr. D'Amours. Yes, I would, Congressman Sununu. A member of 
the Federal Reserve Board, Philip Jackson, when this system was 
created, testified in favor of it.

                             CLF Structure

    Mr. Sununu. Thank you. Why $18 billion, how was that number 
arrived at? Does that suggest that the stock and surplus is 
$1.5 billion, and you have multiplied by 12?
    Mr. D'Amours. Yes.
    Mr. Sununu. And I want to be clear myself, so it is $1.5 
billion and are those--is it stock that members have purchased 
in the corporation, is that how the transaction takes place?
    Mr. D'Amours. Stock and surplus. But I would like--again, 
could Mr. Yolles approach the table to help us with that?
    Mr. Sununu. Please.
    Mr. Yolles. Congressman Sununu, the statutory requirement 
is that credit unions subscribe to stock in the CLF equal to 
one-half of a percent of their paid-in and unimpaired capital 
and surplus. One-half of that amount, or one-quarter percent, 
must actually be purchased; the other quarter of a percent is 
on call. The statutory borrowing formula is 12 times subscribed 
stock plus surplus, so you are correct, it is 12 times about 
$1.5 billion, plus the CLF surplus, which means retained 
earnings. And that gets us to the figure which is----
    Mr. Sununu. Is half, roughly half of that $1.5 billion in 
stock purchases and the other half considered to be on call?
    Mr. Yolles. On call, that's correct. The stock subscription 
is adjusted annually in the spring. The figure is currently 
$18.5 billion, it will rise when we do our stock adjustment 
this year, probably in April.

                     History of CLF Borrowing Limit

    Mr. Sununu. Why has OMB seemed to disagree with the 
request?
    Mr. D'Amours. Well, the OMB has traditionally, in the five 
years that I have been at the agency, been routinely supporting 
the cap. Mr. Yolles has been with the agency many, many years 
more than I have. He might be able to go further back than I.
    Mr. Yolles. Thank you. The cap has an interesting history. 
I have done some research, as you might expect, and it actually 
was part of an across the board government program in 1979 that 
was initiated by OMB, called the Federal Credit Control 
Program. The intent was just to get a number in the budget 
corresponding to the CLF's borrowing authority, and that was an 
OMB program. It has been continued every year. I think the 
program may no longer be in effect, and, as my Chairman 
characterized it the other day, I look on this as a cobweb of 
something in the distant past that simply hasn't been cleaned 
out.
    We submit our budget request each year to OMB and, of 
course, they forward it to the Committee and they have added 
the $600 million ceiling faithfully ever year for the last 18 
years.
    Mr. Sununu. I appreciate that history, it is helpful, but 
that doesn't make it any clearer why OMB, given that this 
doesn't have any budgetary, a direct budgetary impact, it is 
not considered an outlay, why would OMB oppose the change?
    Mr. Yolles. Well, I think I am on dangerous territory here, 
but OMB is part of the Administration, as is Treasury, and I 
believe that is the source of the support here.
    Mr. Sununu. So they are reflecting the Treasury opinion 
that was presented earlier by Mr. Mollohan?
    Mr. Yolles. I can't speak for OMB, but I believe that is 
the situation.
    Mr. Walsh. Would you yield for just a second?
    Mr. Sununu. Certainly.
    Mr. Walsh. Just a little clarification on this. Treasury is 
opposed. Is it primarily because of the capital structure that 
the CLF utilizes, is that--would you respond to that?
    Mr. Yolles. No, Chairman Walsh, I don't believe that is the 
source of the disagreement. In Treasury's 1997 report on credit 
unions, they commented that the CLF was not needed. Now, my 
understanding is that their opposition to removing the cap is 
part of their opposition to having the CLF, period. They have 
suggested that the Federal Reserve discount window could aptly 
serve credit unions and, as you know, we believe to the 
contrary.
    Ms. Jordan. But they also suggest that credit unions should 
go to the private market. I think there is just--there has 
always been a traditional bias at Treasury against the creation 
of any other type of borrowing facilities, and that includes 
the Federal Home Loan Bank system, Fannie Mae, Freddie Mac, all 
of these institutions. Treasury has always opposed other 
entrants in the market that borrow along with them when they 
are in the T-bill market.
    That bias started when the T-bill market was relatively 
small. It is enormous now and these other borrowers would have 
no, or little, if any, impact on that marketplace.
    Mrs. Meek. Mr. Sununu?
    Mr. Walsh. It is Mr. Sununu's time.
    Mrs. Meek. Will you yield?
    Mr. Sununu. Do I have any left?
    Mr. Walsh. No, it has not expired.
    Mrs. Meek. Will you yield?
    Mr. Sununu. Certainly.

               Access to Liquidity by Small Credit Unions

    Mrs. Meek. This entire scenario appears to me to put a big 
negative impact on these small credit unions, the small ones 
that exist in the state where I am from, and you have mentioned 
a lot of it. Where will they go, other than to the discount 
window? You said other groups, other financial situations, but 
that will not be easy, to do what you have described.
    Ms. Jordan. No, I am not suggesting that they--they 
wouldn't be able to go anywhere, those small institutions. 
There would be no source for them.
    Mrs. Meek. That's right. Those are the ones I am concerned 
about. The church ones. There are just oodles of them around 
that won't exist if this happens.
    Mr. D'Amours. One of the assumptions the Treasury is making 
is that the large credit unions would go to the discount window 
and that would free the capital within the existing corporate 
system for the smaller credit unions. That is an enormous 
assumption to make. The larger credit unions will likely go to 
the easiest and quickest source, which is the corporate system, 
and that would not leave anything for the smaller credit unions 
to access. The smaller credit unions do not even qualify under 
existing regulations for access to the Fed discount window. So 
I think you are quite right, that would be an enormous negative 
impact on smaller credit unions.

               Community Development Revolving Loan Fund

    Mr. Sununu. If I may reclaim my time and complete my 
questioning with just a few queries about the Community 
Development Loan Program. When was that established?
    Ms. Jackson. Originally, in 1987. NCUA has had control of 
it since 1991.
    Mr. Sununu. Why did NCUA take control of the portfolio?
    Mr. D'Amours. It was a Congressional action. Congress 
specifically designated that we do it.
    Mr. Sununu. Was there an issue or problem that prompted the 
change?
    Mr. D'Amours. Not to my knowledge, I think it was just a 
matter of we being in the proper position to administer it.
    Mr. Sununu. I would like to ask, I detect some 
disagreement. Maybe there is no disagreement.
    Mr. D'Amours. Well, I can't see behind me, but I think by 
the time I turn around, the disagreement will have been 
resolved.
    Mr. Loftus. My name is Bob Loftus; I am Director of Public 
and Congressional Affairs. At the time that Congress gave NCUA 
control, the program had been housed at the Department of 
Health and Human Services for about nine years. During that 
period HHS made no loans. Congress decided they wanted loans 
made.
    Mr. Sununu. And what is the size of the current outstanding 
loan portfolio?
    Ms. Jackson. We are at a little over $7 million.
    Mr. Sununu. $7 million. And that is last year the 
appropriation was $2 million, so you are asking for an 
additional $2 million to take the portfolio size up toward $9 
million, is that correct?
    Ms. Jackson. Well--go ahead.
    Mr. D'Amours. This agency has never specifically asked for 
any amount of appropriation. The Committee has, on its own, 
recognized the need and given us that. OMB, of course, takes a 
different view of this. But all we can do is point out that 
there is an unmet need, and this Committee has always been kind 
enough to do the analysis and to decide how to help us meet 
that need.
    Mr. Sununu. Is there a local match required in the loan 
that are made?
    Ms. Jackson. Credit unions are required to match the 
deposits and loans, yes.
    Mr. Sununu. Is it 50-50 then?
    Ms. Jackson. If they do it by member shares, they get a 2 
to 1. If they do it by other deposits, it is a 1 to 1 match.
    Mr. Sununu. And what are the typical terms of the loans 
that are made?
    Ms. Jackson. Five years.
    Mr. Sununu. Thank you very much. Thank you, Mr. Chairman.
    Mr. Walsh. Thank you, Congressman Sununu.
    Mr. Cramer.
    Mr. Cramer. Mr. Chairman, most of my questions have been 
answered, particularly about the Federal Reserve's discount 
windows and your reaction to that. I do think that your request 
seems to be wise and prudent. In anticipation of this 
interesting year with the Y2K problem, are any of my colleagues 
aware that the American Red Cross is already advising people to 
withdraw $500 from their checking accounts as preparation for 
potential problems associated with Y2K?
    Mr. D'Amours. I personally was not aware of that until you 
just said it.
    Mr. Walsh. The Red Cross?
    Mr. Cramer. That is our understanding. So your speculation, 
based on the $500 figure is interesting.
    Mr. D'Amours. That is purely coincidental, Congressman, I 
want to make it very clear.
    Mr. Cramer. I thought it might be. I have nothing further, 
Mr. Chairman.
    Mr. Walsh. Now that you have stirred the pot, Mr. Cramer. 
Thank you. Mrs. Northup.

                Need for Increase in CLF Borrowing Limit

    Mrs. Northup. I will just follow up with one question. Your 
concern seemed to be the Y2K problem, which I believe is 
understandable. Whether or not they are justified worries, 
people are worried, and it is increasing. Would maybe we 
accomplish the purpose to offset the Y2K event by giving you a 
temporary increase in the $600 million to make sure that we get 
through that challenge, but that would not dramatically remain 
increased for the long term?
    Mr. D'Amours. Well, certainly, any lifting of the ceiling 
would be better than no lifting of the ceiling, but every year 
brings its own realities and possibilities, so while we would, 
of course, prefer a permanent increase, anything would be 
better than no removal.
    Mrs. Northup. But to just get us through the Y2K problem, 
certainly, a temporary increase would offset that since that 
seems to be the main point in issue today.
    Mr. D'Amours. That may very well be the case.
    Mrs. Northup. Thank you, Mr. Chairman.

                          Redeposit Structure

    Mr. Walsh. I have one last question. We are talking about 
76 million depositors. That's a huge number, and all of these 
folks have, obviously, something invested in the credit union 
system. Could you describe the so-called redeposit program and 
explain its relation to the Congressionally mandated capital 
structure? What we are getting at here is what stands behind 
the depositors in terms of systemic insurance?
    Mr. D'Amours. You are talking about in the CLF structure?
    Mr. Walsh. Yes.
    Mr. D'Amours. Mr. Yolles, can you handle that, please?
    Mr. Yolles. Chairman Walsh, the so-called redeposit 
structure is an agreement between the central liquidity 
facility and its agent, U.S. Central Credit Union, which is the 
wholesale credit union at the top of the system. And, very 
simply, the CLF deposits its surplus liquidity, its capital in 
two deposit accounts at U.S. Central. In one account we 
maintain overnight funds for immediate borrowing needs. In 
another account, funds are also available and it bears the one-
year Treasury yield. This is part of the agreement by which 
U.S. Central has funded the corporate credit unions' capital 
stock purchases. Those funds are available, that is the $700 
million I spoke of, should the CLF need to access its capital. 
But I would like to emphasize that is not the strength of the 
CLF. The true strength comes from the borrowing authority, 
which, of course, we are concerned about.
    Mr. Walsh. Are there any other questions?
    [No response.]
    Mr. Walsh. If not, thank you very much for your testimony 
today, and we will have some additional questions we will 
submit for the record.
    Mr. D'Amours. Thank you, Congressman. We appreciate the 
opportunity.
    Mr. Walsh. You're welcome. I think the rest of us will 
probably go vote, and then we will bring in the Community 
Development financial institutions.
    [Recess.]
    Offset Folios 1521 to 1545        Insert here



                                       Thursday, February 25, 1999.

          COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS PROGRAM

                               WITNESSES

ELLEN LAZAR, COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS PROGRAM
MAURICE JONES, DEPUTY DIRECTOR FOR POLICY AND PROGRAMS
PAUL GENTILLE, DEPUTY DIRECTOR FOR MANAGEMENT AND CHIEF FINANCIAL 
    OFFICER

                 Introductory Remarks by Chairman Walsh

    Mr. Walsh.
    The final hearing this morning is on the Community 
Development Financial Institutions Program. Ellen Lazar.
    Mr. Walsh. Lazar is the executive director, and she is here 
with her staff. Last year was Ms. Lazar's first as executive 
director of the CDFI. She inherited an agency in need of major 
management improvements. And I am pleased to report that many 
positive changes have occurred over her short tenure.
    For example, substantial time has been invested in refining 
CDFI's mission priorities in management, which I am sure she 
will explain to us.
    Additionally, goals and performance measures have been made 
integral components of CDFI's strategic plan and budget 
request. These changes in process should provide Congress with 
tools we need to evaluate CDFI's achievements and to more 
effectively appropriate the funds provided to us by the 
taxpayer.
    For fiscal year 2000, CDFI requests an appropriation of 125 
million, 110 million for its existing programs, and 15 for a 
new program to develop microentrepreneurs.
    This request is $30 million above the appropriation 
provided in fiscal year '99. During today's hearing we will 
discuss this request and you will learn additional details on 
the PRIME program, Program for Investment in Micro 
Entrepreneurs.
    Ms. Lazar, thank you for coming today and for your hard 
work and for your staff's efforts this past year.
    And why don't we just proceed, and then if Mr. Mollohan has 
any comments, he can make them when he comes.

                  Opening Statement of Ms. Ellen Lazar

    Ms. Lazar. All right. Thank you, Chairman Walsh, members of 
the subcommittee. I am Ellen Lazar. I am the director of the 
Community Development Financial Institutions Fund at the 
Treasury Department.
    With me today are my two deputy directors, Maurice Jones, 
our Deputy Director for Policy and Programs, and Paul Gentille, 
our Deputy Director for Management and Chief Financial Officer.
    I would like to ask the Chair to submit my written 
statement for the record and----
    Mr. Walsh. Without objection. Summarizations are 
appreciated.
    Ms. Lazar. Thank you.
    I will delve into four major points very quickly here this 
morning--management program activity, evaluation and impact, 
and our fiscal year 2000 budget request.
    First, let me say that I am happy to report that we had a 
clean audit for 1998 from our auditors, KPMG Peat, Marwick. We 
had already gotten a clean audit in '97 for the previous three 
years, but Peat, Marwick had noted a number of material 
weaknesses in our operations, which we have corrected over the 
past year, and they have so noted in their report to us. We are 
just delighted with how the audit came out, and we brought an 
advance copy for you of that report.
    Mr. Walsh. Thank you. We will enter those into the record 
also.
    [The information follows:]
    Offset Folios 1551 to 1559 Insert here



                           The Growth of CDFI

    Ms. Lazar. We have done a very intense job of improving our 
infrastructure, our administrative processes and procedures. We 
have hired additional staff over the past year. And we have 
spent time really making sure that our funding gets out in an 
expeditious manner.
    We also entered into a strategic planning process the 
results of which we transmitted up to you here at the Hill for 
consultation and discussion.
    So we spent the whole year really developing a good 
strategic plan to work on for the next five years, and the 
budget was based on that strategic plan.
    Our program activity too has been refined, and we have put 
policies and procedures in place to more effectively manage our 
programs. The Fund's mission is to promote access to capital 
and local economic growth through the support and investment in 
community development financial institutions. Also, our mission 
includes expanding financial service organizations, traditional 
lending, investment, service, and support of underserved 
markets in distressed communities.
    To that end we serve a host of different types of 
institutions under the umbrella of CDFI's; community banks and 
community development credit unions, which are both regulated 
institutions, community loan funds, which are often nonprofit 
loan funds that provide lending for housing or for business, 
microenterprise loan funds and community development 
venturecapital organizations.
    We run a number of programs that provide financial support 
for those institutions. Our CDFI program encompasses our Core 
program, our Technical Assistance program, and our Intermediary 
program, which helps finance and support these organizations. 
We also run the Bank Enterprise Awards program, which provides 
incentives for financial institutions to increase their 
activities in distressed communities and their investments in 
community development financial institutions. In the past three 
years we have provided $190 million to support these efforts 
through the Fund.
    We also run a nonmonetary program, the Presidential Awards 
for Excellence in Micro-Enterprise Development. That program 
basically has been established to promote best practices and to 
demonstrate the work that is being done in micro-enterprise 
around the country.
    We have two new initiatives that we began this year to 
complement the work that we are doing with CDFI's. One is a 
Native American study, which was encompassed in our enabling 
legislation. What we hope to be able to do is provide greater 
access to financing for tribal communities and lands held in 
trust by the United States.
    We also have begun work on our policy and evaluation 
program. We have set up a policy and research shop within the 
Fund, and our first two activities have really been started to 
evaluate the impact that the funding has made in the 
communities that we have worked in. I would like to talk about 
that for a minute.
    In 1996 we made our first round of awards, and we funded 31 
organizations. We have some preliminary data back from a survey 
that was sent to the first 25 of those organizations. Those 25 
organizations represent $29 million of investment by the fund. 
That money has helped create $198 million in community 
development loans and investments, which has resulted in 
creating or expanding over 800 micro-enterprises and over 800 
businesses, created or retained over 10,000 jobs, developed 
over 8,000 units of affordable housing, developed a host of 
child care centers, health care centers, human services and 
education facilities, and also provided business training, 
credit counseling, home buyer training, and other development 
services to over 6,000 individuals.
    The awardees have basically strengthened their capacity to 
deliver services. Since the awards were made, their assets have 
grown by 127 percent, from $429 million to in the aggregate in 
1998, $972 million. Seventy-one percent of the clients these 
institutions serve are low-income, 48 percent live in the inner 
cities, 41 percent rural areas, and the balance in suburban 
communities.
    We are also working on in-depth case studies of some of the 
organizations that we have funded. We have completed the field 
work for Boston, Santa Cruz, and San Antonio, and some details 
of those case studies are contained in the longer testimony.
    We found this preliminary data to be very informative and 
useful to us as we develop our programs and better assess how 
the work we are doing is flowing.
    For our fiscal year 2000 budget we have asked, as you noted 
earlier, Mr. Chairman, for $30 million above our fiscal year 
1999 funding level of $95 million. Those funds are $15 million 
for an increase in our basic activities and $15 million for a 
new program, the PRIME program, which stands for Program for 
Investment in Micro-Entrepreneurship.
    The authorizing legislation for this program was introduced 
by Congressman Bobby Rush and Chairman Leach as H.R. 413, and 
introduced by Senators Domenici and Kennedy as S. 409. The 
PRIME Act will allow the fund to provide technical assistance 
and training to organizations that are working with individual 
microentrepreneurs around the country. This legislation 
contemplates that 75 percent of the funding will directly go 
into the services that are being provided to individuals, 15 
percent would be available to these microenterprise 
organizations to help them develop and grow, and 10 percent 
would go into research and development in the field. I think 
that we are uniquely suited to administer this program. We work 
with community-based institutions that serve low-income 
populations.
    We really feel that the funding requests will help us 
continue our ability to provide greater access to credit for 
all Americans. I look forward to working with you all this year 
on trying to make this appropriation a reality, and thank you 
for your time here this morning. If you have any questions, I 
am happy to entertain them.
    Mr. Walsh. Thank you very much.
    I understand Mr. Mollohan does not have an opening 
statement, and so we will go right to questions and alternate 
back and forth.

                               Micro Loan

    You have answered most of them, which will shorten things 
up substantially. On the micro-entrepreneur program, how many 
months of experience do you have with this now?
    Ms. Lazar. We have been working with micro-enterprise 
organziations since our inception. We have made awards for 
micro-enterprise organizations that are financing institutions 
that have been providing credit since 1996.
    Mr. Walsh. Okay. And what are the size of the loans?
    Mr. Jones. To the micro groups?
    Mr. Walsh. Yes, to the borrower.
    Mr. Jones. Oh, the borrower. You may see a loan to a 
borrower----
    Mr. Walsh. You provide funds to local CDFI's.
    Mr. Jones. Right, to the intermediary.
    Mr. Walsh. And then they work with their constituencies.
    Mr. Jones. Right. The loans could be as small as $100. They 
could be as small as $500. What we have said is it is usually 
no more than $25,000. That is really the definition of a micro 
loan.
    Mr. Walsh. What is the uncollectible rate of those loans? 
Do you have any idea?
    Mr. Jones. It varies.
    Mr. Walsh. What is the systemwide average?
    Mr. Jones. Well, we have seen numbers as low as 2 percent 
as far as a loan loss ratio.
    Mr. Walsh. Um-hum.
    Mr. Jones. But I cannot say that we have done any in-depth 
study to verify those numbers. And also those numbers do not 
clearly distinguish between loans that just have not been 
written off yet.
    Mr. Walsh. Um-hum.
    Mr. Jones. And so there is a delinquency rate issue as 
well.
    Mr. Walsh. Sure.
    Mr. Jones. But we have seen numbers as low as 2 percent. 
And we have seen some numbers as high as 10 percent. But it is 
very competitive.
    Mr. Walsh. It would be good if you could give that question 
some thought so that you could get back to us.
    Ms. Lazar. Sure, we would be happy to.
    Mr. Walsh. Obviously if a number as high as 10 percent is a 
number, that is pretty good. As low as 2 percent obviously is a 
lot better. But, you know, the Grameen Bank sort of model 
operates way down around 2 percent or better.
    Mr. Jones. Yes, and those are the sort of numbers that we 
are seeing.
    Mr. Walsh. Thank you. I have no other questions.
    Mr. Mollohan.
    Mr. Mollohan. Mr. Chairman, I came in a little late. I 
apologize for that.

                           CDFI Authorization

    Did you speak to your authorization and the status of your 
authorization? Are you requesting an authorization?
    Ms. Lazar. No, I did not, but I am happy to do that.
    Mr. Mollohan. What is your authorizing committee?
    Ms. Lazar. Our authorizing committee is the Banking 
Committee, and we got as far in the House last year as getting 
through the Subcommittee on Financial Institutions. Mr. Vento 
and Mrs. Roukema reintroduced our authorization bill this 
session. It is H.R. 629.
    Mr. Mollohan. What do you feel its prospects are?
    Ms. Lazar. We think that here in the House it is probably 
pretty good. We are less sanguine about the Senate.
    Mr. Mollohan. Is Mr. Domenici a cosponsor on the Senate 
side? And who else?
    Ms. Lazar. In the Senate side our reauthorization bill has 
not been introduced yet. The PRIME Act legislation, which is a 
separate----
    Mr. Mollohan. Ah, correct, that was Domenici.
    Ms. Lazar. Piece of legislation, is cosponsored by Mr. 
Domenici, Senator Kennedy, really a bipartisan group.
    Mr. Mollohan. Do you expect to have an authorizing bill 
introduced in the Senate?
    Ms. Lazar. We are waiting to see what will happen. We 
certainly hope so.
    Mr. Mollohan. Please elaborate on that a little bit. What 
is the status?
    Ms. Lazar. Well, we have not spoken with the majority yet 
about this in the Senate.
    Mr. Mollohan. Do you expect to do that?
    Ms. Lazar. Yes. We hope to do that as soon as I think 
financial modernization discussions are over with, people have 
a little bit more time for us.
    Mr. Mollohan. I see. Okay. The PRIME program, I like it, 
but it sounds a little Small Business Administrationish to me.
    Ms. Lazar. Yes.
    Mr. Mollohan. How do you justify your having responsibility 
for administering this program versus the Small Business 
Administration?
    Ms. Lazar. Maurice?
    Mr. Jones. I think the main justification for the Fund 
having this as opposed to any other Federal entity for that 
matter, including SBA, is that the focus here really is 
community development, and that is what we do. If you look at 
PRIME, 50 percent of these dollars have to go to very-low-
income individuals, individuals who are actually probably 
holding down other low-wage jobs while running small 
businesses.
    Mr. Mollohan. So you are doing similar things----
    Mr. Jones. We are doing similar things.
    Mr. Mollohan. But your entry point is a little different.
    Mr. Jones. Yes. Yes.
    Mr. Mollohan. They would be coming at it from a business 
standpoint----
    Mr. Jones. Right.
    Mr. Mollohan. And you would be coming at it from----
    Mr. Jones. From a community development----
    Mr. Mollohan. Standpoint.
    Mr. Jones. Yes. And our view is micro-enterprise, and I 
think this is not just our view but domestically micro-
enterprise is definitely a development strategy.
    Mr. Mollohan. So you are trying to fill community 
development needs, right?
    Mr. Jones. Right.
    Mr. Mollohan. Geographically how many States are you in?
    Ms. Lazar. We are now in 43 States around the country, in 
Puerto Rico and the District of Columbia. We are working--we do 
outreach efforts where we go out and talk about our programs 
all around the country, and we are trying to focus on the 
States where we do not have quite as much activity.
    Mr. Mollohan. Are you in West Virginia?
    Ms. Lazar. Yes, we are.
    Mr. Mollohan. You are?
    Mr. Jones. We are.
    Mr. Mollohan. Where?
    Mr. Jones. We are in--well, believe it or not, I was in 
Flat Woods, West Virginia, about four or five months ago.
    Mr. Mollohan. That is close. [Laughter.]
    Mr. Jones. We have community works----
    Ms. Lazar. In Big Chimney.
    Mr. Jones. Big Chimney and Lightstone Community Development 
Corporation, which is in Moyers.
    Mr. Mollohan. You are getting further away. [Laughter.]
    Mr. Jones. Tell us where you want us. I think I can get 
there.
    [Laughter.]
    Mr. Mollohan. I have no further questions.
    Mr. Walsh. Mrs. Northup.
    Mrs. Northup. Yes. I am delighted to have you all here 
today and have a chance to look at your budget requests and 
what you do.

                       Community Development Bank

    The Community Development Bank in Louisville, KY, is 
fabulous. I think they have turned a $2 or $3 million grant 
from you into about $35 million. They are very high-profile, 
they are very engaged with the community, and they have engaged 
a lot of individual contributions which not only brings money 
but also brings an engagement, involvement. It has helped close 
what I believe is not only an economic division but racial 
division and every kind of division that exists in many cities.
    I would just like to tell you that I have great faith in 
the people, the two people that sort of coadminister it and are 
good friends with Ms. Lazar. They have a lot of appreciation 
for the changes that have taken place since you have come on 
board, and they do feel like that it has been an experience 
dealing with the feds and that sometimes they do feel like they 
are fighting with one hand tied behind their back. And I hope 
that you'll keep that in mind as youcontinue.
    My constituents didn't ask me to ask this, but I will 
anyway because I have felt that Louisville has--considering the 
program they have put together done a great job. It's sort of 
taken our breath away, but we weren't an easy area, and no 
matter how highly successful this Community Development Bank 
has been, I have the feeling that there are some that haven't 
been quite so successful.
    One that maybe comes to mind is Atlanta's. But that is so 
vague maybe I shouldn't even say that. Are there some CDFIs 
that have not turned the assets into more money and growth and 
opportunity?
    Mr. Jones. There have been none, and I want to knock on 
wood as I say this, so far that we have made awards to that 
have been failures--not even close. On the contrary all of them 
are performing services that are so needed in their communities 
that almost by their presence alone they are actually being 
successful.
    I will say that we attempt to help those that we think are 
deficient internally and attempt to help them better serve 
their markets and we usually do that through technical 
assistance. We provide technical assistance monies to these 
institutions, but so far what we are seeing, and we are just in 
the stages of preliminarily getting data back, these CDFIs are 
tremendously successful in turning around communities and 
helping individuals build wealth and skills.
    Mrs. Northup. And the ones that are the most successful, do 
you have any flexibility that you can give them--sort of tie 
them less to the bureaucratic mazes that so frustrate them?
    Mr. Jones. We would like to think that we are doing that 
actually for all of them. The ones that are more sophisticated 
frankly are usually those that we, for instance, can get money 
to quicker. It is really the ones that we have to do more hand-
holding that--and this is generally speaking--that take a 
longer time for us to for instance get them their money after 
we have awarded it.
    There are some things that we can do to try to streamline 
application requirements and streamline reporting and we are 
constantly trying to do that.
    Mrs. Northup. Let me just quickly comment on the micro-
credit, and I am not sure of its presence in Louisville. That 
is the next question that I am going to ask, but the question 
about the SBA I think is really a good one because in the most 
depressed neighborhoods in our community, there's actually some 
really impressive leadership. It mostly has come through the 
churches and almost every day I am stopped by people in those 
areas who have really good ideas who want to start a very small 
business. They may be contemplating a little coffee shop. It 
may be a repair--shoe repair. The SBA requires a pretty 
difficult process for them to go through for the very small 
amount of credit that they want.
    I think the idea with SBA is always that it has to be 
backed up. What the Community Development Bank tells me is that 
all the ideas about lowering a huge plant into the most 
depressed areas is unlikely. It takes all of the rehabbing 
houses and the small businesses moving back in for this to 
happen. They are finding great success with this but the need 
for professional infrastructure, law support, accounting 
support and so forth, that comes along with the micro-credit is 
also needed. I just thought I would put a plug in to the 
committee for the need to look at microcredit. It's really 
needed.
    Ms. Lazar. Thanks.
    Mr. Walsh. Thank you. Mrs. Kaptur.

              fundamental existence and other initiatives

    Ms. Kaptur. Thank you, Mr. Chairman.
    I have followed the--first of all, welcome to the committee 
and I have followed the Clinton Administration's proposal on 
community development financial institutions since it was first 
proposed before the Banking Committee in first term and I 
testified against it--as you probably know--and I have watched 
its development over the years and I would say to you, Ms. 
Lazar, you have a very hard job, and in looking at your 
background I really support what you have done with your life's 
work, and I just question this structure to achieve the goals 
that many of us who serve on the development committees of 
Congress wish to achieve.
    Some of my questions will relate to your fundamental 
purposes for existence and how you relate to other initiatives 
that are out there to support development, particularly in 
communities that have less capital available to them.
    One of the largest achievements of the decade of the '80s 
in my opinion in the banking area were passage of the Home 
Mortgage Disclosure and Community Reinvestment Acts, and in 
some ways I view your initiatives in some ways as 
counterproductive to actually getting institutions to reinvest 
in the communities in which they take deposits.
    I noticed that the focus of this proposal today for the 
next fiscal year we're going to put more emphasis on the bank 
enterprise--what you call the bank enterprise initiative and in 
your justification you talk about as one of your successes an 
award that was made to Chase Manhattan Bank in New York--it is 
on page 5--for over $2 million for which they provided an 
equity investment of $475,500 and lines of credit of 
$31,300,000.
    Now am I correct in reading this that for the $2.2 million 
that you awarded them they received a return of 7 percent over 
the first six months plus anything that they might receive from 
the returns on the line of credit down the road. Am I correctly 
reading the numbers?
    Mr. Jones. I don't think so to the extent I understand your 
question. What we provide them is not a loan to Chase Manhattan 
Bank, and what they--what we provide from----
    Ms. Kaptur. A grant.
    Mr. Jones. Right. We provide them with a grant and we 
provide them--our grant is if they make an investment in a 
CDFI, if it is an equity investment or if it is a grant, et 
cetera, we provide them 15 percent of that money, 15 percent of 
whatever the amount of that grant is, provided that what they 
have done is increased their investments in CDFIs from the 
previous year.
    So for instance if all Chase Manhattan Bank is doing is 
continuing to do what it has been doing in this area for years, 
if it doesn't increase it, then they get no money from us at 
all. They have to increase their investments in CDFIs or in 
other distressed areas in order to even qualify for money from 
us.
    Ms. Kaptur. But shouldn't they do that anyway under what 
the Home Owners Disclosure and Community Reinvestment Act would 
call for----
    Mr. Jones. No, ma'am.
    Ms. Kaptur [continuing]. Because they are a commercial 
bank?
    Mr. Jones. Under CRA there is no requirement that they 
increase their investments. There is a requirement that they 
continue to be invested in these areas. The distinction with us 
is they can continue to be investing in these areas for years 
but if they don't increase their investments they get no money 
from us.
    What we are trying to get is more activity, not just 
activity itself.
    Ms. Kaptur. Well, I am very interested in what their rate 
of return is. I mean it is amazing to me that we would give a 
cash grant to Chase Manhattan. The most profitable institutions 
in this country today are the banks and I have been after them 
my whole life. They are very unpopular in my district right now 
because of the fees that they are charging--these aren't 
exactly community-friendly institutions. We have had to wrestle 
them down to the mat for a long time, and so the thought--if I 
were to go to my taxpayers and say we are giving $2 million to 
Chase Manhattan Bank, I think they would be floored.
    I am interested in the rate of return to Chase Manhattan 
and I will ask your accountants for some further clarification 
on that. You are trying to achieve good. I know what you are 
trying to do. I am not sure you are on the right horse and I am 
very, very concerned about taxpayer dollars going to reward 
banks, especially when you are now increasing the amount of 
that in this budget request.
    The second point I wanted to make--on page 3 I think it is 
you talk about the types of institutions that benefit and this 
is really where my problem was way back when the Clinton 
Administration proposed this. You wanted to help Community 
Development Banks, and I would like to know how you define 
those, because isn't every bank supposed to be involved in 
community development to some extent, community development 
credit unions--if I had my druthers I would have put every dime 
that you are using of the taxpayers' money into the furtherance 
of community development credit unions across this country, 
particularly in the technical assistance arm, nonprofit loan 
funds, micro-enterprise loan funds, and community development 
venture capital funds.
    Ms. Lazar. Yes.
    Ms. Kaptur. I would like to know in each of those 
categories how many institutions do you actually serve with 
these dollars and then what dollar amounts have they gotten?
    Ms. Lazar. I could give you some indication of that now or 
I could give you a fuller written response to it, if you would 
prefer.
    Ms. Kaptur. All right. I would prefer the written response 
but I would like to get your sense as to just ballpark where is 
your primary and secondary emphasis?
    Mr. Jones. Let me just give you a sense of the groups we 
have funded in the categories that you mentioned.
    With respect--well, actually, let me give some background. 
CDFIs have to meet certain tests to be designated as a CDFI, 
whether they are a bank, whether they are a credit union, 
whether they are a venture capital fund, et cetera, and there 
are six tests.
    One is that their primary mission has to be community 
development. The second is that they have to serve a target 
market. That probably is the distinction and what we mean by 
having to serve a target market is you have to be in business 
to provide credit and services to poor people. That has to be 
your primary mission, not providing a return to your 
shareholders.
    All banks don't do that. Community Development Banks do and 
that is the distinction between just any bank and a Community 
Development Bank.
    The third requirement is that they have to be accountable 
to the markets that they are serving, which means either they 
have residents of that market on their board so that those 
residents have a voice, or by some other means those residents, 
those poor folks that they are serving can articulate their 
opinions in a way that gets incorporated in the operations of 
the organization, so it may be an advisory committee, it may be 
a regular survey that they do on an annual basis to their 
clients, what have you, but that is the third requirement.
    The fourth is that they have to be a financing entity, 
which means that their predominant business activity has to be 
making loans or making equity investments in these areas, 
providing capital, not technical assistance or any other thing.
    The fifth is that they cannot be a governmental entity, 
which means they can't be controlled by a government entity or 
part of a government entity so that their decisions are not 
politically based but based on the market needs of their area.
    Then finally--what did I leave out----
    Ms. Lazar. Development services.
    Mr. Jones. Development services--they have to provide not 
just credit. They have to provide technical assistance in 
conjunction with the credit. Those are the distinguishing 
characteristics of a CDFI and not just any bank actually does 
that. You really have to purposefully be a CDFI. You can't just 
be a community bank.
    Bethesda Community Bank is probably not a CDFI.
    Ms. Kaptur. Do you maintain a list of, if I might 
interrupt----
    Mr. Jones. Yes, ma'am.
    Ms. Kaptur. And how many of those are there in the country?
    Mr. Jones. How many Community Development Banks?
    Ms. Kaptur. Community Development Banks.
    Mr. Jones. I can tell you that we have funded 13 Community 
Development Banks so far.
    Ms. Kaptur. How many of those were new starts?
    Mr. Jones. Of the new starts, and I am guessing because I 
am going to have to go back and do an examination for you, but 
Louisville----

                             credit unions

    Mrs. Northup. Our community bank in Louisville was funded.
    Mr. Jones [continuing]. Was one. Albina in Portland, Oregon 
was another, Cleveland was another, so perhaps half of those 
were startup institutions, institutions where just like in 
Louisville the community came together and said, yes, we do 
have banks but what we need is a community bank. we need banks 
that are serving people that the mainstream institutions are 
not serving. That is the distinction.
    Now you asked about credit unions. Whereas we have funded 
13 Community Development Banks, we have funded 40 credit unions 
because credit unions are, just like you said, they are on the 
front line of community development work and they have been 
there for a very long time.
    We have also funded the trade association for community 
development credit unions, the National Federation ofCommunity 
Development Credit Unions in New York, so that they could take those 
monies and give them to other credit unions, so in terms of emphases we 
have funded far more credit unions than we have funded Community 
Development Banks.
    Ms. Kaptur. In numbers, but what about dollars?
    Mr. Jones. Dollars? That may be one I'll have to submit to 
you later because I don't have those numbers before me.
    Ms. Kaptur. Well, I will submit I appreciate the 
clarifications and I will appreciate for those categories 
listed on page 3 the numbers and then the dollar amounts.
    I only have two other small items.
    One is I would hope that as you perform your work over this 
next year that you will give a serious look to public housing 
developments across this country. One of the most 
disenfranchised group of people financially are people residing 
in public housing, many of whom are mothers with children, 
seniors, disabled, veterans, lots of people across our country. 
Most of them do not have access to normal financial services 
and there are millions and millions of dollars that go into 
those buildings in the form of welfare payments and everything 
else. People have to cash checks in a serious manner from 
Chicago to L.A. probably to Miami.
    Ms. Lazar. Yes.
    Ms. Kaptur. And we can't seem to get the kind of focus on 
people who reside in those dwellings as we do in a lot of 
others and they don't normally have employee-based associations 
and so forth where they can form a credit union.
    I think there is a lot of work to be done there and I 
personally think the credit union is the right way to go in 
those places, even with terminals, but I would encourage you to 
look at that and----
    Mr. Walsh. Ms. Kaptur, could we ask you to submit the rest 
of your questions?
    Ms. Kaptur. Yes, I will be happy to do that.
    Mr. Walsh. Because we have got two more members and we are 
already over the time limit and----
    Mr. Jones. Mr. Chairman, if I could actually----
    Mr. Walsh. Finish this discussion, obviously.
    Mr. Jones. Let me just give you those numbers, because it 
turns out I do have them.
    With respect to the banks, we have provided $18 million to 
the banks. With respect to the credit unions including the 
credit union trade association, we have provided nine plus 
another seven, so we have provided $16 million to the credit 
unions.
    Mr. Walsh. Thank you. Mr. Frelinghuysen.
    Mr. Frelinghuysen. Thank you, Mr. Chairman.
    Ms. Lazar, it's nice to see you again.
    Ms. Lazar. It's nice to see you.
    Mr. Frelinghuysen. From all reports you get very high 
marks.
    Ms. Lazar. Thank you.

                        working with hud and sba

    Mr. Frelinghuysen. I noted in your performance and impact 
portion of your statement that you developed 8200 units of 
affordable housing. What specifically is your relationship with 
Housing and Urban Development and the SBA? How would you 
characterize your relationship with them?
    Ms. Lazar. Collegial. [Laughter.]
    Mr. Frelinghuysen. Collegial?
    Ms. Lazar. Yes. The units that have been--that I noted in 
the impact are the units that have been helped created by the 
financial institutions that we have supported.
    We work fairly closely with the Small Business 
Administration. We co-chair an interagency work group on micro-
enterprise with the SBA. Both the SBA and HUD sit on the CDFI 
Advisory Board.
    Mr. Frelinghuysen. So you have a good relation with the 
SBA. What is your relationship with Housing and Urban 
Development?
    Ms. Lazar. Very collegial. They do serve on our advisory 
board and they do provide us with input and insight----
    Mr. Frelinghuysen. We don't want to send out any vibrations 
out of this room, but sometimes people have characterized the 
SBA as so complicated to participate in the process that a lot 
of people just give up and turn to you as a viable alternative. 
I don't know how I would characterize HUD but obviously you are 
describing it as a collegial relationship, but there again is a 
bureaucracy that at times seems to be totally paralyzed.
    Ms. Lazar. Yes.
    Mr. Frelinghuysen. Because of its size and whatever--but 
you do have relationships with both of those Federal agencies?
    Ms. Lazar. Yes.
    Mr. Frelinghuysen. One should normally be suspicious about 
new programs, but I think that what you are doing here relative 
to the micro-entrepreneurs I think is to be commended. I think 
it sounds exciting and I think it will be interesting for us to 
hear how you have been able to measure the success of that 
program.
    We are doing these types of things around the world. The 
fact that we would be doing them at home I think is an exciting 
proposition--a little money goes a long way, and I did of 
course note that you have two New Jersey projects, in Newark 
and Trenton, and I do have some other questions I would like to 
submit for the record. Thank you.
    Ms. Lazar. Thank you.
    Mr. Walsh. Without objection.
    Mr. Walsh. Would you like to comment back after all of that 
wonderful praise or just leave it stand?
    Ms. Lazar. I'll leave it. Thank you very much.
    Mr. Walsh. Mrs. Meek.
    Mrs. Meek. Thank you, Mr. Chairman. Of course I welcome you 
again.
    You have given me once the list of all the CDFIs. I 
probably lost it. I would like to have it again.
    Ms. Lazar. We'll get you one.

                            Capital Funding

    Mrs. Meek. All right. As I listened to my colleagues around 
the table, I welcome CDFIs because we need them in this mix and 
I would like to say that to my colleagues. There is such a need 
out there if I had three Cs I could give to this committee it 
would be capital, capital, capital.
    You would be surprised at the quagmire that exists in our 
small communities and that's what Mr. Frelinghuysen was talking 
about, so if you have the banks with CRA, I don't want to tell 
you how I feel about the CRA--I have been out there about 40 
years dealing with these banks and the CRA. You don't get that 
much return and when you do, there's a lot of confusion, but 
what I like about what you are doing, you are trying to give 
them some incentive so they will get out there, and I noticed 
that in your report that you are getting some leveraging off 
the money you put in there.
    I say--I welcome that. I hope that you will continue that. 
I think that is a good initiative, so in terms of what you are 
doing out there with banks and credit unions, anything you can 
do to nudge the banks will be helpful and I welcome it because 
I know that if you get the leveraging and you got any money you 
have already done--it is well worth it, because in the 
community I serve it is very difficult to get capital.
    We have a lot of good ideas and when I go out and I have a 
seminar on technical assistance, they get angry with me because 
they are tired of technical assistance. They get so much 
technical assistance and no money----
    [Laughter.]
    Mrs. Meek. They are looking for some capital and what you 
are doing is great, and I want to really, really urge the 
Chairman to really look at this very closely because you come 
up with a model that will work and in these small communities 
and particularly these impoverished communities, and I go back 
again to HUD--they are turning over a lot of stuff because of 
their new Federal initiatives and initiatives like you have--
it's going to help. You are going to see some changes and I am 
hoping that if we have a new Empowerment Zone, I don't know 
whether the Chairman has any in his district or not----
    Mr. Walsh. Not yet.
    Mrs. Meek [continuing]. Okay, but it is really going to 
help us a great deal. It really is. Thank you very much.
    Ms. Lazar. Thank you.
    Mr. Walsh. Thank you.
    Mrs. Meek. And I am amazed at the way they can pull the 
information out of the air. This young man is really something 
you have there. [Laughter.]
    Mr. Walsh. He ticked off those six things pretty well.
    Mrs. Meek. That's right. He's just jealous, Mr. Chairman. 
[Laughter.]
    Mr. Walsh. Are there any other questions?
    [No response.]
    Mr. Walsh. If not, we have concluded and we thank you very 
much for your testimony and we will submit other questions for 
the record.
    Offset Folios 1589 to 1646 Insert here



                                          Wednesday, March 3, 1999.

               U.S. COURT OF APPEALS FOR VETERANS CLAIMS

                                WITNESS

HON. FRANK Q. NEBEKER, CHIEF JUDGE, U.S. COURT OF APPEALS FOR VETERANS 
    CLAIMS
    Mr. Walsh. The subcommittee hearing is now in order, and 
today we are here to discuss the fiscal year 2000 budget 
request for the U.S. Court of Appeals for Veterans Claims, the 
new name of the Court of Veterans Appeals as of March 1st. 
Fiscal year 2000 budget is a request of $11,450,000, of which 
$910,000 is for the Consortium Pro Bono Program. This is an 
increase of $1.2 million for the court and $45,000 for the pro 
bono program.
    I welcome Judge Nebeker--is that correct, Nebeker----
    Judge Nebeker. That is correct, yes, sir.
    Mr. Walsh [continuing]. The Chief Judge, and other members 
of the court.
    Judge Nebeker, if you would please introduce your 
colleagues with you today, which you just did to me. There is 
no one to introduce them to right now, but maybe if there are 
questions, they may be asked to ask other individuals.
    Your written statement will appear in the record, and you 
are free to summarize your statement. And I would like to 
introduce--Dena, Dena I forget your last name, so if you would 
tell me I can tell these folks that this is your first day on 
the job officially.
    Ms. Baron. Baron. Dena Baron.
    Mr. Walsh. Dena Baron is one of our new clerks. She was in 
sort of on a part-time, temporary basis, I guess, last year. I 
forget the name.
    Ms. Baron. Detailee.
    Mr. Walsh. Detailee. It is one of those military terms. And 
she now has the job. We are delighted to have her.
    Ms. Baron. Thank you.
    Judge Nebeker. Indeed, we met yesterday, and we are 
delighted.

                            Budget Overview

    Judge Nebeker. Anyway, we will probably be the only court 
that you will have to consider appropriating for. The other 
courts, of course, are in the Judiciary subcommittees or DOD 
for the Court of Appeals for the Armed Forces, and I don't know 
what committee for the Tax Court. They are a legislative branch 
court to start with.
    So being the only court, I can simply say that we are 
somewhat unique in terms of the budgeting, which you will be 
doing for the rest of the subcommittee's responsibility, in 
that we are mainly personnel and space insofar as our budget is 
concerned. I think you grasped that from what I heard you say a 
moment ago.
    Both of those amounts are relatively fixed. And, as you 
indicated, the portion of our budget that deals with the Pro 
Bono Consortium is a somewhat independent part of our budget. 
Our budget simply is the vehicle for it. And Mr. David Isbell 
is here, and if there are any questions with respect to his 
budget, he is the appropriate person to answer those questions.
    The pro bono program is a vital part of judicial review, 
primarily because there are so many veterans who are 
unrepresented when they file their notices of appeal, indeed 
around 80 percent. With the bar that we have and the pro bono 
program, that percentage is reduced substantially by the time 
the cases are decided. And so they do a wonderful job for us 
and for the veterans community.

                       FTE Increase Justification

    As you observed, our increase is $1.2 million roughly, and 
that is for eight additional full-time equivalent positions. We 
need them, and I think I can tell you why in relatively short 
terms. A couple years ago or more, the Board of Veterans' 
Appeals was hopelessly behind in getting out its decisions. 
That crisis was brought to the attention of the subcommittee, 
and eventually the Board got the resources needed to increase 
its output.
    Then we wound up with delays in Group VII of the General 
Counsel's Office. By statute, the general counsel must 
represent the Secretary before our court, and he had created a 
new section in the VA General Counsel's staff, called Group 
VII, to do that job. They were hopelessly behind. They were 
filing in excess of 400 motions a month to extend time to do 
the various things that are necessary to get the case before 
the court for disposition, running all the way from getting the 
record together, to filing briefs so that the cases can be 
submitted or argued and decided.
    Last year, at this time, I implored the Chairman outside of 
my budget to be sympathetic to the requests of VA in order to 
eliminate that backlog below. The subcommittee and the VA were 
very responsive, and indeed, that group has, I think, doubled 
in size, and it has now reduced its number of extension motions 
substantially. There are still some, but they have been reduced 
substantially.
    What effect? This would move the bubble to the court, and 
that is exactly what has happened. I will observe that in 1997, 
there were 1,611 dispositions by the court. In 1998, it jumped 
to 2,158. That shows you how the bubble did indeed move. That 
number of dispositions is probably the highest of any Federal 
appellate court per judge in the country.
    So my imploration this year is to help the court complete 
the alleviation of the injustice caused by delay which has now 
reached our court. We do need one new law clerk for each judge. 
That puts us on par with not only the Federal courts of 
appeals, but the Federal district judges, which have three. And 
I think from that standpoint, the increase is justified.
    Yes, we could say with the increase that we have, that we 
recommend two more judgeships. That would be far more expensive 
and probably in the long run a mistake simply because we can't 
project 10 years from now what the caseload will be, what the 
veterans population will be. If we have extra law clerks or 
additional law clerks, when they are not needed, they can be 
defunded, but two extra judges can't be for 15 years.
    Mr. Walsh. That is true.
    Judge Nebeker. Thank you.
    Mr. Walsh. You are welcome. Thank you for your brevity and 
clarity.
    [The information follows:]
    Offset Folios 1653 to 1658 Insert here



                          Increase in Appeals

    Mr. Walsh. In your notes that you didn't read, but I read 
them last night, you said, ``I anticipate the number of cases 
filed in the court will either continue at the current level or 
increase further.'' Then you go on to say that the court 
anticipates a corresponding continued proportion of appeals to 
the court; furthermore, as noted, statistics kept by the Board, 
denials do not include board decisions that deny some but not 
all of the benefits.
    And you talk about the effect of--let me see if I can find 
it here--new case filings and net bubbling up to you. What is 
causing these increases of appeals?
    Judge Nebeker. The output of the Board. With the increased 
output in Board decisions--let me give a little history. When 
the court was first created, the Board sat in panels of three, 
and they had a medical man as one of the panels--medical 
doctors as one of the panel members. We soon held that that a 
doctor could not ex parte testify without the veteran having an 
opportunity to respond, so they did away with the doctor 
member.
    Then as time went on and pressures increased, the Chairman 
got congressional authority to sit as single Board members. 
That has increased their output substantially. Then, of course, 
they have increased staff and membership. And so that is the 
cause of the increase that puts the increase of denials at a 
higher rate, partial denials at ahigher rate, and thus we get 
more notices of appeal.
    Mr. Walsh. So since nature abhors a vacuum, as you provide 
additional opportunity for the veterans, they are going to fill 
that vacuum, and they are going to bring more cases. Is that 
going to happen to you also?
    Judge Nebeker. I think so, yes. As there are more denials, 
there will be more appeals.
    Mr. Walsh. Let's see. The number of denials by the Board of 
Veterans Appeals increased from 6,400 in 1995 to 10,000 in 1996 
to 15,000 in 1997.
    Judge Nebeker. There you go, that is it. And those are what 
they list as denials. We also get many cases where there is a 
grant, but say the effective date is not satisfactory to the 
veteran, or the veteran gets a certain rating, say a 30 percent 
rating, and he or she thinks it should be 70 percent. We get 
that.
    Mr. Walsh. So they are going to come back again?
    Judge Nebeker. Yes.

                    Impact of Additional Law Clerks

    Mr. Walsh. Okay. Will one additional clerk per judge meet 
the need as you have estimated there will be?
    Judge Nebeker. Yes. I think if there are more than one, we 
would have a span of control problem in some chambers, and it 
probably would not work. I know of no court that has four law 
clerks.
    Mr. Walsh. With these additional people, when do you 
anticipate sort of stabilizing this backlog?
    Judge Nebeker. I wish I knew. We can't predict whether 
there will continue to be a marked increase. An extra law clerk 
will help deal with that increase if there isn't a further 
increase. An extra law clerk will certainly expedite getting 
rid of the backlog that already exists.
    Mr. Walsh. What would cause this to decline, an extra law 
clerk?
    Judge Nebeker. Probably the demographics of death. We are 
reaching a point where World War II veterans, they don't have 
that much longevity expectation. But who knows, we are now 
getting a few cases, believe it or not, from the Gulf War. I 
just had one the other day, the first one I had.
    Mr. Walsh. I got a report from the Buffalo office, I am not 
sure if they were appeals, I think they must have been appeals, 
and there were no veterans, but there were survivors of the 
Mexican--I believe it was the Mexican War.
    Judge Nebeker. Oh, yeah.
    Mr. Hobson. That was a long time ago.
    Judge Nebeker. Mr. Hobson, how are you, sir?
    Mr. Hobson. Good morning, sir.

                         Reprogramming Request

    Mr. Walsh. We have a reprogram request is for $153,000 
moving funds from operations activities to payroll. What 
operation activities will lose funding to the proposed payroll 
activities?
    Judge Nebeker. The adjustments in rent are accountable for 
much of that. GSA gives, and it takes away, and the voodoo 
behind it is something I can't comprehend. We had to take 
money--anticipate money out of travel, a few things like that, 
but the major part of it was rent.
    Mr. Walsh. So the reprogramming won't have any adverse 
effect upon your operations as a court?
    Judge Nebeker. We don't think so. Where we are able 
realistically to undertake the reprogramming--may I explain?
    Mr. Walsh. Sure.
    Judge Nebeker. We have experienced, as you perhaps are 
aware of, many instances where there have been continuing 
resolutions because the appropriations process wasn't complete.
    Mr. Walsh. It won't be the case this year.
    Judge Nebeker. If that is so, then we can reprogram. If it 
is not so, bringing in young law clerks and saying, you can 
work for us for 3 months, because there is no guarantee beyond 
that, because if we get a continuing resolution, we are 
strapped, and we can't pay you, so that causes a problem. And 
we are just kind of watching and waiting.

                    Rent Budget vs Renovation Costs

    Mr. Hobson. Mr. Chairman, could I interject something while 
you are talking about rent and stuff like that?
    Mr. Walsh. Yes, absolutely.
    Mr. Hobson. One of my questions is going to be about your 
rent.
    Judge Nebeker. I read your questions, sir.
    Mr. Hobson. Did you read it? Can you answer it? I gave them 
ahead of time, of course.
    Judge Nebeker. I just got it before you came in.
    Mr. Hobson. Yes.
    Judge Nebeker. Unless Mr. Comeau is able to answer from the 
top of his head.
    Mr. Hobson. Just so the Chairman knows, can you restate the 
question as you understood it, sir?
    Mr. Comeau. It said that our budget shows a decrease in 
rent from $1.808 to $1.8 million, a minus 4 percent adjustment, 
at the same time our O&M budget increased 13-fold from $15,000 
to $200,000. And then adding these categories reflects a 9.7 
percent increase.
    There are two different categories of money that we are 
talking about here. The rent is controlled by GSA. That is 
something beyond our control.
    Mr. Hobson. That is what I am trying to say, that is not 
true. You can fight with them over rent. You need to do it.
    Mr. Comeau. We have--over the last few years, we have given 
away space that has reduced our rent. We have also negotiated 
reduction of the parking space rates. So we have decreased our 
rent. We have gone about as far as we think we can go.
    The increase from 15- to 200,000 is largely a one-time 
renovation cost to accommodate these additional personnel.
    Mr. Hobson. That is fine. That is all I wanted to know.
    Mr. Comeau. Next year it will drop down.

                            Pro Bono Budget

    Mr. Walsh. On the pro bono program, you are requesting an 
increasing of 5 percent over last year's level. Does the pro 
bono program anticipate seeing the same increase in workload as 
the court due to the high number of appeals decisions?
    Judge Nebeker. I think I can answer that question for Mr. 
Isbell. The answer is yes.
    Mr. Walsh. Then why only a 5 percent increase?
    Judge Nebeker. I will defer to him to respond to that. He 
may want to respond in writing.
    David, can you hear him?
    Mr. Isbell. What was the question?
    Mr. Walsh. The question was, the Judge is anticipating 
fairly substantial increase in workload. We are putting on 
seven or eight additional people on the pro bono program, which 
I would think is proportional to the workload that they are 
seeing. You have requested a 5 percent increase.
    Mr. Isbell. We may have underprojected. I don't think at 
the time that we prepared our budget we were aware that 
therewas going to be that substantial an increase in the court's level. 
Hopefully, we will be able to squeeze by. If it turns out that we 
can't, I guess we will be back here with hat in hand seeking a 
supplementary appropriation. That is not something we had to do 
previously.
    Mr. Walsh. Well, we will be doing our supplemental for the 
year this week, so we may have to wait a year to make any 
adjustment.
    Mr. Isbell. I am simply not in a position to tell you----
    Mr. Walsh. We will give it a try and see if we can----
    Mr. Isbell. I don't have a sense, even having read the 
court's budget submission, of what the likely increase in 
productivity of cases being--it won't be cases being decided by 
the court, it will be an increase of cases coming to the court.
    Mr. Walsh. I don't know if it would be possible, but if you 
get into a jam, we could look at the possibility of 
reprogramming those funds from the court to the pro bono 
program. I don't know if that is an option.
    Mr. Isbell. I think the Court would be unhappy to do that.
    Judge Nebeker. We have been down that road a few years ago. 
That is why we have tried to keep the budgets absolutely 
separate.
    Mr. Walsh. All right. Okay. That is the end of my questions 
on that.
    Mr. Isbell. Mr. Chairman, I might just point out, having 
thought about it a moment longer, this isn't going to increase 
the court's productivity. We are not dealing with the court's 
product, we are dealing with the cases that go to the court. If 
there were--if the court's increased staffing is based upon an 
expectation of a substantially greater caseload, then it could 
be that we have underplanned. But we don't deal with the 
decisions that the court has issued so much as cases going to 
the court.
    Mr. Walsh. All right. Thank you very much.
    Mr. Hobson.

                          CASELOAD PROJECTIONS

    Mr. Hobson. I just have a couple of quick questions. I 
would like to go back over the staffing a little bit. The 
caseload increased 6.4 percent or 142 cases from fiscal year 
1997 to 1998. Maybe you said this before I came in the room. 
What do you project your caseload to be in 1999?
    Judge Nebeker. Probably it will continue to increase. I am 
unable to give you a hard figure or even a guesstimate. We do 
know that Group VII, the general counsel's branch that 
represents the Secretary before our court, has increased their 
productivity almost double, and that means the cases will get 
to us more and faster.
    And so there is likely to be a spike in the increase simply 
because of the backlog that existed there. They will move it 
quicker than they otherwise had done.
    Mr. Hobson. What is your backlog now?
    Mr. Comeau. 2,298 cases as of the end of January.
    Mr. Hobson. Did you go over this? Did you already ask this?
    Mr. Walsh. Yes. We talked about the backlog, and also 
looked at what is happening at the Board of Veterans Appeals. 
The Court anticipates that since they follow those decisions, 
their backlog will increase as the number of denials has 
increased dramatically at VBA. I mean, there were 6,400 in 1995 
and almost 16,000 in 1997. So since the Court reacts to those 
decisions, those denials, that that is a fairly easy leap of 
faith to assume you are going to have a continued backlog until 
we get these additional people on board.

                    AVERAGE TIME TO ADJUDICATE CASE

    Mr. Hobson. What do you think the average time from 
submission of a case to adjudication? Just the average. I know 
they vary, but can you look at that?
    Mr. Comeau. Yes, sir. Of those cases that were disposed of 
from the last month of fiscal 1998, that is September of 1998, 
they took an average of 389 days. Now that is up about 40 days 
from the year before.
    Mr. Hobson. Is there any reason for that?
    Judge Nebeker. Yes.
    Mr. Comeau. Yes, there is.
    Judge Nebeker. When a notice of appeal is filed, there are 
numerous steps that must be taken to mature the appeal. To 
begin with, out of the claims file must be culled the relevant 
documents used to base the Board's decision. Those documents 
have got to be identified, duplicated, and then the Secretary 
has the responsibility of filing the record on appeal in the 
court. After that, there is the responsibility of the 
appellant, the veteran, to file a brief.
    We have much conferencing with the pro ses, because they 
don't know what to do next. That burns up some time. Eventually 
the Secretary must file a brief--he was hopelessly behind a 
year ago, and that took a great deal of time--once the case is 
submitted to the court for a decision, either without oral 
argument or with oral argument, which can add substantially to 
the time lapse, too, if it is to be argued.
    Mr. Hobson. Sure.
    Judge Nebeker. The time between submission to the court and 
decision is nowhere near that excess of a year. Most of that 
time is burned up in getting the case at issue.

                  IMPACT OF ADDITIONAL FTEs ON BACKLOG

    Mr. Hobson. Okay. Let me just ask one final question on 
that. If you get the eight new FTEs that you want, and I just 
want to get this on the record, how will the new staff impact 
your backlog? How will the new staff affect your ability to 
handle more cases?
    Judge Nebeker. It will increase our capacity and our output 
of case dispositions.
    Mr. Hobson. No. What are you saying? Is it going to give 
you another 100 cases, another 200 cases? It is not an exact 
science, I understand that.
    Judge Nebeker. No, I understand that. I would say 52 times 
7 times 2.
    Mr. Hobson. 52 times 14?
    Judge Nebeker. Yes. In other words, a law clerk working 
with a judge on average can get two a week.
    Mr. Hobson. So 700 cases.
    Judge Nebeker. Yes. The new clerks would increase our 
capacity to that extent.

                             Y2K COMPLIANCE

    Mr. Hobson. Well, I just wanted to get out what we are 
doing here and what the effect was going to be, Mr. Chairman. 
And I have another question I won't ask, but you can do it for 
the record, and that is the year 2000 stuff that you have.
    Judge Nebeker. I think we are all right on year 2000, 
aren't we, Bob?
    Mr. Comeau. Yes, sir.
    Judge Nebeker. I am advised there is no problem.
    Mr. Hobson. I want that in the record.
    Mr. Walsh. It is in the record.
    Mr. Hobson. If something doesn't work--yours is probably 
easier than some other places, I guess?
    Judge Nebeker. I think so.
    Mr. Hobson. But I am just trying to get as many people on 
that as we can.
    Thank you, Mr. Chairman. I have another hearing I have got 
to attend.
    Mr. Walsh. Great thanks for your question.
    Mr. Knollenberg.
    Mr. Knollenberg. Mr. Chairman, thank you, and, Judge.
    Judge Nebeker. Good morning, sir.

                            PRO BONO FUNDING

    Mr. Knollenberg. Thank you for coming. I just really have a 
simple question. I have heard some of the testimony--or some of 
the questions and your comments in regard to the pro bono 
program, which I know in years past we have had discussions 
about. But I wanted to ask you, what percentage of the pro bono 
program is funded by appropriations, and how much is through 
private sector means?
    Judge Nebeker. Let me defer to Mr. Isbell for that.
    David, did you hear the question?
    Mr. Isbell. Yes.
    I am David Isbell. I am the Chair of the Executive Board of 
the pro bono program.
    The question was what proportion of the support in the 
program is provided by public funding?
    Mr. Knollenberg. Versus appropriations.
    Mr. Isbell. Contrasted with private funding. Well, let me 
say the principal contribution of resources to the program is 
the time and services of volunteer lawyers. I can look up the 
precise figures as reflected in our last time.
    Here we go. There are four organizations that are the 
constituents of the Consortium, and they make contributions in 
terms of services provided and also goods provided. The total 
value of the organizational contributions for fiscal year 
1997----
    Mr. Knollenberg. Maybe just a ratio would be----
    Mr. Isbell. [continuing]. Is 200,000.
    Mr. Knollenberg. Give me the actual numbers, if you like. 
But just the ratio between the two would be all I am asking 
for.
    Mr. Isbell. That would have been a ratio of approximately 
1/3.
    Mr. Knollenberg. Three to one.
    Mr. Isbell. A little less than a third of the 
appropriation. But we figure that the total value of 
nonorganizational contributions, that is to say the donated 
time of volunteer lawyers, was in that year 3,400,000. We have 
a multiplier factor of something like 4 to 1 of Federal----
    Mr. Knollenberg. Four to one.
    Mr. Isbell. [continuing]. Of Federal funds by $4 worth of 
result.
    Mr. Knollenberg. That is fine. Thank you. That is all I 
wanted to know.
    Thank you, Mr. Chairman.
    Mr. Walsh. All right. Mr. Cramer.

                  IMPACT OF ADDITIONAL FTEs ON BACKLOG

    Mr. Cramer. I want to pick up, and maybe it is a little bit 
redundant, Mr. Chairman, as I heard my colleague Mr. Hobson 
asking questions about backlog.
    Judge Nebeker. Yes.
    Mr. Cramer. In my district, one of the frustrating things 
for my office caseworkers to be involved in is trying to sort 
through families' issues as they await a determination by the 
Board of Veterans' Appeals. You are adding--your plan is to add 
eight new employees. In your opinion, does that rest the 
backlog issue as best you can address it, or are there other 
ways to evaluate your progress with the eight new employees and 
the impact that that has on the backlog?
    Judge Nebeker. I think it is the best way to address the 
backlog problem now. As I explained earlier, we could justify 
asking for two new judges with the incremental staff that they 
have; that is, two law clerks apiece and so forth. But if we 
did that, one, it will be far more costly than a simple 
renovation of space to crowd in another law clerk. We would 
have to have new chambers, and that would likely mean new real 
estate somewhere else. Then in the event the backlog peaks or 
begins to dissipate with the infusion of more resources, we 
would be there with the nine judges and probably not justified 
in having nine judges for the caseload.
    The bottom line is with the extra clerks, if they become 
unnecessary, they can be defunded, but you can't defund a 
couple of additional judgeships. They are good for 15 years.
    Mr. Cramer. Who said that the average time for a case to be 
adjudicated was 300 now, 339 days?
    Mr. Comeau. Three hundred eighty-nine days.
    Mr. Cramer. Three hundred eighty-nine days.
    Mr. Comeau. That was for the cases that we decided in 
September 1998.
    Mr. Cramer. Has that gone up, gone down or stayed the same?
    Mr. Comeau. It has gone up from the year before. It is 
about the same as it was the year before that.
    Mr. Cramer. Why do you think it went up from the year 
before?
    Mr. Comeau. I think, because as the Chief mentioned, the 
bubble has moved to the court level because of increased 
efficiencies at the Board level below us, and within the VA 
General Counsel's Office that argues their side of the case, 
they have been holding up the adjudication of cases, and that 
389 days reflects some of that.
    Mr. Cramer. You anticipate that the number of cases will 
continue at their current level or increase?
    Judge Nebeker. Yes.
    Mr. Comeau. Yes, it will probably increase.
    Mr. Cramer. Is that as much because of the Board has 
expanded jurisdiction?
    Judge Nebeker. Expanded capacity.
    Mr. Cramer. Expanded capacity?
    Judge Nebeker. Yes.
    Mr. Cramer. Explain to me. I am a new member of the 
committee. I probably should know.
    Judge Nebeker. Appeals are taken from regional offices to 
the Board of Veterans Appeals. It is a unique board. It is an 
appellate tribunal, but it can also accept evidence and rule on 
factual questions. They sit on single-member panels now. It 
used to be there were three; now they are down to one member. 
When they ultimately get to deciding the case, the law requires 
that they express their reasons and bases. They just can't say, 
granted, denied. They must articulate why they take the action 
that they take.
    That increased capacity at the Board level has produced 
amarked increase in the number of denials of benefits. And, of course, 
those are the things that are going to filter up to us.
    Mr. Cramer. Okay. That is all I have, Mr. Chairman, thank 
you.

                           CONCLUDING REMARKS

    Mr. Walsh. Okay. I believe then that that does conclude our 
questions of the court, and we thank you for your responses. 
There may be other questions that will be submitted in writing 
for the record.
    Judge Nebeker. We will be happy to answer them.
    Mr. Walsh. As of now, you are all set.
    Judge Nebeker. Thank you. It is a pleasure to meet you.
    Mr. Walsh. Nice to meet you, Judge.
    Offset Folios 1677 to 1704 Insert here



                                          Wednesday, March 3, 1999.

                        SELECTIVE SERVICE SYSTEM

                                WITNESS

GIL CORONADO, DIRECTOR, SELECTIVE SERVICE SYSTEM
    Mr. Walsh. And we will now make room for the Selective 
Service. I understand they are here. We will give them a chance 
to get themselves organized, and we will proceed.
    [Pause.]
    Mr. Walsh. All right. The second half of the hearing this 
morning is with the Selective Service System. We welcome Gil 
Coronado from the Selective Service System to the fiscal year 
2000 budget hearing.
    Selective Service is requesting $25,250,000 for fiscal year 
2000, an increase of $824,000 over fiscal year 1999 
appropriation.
    Mr. Coronado, if you would like to introduce the people who 
are with you, we note that for the record, and then we will 
proceed.
    Mr. Coronado. I certainly will. Seated with me are two key 
members of the Selective Service leadership, Mr. Willie L. 
Blanding, Jr. on my right. He is the agency's Executive 
Director, who was here with me last year. And further to my 
right is Lew Brodsky, Director of Public and Congressional 
Affairs, who has appeared on behalf of Selective Service many, 
many times.
    Mr. Walsh. Very good. Well, we welcome you and ask you to 
please proceed with your opening statement.
    Mr. Coronado. Thank you, Mr. Chairman.
    Chairman Walsh, I am indeed pleased to appear before youfor 
the very first time, and I congratulate you on your assignment as the 
new subcommittee chairman. I am proud to bring before the distinguished 
members of this subcommittee the Selective Service budget request for 
fiscal year 2000.
    I have a written statement that I would like to submit for 
the record, if that meets with your approval.
    Mr. Walsh. Without objection.
    Mr. Coronado. Mr. Chairman, the President's budget request 
for fiscal year 2000 proposes funding of the Selective Service 
System at 25,250,000. At this level, the agency can perform its 
statutory missions and offset Federal pay raises, inflation. We 
are excited about our great innovations, such as on-line 
registration and verification, expansion of our Website and 
preparations for Y2K, and we are grateful to the subcommittee 
and to the Congress for continuing to provide us with funds 
necessary to serve as an important participant in America's 
national defense.
    Mr. Chairman, members of the committee, I am proud of what 
Selective Service does for America. I hope you share in that 
pride, and I thank you for your support as I answer your 
questions about our fiscal year 2000 budget request.
    [The information follows:]
    Offset Folios 1708 to 1716        Insert here



    Mr. Walsh. You are a man of your word. You said a minute 
and a half, and I think you did even better than that. Thank 
you.
    We will now welcome our Ranking Member of the subcommittee, 
Mr. Mollohan.
    Do you have any comments or opening statements?
    Mr. Mollohan. No, thank you, Mr. Chairman.

                        Registration Compliance

    Mr. Walsh. All right. We will go right to questions then. 
Last year, sir, you testified that the compliance rate was 93 
percent for men between the ages of 20 and 25 and about 90 
percent for all draft-eligible men between 18 and 25. What is 
the most current compliance rate for draft-eligible men?
    Mr. Coronado. The most current for the draft-eligible--when 
we say draft-eligible, Mr. Chairman, we are speaking of men, 
ages 20 to 25, comprising the draft-eligible age group. The 
total compliance rate is for men 18 to 25.
    Mr. Walsh. All right.
    Mr. Coronado. For the draft-eligibles, we are at 94 
percent.
    Mr. Walsh. So you are up a percent over last year?
    Mr. Coronado. No, we are down by three percentage points. 
The 1997 draft-eligible compliance percentage was 97. By the 
end of 1998, it dropped to 94 percent.
    Mr. Walsh. One thing that I have noticed, I have children 
in college, two boys, and there is always a question on the 
financial aid forms about draft status. Do you have a figure on 
those draft-eligibles who are in college, what the rate would 
be if that helps to improve that rate of compliance?
    Mr. Coronado. Certainly. If more men go into college, the 
higher our registration rate would be, because there are 
benefits needed by college men that are tied into 
registration----
    Mr. Walsh. Sure, right.
    Mr. Coronado [continuing]. Student aid loans and individual 
government jobs and so forth. In the past, a young man would 
ask for student aid loan and then wait until he could prove 
that he was registered with Selective Service. So we now have a 
working agreement with many, many universities so as not to 
delay the process. Now, we have an on-line verification 
process.
    Mr. Walsh. So the colleges contact the Selective Service to 
verify whether that information was answered correctly?
    Mr. Coronado. Yes. They just go on-line. They enter the 
person's name, date of birth and Social Security number. A 
screen comes right back to them to verify that the man is 
registered.
    Mr. Walsh. You do get a higher compliance rate from 
college-enrolled men?
    Mr. Coronado. Absolutely.
    Mr. Brodsky. If I can answer, I can provide how many 
registrations, on average per year, come in to us through the 
Department of Education Federal student aid form. There is a 
check-off box on those student aid forms that the Department of 
Education shares with us that allows us to automatically 
register men from those forms. And that number is available; we 
just have to research it for you.
    Mr. Walsh. All right, good.

                          Registration Blitzes

    Mr. Walsh. Last year you referred to registration blitzes 
as part of your plan to increase registration compliance. What 
do you estimate the impact of these will be?
    Mr. Coronado. The reason we went into blitzes, Mr. 
Chairman, is because the trend for the compliance rate of 18 to 
25 is down. We were able to identify 21 major metropolitan 
areas where we concentrated our awareness and registration 
efforts.
    Mr. Walsh. So the trend is down among the 18 to 25 group?
    Mr. Coronado. The entire group.
    Mr. Walsh. Although in the draft-eligibles it is up?
    Mr. Coronado. It is not up, because in past years that 
really was about 97 percent; it is now 94.
    Mr. Walsh. All right.
    Mr. Coronado. Yes, sir.
    Mr. Walsh. So it is a slight variation from last year?
    Mr. Coronado. It is a slight variation, but we are very 
uncomfortable with the trend and the way things are looking.
    [The information follows:]
    Offset Folio 1722        Insert here



    Mr. Walsh. Okay, all right. So, yes, that is a pretty 
steady trend.
    Mr. Coronado. The projected trend, as you can see, was 
dangerously going down, and because of the blitzes we were able 
to stem it. Now the problem is that we have 5,000 young men 
that turn 18 every single day, so it is not a cure-all problem 
that you can go in and fix it and walk away. It is a continuous 
thing. And we are faced with some of the same problems that the 
Armed Forces are faced with, and that is the indifference, 
perhaps, to the government, to the military. Why should we sign 
up with a draft system we don't even know is there? The 
awareness, among and education of, American youth is what is 
lacking.
    Mr. Walsh. So you attribute that decrease in compliance 
rates just to general apathy?
    Mr. Coronado. The lack of knowledge, the lack of 
information. We do not have enough resources to go out with a 
strong nationwide public awareness program, so this is why we 
are using the blitz method, where we can go in and speak to the 
centers of influence and get them to assist us by proclamation 
or other measures that they can bring awareness to their 
communities, and we can raise our compliance numbers.
    Mr. Walsh. How does this blitz work?
    Mr. Coronado. A blitz works by going in and zeroing in on 
the zip code. We know the estimated percentage of compliance as 
we walk in. We make appointments to see the mayors, the 
Governors of the States, the elected officials, the centers of 
influence. We concentrate on the superintendents of schools. We 
ask for their support. We get a lot of media coverage.
    And what is happening now, and we can show you that on the 
map, too, is the fact that most of the areas where the blitzes 
are concentrated have two factors. One is an increase in recent 
arrivals, the people that are coming through the immigration 
process or otherwise, a lot of recent arrivals, the numbers of 
immigrants are way up. And also the areas have a higher than 
average high school dropout rate. Those two factors combined, 
keep the young men in these areas outside mainstream America. 
Although we work on the schools, we find ourselves having to go 
to the Spanish press, the Spanish media, and using all kinds of 
innovative communications processes.

                             Benefits Card

    I was at the Press Club about 2 years ago giving a speech 
on Selective Service and the need for everybody to understand 
the benefits and so forth, and a lady raised her hand. And she 
said, those are very important benefits; don't you have those 
on a little card?
    So that gave birth 2 years ago to this card that we now 
have, and it states, ``Register with Selective Service, stay 
eligible for,'' and it gives you all the things that you would 
lose out on, the reason being that you must register with 
Selective Service when you are 18; you cannot register once you 
turn 26. So it is the window in every young man's life. When 
they turn 26, 27, and failed to register when they were 
younger, they have just blocked themselves out of many 
benefits.
    So now we find ourselves looking at how we can improve this 
card. We will be reprinting this card in four languages. We are 
working on this right now to reach the specific groups of 
people that we need to reach in four different languages.
    So all of these innovative ideas and shuffling of resources 
with Selective Service is what we have been all about in the 
past couple of years.
    Mr. Walsh. What are the four languages?
    Mr. Brodsky. Korean, Vietnamese, Mandarin Chinese and 
Spanish. Those are the languages that INS tells us will reach 
the majority of the sizable immigrant populations in the U.S.
    Mr. Walsh. Korean, Vietnamese, Mandarin Chinese.
    Mr. Brodsky. Chinese simplified characters, and Spanish. 
That is in printing right now. It will be a fold-out card about 
the same size as the current card, when it is folded, but once 
it is folded out, it will have the four languages giving the 
same basic information.
    Mr. Coronado. Mr. Chairman, if I may--the irony of this 
whole thing is that we are registering more people today, but 
our figures are dropping, because we have an average of about 
100,000 new entrants in addition to what we had anticipated 
every single year. So it is a problem with recent arrivals.
    It is a problem with the high school dropouts that we 
aretrying very hard to reach. We are running hard. We are carrying the 
ball. We cannot score the touchdown, because a goal post keeps shifting 
every year, and that is basically what is happening.
    Mr. Walsh. I know the feeling. You say that with your 
Internet registration, you have registered 10,000 men in 
December. You said 5,000 a day turn 18, so that would be 
150,000----
    Mr. Coronado. That's correct.
    Mr. Walsh [continuing]. A month?
    Mr. Coronado. If we were to use just that one method, but 
we are not. The Internet is just one more element--one more----
    Mr. Walsh. I am saying you registered 10,000 over the 
Internet, but that is 10,000 out of 150,000.
    Mr. Coronado. That's right.
    Mr. Walsh. Does this save you money doing it that way?
    Mr. Coronado. It is a matter of cost avoidance if they 
register on the Internet. And this is a recent innovation 
started on the 2nd of December--and we are very proud of it 
because we have cracked 33,000 since then with an average of 
about 10,500 a month. But what it does, it saves staff time in 
the processing, entering the data into our system, because the 
applicant, the registrant, will do it themselves. It is all 
automatic. So the costs avoided can now be diverted to other 
customer service initiatives that we have.
    Mr. Walsh. Have you seen any problems with that 
registration, that electronic registration?
    Mr. Coronado. No, sir. In fact, we are very, very proud of 
that. And we understand that schools, libraries, everybody will 
be on-line by the year 2000. So we are tracking right with 
where we ought to be, and coupled with the fact that the core 
group that we are looking for, the 18- or 19-year-olds and some 
20s and 21s that fail to register, those are the men who are 
computer-savvy. Those are men who are into the Internet. So it 
is a perfect marriage between the on-line registration and the 
American youth.
    Mr. Walsh. I would think that some organizations would find 
that information on the profiles and so forth of these 
individuals, 18-to-25 males, of value. Is your security system 
sound? Do you have consummate faith in the fact that that 
material is not available to anyone else over the Internet?
    Mr. Coronado. Absolutely, sir. We have an industry standard 
security processing where the person would enter the data, and 
it is encrypted as it goes through the on-line process. Then, 
when it reaches us, the only people that see the information 
are the Selective Service personnel.

                               Y2K Status

    Mr. Walsh. Okay. Since Mr. Hobson isn't here, I will ask 
you for him, what is your Y2K status?
    Mr. Coronado. The Y2K status, we have looked at every 
single program that we initiated and have internal within 
Selective Service. We have gone through the whole process, and 
now we are contracting out an independent company to come in 
and verify where we are at, and we are very confident that we 
are Y2K-compliant. On all the other systems that are not of our 
control but that we interface with, we are assured that they 
are all Y2K-compliant.
    We anticipate no problems at all with the Y2K, but having 
said that, we have directed everybody in Selective Service, all 
the directorates, all the offices, to have a backup plan, a 
manual system, so that we are prepared to conduct the people's 
business whether or not we have a Y2K problem.
    Mr. Walsh. Good.
    Mr. Mollohan.

                            Statistical Data

    Mr. Mollohan. Thank you, Mr. Chairman.
    Director Coronado----
    Mr. Coronado. Yes, sir.
    Mr. Mollohan [continuing]. Your testimony is that you are 
registering about 95 percent of the eligible registrants; is 
that correct?
    Mr. Coronado. No, sir, it is not. We are----
    Mr. Mollohan. Is that percentage down?
    Mr. Coronado. We are facing a 2 percent drop between the 
1997 and 1998 calendar year. In past years we were overall in 
the very, very high 90s, but what concerns us is a drop to 
below 90 percent compliance in any system, because we say that 
Selective Service must be fair and equitable. In case there 
were to be a draft, it must be based on fairness and equity. 
This is what concerns us once you drop below 90 percent.
    Mr. Mollohan. Last year in your prepared statement, you 
indicated the compliance rate was at 95 percent; is that right?
    Mr. Coronado. Was that overall?
    Mr. Mollohan. You tell me.
    Mr. Coronado. Eighty-nine this year overall, 91 percent 
last year.
    Mr. Mollohan. How does that compare to last year?
    Mr. Coronado. We are facing a 2 percent drop in that area.
    Mr. Mollohan. And this year you are saying you have a 2 
percent drop down to 94, 93?
    Mr. Coronado. We are at 94 overall; is that right?
    Mr. Brodsky. Let me give you the figures.
    Mr. Mollohan. That is what I thought I first asked you.
    Mr. Brodsky. Let me help you out, sir, if I might. Last 
year we were measuring 18-to-25-year-old compliance at 
approximately 91 to 92 percent, and we were measuring the 
draft-eligible age groups, men turning 20 through 25, at a 
higher figure of 96 or 97 percent. What we have seen is a 2 to 
3 percentage drop in each of those categories. So currently 18- 
through 25-year-olds measured at the end of calendar year 1998 
is 89 percent, and that is the first time since we have dropped 
below 90 percent in the overall category. That is what is of 
concern to us.
    Mr. Mollohan. Okay. What are the demographics; who are you 
not reaching?
    Mr. Coronado. The ones we are not getting to, sir, are the 
minorities of our Nation, Hispanics, the African Americans, the 
inner-city kids, the gang members, the high school dropouts, 
the recent immigrants. The law applies to any men physically in 
this country whether or not they are here in a legal status, 
other than the unlawfully admitted nonimmigrants. They really 
don't have the information, so----
    Mr. Mollohan. Thank you.

                        Measure of Effectiveness

    What is your definition of success in registration?
    Mr. Coronado. My definition of success in registration 
would be a very comfortable high 90s percent.
    Mr. Mollohan. What do you base that on? How realistic is 
that?
    Mr. Coronado. We have some good numbers from the Census 
Bureau, sir, that we worked----
    Mr. Mollohan. No, no, I am sorry. Why would you thinkyou 
could get in the high 90s registration? Do you have a standard for what 
you want to reach?
    Mr. Coronado. We call it fairness and equity, which we feel 
that the American people would certainly look at the fairness 
and equity of any draft. And the figure would be in the high 
90s.
    Mr. Mollohan. So you think you should achieve a 98 or 99 
percent registration rate among the eligible population?
    Mr. Coronado. We certainly have achieved that in years past 
for the higher aged men.
    Mr. Mollohan. When did you last have that rate?
    Mr. Coronado. In the higher ages?
    Mr. Brodsky. Five or six years ago.
    Mr. Mollohan. You had what?
    Mr. Brodsky. Ninety-seven percent.
    Mr. Brodsky. Yes, we were fairly high in previous years. 
You have to remember for us that registration is not a 
voluntary process, every man is obligated to do it, so you 
would expect a high degree of compliance for people who want to 
obey the law. Obviously, you are going to miss some people, but 
what concerns us now is that we are missing more people than we 
would like.
    Mr. Mollohan. Okay. Is this drop-off in the immigrant 
population principally?
    Mr. Coronado. We suspect that it is, sir. There is 800,000 
backog applications right now, for example, in the pipeline at 
INS, and we are trying to determine, working with them, how 
many of those are males between the ages of 18 and 25.
    Mr. Mollohan. Let me tell you why I ask this, because it is 
fairly curious that the percent that you are not able to reach 
in both of these groups, but particularly in the 20-to-25 
group, tracks pretty closely the percentage that the Census 
Bureau cannot count. And we have a huge debate about that, and 
many people say, including experts, Mr. Chairman, that the only 
way you can get to that group is through some statistical 
processes. Obviously wouldn't work here.
    So I am just wondering what is a realistic success rate, 
and what is your strategy to achieve a realistic success rate? 
The first thing you have to do is decide, what is our goal, 
what is our realistic goal, and then what kind of resources can 
you apply on a realistic strategy to achieve that goal?
    Mr. Coronado. You are quite correct, absolutely.
    Mr. Mollohan. I am just wondering, as you confer with 
people, do you confer with the Census Bureau on this issue?
    Mr. Coronado. Yes.
    Mr. Mollohan. What do they tell you in 1999, versus 1993 
when you had a high rate, is a realistic definition of success 
and you can declare a victory?
    Mr. Brodsky. Sir, I don't think we measure a victory that 
way.

                           Registration Rate

    Mr. Mollohan. How do you measure victory?
    Mr. Brodsky. We have gone on record for years as saying we 
believe that we would have a fair and equitable draft----
    Mr. Mollohan. What does that mean?
    Mr. Brodsky. Well, it means that the American public would 
have confidence that the draft system being operated was, to 
the degree possible, fair and equitable. And we have always 
gone on record saying if we maintain compliance rates of over 
90, 90 percent or above, comparable to an A grade in school, 
that would give us reasonable assurance, and give the American 
public reasonable assurance, that the ensuing draft would be 
fair and equitable.
    So it is not a question of this drop-in rate, not allowing 
us to accomplish our mission, if you want to define it that 
way, because we could still obviously run a draft and provide 
adquate numbers of draftees, even if this rate was much lower. 
The problem is that the American public wouldn't accept a draft 
that is not considered fair and equitable.
    Mr. Mollohan. There are a couple of different missions 
here. One mission is to achieve some realistic registration 
rate?
    Mr. Brodsky. Exactly.
    Mr. Mollohan. I am trying to ask for that. You are asking 
for resources to get at it, and I will look at it more closely 
so I will understand it.
    Mr. Brodsky. Sure. But to say again, we are on record as 
saying we would like to keep these compliance rates at 90 
percent or higher for the sake of perceived fairness and 
equity, which I think is more important to the American public.
    Mr. Mollohan. On that standard, you are dropping below your 
goals?
    Mr. Brodsky. Yes, sir.
    Mr. Blanding. Yes.
    Mr. Coronado. Congressman, if I may, sir, also coupled with 
the fact for the last 5 years--when I walked into the agency, 
we had higher figures--but as the budget decreased--and we have 
a copy of the budget as it went--that we started are seeing the 
drop. And if--I may not be able to define success to you. I can 
define failure. That is the track we are on. This is why it is 
important to us.
    Mr. Mollohan. Okay. Well, I understand how you are applying 
resources on this problem. I can look at it more closely.
    Thank you, Mr. Chairman.

                        Current Budget Adequate

    Mr. Walsh. Just a last question to follow up on Mr. 
Mollohan's line of questions. Can we get to that high 90s 
compliance rate with the current budget?
    Mr. Coronado. With the current budget we cannot. We spend 
approximately $3.70 for each registration we process. With the 
current budget, that is what we do. It would take approximately 
another dollar per registration to be able to do the things we 
need to do to correct this downward trend, and bring 
registration compliance back into the 90 percentile and 
stabilize it.
    Mr. Walsh. What does that mean in terms of your overall 
budget?
    Mr. Coronado. What it would mean in terms of our overall 
budget, we are roughly 2 million dollars short. We register 2 
million men per year. Now, what this achowledge card does, Mr. 
Chairman, is a triple hit for America. With this card we verify 
that a man is in compliance with the law. It provides him with 
proof that he is eligible for all of these benefits. And very, 
very importantly what we do, instead of that old drab 
bureaucratic card that says nothing but, here is your number, 
we now ask him to get involved in America's future. We tell him 
about service opportunities. And here is a copy I would like to 
leave with you, if I may, of our new acknowledgment card.
    And so it does a number of things. We are able to reachthe 
same people that DOD is spending an average of $13,000 to reach, and we 
can do that for under $5, right at $5 apiece, if we were able to get 
the resources that we need to send that and bring it back up to where 
it should be.
    Mr. Walsh. Do these other activities, such as verification 
and customer service or the volunteer awareness business, do 
they take away from your core mission? Do they take away from 
your core mission of registering young men?
    Mr. Coronado. What we would like, of course, is the on-line 
verification, because it doesn't involve people, and every year 
our pot gets bigger. We now have 41 million active records, so 
that people who want to verify, they want to know when they 
signed up with Selective Service, every year we add almost 1.8, 
maybe 2 million to the pot. We never throw those records away 
since 1980.
    So naturally our business gets bigger every year, and it 
has more demands on the staff, more time. So any innovation 
such as on-line verification, on-line registration helps us to 
be able to perform the job.
    Mr. Walsh. These ancillary lines of business, verification, 
customer service, volunteer awareness, do they cost money that 
could be better spent just registering young men?
    Mr. Brodsky. There is a trade-off, obviously. I think the 
more you have to spend on registration processing and getting 
awareness up of the requirement leaves you, with a fixed 
budget, little for doing customer service work. That is why we 
are trying to take any resources gained by Internet 
registration, and shift them into customer service, because 
there currently is no other place to get the resources we need.
    But it has not, I think, detracted on the whole from the 
overall registration process. I think it is more a question of 
a goal post shifting with constantly having to reach more men 
in a growing population despite our fixed resources.
    Mr. Walsh. All right. Any other questions?
    Mr. Mollohan. No, Mr. Chairman.
    Mr. Coronado. Mr. Chairman, I would like to conclude by 
saying that we know where we have the biggest registration 
problems. They are in the states of New York, California, 
Florida, Texas, and Illinois because they have so many people 
and new immigrants coming in.
    Mr. Walsh. Big cities.
    Mr. Coronado. Big cities with lots of high school dropouts. 
So we are continuing to do work in those states. We will be in 
New York the 10th through the 12th of March, or around those 
dates, and we are working it very hard because we have got to 
get the word out to the American youth. The beauty of America 
is that everybody is entitled to pursue the American dream. No 
young man in America is going to be able to pursue the dream 
unless he registers with Selective Service and preserves the 
benefits that are associated with registration.
    Mr. Walsh. All right. Well, thank you all very much for 
your important service and for your testimony.
    Mr. Coronado. Thank you, sir.
    Mr. Walsh. This hearing is concluded.
    Offset Folios 1740 to 1763 Insert here



                                         Wednesday, March 24, 1999.

     DEPARTMENT OF DEFENSE, OFFICE OF SCIENCE AND TECHNOLOGY POLICY

                                WITNESS

NEAL LANE, ASSISTANT TO THE PRESIDENT FOR SCIENCE AND TECHNOLOGY AND 
    DIRECTOR OF THE OFFICE OF SCIENCE AND TECHNOLOGY POLICY

                            Opening Remarks

    Mr. Walsh. The subcommittee will come to order.
    Good morning. Today we will take testimony on the fiscal 
year 2000 budget requests of the Office of Science and 
Technology Policy, and for cemeterial expenses, Department of 
the Army. We will start with OSTP, whose fiscal year 2000 
request is $5,201,000, which represents an increase of $175,000 
over fiscal year 1999. Testifying before us this morning is a 
longtime friend of the subcommittee, Dr. Neal Lane. Dr. Lane 
has been with us on several occasions in his previous capacity 
as Director of the National Science Foundation, and now he 
joins us for the first time in his new capacity as Director of 
OSTP and Assistant to the President for Science and Technology. 
In a moment I will ask Dr. Lane to summarize his oral 
testimony, and your written statement will be entered into the 
record in full.
    Before doing so, I would like to recognize my friend and 
colleague, Mr. Mollohan, for whatever opening remarks he may 
wish to make.
    Mr. Mollohan. Thank you, Mr. Chairman. I would like to 
welcome Dr. Lane to the hearing today, and I look forward to 
working with him in his new capacity.
    Mr. Walsh. We are also joined by Mrs. Meek and Mr. 
Frelinghuysen, and I suspect others before we are finished.
    Dr. Lane, please proceed.

                          Dr. Lane's Statement

    Dr. Lane. Thank you very much, Mr. Chairman, and members of 
the committee. I am very pleased to appear before you today. My 
written testimony describes the Office of Science and 
Technology Policy budget request for fiscal year 2000, and it 
also provides some highlights of the OSTP enterprise during 
1998, and the Administration's 1999 and fiscal year 2000 R&D 
budget request, and I would appreciate its insertion in the 
record.
    Mr. Walsh. Without objection.
    Dr. Lane. Thank you.
    I have really enjoyed my association with the committee and 
appreciated the support of the National Science Foundation and 
myself, and more generally, the committee's support of the very 
important Federal science and technology programs.
    Since moving to OSTP, I have had the opportunity to work 
with yet another group of outstanding individuals, and many of 
them are here today, our Associate Directors and members of the 
senior staff, and they will be happy to help with questions 
along the way. We wanted to be sure to answer your questions as 
completely as possible.
    As you know, OSTP plays a vital role in leveraging the 
government's science and technology investments for broad 
national goals. Support for such investments has traditionally 
been a matter of bipartisan agreement. It is imperative, I 
believe, that we build common ground in support of a shared 
vision and commitment to keep America the world's leader in 
science and technology.

                           functions of ostp

    OSTP has four main functions. First, we advise the 
President and other senior Administration officials about the 
impacts of science and technology on public policy and vice 
versa.
    Secondly, we coordinate the work of the R&D agencies to 
make sure that we get the biggest bang for the science and 
technology dollars.
    Third, we promote strategic partnerships among science and 
technology stakeholders, State and local government, industry, 
academia, and various international players.
    Fourth, we report on what we have learned through all of 
these efforts. Last year OSTP shepherded 11 multiagency reports 
through the National Science and Technology Council and seven 
letter reports through the President's Committee of Advisors on 
Science and Technology, the latter body being nongovernment 
experts who advise the executive branch on all matters of 
science and technology.

                   information technology initiative

    An example which provides the breadth of OSTP's influence 
is our work on the Administration's Initiative on Information 
Technology for the 21st Century. This initiative responds to a 
wake-up call from the congressionally-chartered committee, the 
President's Information Technology Advisory Committee, or PITAC 
as I will call it. OSTP was instrumental in getting this 
committee established in the first place.
    We also worked closely with the committee to make sure that 
its work was useful to the Federal agencies while also 
challenging those agencies to think outside the box about their 
responsibilities and their possibilities in information 
technology research.
    Once we had the PITAC recommendations, OSTP pulled together 
the Federal agencies to develop a response, and we ultimately 
concluded that information technology is so important to this 
Nation, that we are proposing a new Federal R&D investment of 
$366 million in fiscal year 2000, and that is a 28 percent 
increase above and beyond all of our ongoing research programs 
that relate to information technology. Out of this total, Mr. 
Chairman, about half, $184 million, comes through your 
subcommittee.
    To develop the initiative, we worked with the agencies to 
examine the existing information technology research programs 
to determine how we could later expand to get the best returns 
from these new investments. If you are going to make a 28 
percent increase on a base, you really need to look at that 
base very carefully to find out where those investments can 
best be made to meet the requirements, the laid-out priorities 
of the advisory committee, and at the same time optimize the 
total Federal effort. The agencies have worked very, very well 
together in doing this.

                 investments in information technology

    We decided to make the new investments in three major 
areas. First, about two-thirds of this total $366 million will 
support long-term fundamental research aimed at fundamental 
advances in computing and in communication. So this is $228 
million, and this money will go primarily to research carried 
out by computer scientists and computer engineers, asking very 
new and fundamental questions about new ways to compute and new 
ways to communicate over long distances and with complex data. 
So that is the biggest part of this initiative, to support that 
kind of long-range research.
    The second element is $123 million to support advanced 
computing infrastructure, machines and networks as a tool to 
facilitate important scientific and engineering discoveries of 
national interest. The resulting supercomputer infrastructure 
will be orders of magnitude more powerful than those currently 
available to the science community. So this second part is to 
take the very best and most powerful existing technology and 
apply it to some particularly challenging science and 
engineering research problems. So the people who will work on 
these projects andmachines will be physicists, chemists, 
atmospheric scientists working on tough problems, and we can provide 
some examples of that.
    The third part, small amount of money, but it is a very 
important piece, is $15 million in new funding to expand 
research in the social, economic and work force impacts of 
information technology, including how social institutions are 
being transformed by information technology; the impact of 
legislation and regulation; electronic commerce; barriers to 
the diffusion of knowledge and technologies of that 
information; and effective use of technology and education, 
what works, how much do you need, those kinds of questions. But 
this initiative approaches these questions as research 
questions. Much of the research will be supported by the 
National Science Foundation, and then there are some smaller 
programs.
    One area that highlights the importance of these three 
areas is our ongoing work on the human genome. By providing 
fundamental advances in computing, the initiative will enable 
progression from sequencing the human genome to design of new 
drugs. It will also enhance our ability to address important 
social issues that are raised by these breakthrough 
discoveries, such as genetic privacy.
    Information technology is changing the world, and you are 
talking about a $600 billion industry that is growing very 
rapidly. E-commerce represents a third of the recent economic 
growth, which is having a major impact on our country and its 
relationship with other nations. So the point here is there are 
some underlying questions that need attention. Some of them are 
research questions. We want to be sure that they are addressed 
by the very brightest and capable people. This is what this 
initiative is all about.
    Information technology is the largest of the R&D 
initiatives in the fiscal year 2000 budget. OSTP also played a 
critical role in developing some of the others, such areas as 
the plant genome research initiative, food safety, emerging 
infectious disease, sustainable development, critical 
infrastructure protection, educational research and several 
others.

                        coordinating s&t policy

    So I ask you today for your continued support of OSTP's 
role in coordinating science and technology policy for the 
executive branch and for the Nation at large. OSTP's budget 
request of $5.201 million and 40 FTEs for fiscal year 2000 
represents a budget increase of less than 3\1/2\ percent and an 
increase of one person, one FTE. These additional resources are 
essential to continue to provide the highest quality of work 
across our broad spectrum of responsibilities.
    Mr. Chairman, and Members of the Committee, I hope the 
brief overview combined with my written statement has conveyed 
to you our commitment to advancing science and technology in 
the national interest and the importance of OSTP's role in that 
enterprise. Regardless of party affiliation, in the end we can 
all agree that investments in science and technology are indeed 
investments in the Nation's future. I look forward to achieving 
bipartisan support for a national science and technology 
strategy that will combine the resources of industry, academia, 
nonprofit organizations, and at all levels of government to 
advance knowledge, promote education, strengthen institutions 
and to develop human potential. I ask not only for your support 
for OSTP's fiscal year 2000 budget, but for the larger science 
and technology budget as well. I also want you to know how much 
I appreciate the long-standing bipartisan support of the 
committee for OSTP and for science and technology research. I 
would be happy to answer any questions that you have.
    Thank you, Mr. Chairman.
    Mr. Walsh. Thank you very much for your statement.
    [The statement of Dr. Lane follows:]
    Offset Folios 1774 to 1784 Insert here



                           investments in r&d

    Mr. Walsh. I am sure that we will have lots of questions. I 
have some very specific ones about your role, but let me begin 
by asking a general question and giving you a chance to expound 
as much as you would like.
    Yesterday we had Administrator Goldin in from NASA, and we 
talked about a lot of things, primarily rocket science, but 
his--as a scientist and as someone who oversees about a $16 
billion budget, he looks around, and people he talks with in 
the businesses that he deals with, and he expressed this quite 
clearly, a very grave concern about our investments in research 
and development, both applied and basic research. And I am sure 
that he is talking about the science that he is involved with, 
but I think he also was speaking generally about the investment 
that our Nation is making in research. And he expressed a very 
grave concern that very few organizations today, business, 
private sector, public sector, are looking 20 years out. In 
business you are not rewarded for looking 20 years out. You are 
rewarded quarter to quarter. As you saw the stock market 
yesterday, if you had a bad quarter, you didn't do very well.
    So just your thoughts on that. Obviously you are putting a 
lot of eggs in the info tech basket, but at the same time I am 
told that this really, along with being the information age, 
and I come from the information industry before I came here, 
and I agree with that characterization, it is also the age of 
biology, and biology is going to solve so many of our problems.
    We have this huge wrestling match every year about the cost 
of Medicare and Medicaid, and the cost of health care, and the 
fact that there are 43 million uninsured Americans, and 
seemingly biology could help us to solve a lot of those 
problems by helping us define less expensive cures and reducing 
amount of hospital time.
    Just generally what are your thoughts on what we are doing 
as a Nation, as a world, globally, in terms of research and 
development, and in a perfect world, in your mind, what should 
we all be doing?
    Dr. Lane. It is an important question and a large one, Mr. 
Chairman. Let me make a few comments, and it is something that 
I could spend the rest of the day talking about.
    Mr. Walsh. We may. We will have to get back to the budget 
sooner or later.
    Dr. Lane. My time is your time.
    First, the very good news is that this Nation has made very 
substantial investments in science and technology. Increasingly 
the burden of those investments on research have fallen on the 
Federal Government. So it is sort of a funny situation. The 
overall R&D investment has increased in the private sector to 
the point where the Federal Government nowonly makes 
approximately a third, I think--only invests about a third of the total 
R&D in the country. But quite correctly what Mr. Goldin has said about 
this, that the investment made by the private sector is very much 
toward short-term needs and very much away from even historical 
experience of industry in putting substantial monies into basic 
research.
    So it is just very clear to me not only from the numbers, 
but from every conversation I have with people in the private 
sector, they are depending totally on the Federal Government to 
provide the support for basic and, I would say, much of the 
applied research. It all has to do with is meant by the variety 
of words, but let's just talk in terms of long-term/short-term 
focus. Industry is continuing to focus more and more sharply on 
the near term, on the product lines, on the short life cycles 
of the products, and information technology is a good example, 
but as you point out, it is not the only one. There are many 
others, in biotechnology and in other sectors. So I do agree 
with that observation.

                            student research

    The fact is, though, that because of long-time strong 
Federal investment in science and technology by the Federal 
Government, this country is in the lead in most fields, most 
important fields of science and engineering. The question is 
will we continue to be, and how did we get there. One way we 
got there was to keep the investments strong, but we also got 
there by bringing to our country students and researchers from 
other parts of the world who saw opportunities here in the 
United States to carry out their research here, their studies, 
and then some of them would stay and join our work force.
    There are two things that I think about that. One is that 
it is very fortunate that these young people decided to do that 
because we became very dependent on their knowledge and skills. 
We would be in a much worse position had they not been here 
with regard to science and technology.
    But there is a danger if we become dependent on young 
people coming from other parts of the world to study and do 
their research here because the trends indicate that not as 
many want to come, and those who come want to go back. And in 
the meantime, we continue to have a very hard time attracting 
sufficient numbers of young people from underrepresented 
communities, women and minorities. We work hard at that issue. 
It remains a significant challenge. We have not been as 
successful as we need to be.
    So this issue of who is doing the work and what our 
expectations are going to be for the future I think is a 
serious part of this. So I am very worried about the 
implications on the human resources side downstream.
    And then the other thing, the final thing I would say is 
that much of the growth in the Federal investment in R&D has 
been in the biomedical arena, and terrific wonderful things 
have happened as a result of that, major breakthroughs in 
essentially every area of human biology. But as Harold Varmus 
himself points out, it is also important to make the 
investments, the increased investments, in the physics and the 
chemistry and the computer science and the engineering so that 
those technologies and that knowledge base that the biomedical 
researchers need and have used all through the years remain 
fresh, remain at the frontier.
    So we have to worry about balance, and by balance I don't 
mean somehow we need to slow down our investments in biomedical 
research. I think those things are very important to people, 
and the work is excellent. But we do need to build up the rest 
of the support base for science and technology, and I know that 
is hard at a time when the budgets are constrained, and they 
are constrained for very good reasons. And so the budget that 
the President has brought over for science and technology is 
consistent with the agreement with the Congress, and I think 
the President has done a good job within that budget to show 
the high priority that he places on science and technology. But 
it is a constrained budget with which we work, and we 
understand the constraints on the committee as well.
    Mr. Walsh. Is there any area of research that you think we 
need to take a serious look at?
    Dr. Lane. I think that this initiative shows that of all of 
the things that I just talked about, for the reasons that I 
mentioned and others, research on information technology and on 
the use of information technology is particularly a high 
priority at this time. And that is why, even in a tight budget, 
the President has brought this initiative over.
    It is timely. The people are there to do the work. The 
report of the advisory committee is in some ways a little 
alarming as to how far we have moved away from making these 
long-term investments in this particular area, and it is on 
that basis that we put this initiative together.

                      ostp performance measurement

    Mr. Walsh. Let me get to the more mundane issues, and then 
I will yield to my colleagues.
    Near the beginning of your fiscal year 2000 budget 
justification, you discuss OSTP's general goals. There are 
four: Advise, coordinate, and promote partnerships, and assess 
and report. I know you intend to ask the President's Committee 
of Advisors on Science and Technology, or PCAST, to assess 
OSTP's performance in meeting these goals, but in the meantime 
I am wondering how you would rate the office's performance in 
this regard now that you have been on the job for a year?
    Dr. Lane. Mr. Chairman, I am really happy to have that 
question because I continue daily to be impressed with the job 
done by this relatively small office.
    It is an extraordinary responsibility. At the beginning of 
the administration, this office was handed the responsibilities 
for the Space Council. There used to be a Space Council, and it 
had its own staffing, but when the size of the staff of the 
OSTP were reduced, as were other offices in the White House, 
OSTP was asked to take on this very important responsibility. 
So we now look after space issues, all of them; so everything 
NASA does, but also interaction with the services and 
commercial space activities. We do that with three outstanding 
people at OSTP.
    Similarly, we have a small staff that follows and 
coordinates activities having to do with things like the U.S. 
Global Change Research Program and climate change initiatives, 
the Partnership for a New Generation of Vehicles, a number of 
important multiagency activities that, without our staff's 
close involvement, simply would not be coordinated. There is 
nobody else to ensure that these agencies work together in a 
way that optimizes their performance and expenditure of the 
money and meets the goals of the interagency research efforts.
    What we try to do is not coordinate things that don't need 
coordinating. We don't go into agencies and try to run their 
affairs. That is not a good idea, first of all; and in the 
second place, we don't have any staffing for that. Wedon't do 
that. We do work closely with other offices of the White House with all 
aspects having to do with the science and technology budget. So OMB, 
the President's Office, the Vice President's Office, but in terms of 
sitting down with the agencies and hammering out agreements and finding 
out where the gives and takes are, we reserve that activity for those 
programs that involve several agencies and that we feel really need 
coordination. The one exception might be the space area, because we 
have a special responsibility for space, and so we work very closely 
with NASA on a whole range, essentially the entire range, of space 
activities, research and otherwise.

                  pcast assessment of ostp performance

    Mr. Walsh. I am sure you are aware having been on the job 
now for a year that PCAST will assess your performance and your 
department's performance. But as cochair of PCAST, is that the 
most objective review? Is that the most objective way to get a 
review of the office's performance? Is there a better way?
    Dr. Lane. I think there are always different ways of 
getting these jobs done, and the decision on using PCAST in 
this way was made in consultation with PCAST, recognizing that 
all of the PCAST people are nongovernmental, and I clearly need 
to distance myself from the evaluation, which I certainly have 
done and will do. But it is a way to bring people to the table 
with the integrity and, I believe, the credibility to perform 
an objective evaluation of an organization they are not a part 
of, even though, as you point out, there is a close connection.
    I would be glad to ask one of my colleagues that works 
closely with the Results Act and evaluation process to give you 
more information.
    Mr. Walsh. Maybe you can provide that in writing if you 
would like to expound on that.
    Dr. Lane. We will provide the rationale.
    Mr. Walsh. The justification for doing it that way and the 
pitfalls if there are any.
    Mr. Walsh. Thank you.
    Mr. Mollohan.
    Mr. Mollohan. Thank you, Mr. Chairman.

                  information technology dissemination

    In your opening statement and in your responses to 
questions of the Chairman, you talked about the importance of 
information technology, and there are lots of parts to that and 
different people related to it, senior scientists doing cutting 
edge research, and then you have people in the country that 
don't even know how to turn on a computer, a lot of them are in 
my age bracket, but I have learned how.
    When you look at information and technology and how it 
benefits different segments of society, are there any groups, 
segments, that are being left out? Are you all focused on them? 
Is that an issue that you are dealing with? Is it a problem; 
and if so, how big a problem? Is there a government role to 
address it?
    Dr. Lane. That is a very important issue, and we are very 
much focused on it, as was the PCAST advisory committee. They 
made a point to emphasize this, I think, guided by the 
President's comments on information and technology, namely 
whatever we do, we must avoid this divide. We must ensure that 
information technology, which is such a rapidly evolving 
technology, helps narrow this gap, not further widen it. And I 
think there is a potential danger here that it will work the 
other direction.
    Mr. Mollohan. Which way is it going?
    Dr. Lane. I would say that different data will tell you 
somewhat different answers, but in the area of home use of 
computers, for example, early on I think the data would suggest 
that it was spreading. But more recent analysis suggests that, 
in fact, it is coming down. The gap is narrowing both in terms 
of the home use of computers and, I think, also work force. We 
would be glad to send you whatever statistics we have on that.
    The question is much larger than my answer, but the focus 
of this initiative--[in the social/economic side]--is why we 
have $15 million invested. It is not enough just to make sure 
that e-commerce flowers and that some people make a huge amount 
of money, although that has always been an important thing in 
this country and will continue to be, but it is also to make 
sure that these technologies are friendly to people, that they 
are affordable and usable, that you don't have to become a 
computer programmer to use the computer.
    In fact, the expectation is that computers as you know them 
will look very different in the near future. They will not be 
the same. They will be a part of everyone's life, and people 
will know how to use them and can afford them, and that they 
will provide benefits to all components of society.
    Mr. Mollohan. But the marketplace is going to take care of 
that issue. Providers of hardware and software both are going 
to be highly incentivized to provide the most user-friendly 
apparatus.
    Dr. Lane. As long as the research is done at the front end. 
For example, persons with disabilities, I would say that there 
is an area where it is important for research, such as the 
National Science Foundation is supporting, to ensure that the 
front end work gets done so then you have a capability that the 
private sector can pick up and market because I am not sure 
that the market itself is a large enough pull in an area like 
that. In the end the market will do it, but it is just 
important to have the front end work done.
    Mr. Mollohan. What about economically and geographically, 
can you answer my question in those terms?

            university involvement in information technology

    Dr. Lane. Let me start back on the university side because 
one point that the committee emphasized was that in order to 
address the problems that the committee feels exist on 
fundamental long term research, you are going to need many, 
many research faculty in computer science and computer 
engineering, and those won't be housed in just the top 10 or 50 
universities, you will have to grow that quality all across the 
country.
    And as the universities strengthen and interact more with 
the local and regional communities to provide not only 
knowledge and courses, but also very real time help with the 
community problems, that is going to benefit everybody in the 
region.
    Mr. Mollohan. So you are saying when local academic 
institutions begin relating in this area better to their own 
particular marketplaces, they will solve a lot of----
    Dr. Lane. I think that is a general issue. You have been on 
campuses, you know that universities, particularly some of our 
state universities, are reaching out much more effectively to 
the communities to provide more, like what used to be the idea 
of the land grant college concept, where it wasn't just a place 
where you went to take a course and get a degree, it was a core 
intellectual experience for the whole community.
    Mr. Mollohan. Relating to the needs of the community?
    Dr. Lane. My view is that is the future for colleges and 
universities as well.
    Mr. Mollohan. Is there a problem that you have identified 
in particular groups, geographic groups or, as I say, 
socioeconomic groups? Is there a study even if you can't 
comment on it right now because you are not prepared to, is 
there a study looking at these kinds of issues?
    Dr. Lane. Let us send you information on this. I think the 
one clear early one was just as the Internet spread out it 
didn't spread out in an equitable way because early on it was 
essentially an experimental device. So it went where computer 
scientists were able to work on it. Increasingly it has spread 
everywhere, and it is critically important to all communities 
that they have that connection.
    Mr. Mollohan. There may not be a huge problem with that, 
but I would be interested in knowing.
    Dr. Lane. We will send you information more broadly than 
the Internet.

                energy technologies and the environment

    Mr. Mollohan. The environment is one that we focus on. How 
are you--first of all, I really support the last topic that you 
reflected that you support here, environmental protection. I 
think that is a very important approach to all of the problems 
associated with these issues. But when you look at the issues 
of energy, availability of energy domestically, 
internationally, either its physical availability or its 
availability determined by the marketplace, what is cheap and 
what is expensive and how that affects other resources--
availability of other resources, just tell me, what are you all 
thinking about? This is a subject area. How are you approaching 
that subject? Is it something that is a priority? How do you 
maintain cheap energy in this country, which is fundamentally 
important to our economy, and what do we have to do to achieve 
that goal?
    Dr. Lane. It is a great concern and PCAST wrote a report on 
that and focused on the domestic side, and we responded to that 
report by putting research activities in place on the energy 
technologies, more efficient technologies, so that indeed we 
can keep the price down on energy. This is a very appropriate 
time to be thinking about that with OPEC's recent move to drive 
the price up.
    Mr. Mollohan. It sure is.
    Dr. Lane. One thing that we in our office can appropriately 
focus on is to ensure that investment in research is placed in 
the right agencies and at the right level, develop those ideas, 
those new technologies, that will then be picked up by industry 
in whatever way the market determines to be most efficient.
    Mr. Mollohan. Just on that, picked up by industry, as you 
all look at this, that is a real problem area because industry 
will pick technology up to the extent it serves their financial 
interests. That is the driving consideration. As long as they 
can keep old facilities going or retrofit them or as long as 
they can back one energy source, they are not going to 
implement a lot of the technology that you have supported and 
funded for many years. And obviously I am referring to coal 
technology and there is a lot of it out there to use that 
resource. The marketplace isn't favorable to that. I think we 
really need to look at how do you incentivize industry to use 
those technologies.
    Dr. Lane. In the case of coal, coal is at a competitive 
disadvantage, but it is really natural gas that I think puts 
the pressure on coal.
    Mr. Mollohan. It is what?
    Dr. Lane. Natural gas and cheap oil. So one question is 
well, coal is a very valuable natural resource. We want to be 
sure that we are able as a nation to take advantage of that. We 
are clearly going to need all of our sources ofenergy 
downstream, so what technologies might there be to allow U.S. companies 
to make money on coal. And the Department of Energy has done a number 
of research projects that are focused precisely on that, new 
technologies to take advantage of coal; for example, the hybrid system, 
which is just new chemistry applied to coal that will enable the 
process to be done cheaper and enable the price to go down.
    Mr. Mollohan. At this point in time it doesn't allow--if 
the process you are referring is the consumption of coal to 
generate electricity, it does allow that forward to be cheaper. 
That is an area that needs to be looked at. How do you 
commercialize that technology that already exists in a way that 
make it economically feasible? Just a comment, Mr. Chairman.
    When you look at these questions of global climate change 
and ozone depletion, all of these things which I totally 
support, looking and studying the solutions, being able to--for 
the private sector to be able to economically implement the 
excellent research which has been done which has resulted in 
good solutions, right now I think is the challenge. I would 
like to follow up on that with you all after this hearing to 
see if you all agree or can identify what are the specific 
challenges to be addressed in order to get beyond this 
environmental/political stalemate or whatever you call it, 
stumbling block. How do we get this in a smart way and 
obviously you are looking into that.

                              partnerships

    Dr. Lane. We will definitely follow up on that, Mr. 
Mollohan. The other thing that I would say is that I did use 
the word in industry ``pick it up,'' but we really recognize 
that the way that happens most effectively is for the Federal 
Government to enter into partnerships with industry, and that 
is a tricky area that has to be done that doesn't favor one 
company over another and doesn't pick winners and losers, but 
that partnership gets everybody at the table. The private 
industry gets in and the Federal Government provides some 
funding to incentivize the whole process.
    The partnership for the new generation of vehicles which I 
mentioned to you earlier has really challenged the big three in 
the auto industry to push toward a quite extraordinary goal, an 
80 mile per gallon car that is no more expensive and reduced 
emissions by two-thirds.
    The partnership on housing and the PATH program, a similar 
kind of program, partnership with industry to provide some 
incentive for industry to build more efficient houses and find 
out how to do that.
    Generally if everybody is working on that, industry 
suddenly finds out hey, this is competitive, I can make money 
doing this, whereas before I thought I was just going to have 
all of these barriers to overcome, and that is a place where 
the Federal Government can play a very important role in the 
partnership, and the same is true in the energy technology 
area, and we will be happy to provide you detailed information.
    Mr. Sununu. Could I interrupt, I just have a quick question 
on that area.
    Mr. Walsh. It is Mr. Frelinghuysen's turn.
    Mr. Frelinghuysen. I would be happy to yield for 5 seconds. 
I am just kidding.

                    incentives for private industry

    Mr. Sununu. That point you talked about giving the housing 
industry incentives to develop greater energy efficiencies in 
their constructions, and I am sure it is not what you meant, 
but that suggests that those in the housing industry are not 
intelligent enough to look at energy savings over time and with 
a spreadsheet calculate the present value and go out and market 
those innovations.
    If there is any industry that is mature enough to 
understand the value of incremental improvements in technology, 
it is the housing and energy industry. And you preceded that by 
not picking winners or losers and not subsidizing industries, 
and I think those two are really at odds.
    Dr. Lane. I think one company should not be favored over 
another company. The housing industry is very mature and 
successful, and many of us live in wonderful houses so I have 
no negative feelings about the housing industry.
    But if you are really going to push the edge of the 
technology, then you are going to push against some market 
forces. And on that margin there will be judgments made. So all 
I would suggest here is that I think at that stage, on those 
margins, there is a role the Federal Government can play.

                        Interagency cooperation

    Mr. Frelinghuysen. Taking back my time, you live in the 
biggest glass house of all, the White House, that is where you 
work these days, for the White House.
    In the 1960s people usually beat up on what was called the 
military industrial complex. Would you say today that we have a 
science and technology counterpart to the military industrial 
complex?
    It seems to me we have a massive Federal effort which you 
have beautifully outlined in your opening statement and 
obviously you headed up the National Science Foundation and 
worked there with such distinction, but now you are at the 
White House. You are, I suppose, the first among equals by 
being the President's main science adviser, but you have the 
job basically of, if you pardon the expression, cracking heads 
and making sure that the President's objectives are fulfilled 
and that the various agencies are working together. Is that a 
proper characterization of your responsibility?
    Dr. Lane. I have never described it quite that way, but 
yes, I certainly have the role in the White House of advising 
the President on all aspects having to do with science and 
technology, and that certainly means everything having to do 
with any of the agencies which support science and technology.
    Mr. Frelinghuysen. When I use the term science and 
technology complex, do you find any feeling that we have 
created within our Federal Government for a lot of good 
purposes a massive amount of work in DOE, FDA, NASA, and we all 
know that it is Federal money that goes into that Federal basic 
research, but have we created some new complex for the future? 
I am saying that it is a beneficial one, and from the fact that 
we serve in this Congress I guess we have aided and abetted 
this growth and development because obviously support has been 
bipartisan for this type of work, but we have created something 
here.
    Dr. Lane. Yes, we have indeed created it.
    Mr. Frelinghuysen. You can describe it anyway that you 
want. I am not looking for you to throw me a line.

                             S&T Enterprise

    Dr. Lane. We have created a science and technology 
enterprise second to none in the world. We have done it, 
though, with an investment that is only a fraction of the gross 
domestic product, which in my view is not the greatest in the 
world. So we are somehow--in some ways more efficient with our 
investment than some other nations are. I think weget more out 
of it than many nations in the world do. So I call it an enterprise.
    The only reason that I have to be thoughtful about the 
complex, to some that has a negative connotation, where it was 
sort of a deal between the private sector and the Federal 
Government.
    Mr. Frelinghuysen. You are very much encouraging 
partnerships?
    Dr. Lane. Absolutely. But the kind of partnerships that I 
am encouraging are real partnerships where you are working with 
industry and you agree to do certain things and the Federal 
Government agrees to do certain things. And if performance is 
not there, all deals are off. I believe partnerships mean 
mutual benefits and mutual responsibilities, and I think some 
people felt in the old complex it had gotten a little stale in 
that way.
    I certainly agree, we have this enterprise. It is the 
strongest in the world. I believe it is in many ways at the 
core of what the Federal Government ought to be doing in this 
country, so I am very pleased that we are strong in that area 
and of course appreciate the bipartisan support.

                         interagency leadership

    Mr. Frelinghuysen. You have been at this job for a year and 
in your prepared statement I quote on page 8, ``Our distributed 
system of research funding also places a premium on 
coordination between complementary agency programs,'' and it 
goes on. How do you deal with the autonomy issues? This is my 
comment that you are the first among equals. You have somebody 
like Harold Varmus, you have somebody like Dan Goldin. These 
are people who exist in their own sphere of influence and 
galaxy. How does your agency work with all of these luminaries 
and keep them focused? Not necessarily containing their 
excitement about their work but actually keeping them focused?
    Dr. Lane. These are extraordinary people. We are very 
fortunate to have people running the agencies and the science 
and technology part of the agency that we have right now, and 
that has been true since I have been in town. I have really 
appreciated the people that I have had a chance to work with, 
and that is true this very day.
    They all have their own views about things. They all have 
their own special responsibilities. When I ask them to work 
together on something, they have done it. And the Information 
Technology Initiative is a great example. I mean, it was an 
opportunity for six agencies to come together. I formed a 
committee of principals, science and technology principals, to 
help me work on this. When I called a meeting, they came. 
Harold Varmus was there, Dan Goldin was there. Rita Colwell was 
there and Gansler was there. So when I need their help, I ask 
for it and they have provided it. They have provided the 
cooperation and given of their time to get it done.

                        interagency coordination

    Mr. Frelinghuysen. But what do you look at, though? In 
other words, how does OSTP go about evaluating programs of the 
departments? If you lift the tent on national laboratories, and 
I serve on the Energy and Water Committee, and you visit and 
they obviously showcase when you go there, their main 
responsibilities in terms of the nuclear stockpile, but if you 
lift the tent, they are also doing a lot of other things which 
I assume bear some relation to the National Science Foundation. 
Everyone appears to have a little piece of the human genome 
project. It is not just Dr. Collins at the National Institutes 
of Health, everybody seems to have a piece of that. And I just 
wonder whether--are there certain areas where you have access 
and other areas where you have learned to perhaps proceed with 
caution?
    Dr. Lane. Mr. Frelinghuysen, I always try to proceed with 
caution, but let me try to answer your question. We have a 
quite complex enterprise that we are talking about and there is 
a lot going on, and within each agency, a lot of different 
agencies, some of which relate closely to activities in other 
agencies. So the points you are making are very important ones 
and they make it difficult sometimes to explain what it is--why 
are these agencies doing these things, and so let me pick an 
example or two.
    One is, let us just say that the Department of Energy and 
the National Science Foundation, the Department of Energy I 
think by statute has a responsibility in high energy physics 
facilities and so they operate from the national laboratories, 
the one at Brookhaven, as you well know, and other facilities. 
They do that very well. They also support university scientists 
to work there, and NSF supports university scientists to work 
there.
    The two agencies' program offices work quite closely 
together so they know that they are not doubling up. They know 
that they are not giving money to the same person for the same 
job. That is coordinated at the agency level and I think quite 
well. But it is a good partnership.
    Mr. Frelinghuysen. So you are satisfied with what you have 
been able to review?
    Dr. Lane. What I am able to review indeed.
    Mr. Frelinghuysen. You have PCAST and the National Science 
and Technology Council. One assumes that coordination, while 
there may be some need for duplication, that somebody--you are 
in the driver's seat to oversee some of it.
    Dr. Lane. And you have to look underneath, the words that 
describe the programs are never enough to describe what is 
going on underneath so you have to know at the program level 
what is going on and part of the experience that I am relaying 
to you is on the NSF side because I was in there.

                         russian space program

    Mr. Frelinghuysen. Can I change gears. Do you have a 
Russian counterpart?
    Dr. Lane. The person that I always meet with; for example, 
in this recent Gore-Primakov Commission activity, my 
counterpart is the minister of science and technology.
    Mr. Frelinghuysen. The public perception is that Russia is 
sort of disassembling. There is no leadership but certainly we 
heard yesterday that the space program continues to work.
    Dr. Lane. Absolutely.
    Mr. Frelinghuysen. Do you have any opinion relative to the 
fact that you have 70,000 nuclear scientists, a good portion of 
which are out of work, do you have people with the space 
program that some days it is up, some days it is literally 
down. Dan Goldin said there are tens of thousands of people 
highly qualified out there that are--either working for barter 
or working in some capacity for nothing.
    Do you have any view of what is going on with some of 
Russia's brain power and how it potentially might affect our 
strategies?
    Dr. Lane. It is extremely important to the country, to our 
own national interests that those scientists in Russia are busy 
doing research and are not tempted to be pulled away by other 
nations who will work on military needs of nations that are not 
friendly to this country, and I think the space effort is a 
really good example.
    Our cooperation with Russia on space implies two things. 
One, we accessed technology, it is extraordinary in space. I 
mean the Russian space scientists and engineers are really 
outstanding. And I know Dan Goldin has made that point several 
times. So we have accessed those people.
    We also had access to the MIR space station. We got many 
hours of experience that our astronauts on that station 
otherwise would not have. But maybe more important than both of 
those things is keeping tens of thousands, many tens of 
thousands of rocket scientists at work doing what they like to 
do and for peaceful purposes. So I think that has been 
extraordinarily successful.
    Mr. Frelinghuysen. I thank you for your response, because 
the chairman chaired a meeting yesterday and you are confirming 
what we heard from Mr. Goldin. Without your knowing that I had 
talked with him yesterday actually shows that you are 
definitely on top and in fine form per usual.
    Dr. Lane. Thank you very much. Thank you, sir.
    Mr. Frelinghuysen. Thank you, Mr. Chairman.
    Mr. Walsh. Mr. Sununu.
    Mr. Sununu. Thank you, Mr. Chairman. Welcome.
    Dr. Lane. Thank you, sir.

                             basic science

    Mr. Sununu. I would like to revisit some of the issues I 
raised in my earlier comment. But perhaps you can begin by 
providing a description for what you see as the difference 
between a commitment to fundamental research in areas that I 
think ought to be weighted towards basic sciences and subsidy, 
the subsidy of technologies or industries that are not just 
mature, but that have real, very existing financial incentive 
to undertake research activities on new products or new ideas 
in and of themselves. At what point does the investment in 
basic science become an effective distortion of the market 
forces that I hope everyone in this room puts a lot of faith 
in?
    Dr. Lane. Well, I fully agree with you, Mr. Sununu, that 
that distinction needs to be made. It is a judgment call, and 
is an important one for our system and which works 
extraordinarily well, makes us the world leaders.
    Mr. Sununu. And very specifically, you are being asked to 
make that judgment on behalf of the President?
    Dr. Lane. Absolutely correct, and my view on that is that 
when the Federal Government enters into partnership with 
industry, there are several criteria that need to be satisfied 
in order for that to happen. I think the potential usefulness, 
if you like, of that knowledge or those technologies needs to 
be long term so that there is a reason why that industry or 
that sector has not spontaneously decided to invest its own 
money in the same research.
    Mr. Sununu. The benefits need to be long term or the 
payback period needs to be long term?

                investments in research and development

    Dr. Lane. Well, of course, there are many kinds of 
benefits, educational benefits and side benefits. If the 
payback is quick--you can start it around the other way, if the 
payback is quick, if you can predict that is the case, we 
predict that the payback is quick, then I think these companies 
are very smart, these industries are very smart. As you pointed 
out, I think they will do it.
    They will say, hey, that is a good investment, I am going 
to invest in that technology or that product. Now, sometimes 
our predictions are wrong. You know, sometimes we think that 
you won't be able to get a quick payback and, surprise, you do. 
And you can also find the other way. That is why venture 
capitalism in my view is a tough issue, a tough profession to 
be in. So I think it is not always easy to guess right, but I 
believe once you keep a focus on that issue----
    Mr. Sununu. You are saying that the factor--the primary 
concern is payback period and how long or short it is and where 
do you draw the line? Is it 10 years, 15 years, 5 years, 2 
years? When is it basic science and when is it industry 
subsidy?
    Dr. Lane. It is going to depend on the kind of industry, on 
the sector you are talking about. Those periods are different 
for different industries.
    Mr. Sununu. So if I am in, say, the electronics industry, 
the government is going to draw a line at 8 years, but if I am 
in the energy industry, then I can get a subsidy for research 
that only has a payback period of 4 years?
    Dr. Lane. Well, I won't----
    Mr. Sununu. That would seem to be playing off one industry 
to another. Money is fungible, return is return. And if you are 
drawing a line of a payback period of 4 years for one industry 
and 8 years for another industry, you are doing exactly what 
you said you shouldn't be doing.
    Dr. Lane. There is another issue also. It may well be that 
the investment in the R&D is so expensive that no industry or 
no company on its own is going to do that or no sector on its 
own is going to do that. I think we got into trouble in the 
semiconductor industry. Just to give an example, there was a 
case some years ago, it wasn't this administration, a previous 
administration, right, where government--industry came to 
government said, hey, we got a real problem here.
    So we are not really coming to you one company at a time. 
We are coming to you as one sector, talking about the U.S. 
position on leadership in this area. And these companies came 
together, put their own money in, government put its money in 
and eventually as, you know, they kicked the government out, 
the appropriate thing to do probably. They said we would handle 
this on our own. But I think that was a good--a very good 
policy at the time and it put us in the----
    Mr. Sununu. What is a good policy?
    Dr. Lane. It was a good policy for the sector of industry 
and for the government to work together on behalf of a 
challenge to U.S. leadership in an important area of 
technology.

                         technology investments

    Mr. Sununu. Well, sticking with that example, that was a 
case where industry and many outside of industry were making an 
argument that American economic and technological leadership 
was going to be determined effective, if not determined by our 
strength in the static memory business. This was all about 
theories on static memory. And that is why Semiconductor was 
formed, and you probably know better than I, but my guess is in 
the end the Feds poured about $500 million in the project 
before they pulled the plug so to speak.
    Where is that industry today? Where is our prominence on 
our leadership in that industry today? Well, we really didn't 
have one. But there is an economic reason for not having a 
leadership position in that industry, because it is not a very 
pretty industry to be in, because anybody with the money to put 
the basic capital investment and access to fairly inexpensive 
labor can pump out static memory like there is no tomorrow. The 
margins are very small. In fact, the static memory is quoted as 
a commodity on a lot of exchanges in the world right now. So in 
fact, I would disagree. It wasn't a good coming together--I 
mean it is nice when people can come together and recognize 
that there might be a problem, but I don't think the program 
was necessarily a success, and I think in hindsight the 
arguments that were made about this particular industry being 
key to our technological future was completely wrong.
    Dr. Lane. Well, we could--it is always complex to know 
where the technological breakthroughs come from that cause 
swings in competitive markets--in a given situation. It would 
be hard for me to argue, and I would not do so without the 
confidence of my comments, that much of the research that went 
on during that period has led and did lead, in fact, to some of 
those breakthroughs that has changed the whole nature of 
technology in that industry. The other thing that happened----
    Mr. Sununu. The breakthroughs that led to the dominant 
firms being in Asia?
    Dr. Lane. I mean the issue of who is able to maximize the 
profits from a particular technology is a larger one than the 
R&D effort, and you know much more about that then I do. It has 
got to do with capital and it has got to do with market forces 
of various kinds. So all I am arguing is that at the front end, 
where the work is clearly basic, where I think we have no 
disagreement on that, where the work is clearly fundamental, 
clearly basic, where one really can't see where or if the 
knowledge will be particularly useful to one or another 
industry, the Federal Government has a role.
    I think where we may not agree is just at what stage in our 
partnership with industry that would cross over the line, and I 
think that is a debatable issue.
    Mr. Sununu. It is a debatable issue; is that what you said?
    Dr. Lane. Of course, yes, it is debatable.
    Mr. Sununu. Both issues are debatable, one maybe we just 
have a little bit more agreement than another.
    Dr. Lane. Okay.

                           federal investment

    Mr. Sununu. And this brings at least me to my perspective 
in that those industries where you can make an economic 
argument for the payback, for the return, for the reward, are 
precisely those ventures that we ought to stay away from. If 
the chip manufacturers come to the U.S. Government and make an 
argument for investment in return in strategic position on the 
basis of profits or earnings, those are precisely the 
situations that we ought to avoid.
    High definition television, another good example. Ten years 
ago the industry came to the U.S. Government and was looking 
for a very, very significant subsidy for the development of a 
high definition television standard, and they were up front 
that it would probably be somewhere between 5- and $20 billion 
of taxpayer commitment to develop high definition television. 
And they tried to justify that subsidy on the basis of the 
market that we all knew and understood and that here is how 
many TV sets are going to be sold, here is the growth of the 
industry.
    They had wonderful spreadsheets that showed the return, and 
this was a case where the government got it right. They said, 
no, we will undertake a process where we determine from a 
regulatory perspective what kind of a standard makes sense, but 
we are not going to put any money in the development of the 
technology. We did the right thing.
    The analogy in the global scene is Japan. They spend $20 
billion or so, give or take, developing high definition 
television technology, Federal money, taxpayer money, and it is 
grossly inferior to the current state of the art. And 
unfortunately, I mean, even these kind of economic models 
aren't predictable and the inception of HDTV has been delayed 
somewhat, but I think most people think it will come.
    My point is that the powerful emotional argument about 
return is oftentimes the argument that we need to avoid.
    Dr. Lane. Mr. Sununu, I am sorry, may I comment or were you 
going to shift gears?
    Mr. Sununu. You are welcome to comment on HDTV or on that 
differentiation.
    Dr. Lane. Let me just mention I am reminded that the 
advanced optical lithographic technology came out of this 
research effort that I described earlier. And our current 
thinking about the future is, you know, what kind of technology 
are we going to have in the post-optic era, and research is 
going on in that area as well. I would not want my comments to 
be interpreted in any way to think that somehow we don't have 
healthy industries or those are not being run by outstanding 
people or even though there are indeed operations that are not 
impressive and effective. I think they are.
    But the world of business has changed to such an extent 
that these companies have felt the need to narrow their focus 
to shorter term horizon, shorter-time time horizons and they 
are simply not doing the research that those companies were 
doing 20 years ago. That is my primary message. We don't have 
the Bell Labs research program like we had before. We don't 
have IBM research lab doing those kinds of cutting edge, long-
term research projects that they did in the early days. And I 
think for reasons that we understand. The Federal Government 
needs to fill that role.

               federal subsidy in information technology

    Mr. Sununu. In the area of basic research and the work that 
the NSF does and the work that the NIH does, I would agree. Let 
me close by asking you to talk about one final example, and it 
is, I think, an example that is the successor to the first two 
that I gave and there are others, in that those that are 
advocating the subsidy are using the excitement of the market 
opportunity, of the market growth that we are seeing today, and 
perhaps an emotional argument that somehow because this is a 
growing and future industry that it is going to be somehow 
central to our economic security in the future.
    And it may be important to that, but they are using that as 
an argument for Federal subsidy, and that is in the area of 
information technology. I don't know what is in here for, say, 
next generation Internet or information technology, 70 million 
in DOD, and I am sure NSF has a piece of it. You would know 
better than I.
    But if there is any industry that is healthy, that is 
growing, where there is strong market forces at work 
toencourage continued innovation, continued improvement in technology, 
it is in information technology and you said, well, we don't have Bell 
Labs anymore, we don't have IBM. But we do have Cisco and 3-Com and 
Cabletron and Oracle and Microsoft and America On Line that is 
constantly out there as an industry communicating with customers and 
finding out what new advantage they need to implement on a 
technological basis to take advantage of their competitors, to beat 
their competitors.
    And to use the excitement or the lure of that growing 
industry as a justification to sort of join the fray or, in the 
worst case, shape the technological development, I think is a 
mistake. And I guess I am looking for you to respond with an 
argument as, well, what is it that is so special about the 
government that we are going to be able to identify the key to 
the next incremental technology that might be used to increase 
switching speeds or network security or Internet commerce?
    Dr. Lane. I think we aren't going to do that. I think we 
shouldn't. I agree with your last comment, that is not what we 
are about. Let's just sort of go down a level in detail in the 
initiative, just so I can give a few examples. I don't want to 
use too much time, but I would like to talk about this a little 
bit.
    What NSF is going to support is research in computer 
science, computer engineering, questions that have to do with 
what about 20 years down the road when these kinds of ways we 
have been used to computing are not going to do the job any 
more, what is a whole new way of thinking about computing? 
Quantum computing or using DNA computers. The company is not 
going to support that kind of research. And I think one can 
understand why not.
    DARPA will support those kinds of research activities as 
well for their own mission needs and because they know how to 
pick through peer review process the best people with the best 
ideas, but nothing to do with market or nothing to do with 
industry; just what our scientists think of the most exciting, 
intellectually exciting and most important research questions.
    That is where most of the money, that is where two-thirds 
of the money in this initiative goes, is for that kind of 
research that I just described. The $70 million to DOE is 
primarily to buy big machines from industry so that scientists 
and engineers can do research problems on it, maybe a 
fundamental research problem having to do with combustion or 
atmospheric or ocean sciences or something along those lines.
    The $15 million that goes for social, economic work force 
issues, that will go to support researchers and university 
campuses, economists, sociologists, and education researchers 
to study some of these larger questions.
    Mr. Walsh. John, if I could just point out, we are over 15 
minutes, we have held everybody up pretty much to 15 minutes.
    Mr. Sununu. Sorry.
    Mr. Walsh. Mrs. Meek has a lot of patience this morning. I 
would like to go to her.

                computing versus information technology

    Mr. Sununu. On DOE point, if DOE is using the machines for 
computing, why do you call it information technology, why not 
call it computing, you know, modeling, technology modeling?
    Dr. Lane. I would be happy to call it computing. Another 
way I think to address your question is say why is it a part of 
this initiative, and the reason is because we are going to buy 
the best of currently available technology. These big machines, 
are rather like those being used for the stockpile stewardship 
program, but these will be used for civilian purposes. And we 
are going to put scientists on them, but we really don't know 
how well those machines are going to deal with their problems.
    And so computer scientists need to be involved in that 
process. They need to see you, an oceanographer, trying to put 
your problem on these big machines and what is not working, 
what new system needs to be worked out. That is the reason that 
it is part of the initiative. We need to articulate it more 
clearly.
    Mr. Sununu. Thank you for your generosity, Mr. Chairman.
    Mr. Walsh. Mrs. Meek.

                         national laboratories

    Mrs. Meek. Thank you, Mr. Chairman. I am out of time, but I 
am very pleased to see you again, Mr. Lane. Since my time on 
this committee there has been a lot of concern about the 
national labs in terms of many times the lack of coordination 
between what they are doing and what other agencies are doing.
    You have a terrific job trying to coordinate and shuffle 
all of these cabinet agencies and all of these agencies. You 
are saying you have some degree of administration over them. 
How well is that coordination working? I know that is one of 
your major goals, but it is very difficult to do that. So would 
you speak on that point and, quickly, sort of a score card on 
the national labs.
    Dr. Lane. Yes, Mrs. Meek. I am delighted being with you 
today as well. I enjoyed working with you and continue to enjoy 
our close working relationship. On the national labs, I would 
say medium. I don't know how to grade it exactly. This is a 
very tough issue. It is sometimes difficult even for the agency 
itself to coordinate the work of all of its laboratories, 
because of the complexity, the diversity of activities going on 
in those laboratories.
    We work with the laboratories, say the Department of 
Energy, we work with the laboratories and with the whole 
department in a variety of different ways primarily through the 
National Science and Technology Council which, through its 
coordinating committees, brings people from government together 
to work on issues like global climate change and the 
traditional disciplines.
    So I think that the process is a good one. We have to focus 
our efforts in places where that plays particularly across 
agency lines, as I described earlier. I think we are doing a 
pretty good job of that. There is, of course, a report I think 
under review right now on the national labs. Maybe I can get a 
status report on where that is. It will come out in 2 weeks. 
That I think is the report that you are asking about.
    Mrs. Meek. Thank you. Thank you.
    Dr. Lane. Thank you.
    Mrs. Meek. Mr. Chairman, I know the time is gone. So I 
wouldn't ask my last question.
    Mr. Walsh. Feel free to go ahead and ask the question.

                      women and minorities in ostp

    Mrs. Meek. As usual, Mr. Lane, I will continue to press for 
inclusion of women and minorities in your shop. And each time 
you come before us, I talk about that and ask about that. I 
hope you will continue your pursuit of that. You are a little 
bit better than you were the last time when youcame in terms of 
women, I see.
    I don't see any African Americans, but I see other 
minorities in here. So I am just as pleased hoping that you 
will continue your pursuit of this kind of balance in your 
programs.
    Dr. Lane. Thank you, Mrs. Meek. We don't have all of our 
staff here.
    Mrs. Meek. I mean your senior staff.
    Dr. Lane. I understand. We will continue to keep a strong 
focus on this. My comments earlier in the hearing, I think of 
those things very sincerely. I think the whole future of 
science and technology in this country is largely going to be 
determined by our ability to improve the representation of all 
of our citizens.
    Mrs. Meek. In fact, this country's demographics is 
changing. And you must be able to keep up with some of these 
needs of these various people that we have in our population.
    Dr. Lane. Thank you, Mrs. Meek.
    Mrs. Meek. Thank you.

                               Conclusion

    Mr. Walsh. Well, thank you, Dr. Lane. I think we will 
conclude there. And if anyone has any additional questions, we 
will include them in the record.
    Dr. Lane. I would be happy to answer them.
    Mr. Walsh. And we thank you for your attendance today and 
your thoughtful responses to our questions.
    Dr. Lane. Thank you. We enjoyed being here today. Thank you 
very much.
    Mr. Walsh. We will have a brief recess, and then we will 
come back and we will hear testimony from the Department of 
Defense, Civil Cemeterial expenses, U.S. Army.
    [Recess.]
    OFFSET FOLIOS 1829 to 1884 INSERT HERE



                                         Wednesday, March 24, 1999.

  DEPARTMENT OF THE ARMY (CIVIL WORKS), CEMETERIAL EXPENSES, U.S. ARMY

                               WITNESSES

DR. JOSEPH W. WESTPHAL, ASSISTANT SECRETARY OF THE ARMY (CIVIL WORKS)
LINDA HICKLIN, ACTING DEPUTY ASSISTANT SECRETARY (MANAGEMENT AND BUDGET
JOHN C. METZLER, JR., SUPERINTENDENT, ARLINGTON NATIONAL CEMETERY
RORY D. SMITH, BUDGET OFFICER, ARLINGTON NATIONAL CEMETERY

                       cemeterial expenses, army

    Mr. Walsh. All right. The subcommittee is still in order. 
We just had a brief recess, and now we will proceed with the 
Department of the Army--Department of Defense, Civil Cemeterial 
Expenses, U.S. Army. The expenses associated with the operation 
and maintenance of both Arlington National Cemetery and the 
U.S. Soldiers' and Airmen's Home National Cemeteries. This 
year's request of $12,473,000 represents an increase of 
$807,000 above 1999 level.
    Testifying before us this morning will be Assistant 
Secretary of the Army for Civil Works, Dr. Joseph Westphal. 
Welcome, Dr. Westphal. I believe this is your first visit 
before this committee, and we certainly wish to welcome you and 
your staff.
    Mr. Westphal. Thank you, Mr. Chairman.
    Mr. Walsh. Following any remarks our ranking member Mr. 
Mollohan may wish to make, I will ask you to introduce those 
who are accompanying you this morning, and then summarize your 
opening statements as best you can. And your written statement 
will be fully included in the record.
    Mr. Mollohan.
    [The statement of Mr. Westphal follows:]
    OFFSET FOLIOS 1887 to 1891 INSERT HERE



    Mr. Mollohan. Thank you, Mr. Chairman. I would like to join 
you in welcoming Dr. Westphal to the committee.

                           Summary Statement

    Mr. Walsh. Okay. Dr. Westphal, please proceed.
    Mr. Westphal. Thank you, Mr. Chairman. Thank you, 
Congressman Mollohan and Congresswoman Meek. We are delighted 
to be here. This is my first testimony before your 
subcommittee, Mr. Chairman, on Arlington, and so I am very glad 
to be here. I will make very quick summary remarks.
    With me is Mr. Jack Metzler, who is the Superintendent of 
Arlington National Cemetery and behind me I have my Acting 
Deputy Assistant Secretary for Management and Budget, and my 
Assistant for Management and Budget Linda Hicklin, and over 
here to the right is Rory Smith, who is the budget officer for 
the cemetery. So we have plenty of technical people if you have 
any specific questions.
    Mr. Walsh. Great.
    Mr. Westphal. I will do a very quick summary, Mr. Chairman. 
Arlington, of course, is the Nation's premier military 
cemetery, and it is really an honor for me to represent the 
Secretary here in his mission as having the lead responsible 
for the operation and maintenance of Arlington National 
Cemetery and the Soldiers' and Airmen's Home National Cemetery.
    The request this year, as you stated, is $12,473,000. It is 
an increase of $807 thousand over fiscal year 1999 
appropriations. The budget includes a number of things, and let 
me just outline them first. The budget includes $60,000 for 
continuation of the preparation of a concept land utilization 
plan for lands contiguous to Arlington National Cemetery under 
the jurisdiction of the Department of Defense. This is part of 
the President's strategy of ensuring that the cemetery remains 
open to initial burials through the end of the 21st century.
    Second, Mr. Chairman, $200,000 is included to develop a 
comprehensive automation plan for the cemetery.
    Third, $150,000 is budgeted to develop a 10-year capital 
investment plan.
    And fourth, $300,000 continues an initiative started in 
fiscal year 1996 to expand contracts for enhancing the 
appearance of the cemetery, while reducing the overall cost and 
number of government employees as part of governmentwide 
streamlining.
    In fiscal year 1998, there were 5,638 interments and 
inurnments at Arlington. In fiscal year 2000, we expect over 
5,800. In addition, thousand of visitors, both foreign and 
American, visit Arlington to participate in a number of events 
every year. During fiscal year 1998 about 2,700 ceremonies were 
conducted and the cemetery accommodated approximately 4 million 
visitors, making Arlington one of the most visited historic 
sites in the national capital region.
    The funds included in the fiscal year 2000 budget are 
necessary to permit the Department of the Army to continue the 
high standards at Arlington National Cemetery.
    With that, Mr. Chairman, that is a very brief summary of my 
statement, and we are ready to address any questions that you 
or the committee may have. Thank you.

                 expanding arlington national cemetery

    Mr. Walsh. Thank you very much. In last year's budget, you 
asked for and received $500,000 for preparation of utilization 
plan for expanding Arlington National Cemetery and contiguous 
Department of Defense land. As I recall, your plans included 
the thorough review of four possible expansion areas.
    While I recognize those funds only became available last 
October, I noticed no mention of this expansion plan in this 
year's budget submission. Can you give us an update of where 
you are in developing the plan, including any comments you may 
have on the viability of access--of getting access to any of 
the four possible areas?
    Mr. Westphal. Okay. Mr. Chairman, we expect to have the 
study on expansion possibilities completed at the end of this 
year, and we are also doing an assessment.
    Mr. Walsh. Fiscal year or calendar year.
    Mr. Westphal. Calendar year.
    Mr. Walsh. The end of '99?
    Mr. Westphal. Right. That is correct, isn't it?
    Mr. Metzler. That is correct.
    Mr. Westphal. And we are also doing a study on basically 
assessing the master plan. This is a requirement that the DOD, 
I believe the DOD authorization committee made that we do an 
assessment of our master plan to be reported to the Congress in 
April of this year, and we have that under way. We hope to have 
that completed by the end of April and turn that over to the 
Congress at that time. And we will make sure you get copies of 
that as well.
    That gets into an assessment of what the master plan called 
for and what in fact we are doing. And it will have, I am sure, 
some assessment of the expansion issues.

                        size of expansion sites

    Mr. Walsh. How large are these sites, acreagewise, these 
four sites?
    Mr. Westphal. Let me ask Jack. Talk about that a little 
bit.
    Mr. Metzler. They vary in size, but 30 acres is about the 
largest site.
    Mr. Walsh. Are these all adjacent to the cemetery?
    Mr. Metzler. Yes, they are. The lands that we are looking 
at right now, the primary piece of land that we are looking at 
is the Navy Annex property, which is a little over 30 acres. 
The property on Fort Myer which adjoins the cemetery boundary 
wall, and then there is a piece of property inside the cemetery 
referred to as section 29. That belongs to Department of 
Interior. That is a 24-acre site.
    There is some historical challenges with that particular 
site. So we are trying to overcome those right now. And then we 
have some smaller parcels that go beyond that boundary. But 
those are the three principal sites that we are looking at 
right now.

                            grave site yield

    Mr. Walsh. What grave sites would that add?
    Mr. Metzler. Well, it is difficult to answer that question. 
One of the things this concept land utilization plan is doing 
right now is taking that very question and answering it. But on 
average, we yield about 600 to 800 graves per acre when you 
develop a parcel of land. If we take the 30 acres, as an 
example, for the Navy Annex, all 30 acres may not be usable for 
grave sites, so we will have to subtract to get to that net 
value of land.

                       acquisition possibilities

    Mr. Walsh. Do you expect that you will be able to acquire 
all four sites?
    Mr. Metzler. Well, there are some challenges with that. 
Right now, for instance, the Navy Annex property, it doesn't 
require legislation. It can be done internally, inside the 
Department of Defense. There are some long-range plans for that 
property that we are still looking at and evaluating, along 
with the Department of Defense. And as we go through the 
process, we will be able to answer that question a little bit 
better.
    Mr. Westphal. The Navy Annex was, you know, was being used, 
is being used to some extent as swing space as we renovate the 
Pentagon, to move some folks out, put them in the Navy Annex 
while we do the renovation. But I think we resolved some of the 
issues internally within the department as to the ability of us 
to get a piece of that for Arlington.

                           projected closure

    Mr. Walsh. As of September '98, it was projected that you 
would run out of burial space by the year 2025. How many years 
will these additions add to that?
    Mr. Metzler. If we were to get all of the initiatives that 
we are currently looking at right now, we estimate that we 
could at least go another 50, possibly 75 years beyond that 
point. But that is getting all the pieces of property. And, of 
course, one of the changes that has happened right now are more 
and more veterans are choosing cremation. So some of this will 
incorporate columbarium or niche space, not just open grave 
space.

                            cost to develop

    Mr. Walsh. Lastly, what are the costs you would expect to 
be associated with these acquisitions, destruction and removal 
of old buildings and that sort of cleanups?
    Mr. Metzler. Mr. Chairman, I don't have an answer to that 
right now. I think that is part of what this study will tell 
us.
    Mr. Walsh. When will that be completed?
    Mr. Metzler. The initial phase of the study we hope to have 
done by the end of April, and then the full report done by the 
end of the calendar year.
    Mr. Walsh. Thank you.
    Mr. Mollohan.

                       accuracy of press reports

    Mr. Mollohan. Thank you, Mr. Chairman.
    Doctor, recent press reports have cited examples of 
families having to wait pretty inordinate amounts of times for 
burials at the cemetery. Are those reports accurate? Can you 
comment on them, please?
    Mr. Westphal. Jack, I have not heard of any.
    Mr. Metzler. I would certainly like to comment on that, 
because I have been very involved in these issues. The reports 
are not accurate. We can do burials as quickly as the family 
would like them. The challenge that we have is on the military 
honors that are associated with them, the military honors often 
require us to wait an additional time, because the military 
have other obligations or commitments in the national capital 
region that take them away from Arlington National Cemetery.
    So the ability to do the funeral is easy. The ability to do 
the funeral with all the military honors becomes a challenge.
    Mr. Mollohan. Who is responsible for providing military 
honors?
    Mr. Metzler. Each branch of service is responsible for 
providing their military resources at each service.The 
challenge has really been with scheduling smaller branches of service, 
the Air Force and the Navy, as they don't have nearly the size of the 
ceremonial troops that the Army has as an example. We rarely have a 
problem with the Army at all. It is the small branches of the service 
that have other commitments that take them out of the cemetery.
    Mr. Mollohan. Some of the examples cited suggested that 
upwards of 3 weeks would elapse between a death and an 
internment.
    Mr. Metzler. That is an extreme example. That may happen. 
But again it is not that we can't do the burial, it is just 
that we can't provide all the amenities with that service to 
the family that was asking for a chapel service, a full honor 
funeral that the service member is entitled, which would 
include the band and the marching troops within that branch of 
service.

                          percentage of delays

    Mr. Mollohan. With what percentage of internments are these 
delays occurring?
    Mr. Metzler. I would think the percentage is very small. 
You are looking at probably less than 5 percent of that type of 
example that you are asking for. Most of our funerals we are 
able to accommodate within 5 working days of when we get the 
initial request.
    Mr. Mollohan. With an honor guard?
    Mr. Metzler. With the honor guard, with the firing party, 
casket team, bugler, yes.
    Mr. Westphal. We are actually--we are actually having some 
discussions internally about this as we are trying to find ways 
in which we can expand a number of honor guards and ceremonial 
functions, spread them out. And there has even been talk of 
perhaps using, when we really are in dire need using the 
Reserves and the Guard for others.
    Mr. Mollohan. As far as your responsibilities are 
concerned, do you have the personnel and the equipment, the 
tools to perform them?
    Mr. Metzler. We have everything we need at Arlington 
National Cemetery. The challenge sometimes comes when the 
military resources are being used elsewhere.

                            web site access

    Mr. Mollohan. Real quick question about Internet access. I 
understand that if you try to access a web site for Arlington 
National Cemetery, you can't do it. If you access Arlington 
Cemetery, you can do it but it is not maintained by the 
government; is that correct?
    Mr. Metzler. We do not have a Web site yet for Arlington 
National Cemetery. We are a part of the Web site for the 
Military District of Washington, and within their Web site we 
have all the information on Arlington National Cemetery.
    Mr. Mollohan. Are you familiar with the Arlington Cemetery 
Web site?
    Mr. Metzler. I am familiar--there is several out there by 
private citizens who are doing that. Yes. We are getting ready 
to have a new initiative with the Veterans Administration 
called BOSS, Burial Operations Support System. We are in the 
process right now of getting wired to that system. Once that 
system is wired, then that will give us the ability to have a 
Web page and have our own information put on that.

                         government disclaimers

    Mr. Mollohan. I imagine it might cause some confusion, 
people accessing that site and thinking it is the official 
government site and the information provided is official. Are 
you familiar with the site?
    Mr. Metzler. I am familiar with the site, yes.
    Mr. Mollohan. Are there disclaimers that state it is not a 
government site?
    Mr. Metzler. I don't believe I have seen those. But I do 
see that the individual does claim he's a private citizen.
    Mr. Walsh. Would you yield to that?
    Mr. Mollohan. Certainly.
    Mr. Walsh. What is the Web site address?
    Mr. Mollohan. The address I don't know. But the Arlington 
Cemetery, if you log on to the site, it is designated Arlington 
Cemetery. Do we have that?
    Mr. Walsh. Do you have a license for that Arlington 
Cemetery.com?
    Mr. Mollohan. Arlington Cemetery.com.
    Mr. Walsh. This is the private one.
    Mr. Mollohan. Yes.
    Mr. Walsh. That is interesting that someone would grab 
that.
    Mr. Metzler. It is not our official Web site, no. This is 
just a private citizen who has taken this on as an interest.
    Mr. Mollohan. I think there may be some confusion.
    Thank you, Mr. Chairman.
    Mr. Walsh. Mrs. Meek.

                              master plan

    Mrs. Meek. Thank you. Welcome, Dr. Westphal, to your new 
position and thank you for coming back. I think you are 
performing a very essential service that we should not overlook 
as a committee. My constituents and most of them throughout the 
country feel very strongly about cemetery services and what you 
do. So it is very, very important to our committee.
    I think last year, when you came before us, you mentioned 
your master plan----
    Mr. Metzler. Yes, ma'am.
    Mrs. Meek [continuing]. The cemetery master plan. My 
question is how well is it performing and how well do your 
priorities for this year fit into your master plan? Do you see 
it moving as you expected it to do when you put that before us?
    Mr. Westphal. Well, in the master plan, it identified 5 
major challenges, among many others, but 5 major challenges 
that the cemetery had, and interment capacity was at the top of 
the list, visitor accommodation, with dignity, so on and so 
forth at the cemetery, operation and maintenance of an aging 
and somewhat deteriorating infrastructure within the cemetery, 
the preservation of special features preserving the aesthetics, 
preserving the cultural and historic features of the cemetery, 
and the capital requirements, identifying the capital needs of 
the cemetery.
    So those 5 areas are what the master plan identified as 
major challenges. I believe that the budgeting that we are 
proposing to you addresses all of those. We are certainly 
trying to make great advancements in terms of interment 
capacity or expansion plans, and we are working very hard. I 
think the superintendent has done a great job of assuring that 
these other 4 areas get strong attention.
    I think our O&M budget is stronger, and we are doing a very 
good job of keeping up with the other high priorities.

                           work descriptions

    Mrs. Meek. Describe your work for us, for me. What is some 
of the titles of people who work for you?
    Mr. Metzler. In the cemetery right now, our work force is 
divided up into five divisions. We have an administrative 
division, which you typically have your clerks, your cemetery 
representatives, people answering the telephones, helping 
thegeneral public, and you have those who take the funerals out one by 
one to the various locations to conduct the cemetery services.
    Our field operations division is our largest division, and 
there we have mainly blue color workers who are doing the 
actual excavation of the graves, setting up the graves, putting 
up tents, chairs, grave works, as well as preparing the site 
before the service and then after the service closing the site 
up, reinstalling the systems and removing it after the service.
    They also work at the Columnbarium doing the same type of 
work. Instead of excavating graves, they are taking the niche 
covers down and then closing the covers back up. And then also 
within that group we have a ceremonial unit that prepares for 
our over 2700 ceremonies that we have each year. We will clean 
the entire amphitheater site and the grave site, and the 
flowers, keeping the area presentable to visitation, because we 
have so many thousands of visitors coming through each day, 
especially this time of year. It is a heavily----
    Mrs. Meek. It is labor intensive.
    Mr. Metzler. It is a labor intensive operation.
    One other division that we have is the horticulture 
division. We have some specialized people within that division 
that take care of trees, arborists, horticulturists that look 
at the overall grounds, apply pesticide, herbicide, fungicide, 
topical applications. These are highly trained blue collar 
workers, but also we have some technical people within that 
division that have those disciplines as part of the makeup.
    We have a vehicle and equipment operation where we maintain 
our own equipment with the mechanics, services, again blue 
collar type of industry, but we maintain all of our own rolling 
stock so we can continue to operate with whatever challenge 
that we have each day.
    Mrs. Meek. All right, thank you. Thank you.
    Mr. Metzler. Yes, ma'am.

                        responses for the record

    Mr. Westphal. Mr. Chairman, I would just like to volunteer 
to get for the record, for the committee and for Mr. Mollohan, 
some response on two of your questions, the one about the 
delays in burials. I will try to address that for you with some 
better information as to what is going on.
    Mr. Metzler. Also if I may, we are currently--we have even 
asked this question internally within our own operation, we 
started to study this week just to address that very issue is, 
when we get a phone call, we are asking three questions of our 
staffs internally, can we schedule the funeral within 5 days, 
if we can't schedule it within 5 days, what is the specific 
reason and we are capturing that each day. We would be more 
than happy to make a copy of that available within a 30-day 
tracking.
    Mr. Westphal. We will get that for the committee.
    We will also address the Internet site issue as well. We 
will find out what is going on with that and what our options 
are. As Jack mentioned the--it is much like my Web site. I have 
a Web site for my office the Secretary of the Army, and it is 
buried within the Army Web site, so I believe this is the same 
situation we have here.
    Mr. Mollohan. All right.
    Mr. Walsh. All set?
    Mrs. Meek. Yes, thank you.
    Mr. Walsh. Thank you. We will submit questions for the 
record and you are free to go. Thank you very much.
    Mr. Westphal. Thank you very much.
    Mr. Walsh. The hearing will adjourn.
    OFFSET FOLIOS 1907 to 1930/2400 INSERT HERE





                           W I T N E S S E S

                              ----------                              
                                                                   Page
Aylward, James...................................................   593
Brown, Ann.......................................................     1
Corea, Col. A. N.................................................   593
Coronado, Gil....................................................  1081
D`Amours, Norman.................................................   911
Early, Bill......................................................   197
Frampton, G. T., Jr..............................................   473
Gall, M. S.......................................................     1
Gentile, Paul....................................................   953
Gianni, Gaston...................................................   257
Gilbert, Pamela..................................................     1
Hicklin, Linda...................................................  1217
Hill, P. L., Jr..................................................   327
Jones, Maurice...................................................   953
Jordan, Carolyn..................................................   911
Knight, George...................................................   647
Lane, Neal.......................................................  1127
Lazar, Ellen.....................................................   953
Marquis, Dave....................................................   911
Means, Col. D. F.................................................   593
Metzler, J. C., Jr...............................................  1217
Moore, T. H......................................................     1
Nasif, Teresa....................................................   197
Nebeker, F. Q....................................................  1035
Pond, K. S.......................................................   593
Smith, R. D......................................................  1217
Thompson, Dr. Phyllis............................................   327
Warner, Chris....................................................   327
Westphal, Dr. J. W...............................................  1217
Woerner, Gen. F. F...............................................   593
Yolles, Herbert..................................................   911


                               I N D E X

                              ----------                              

                   Consumer Product Safety Commission

                                                                   Page
A New Partnership................................................     4
Applied Research Program.........................................    23
Bunk Beds........................................................ 42,46
Chairman Brown's Statement.......................................     2
Computer Hazard..................................................    32
CPSC Budget Categories...........................................    25
CPSC Jurisdiction of Escalators..................................    41
CPSC Partnerships................................................    44
CPSC Research Role...............................................    24
CPSC Strategic Plan..............................................    33
Escalator Safety.................................................    39
Fast Track Recall Program........................................    31
Fireworks Safety.................................................    40
Furniture Flammability...........................................    28
Imported Products................................................    46
Information Technology Equipment.................................    22
Measuring Progress Toward Goals..................................    39
Opening Statements...............................................     1
Research Budget..................................................    26
Statement by Commissioner Gall...................................    20
Statement by Commissioner Moore..................................    12
Strings on Children's Jackets....................................    45
Use of Additional Funds..........................................    22

                      Consumer Information Center

Audit of Publication Accuracy....................................   203
CIC Web Server...................................................   207
Conclusion.......................................................   208
General Services Administration:
    Relationship to..............................................   205
    Rent Charged by..............................................   207
Information:
    Changes in Acquiring.........................................   204
    Maintaining Current..........................................   205
Medical Privacy and Credit Card Harzards.........................   207
Members' Imprinted Catalogs......................................   207
Opening Statement................................................   197
Other Questions..................................................   208
Publications:
    50-Cent......................................................   206
    Developing...................................................   203
    Sales........................................................   206
Questions from the Chairman......................................   208
Sources of Funding .............................................203,205
User Fees........................................................   205
Web Accesses.....................................................   207
Welcome from Mr. Mollohan........................................   203
Welcome to Consumer Information Center...........................   197

  Officer of Inspector General, Federal Deposit Insurance Corporation

Annual Performance Plan..........................................   302
Audit Plan.......................................................   277
Budget Justification.............................................   290
FDIC Legal Authority.............................................   279
Fiscal Year 2000 Appropriation Request...........................   259
Independence of the OIG..........................................   276
Know Your customer Rule.........................................279,280
Legal Claims.....................................................   278
Online Banks.....................................................   280
Opening Remarks..................................................   257
Questions for the Record.........................................   281
Staffing.........................................................   276
Y2K Issues.......................................................   276

          U.S. Chemical Safety and Hazard Investigation Board

Budget Justification.............................................   429
Chemical Incident Data...........................................   329
Chemical Incident Baseline Study, 1987-1996......................   365
Cooperation From the Chemical Industry...........................   392
Defining the Role of the Agency..................................   395
Establishing a Chemical Incident Database........................   391
Explanation of Chemical Incident Data............................   399
Explanation of Resource Allocation...............................   396
Focus on Issues Identified in Baseline Study.....................   391
From a Start-Up to a Fully-Functional Agency.....................   389
How the CSB is Different from OSHA...............................   394
Incident Investigation Criteria..................................   389
Indirect Costs...................................................   400
Involvement in Counter-Terrorism.................................   400
Letter of Support from Representative George Miller..............   401
Limited Financial and Personnel Resources........................   330
On-Scene Investigation Process and Mission.......................   393
Opening Comments of Mr. Walsh....................................   327
Opening Comments of Mr. Mollohan.................................   327
Oral Testimony of Mr. Hill.......................................   328
Providing Technical Information Assistance.......................   397
Questions Submitted for the Record...............................   404
Recognition and Visibility of the Agency and Its Mission.........   401
Relationship with Emergency Response Personnel...................   395
Relationship with OMB............................................   398
Support from the EPA.............................................   397
The Growth of the Agency.........................................   388
Utilization of Additional Staff..................................   401
Written Testimony................................................   332

                    Council on Environmental Quality

American Heritage Rivers.........................................   505
CEQ Breaking Gridlock............................................   496
CEQ Fiscal Year 2000 Budget......................................   475
CEQ Fiscal Year 2000 Budget......................................   490
CEQ Mission......................................................   477
CEQ Partnership Program..........................................   491
CEQ Problem Solving..............................................   476
Clean Air........................................................   505
Clean Coal Technology............................................   492
Climate Change...................................................   500
CO2 Green House Gases.................................   503
Credit for Early Action..........................................   503
Economy and Environmental Protection.............................   504
Everglades Restoration...........................................   490
Homestead Air Force Base.........................................   498
Kyoto Protocol...................................................   501
NEPA.............................................................   490
NEPA.............................................................   495
Onondaga Lake Clean-up Project...................................   489
Partnership Program..............................................   474
Partnership Program in President's Fiscal Year Budget............   491
President's Fiscal Year 2000 Budget..............................   475
Questions for the Record.........................................   508
Salmon Restoration...............................................   495
Statement of George T. Frampton, Jr..............................   478
Superfund Litigation.............................................   497

                  American Battle Monuments Commission

ABMC Appropriation Request.......................................   625
Cemetery Visit...................................................   603
Maintenance and Engineering......................................   603
Opening Statement................................................   594
Questions for the Record.........................................   605
Questions for the Record:
    Mr. Frelinghuysen............................................   615
    Mr. Hobson...................................................   610
    Ms. Kaptur...................................................   619
World War II Memorial............................................   596
Written Statement................................................   598

                 Neighborhood Reinvestment Corporation

Capacity-Building and Equity Grants..............................   668
Choosing NeighborWorks' Communities...................   661
Default Rates....................................................   680
Detrimental Impact of Uncontrolled Development...................   675
Enterprise Zones and Enterprise Communities......................   664
Expanding Services to Smaller Communities........................   687
Fannie Mae and other Local Collaborations........................   665
Full-Cycle Lending...............................................   682
FY 1998 Results..................................................   653
FY 1999 Appropriation............................................   659
FY 1999 Year To Date.............................................   653
FY 2000 Budget Justification Document............................   694
FY 2000-Looking Ahead............................................   656
Home Ownership Less Costly Than Rental...........................   688
HUD..............................................................   667
Level Funding....................................................   685
Leverage Ratio...................................................   670
Meeting the Needs of Rural Communities...........................   657
Multifamily Initiative...........................................   657
Multifamily Initiative Update....................................   660
Neighborhood Reinvestment Activity In Northwest Ohio.............   676
New NeighborWorks' Organizations......................   669
NHS of Toledo Home Ownership Center..............................   676
NHS of Toledo Merger.............................................   677
New Programs in New Jersey.......................................   684
Obstacles to Homeownership.......................................   678
Occupancy Rates..................................................   691
Opening Summary Statement........................................   648
Private Sector Involvement.......................................   671
Relationships with NeighborWorks' Organizations.......   662
Revolving Loan Funds.............................................   652
Role of NRC in Rural Areas.......................................   673
Springfield, Ohio Developments...................................   687
St. Mary Development Corporation.................................   686
Successful Delinquency Rates.....................................   689
The NeighborWorks' System.............................   651
Training.........................................................   666
Uses of Revolving Loan Fund......................................   659
Welcome to Mr. Knight............................................   647
Witness List.....................................................   693
Written Testimony................................................   650
Y2K Compliance...................................................   692

                  National Credit Union Administration

Access to Liquidity by Small Credit Unions.......................   923
Administration Appropriation Language for CLF....................   944
Authorizing Committee Action on CLF Ceiling......................   938
Budget Justification.............................................   940
Credit Union Y2K Readiness......................................913,915
CLF..............................................................   936
CLF Borrowing Limit and Y2K......................................   938
CLF Financial Condition..........................................   945
CLF Administrative Expenses.....................................914,937
CLF Borrowing Limit..............................................   919
CLF Borrowing Limit and Y2K......................................   938
CLF Reserve Structure.......................................917,920,921
CLF Staffing.....................................................   951
CLF Loan Status..................................................   947
College Student Internship.......................................   935
Community Development Revolving Loan Fund...................913,923,934
Federal Reserve Discount Windows.................................   921
Growth in Credit Union Assets, Members...........................   915
History of CLF Borrowing Limit...................................   922
Member Business Loans............................................   918
NCUA's Funding Request for CLF...................................   912
Need for Increase in CLF Borrowing Limit.........................   925
Office of Inspector General Budget...............................   914
Opening Statements...............................................   911
Problem Credit Unions and Y2K....................................   938
Questions for the Record.........................................   934
Recent CLF Use...................................................   920
Redeposit Structure..............................................   925
Role of CLF.....................................................913,914
Technical Assistance Grants......................................   934
Written Statement of Mr. D'Amours................................   927
Year 2000........................................................   937

           Community Development Financial Institutions Fund

Annual Performance Report for FY 1998............................  1020
Bank Enterprise Award Program....................................   958
Budget Justification.............................................  1004
Capital Funding..................................................   975
Case Studies.....................................................   961
CDFI Authorization...............................................   966
CDFI Programs and Certification..................................   957
Community Development Bank.......................................   968
Credit Unions....................................................   972
Fundamental Existence and Other Initiatives......................   970
FY 2000 Budget Request...........................................   962
The Growth of CDFI...............................................   964
Introductory Remarks by Chairman Walsh...........................   953
Micro Loan.......................................................   966
Oral Opening Statement of Ms. Ellen Lazar........................   953
Performance and Impact...........................................   960
Performance Plan Coordination....................................  1010
Policy and Research..............................................   960
Presidential Awards for Excellence in Microenterprise Development   959
PRIME Act........................................................   963
Questions for the Record.........................................   976
Revised Strategic Plan (FY 1999-2004)............................  1006
Strengthening Communities: Providing Access to Capital...........   956
Strong and Effective Management..................................   955
Surveys..........................................................   960
Working with HUD and SBA.........................................   974
Written Statement of Ms. Ellen Lazar.............................   955
The Year Ahead: FY 2000..........................................   962

                       Court of Veterans Appeals

Average Time to Adjudicate Case..................................  1047
Budget Overview..................................................  1035
Caseload Projections.............................................  1047
Concluding Remarks...............................................  1051
FTE Increase Justification.......................................  1036
Increase in Appeals..............................................  1044
Impact of Additional FTEs on Backlog..........................1048,1050
Impact of Additional Law Clerks..................................  1044
Pro Bono Budget..................................................  1046
Pro Bono Funding.................................................  1049
Questions for the Record.........................................  1052
Rent Budget vs Renovation Cost...................................  1045
Reprogramming Request............................................  1045
Statement of Honorable Frank Q. Nebeker..........................  1038
Y2K Compliance...................................................  1048

                        Selective Service System

Benefits Card....................................................  1095
Budget Justification.............................................  1107
Current Budget Adequate..........................................  1100
Introductory Remarks by Chairman Walsh...........................  1081
Measures of Effectiveness........................................  1098
Oral Statement...................................................  1083
Questions for the Record.........................................  1102
Registration Blitzes.............................................  1093
Registration Rate................................................  1099
Registration Compliance..........................................  1092
Statistical Data.................................................  1097
Written Statement................................................  1083
Y2K Status.......................................................  1097

                Office of Science and Technology Policy

Balanced in R&D..................................................  1143
Basic Science....................................................  1153
Computing Versus Information Technology..........................  1158
Conclusion.......................................................  1159
Coordinating S&T Policy..........................................  1130
Energy Technologies and the Environment..........................  1147
Federal Investment...............................................  1156
Federal Subsidy in Information Technology........................  1157
Functions of OSTP................................................  1128
Incentives for Private Industry..................................  1149
Information Technology Dissemination.............................  1145
Information Technology Initiative................................  1128
Interagency Cooperation..........................................  1150
Interagency Coordination.........................................  1151
Interagency Leadership...........................................  1151
Introductory Remarks by Neal F. Lane, Director...................  1127
Investments in Information Technology............................  1129
Investments in Research and Development (R&D..................1142,1154
National Laboratories............................................  1158
Opening Remarks..................................................  1127
OSTP FY2000 Budget Request.......................................  1175
OSTP Performance Measurement.....................................  1144
Partnerships.....................................................  1148
PCAST Assessment of OSTP Performance.............................  1145
Questions for the Record from the Subcommittee:
    Committee Support of University/Federal Partnership..........  1165
    Detailees to OSTP............................................  1167
    Independent Performance Review...............................  1161
    Interagency Coordination.............................1161,1163,1169
    OSTP Personnel Compensation..................................  1166
    OSTP Personnel Compensation Vacancy Rate.....................  1167
    OSTP/NSTC Staff Accounting...................................  1166
    Rent Increase for FY2000..................................1168,1172
    Scientific and Technical Work Force Diversity................  1165
    University/Federal Partnership...............................  1164
Russian Space Program............................................  1152
Science and Technology (S&T) Enterprise..........................  1150
Summary of Accomplishments (FY 1998).............................  1190
Technology Investments...........................................  1155
University Involvement in Information Technology.................  1146
Women and Minorities in OSTP.....................................  1159
Written Statement of Dr. Neal F. Lane, Director..................  1131

              Cemeterial Expenses, Department of the Army

Accuracy of Press Reports........................................  1225
Acquisition Possibilities........................................  1225
Arlington Cemetery Expansion.....................................  1231
Budget Justification.............................................  1237
Cemeterial Expenses, Army........................................  1217
Cost To Develop..................................................  1225
Equipment........................................................  1236
Expanding Arlington National Cemetery............................  1224
Government Disclaimer............................................  1227
Grave Site Yield.................................................  1224
Grounds Maintenance Contract.....................................  1233
Internet Access..................................................  1230
Maintenance Requirements.........................................  1232
Master Plan......................................................  1227
Opening Statement................................................  1218
Percentage of Delays.............................................  1226
Permanent Employee Reductions....................................  1234
Projected Closure................................................  1225
Rent.............................................................  1236
Responses for the Record.........................................  1229
Scheduling Delays................................................  1230
Size of Expansion Sites..........................................  1224
Summary Statement................................................  1223
Vehicle Replacements.............................................  1235
Visitor Study....................................................  1234
Web Site Access..................................................  1227
Work Descriptions................................................  1225