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


                 DEPARTMENTS OF COMMERCE, JUSTICE, AND

                   STATE, THE JUDICIARY, AND RELATED

                    AGENCIES APPROPRIATIONS FOR 2000

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS
                              FIRST SESSION
                                ________
  SUBCOMMITTEE ON THE DEPARTMENTS OF COMMERCE, JUSTICE, AND STATE, THE 
                    JUDICIARY, AND RELATED AGENCIES

                    HAROLD ROGERS, Kentucky, Chairman
 JIM KOLBE, Arizona                 JOSE E. SERRANO, New York
 CHARLES H. TAYLOR, North Carolina  JULIAN C. DIXON, California
 RALPH REGULA, Ohio                 ALAN B. MOLLOHAN, West Virginia
 TOM LATHAM, Iowa                   LUCILLE ROYBAL-ALLARD, California
 DAN MILLER, Florida
 ZACH WAMP, Tennessee               

 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.

    Jim Kulikowski, Jennifer Miller, Mike Ringler, and Cordia Strom,
                           Subcommittee Staff
                                ________

                                 PART 8

                              THE JUDICIARY
                                                                   Page
 The Supreme Court of the United States...........................    1
 Architect of the Capitol.........................................   59
 The Federal Judiciary and the Administrative Office..............  103
                            RELATED AGENCIES

 Legal Services Corporation.......................................  265
 Small Business Administration....................................  329
 Securities and Exchange Commission...............................  369
 Federal Communications Commission................................  405
 Equal Employment Opportunity Commission..........................  489

                              

                                ________
         Printed for the use of the Committee on Appropriations

                     U.S. GOVERNMENT PRINTING OFFICE
 57-911                     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., Alabama
 ROGER F. WICKER, Mississippi          JAMES E. CLYBURN, South Carolina
 MICHAEL P. FORBES, New York           MAURICE D. HINCHEY, New York
 GEORGE R. NETHERCUTT, Jr., Washington LUCILLE ROYBAL-ALLARD, California
 RANDY ``DUKE'' CUNNINGHAM, California SAM FARR, California
 TODD TIAHRT, Kansas                   JESSE L. JACKSON, Jr., Illinois
 ZACH WAMP, Tennessee                  CAROLYN C. KILPATRICK, Michigan
 TOM LATHAM, Iowa                      ALLEN BOYD, Florida
 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 COMMERCE, JUSTICE, AND STATE, THE JUDICIARY, AND RELATED 
                    AGENCIES APPROPRIATIONS FOR 1999

                              ----------                              

                                         Wednesday, March 10, 1999.

                             SUPREME COURT

                               WITNESSES

HON. DAVID H. SOUTER, ASSOCIATE JUSTICE
HON. CLARENCE THOMAS, ASSOCIATE JUSTICE
JAMES C. DUFF, ADMINISTRATIVE ASSISTANT TO THE CHIEF JUSTICE
DALE E. BOSLEY, MARSHAL
BILL SUTER, CLERK
TONY DONNELLY, DIRECTOR OF BUDGET AND PERSONNEL

                            Opening Remarks

    Mr. Rogers. The Committee will come to order. This 
afternoon we will hear testimony regarding the fiscal year 2000 
budget request of the Supreme Court. We welcome before the 
Subcommittee Justices David Souter and Clarence Thomas. Justice 
Souter has been here, I think, five times before. Justice 
Thomas, this is your first appearance before this Subcommittee 
in this unique process in your position on the Supreme Court, 
although you were here when you were head of the EEOC, I 
recollect.
    Justice Thomas. Just a few times.
    Mr. Rogers. A few years ago.
    First of all, let me offer my deepest condolences to you on 
behalf of the Subcommittee and your colleagues in the Court 
family and to his family on the passing of Justice Harry 
Blackmun who served for 24 years on the Supreme Court. We, too, 
were saddened at his passing, as was the rest of the country.
    Justice Souter. Thank you, Mr. Chairman.
    Mr. Rogers. This hearing is an extraordinary opportunity 
for the Congress to interact with the Supreme Court, the 
highest court of a separate and independent branch working 
within the system of checks and balances envisioned by our 
Founding Fathers. It is unique.
    One of the constitutional bases of our government is that 
no money can be spent from the Treasury except as a result of 
an appropriation enacted into law, to paraphrase Article I, 
Section 9. And that is what leads to your appearance here, and 
we are, of course, pleased to welcome you.
    Our role is to exercise oversight over the expenditure of 
funds, but obviously not over the deliberations of the Court. 
The Supreme Court is the highest court of the independent 
branch of government. That independence, that integrity of the 
judicial process is, of course, a principle of our government 
that this subcommittee holds dear. We know that this hearing 
always sparks some media interest, and we suspect that it has 
more to do with your being here than our being here, and we 
welcome you in that respect as well.
    After hearing from you, we will hear from the Architect of 
the Capitol, who has responsibility for the care of the 
building and grounds of the Supreme Court. We will entertain 
your testimony momentarily.
    Mr. Rogers. Mr. Serrano, any opening comments?
    Mr. Serrano. Thank you, Mr. Chairman. I just want to join 
you and other Members in welcoming these two gentlemen to our 
hearing today. It is not every day that you get to meet with 
members of the Supreme Court, so I stand here in high regard 
for both of you and for the work that you do, and we look 
forward to your testimony and to assisting you in any way that 
we can in making sure that you carry on your deliberations free 
of so many of the other things that always surround these kinds 
of deliberations; i.e., budget considerations and other things. 
So I stand ready to assist you and to work with you in any way 
that I can.
    Mr. Rogers. Mr. Justice Souter, we will make your prepared 
testimony a part of the record, and we would be happy to hear 
any summary remarks you would care to make, and then Justice 
Thomas.

                      Statement of Justice Souter

    Justice Souter. Thank you, Mr. Chairman; thank you all, 
gentlemen. I will do just as my predecessor Justice Kennedy did 
and make the summary a brief one. You have, of course, not only 
the budget, but the introductory remarks that were submitted 
for the record.
    I would note, as you have already done, that with Justice 
Kennedy's retirement from this position, I have succeeded him, 
and I have been succeeded by Justice Thomas. We also have with 
us, as we always do, the people who really make the Court run 
across the street. So if I get stuck on detail, I will be able 
to listen over my shoulder and find out what the answer should 
be.
    With respect to the budgets themselves, of course, as usual 
there is a submission from the Architect for purposes of the 
Supreme Court, and I will leave that to him subject to your 
questions.
    From the Court's side in a strict sense, there is some 
change from prior years. There is a request for funds for 
security purposes, including the supplemental budget for this 
fiscal year to beef up the amount of patrolling that is going 
on across the street, and all of that is in response to last 
summer's events which have affected all the branches of the 
government.
    And then there is also a request this year for four new 
positions. I think in Justice Kennedy's tenure, it was very 
rare that we asked for a position. I can remember one, but 
there weren't very many, and he is probably sitting across the 
street saying, after me, the deluge. But this year we have 
requested four apart from the security requests. They are all 
in the field of technology, two programmer analysts, a library 
technician, and a composition specialist for the publications 
unit. In all respects, we offer the requests feeling somewhat 
captive to technology, and I will leave it to you to get into 
such detail as you see fit there. But those are the major 
points of interest.
    [The information follows:]



    Mr. Rogers. Mr. Justice Thomas.
    Justice Thomas. I have nothing to add, Mr. Chairman.

                         SECURITY SUPPLEMENTAL

    Mr. Rogers. Now, you are currently requesting a fiscal year 
1999 supplemental of $921,000 to hire an additional 36 police 
officers, which is a 42 percent increase in the size of the 
police force. Would you like to explain why the very large 
increase?
    Justice Souter. Well, the reason I will give you is the 
same information I asked for it when I first saw the number, 
and that is that the actual number of positions that the Court 
seeks to add was 13. And the fact that we get from 13 up into 
the thirties is simply a function of the fact that they have 
got to be staffed through three shifts a day and through 
weekends and vacations, and that is what gets up to that 
number.
    The primary emphasis on the new positions is going to be on 
patrolling. I think this is probably true in all three branches 
of the government that there is simply a perceived need for a 
greater overt security presence, and we wish that were not so. 
I personally find it regrettable that the institution across 
the street needs it, but I am also reminded of the fact that a 
week ago Saturday night, about 15 or 20 minutes after I had 
gone out to mail a letter in the mailbox after leaving the 
Court about 6:30, somebody was walking down the street by the 
same letter box and got robbed, and his two assailants got 
caught by a Supreme Court police officer who turned out to be a 
pretty good sprinter. So I felt a little bit less irked by all 
the law enforcement presence around me, and that is the world 
we live in.

                    POLICE PAY AND RETIREMENT PARITY

    Mr. Rogers. Now, in addition to the $2 million required in 
fiscal 2000 to support those additional police that you are 
asking in 1999, the request includes $212,000 for police pay 
parity and $300,000 for radio enhancements. We don't begrudge 
that; in fact, we encourage that. But how do you go about 
determining your security needs?
    Justice Souter. Well, a couple of things on the financial 
side. The benchmark for pay parity is that of the Capitol 
Police. What we have done, what the Chief Justice has done 
under his statutory authority this year, is to get our pay 
scales up to that of the Capitol Police.
    Mr. Rogers. What I meant was how do you determine the 
people that you need for security?
    Justice Souter. I can't give you a formula, but I can give 
you an example of the extremes to which we realize we can no 
longer resort. Up until very recently, the number of patrols 
available at night around the Court, without getting into too 
much detail, was pretty low, and we realize after last summer 
that we simply cannot take those chances anymore. As I said, I 
can't give you the actual formula that our security experts 
have employed to get to the numbers that we have requested. I 
can get them for you, but just in gross terms, we have clearly 
been understaffed in terms of the threat that we have got to 
face today.
    Mr. Rogers. Do you have consultants that are helping you 
with security?
    Justice Souter. Yes.
    Mr. Rogers. Now, you are seeking legislative authority with 
respect to the pension and retirement policies of the police.
    Justice Souter. That is right. I understand there is no 
bill in yet, but we hope there will be.
    Mr. Rogers. Why do you seek that?
    Justice Souter. Once again, it is to bring the Supreme 
Court arrangements up to parity with that of the Capitol 
Police. My best recollection now is that the pension 
arrangements for the Capitol Police are what is actually quite 
standard for a lot of law enforcement, and that is 20 years--a 
payment would be in order after 20 years of service and age 50. 
Ours at the present time, I believe ours runs on a structure of 
30 years, age 55.
    It is, as you well know, a very competitive market right 
now for law enforcement, and quite apart from competition, it 
is a question of basic fairness. Our officers ought to be doing 
as well as their counterparts across the street here. We place 
great demands on them. So the benchmark, in fact, has been the 
benchmark that has been set on this side of the street, in 
which I believe just based on old experience elsewhere is 
probably pretty much standard for law enforcement in this 
country.

                          AUTOMATION POSITIONS

    Mr. Rogers. Now, you are asking an additional four 
positions as well in 2000, four in technological support. The 
rest of the judiciary is requesting essentially no new 
positions except for 11 magistrates for the rest of the Federal 
courts in recognition of the tight fiscal situation, the budget 
caps that we have been trying to operate under. Tell us about 
the priority for those additional four people.
    Justice Souter. What I am going to do, if I may, Mr. 
Chairman, is just give you the rough outline of who these 
people are that we want, and to the extent that you want to get 
into technological detail, you are unfortunately addressing an 
ignoramus. At my right is someone who is not. If you permit, I 
may defer to my brother here before we are done.
    Two of the four positions are described as programmer 
analysts. In fact, our own people wanted four, and the 
budgetary process has cut that down to two. We want to see how 
we can do with two before we ask for more than two. Those 
people are concerned particularly with the development of 
software for the particular requirements of the Court.
    One of the four positions is that of a library technician, 
again who is going to be an expert, we hope, on the software 
and other technological requirements of the library itself; and 
then a fourth one is, as I think I mentioned, for the 
publication unit, a composition specialist using, again, 
electronic equipment.
    I know in prior years we have mentioned that the Court 
itself has been taking on a lot more of its own printing than 
it ever did in the past. We have contracted out the printing on 
the U.S. Reports, which has brought the punctuality of the 
final versions of those reports much closer to an acceptable 
level than it had been before. And we are doing a lot of 
printing within the house itself, including the so-called bench 
opinions, the first things that get released when an opinion is 
announced, and the composition specialist is going to be in aid 
of that effort. That, as I think Justice Kennedy has mentioned 
in prior years, has saved us some money. And so we think the 
composition specialist is going to continue to save us some 
money over what we would be paying if we went outside for it.
    Mr. Rogers. Justice Thomas, anything you would like to add?

                        USE OF MODERN TECHNOLOGY

    Justice Thomas. Just, Mr. Chairman, to underscore that the 
Court is in somewhat of a catch-up mode in the area of 
technology. And at the same time, we have a fairly complicated 
system. We have not only to communicate with each other, but we 
also have to produce our work product in such a format that it 
is capable of being printed in-house.
    We are also in the position of having to edit and to do the 
kind of quality work that could only have been done after a 
decision had been handed down, but now we have to do it before 
a decision is handed down. So we are moving at a much faster 
pace, and, quite frankly, I have been in the position of 
automating an agency, and I think the Court has been rather 
cautious and quite conservative in the manner in which it has 
gone about it. When I was in the Executive Branch, I was fairly 
aggressive about it, but the Court has to be cautious so that 
it does not run the risk of collapsing its entire printing 
system.
    Mr. Rogers. Well, I ask these questions, but I don't mean 
to imply that we are in any way critical of that. In fact, we 
hope that you will modernize and bring your systems into at 
least the 18th century. In fact, this Subcommittee has been the 
one that has been pushing over the last few years the judicial 
center to teleconference and to try to save travel monies by 
using the modern means of communications that exist, and they 
have done a wonderful job of doing just that, so we are in the 
business of promoting and pushing and shoving the people we 
deal with to modernize their communications. Far be it from us 
to tell you what to do, but we like that idea.
    Justice Thomas. If I can give you one example, Mr. 
Chairman, just in the last year or two, it is not that atypical 
for members of the Court to work in various locations. I, for 
example, during the summers work at home and work in the 
evenings at home. One of the difficulties is that you don't 
have your library there that is as extensive as you have at the 
Court, nor do you have the working documents, and I am very 
uncomfortable traveling with those documents.
    One thing that we can do now that we couldn't do then is to 
simply, with an encrypted and secure e-mail system, download 
the draft documents at home, work on those documents, and 
retransmit them. That has taken quite a bit of development. We 
also have available in a laptop form Lexis and Westlaw, and, 
again, the communication is instantaneous. The availability of 
the working documents is instantaneous. So that change itself 
is something that was developed in-house with the assistance 
that you have provided us with.
    Mr. Rogers. Do most of the Justices utilize those machines?
    Justice Thomas. We are sort of at odds, even here, with 
that.
    Justice Souter. Not all of them do.
    Justice Thomas. There are some of us who are proud of being 
Luddites. It was only through the force of time and the shame 
inflicted by my law clerks that I eventually moved over.
    Justice Souter. I am shameless.
    Mr. Rogers. Mr. Serrano.

                           FEDERALIZING CRIME

    Mr. Serrano. Thank you, Mr. Chairman.
    You know, the temptation, to discuss other than budgets 
when you two gentlemen are here is always there, but I will 
refrain from discussing issues. However, there is one that I 
think impacts on budget and on workload, which then could also 
touch on issues, and it is this trend, as put forth very 
recently, February 23, in the Washington Post, where we are 
federalizing more and more crimes all the time. I am tempted to 
ask, of course, what impact that has on local States rights and 
so on, but maybe that is another issue. But what impact may 
that eventually have on the Court, if more and more crimes may 
end up before you? Is that a problem already? Is that something 
that you envision being a problem? How does that go into your 
planning for your workload and for what you need to do your 
job?
    Justice Souter. Well, what you described is part of the 
nightmare, I guess, on our side of the street. The Congress 
cannot, in effect, federalize more crime without increasing the 
size of the judiciary. I mean, at some point it is still true, 
you can't get blood out of a turnip, and there is a limit to 
what your judiciary is going to be able to do if its 
jurisdiction keeps being increased.
    There is no way to look at the issue except in the terms 
that you have alluded to as an issue of not only the size and 
cost of the judiciary, but as an issue of federalism, too. I 
used to be a State court prosecutor, I used to be a State court 
judge, and I know perfectly well that to the extent that the 
Congress federalizes crime that could be prosecuted and has 
traditionally been prosecuted in the States, not only will the 
expense of that prosecution flow on to the Federal side, but 
the governmental responsibility which underlies that 
prosecution is going to flow on to the Federal side, too.
    In fact, the Congress of the United States has what really 
cannot be described in any other terms but as a crucial role in 
federalism. You take away the jurisdiction, and the 
responsibility is going to go with it. It is inevitable given 
the cost of prosecution today. So I don't think any of us can 
look at it as an issue strictly of judiciary size or strictly 
judicial budget size. We have got to look at it as an issue of 
federalism, too.
    The Chief Justice alluded to this in the year-end report 
that he gave. He made it the subject of his speech to the 
American Law Institute last year. There isn't anything new to 
say about it. We have to come back to saying the same things, 
that there has been a concept of federalism which probably can 
be pretty well summed up by saying that what the State courts 
and the State judicial systems can do they ought to do, and 
what the Federal courts and the Federal judicial system ought 
to do are those that the States cannot, those things that the 
States cannot. And if that basic conceptualization is lost 
sight of, then I don't know where we stop in increasing the 
size of the Federal judiciary or increasing the thickness of 
the Federal Criminal Code.
    Mr. Serrano. If you allow me to stay there for a second and 
tread on those careful waters, it seems to me--and I say this 
with all respect to those people involved--that some of the 
folks who support the idea of federalizing more crimes are the 
same folk who also support the idea of a smaller, Federal 
Government. Where do you think that happened? I mean, do you 
think there was a feeling that the local courts were not doing 
the proper thing? Did something break down somewhere that 
created this trend? Because there seems to be a contradiction 
from folks who want a lesser Federal presence in our lives, but 
who are turning crime into a Federal situation where there will 
be a bigger Federal presence.
    Justice Souter. I don't know the answer to that. I know I 
mentioned it in colloquy that I had here a couple of years ago, 
the fact that there is a certain financial gravitational pull 
involved in this phenomenon. There are moments when without any 
question the State systems sigh with relief when they see the 
Federal jurisdiction expanding because they have got to find 
the money somewhere, too, and they are having a tough time 
doing it. But beyond the--let's say beyond the gravitational 
pull of money, I am afraid I can't see the issue as anything 
but the old problem of wanting to have it both ways, and you 
can't.
    Mr. Serrano. Thank you.
    Mr. Rogers. Mr. Latham.

                           JURY NULLIFICATION

    Mr. Latham. Welcome, both of you, here. It is a pleasure 
and honor to have you.
    I just have one question. I think last year we talked 
somewhat about federalizing crimes. However, I understand the 
caseload in the judiciary last year was actually down somewhat 
as far as civil cases.
    Justice Souter. But the criminal is up.
    Mr. Latham. Right. I thought it was interesting that civil 
cases were actually down last year.
    Justice Souter. Please don't ask me why.
    Mr. Latham. No, why is that, please?
    There is kind of a trend towards the doctrine of jury 
nullification in criminal law. If you have seen an increase, I 
would like to hear your thoughts on that. Juries are more 
inclined, I guess, not to enforce the law and render their own 
verdicts. Has that affected you at all, or have you seen more 
cases overturned?
    Justice Souter. I have not. I have not seen more of it. I 
am not an expert on the day-to-day phenomena in the district 
courts, but it is not apparent to us. That, of course, is a 
fact of life and has been since there were juries. I have been 
in situations myself years ago in which I saw some jury 
nullification, and I didn't like it, but prosecutors rarely do. 
But with a somewhat changed perspective from the one I had 25 
years ago, I have to recognize, and we all do, that the fact of 
the jury power to nullify is, I think, one of the conditions of 
the stability of the criminal law in the Anglo-American system. 
It is a price, but it is a price that probably buys a pretty 
good return in the long run of centuries.
    Mr. Latham. You wouldn't say it has had any real impact on 
the increase at all?
    Justice Souter. In any given case it always does. Over the 
system and over time, I am not prepared by any means to condemn 
it, and I do not personally have an experience to indicate that 
the use of that power is somehow changing in a significant way 
today. If it is, it has not gotten to the point where I see it 
yet.
    Mr. Latham. Justice Thomas?
    Justice Thomas. I think I am in the same position. From my 
perspective, we simply couldn't tell.
    Mr. Latham. That is about my brevity.
    Mr. Rogers. You want us to give you a hand?
    Mr. Latham. It is a first.
    Justice Souter. I will.
    Mr. Latham. I think that is all.
    Mr. Rogers. Mr. Dixon has gone to vote. In the meantime, 
Mr. Miller, you are recognized.

               ACCESSIBILITY OF SUPREME COURT INFORMATION

    Mr. Miller. Good afternoon. This is my first year on this 
particular subcommittee, so I find it very interesting.
    I had the opportunity to go to a hearing of the Supreme 
Court last November. It was on the census issue, and I was 
impressed by the tradition that was there that I heard about. 
The question came up about the technology, how high-tech the 
Supreme Court is. I am just curious. Justice Thomas is pushing 
that area of technology and the use of the Internet. How do you 
rate yourself we have got the Thomas system in Congress. The 
day we introduce a bill, it is immediately available on the 
Internet. How far along are you on accessibility to information 
on the Internet?
    Justice Thomas. We are not as far along as we would like to 
be. We are developing a Web site, and there are other sites 
that, of course, are developed that have the opinions almost 
immediately, and we have our own internal Intranet, all of 
which are--well, particularly the Intranet is--even as we work 
on it, we are working with it. It is a matter of further 
developing that and at the same time using it and expanding it 
to other parts of our building.
    But I would not say that we are high-tech yet. We are 
getting there. I think in time you will see a Web site from the 
Court that is up and running. You will also see things that we 
are looking at, filing, scanning briefs on to the Web site, 
having the opinions up immediately. So as information and the 
rest of the society moves more quickly, we will hope to do the 
same thing.
    But I might add that we have the same security concerns 
that other parts of the government and other parts of the 
country have. I saw something that caught my eye this morning. 
I am not a regular paper reader, but this did catch my eye, and 
it had to do with how hackers--there are these packages so that 
amateur hackers can hack into Web sites. I think one point was 
they could simply load in the program, turn their computer on, 
and let the program search around for vulnerable sites. Well, 
we have to be concerned about that before we begin to tie our 
systems or let people have access into our systems.
    Mr. Miller. We have within our system, a security system 
where from my home in Florida, I have to use a special security 
code to get into the system, and I can do that, and we had a 
concern. One thing we find very beneficial in Congress is the 
ready availability on the Internet of public information. When 
a bill is dropped, it is immediately available on the Internet 
through the Library of Congress. The Library of Congress has 
been very helpful in disseminating information and making it 
more accessible.
    I don't know how it is organized within the Supreme Court. 
You have a directory of information system, I guess. But if you 
work with the Library of Congress, we found them very 
worthwhile to work with.
    Justice Souter. On that score I think you are doing all 
right. You can get an opinion from my Court within minutes. I 
have had the experience when we hand-down opinions on a 
nonargument day to come off the bench and go back to my 
chambers and get a phone call from someone I know saying, I 
started reading it; what did you mean on page 5. But it is 
moving fast.
    Mr. Miller. Great, thank you.
    Thank you, Mr. Chairman.
    Mr. Rogers. Mr. Dixon.

                        LAW CLERK HIRING PROCESS

    Mr. Dixon. Thank you very much, Mr. Chairman.
    I certainly join the members of the committee in welcoming 
you, Mr. Justice Souter and Mr. Justice Thomas. I want to raise 
an issue that I hope that you are familiar with. It is based on 
a series of articles that appeared in the USA Today and the Los 
Angeles Times and I think several other newspapers. I certainly 
understand the idea of separation of powers and know that you 
can only speak about this within limits, but I do feel that 
either in the bill that will come up on the floor, or in some 
other vehicle, there will be discussions about the 
representation of women and minorities as it relates to the 
hiring of law clerks. I understand that it is not the Court as 
a whole that does that, but each Justice is responsible for the 
selection of their own law clerks.
    So my first question is, in the general nature is this 
codified somewhere? Are there some Court rules that lay out the 
procedures that are to be followed, or does each Justice have 
within his own discretion the ability to hire whomever they 
want?
    Justice Souter. No, that is an issue that is left strictly 
to each Justice. There is no Court control. Of course, we are 
aware of what the others are doing. We are aware of what the 
pattern is when everybody is finished, but the hiring decision 
criteria and their application are strictly up to each Justice.
    Mr. Dixon. So there is no point of reference as it relates 
to a memorandum of understanding as to how Justices will 
proceed?
    Justice Souter. No, there is not.
    Mr. Dixon. I am wondering if, Justice Souter, you would 
describe to me the process that you use in this process.
    Justice Souter. I think in many respects what I do is 
probably representative of what the others do. In fact, just to 
say up front, I think the only point on which we probably vary 
much is some members of the Court will hire two years in 
advance. Some like me do not hire until the late winter or 
spring before the term, but with the exception of that, I think 
the way we go about it is pretty standard.
    You really can't probably understand the hiring process 
without getting into a little bit of the criteria that we all 
do use. Let me start with the criteria.

                      LAW CLERK SELECTION CRITERIA

    The problem that we have in the clerk selection is the fact 
that the clerks are not--they are not trainees. They have got 
to come on board and basically be ready immediately. There is 
no break-in period. And given the work they do and their roles 
in the research work, you know as well as I, I won't go into 
it, but the need for the very highest of the high caliber is 
just unconditional.
    We therefore have to go through a winnowing process 
vicariously. There is no practical way in the world that we 
could, for example, start at, say, the middle level of law 
school passage and try to identify people in advance that would 
be good prospects. What we have to do is basically rely on the 
law schools and the other courts to make a lot of the cuts for 
us. Nobody can seriously be considered who has not come to the 
very top of the law school classes in the most demanding law 
schools.
    Secondly, no one can be considered, I think, for practical 
purposes today who has not had a Federal clerkship. Some of my 
colleagues--
    Mr. Dixon. I am sorry, I didn't hear.
    Justice Souter. Had a clerkship in one of the other Federal 
courts, the district court or court of appeals. I know that 
some of my colleagues have hired out of the State system in the 
past, and probably there will be occasional exceptions in that 
respect, but particularly the work on cert petitions in our 
Court is such that a clerk has got to come with a familiarity 
with the sort of bread-and-butter Federal statutory work simply 
in order to be off and running in time.
    So there are two levels of distinction. Somebody has got to 
hit the top in law school, and out of the Federal clerkships 
somebody has got to hit the top there, too. We, for example, 
today have in excess of 800 Federal judges in the district and, 
of course, the courts of appeals. Each of them has several law 
clerks. The nine of us will end up with slightly less than 36 
every year. So we have got to rely on the process of selection 
within those two levels.
    There is also a third level of selection, and it is one of 
self-selection. I think my experience is probably 
representative here. I get between--I don't know the exact 
number, but between 2- and 300 applications a year. Well, 
again, bear in mind the number of Federal clerks that there 
are. There is obviously a lot of self-selection going on. It 
goes on in part because I suppose there is no question that 
some clerks realize that they are probably not going to be at 
the top of the eventual heap, and they don't apply. There is, I 
am sorry to say today, an increasing number of people who do 
not apply for clerkships because they don't think they can 
afford to.
    Mr. Dixon. Afford to?
    Justice Souter. A clerkship is not going to make you very 
rich, and these kids are getting out of law school today with 
debts that are appalling by our standards, and a lot of them 
feel they can't afford any years clerking. A lot of them, and I 
know of examples of this from circuits where I have friends, 
will not apply to the Supreme Court because they figure they 
can't take 2 years at the salary.
    So there is a lot of self-selection that goes on there, but 
we all end up, I think it is fair to say, just as I do, through 
that process with about 200 to 300 applications. My first cut 
is made by my own law clerks. They know what I am looking for. 
I have got to have somebody with a demonstrated ability to 
research fast, to write coherently for the drafting work that 
gets done, and I tell the clerks to go through the resumes and 
take the grade transcripts, the accomplishment lists and get me 
the cream from that. They reduce it down depending--I vary from 
year to year. They usually reduce it down to somewhere between 
25 to 50, and then I go through them, and out of the 25 or 50 I 
will probably select about a dozen to interview and hope that I 
can get my four out of the dozen. And as I said, with the 
exception of the timing, which does vary from judge to judge, I 
think that is probably pretty standard.
    Mr. Dixon. Mr. Justice Thomas?
    Justice Thomas. Well, I think I differ just a little. I 
agree with Justice Souter. One of the differences at this level 
is you simply can't take chances, so we tend to be belt-and-
suspenders people on this. I think we all live with the fear 
that we are going to have a clerk one day who doesn't work out, 
and at this level and speed at which we work, we simply can't 
afford a mistake.
    I hire four law clerks, as does Justice Souter. There is a 
vicarious winnowing process, as he so aptly terms it. All of my 
clerks have clerked on the court of appeals. I think it would 
be self-defeating to take a clerk who does not have Federal 
experience when so much of what we do is either codified, or it 
is certainly Federal Constitution and you have to have a 
working knowledge. There is no start-up period. Our clerks come 
on during the summer, and when we come in in September, they 
have to be up and running. There is no window to learn. There 
is no learning curve. There are many of us who when we went to 
law school simply could not that quickly after law school be 
able to run at that pace that quickly. Well, these are the kids 
who are able to do it, and these are the ones we select.
    We may also differ, and again, it depends on the member of 
the Court, on which law schools we look at. I tend to look 
beyond the Ivys on a fairly regular basis. That doesn't always 
show up in the hiring, but the effort is not to limit it to 
certain law schools. But there is nothing we can do about the 
kids who select out of the process for whatever reasons. I 
certainly was selected out by my performance in law school.
    There are individuals with very heavy debt who do not 
apply, and there are some who just aren't interested. It is a 
lot of work and perhaps areas in which they are not interested 
in. And it is 2 years at low income, court of appeals at least, 
and then the Supreme Court at about $41,000, $42,000.
    Beyond that, there is no manual. There is no hiring 
process. I tend to hire 2 years in advance. I finished hiring 
for October term 2000. I also hire clerks who have been out 4, 
5 years, so there is no--some members of the Court hire clerks 
who have just gotten out of law school. I like to mix mine a 
bit.
    Mr. Dixon. I am sorry, Mr. Justice, you hire lawyers that 
have been out of school 4 or 5 years? Is that what you are 
saying?
    Justice Thomas. That is right. It depends on the 
individual. I have one clerk now, for example, who initially 
applied to me in October term 1992, but could not--I had no 
room for him, and I asked him whether he could be with me in 
October term 1998, and he agreed, so here he is. I have clerks 
who have for whatever reason worked a number of years. That 
depends on the member of the Court, and it gives you that 
flexibility. I am more comfortable with clerks who have--some 
of whom went straight through and are younger and others who 
are a little bit older and who have other experiences. But they 
are all uniform in that they are, where there has been class 
rank, in the single digits in class rank.

                    LAW CLERK SELECTION-LAW SCHOOLS

    Mr. Dixon. I recognize and I think several of the USA Today 
articles have pointed out exactly what you are saying--that 
there are a lot of factors involved here. Some young men and 
women opt out on their own and may be very good clerks, but 
they have other goals and desires.
    But let me ask you to comment on what I would call the old 
boy network here. I don't know if these statistics are correct, 
but the article pointed out that those currently on the Court 
have had 394 clerks, and half of those have come from four 
schools. If I were to take your testimony and put it with that 
statistic, it would suggest to me at least that it is only 
these schools that can produce young men and women, ``up and 
running.''
    I know that, Mr. Justice Souter, you are from Harvard, and, 
Mr. Justice Thomas, you are from Yale. Harvard and Yale have 
the two highest number. Of the 394, 92 come from Harvard and 64 
come from Yale. University of Chicago has 47, and Stanford has 
35. That is about half of them. So is the suggestion that only 
those schools can produce the caliber of person that you are 
looking for? Because some of the problem, I think, is the 
school selection part here.
    Justice Souter. I think to answer your question directly, 
no, that isn't the assumption. You will find actually a 
spectrum of belief about that. The Chief Justice, for example, 
said somewhere--I remember reading it. It had gone into print. 
His view was that although schools like Harvard, Yale, Stanford 
and so on are going to be stronger overall simply because of 
the fact that more people want to go there, so their own 
selection is going to be more rarified, he nonetheless believes 
that if you get to the very top of the classes in any major law 
school, you are going to find people who in quality I think he 
used the term are pretty fungible. They are going to be about 
the same.
    I think he is right, and I would add one qualification to 
it, and it is a practical one with me. I have never been over 
this with other members of the Court. You may get a different 
view from Justice Thomas, but my qualification to that is this: 
I not only assume, but I believe that not only in the other 
large law schools out of the ambit of those that give us the 
great bulk of our clerks, but in a lot of smaller law schools, 
too, you will find people who are just as good as the best that 
I have hired. The rub is in finding them.
    Mr. Dixon. In training them?
    Justice Souter. In finding them. I have to work, basically 
we all do, on a probability judgment. Hiring for all of us, as 
Justice Thomas said, is meant to be a risk-free business. We 
cannot afford a mistake. I know that if somebody comes from 
Harvard Law School, Yale, Stanford, Chicago, the ones where I 
tend to have experience in the past and from whose faculty 
members I get a lot of letters, letters that over the years I 
have assessed, I know who to pay attention to, and I know who 
to be a little bit wary of. I can make a sounder, less risky 
judgment than I can make if somebody is coming from a law 
school that I have not had a lot of experience with and whose 
references are from people whom I do not know so well.
    And I think probably you would get universal agreement in 
the Court that if any of us was in a situation where we could 
be absolutely certain of our references from people who knew 
what we have got to have, that we would probably feel 
comfortable in going outside the more well-trodden paths, but 
absent that, I will tell you personally, I am not. I wouldn't 
dare to.

                LAW CLERK SELECTION-WOMEN AND MINORITIES

    Mr. Dixon. Am I correct in assuming your comments are 
directed both to minorities and women? The reason I ask that is 
because it would appear in looking at this, that Justice 
O'Connor has done very well with hiring women as compared to 
any of the other Justices. So is it that she is particularly 
sensitive to looking for women? I mean, of her 68, 29 have been 
women, but the other Justices don't come close to that.
    Justice Souter. I don't know what she does. I don't know 
whether she looks specifically for women on resumes or not. I 
take them as they come. I almost always have one--last year I 
had two women law clerks. To the extent that they are looking 
out for each other, they have got a friend in my chambers, but 
I do not say I want you to give me, you know, x number of women 
within the 25 or whatever it is that you may end up, or 30 or 
40 that you give me.
    And the fact is undeniable that you get a lower 
representation of women in the applicants whom I see than you 
do in the general law school population, and I have batted this 
around with women law clerks, and male law clerks for that 
matter, but the fact is undeniable that it works out that way.
    Mr. Dixon. Well, at least according to this article, in 
1996, 44 percent of the total population of law school 
graduates were women, almost half.
    Justice Souter. Yes.
    Mr. Dixon. There is a Justice--as low as the number of 
minorities African Americans, Latinos and Asians--it would 
appear that that Justice makes an extra effort to find 
qualified minorities. I mean, when I look at this Justice, he 
has hired three African Americans where many have hired none. 
So does he have a particular sensitivity toward this? It is a 
spotty record. Justice O'Connor has hired almost half women. 
This Justice has hired five Asians. Are they putting forth an 
extra effort? Are there clerks that are more sensitive to this, 
because it appears that the first screening would be from the 
existing clerks?
    Justice Souter. I don't know the answer to your question.
    Mr. Dixon. Excuse me, Mr. Chairman. Is this the second 
vote?
    Mr. Rogers. Yes. Five minutes.
    Justice Souter. I don't know the answer to your question. 
There is one variable, and this is undeniable, and this is 
something that I have thought of. The fact is we have--to the 
extent that we have got any numbers, and we don't have them, 
from any systematic study that we have done, but outsiders 
have--the overall representation--taking the Court as a block--
of minorities tends to be about the same representation that 
shows up through the winnowing process, through the law schools 
and the lower Federal courts, so that what we tend to be hiring 
it seems to work out is basically a reflection of the 
proportions in the pool.
    Given that fact, there is one undeniable difference that I 
know my hiring pattern takes. I don't like to hire until 
basically the spring before the term because I not only want 
the courts of appeals to have made a selection, but I want some 
experience in the court of appeals so that I can actually talk 
to a judge and find out how somebody is working out. Given that 
fact----
    Mr. Dixon. Could we put a period there, Justice? I have got 
to go vote, but I want to come back to that on my second round. 
Thank you very much.

                           Perimeter Security

    Mr. Rogers. Now, let me ask you, Mr. Justice Souter, the 
budget request for the care of the building, which is an 
Architect of the Capitol responsibility, but certainly you have 
a deep interest, contains a request for $5.9 million for 
construction of perimeter construction improvements. I don't 
want to get into the details of that here in the public forum, 
but have the Justices agreed on all the details of what those 
perimeter improvements will be, or are you still considering 
some of the options that have been presented by the Architect?
    The reason I ask that is we have got to appropriate here 
pretty soon, and I don't want to do that until we know that the 
members of the Court are through with it. I don't want to start 
something and then have to change it later on.
    Justice Souter. What we have done up to this point is this: 
There are a couple of security proposals that we have 
definitely eliminated, and I am sure you can go into them with 
me or the Architect in a forum that you would be comfortable 
with. There are some that we have approved in principle.
    The reason I put the qualification ``principle'' on there 
is that the package tends to make sense as a package, but not 
in individual parts. We ourselves, the Court itself, is an 
individual part of the larger security picture up here on the 
Hill, and some of what we may ultimately wish to do will depend 
in part on what the Congress may wish to do with its own 
environs and its own grounds. So what we have done is to take 
some interim steps in the direction of being interested and 
approving in principle, but we have not got to the point of 
saying on a come-hell-or-high-water basis, there are things 
that we necessarily have got to have. I think we are moving in 
the same planning direction that probably the Congress is.
    Mr. Rogers. Are you saying you won't decide until we 
decide?
    Justice Souter. On a couple of points, yes. On a couple of 
other points, we simply need more study on sort of the physical 
options for our own building.
    Mr. Rogers. Do you have any notion of when we might be 
informed of the final plan for your security improvements?
    Justice Souter. I am assuming well within this fiscal year. 
I know part of the money that you have alluded to in the 
Architect's budget is for the conclusion of the study of some 
options that we have got before us, and we are assuming that we 
will be able to sugar off on them during the coming fiscal 
year.

                         Building Improvements

    Mr. Rogers. Now, last year we discussed with you a possible 
Court building system modernization plan, to modernize the 
Supreme Court building. At that time we were thinking in terms 
of some $20 million, and we provided $1.5 million for the 
design monies. It is my understanding now that the Architect 
will be presenting options for that modernization project that 
now ranges from $85 to $120 million. Can you tell us the status 
of the Justices' deliberations on that matter?
    Justice Souter. The Court's deliberations as a body have 
not really begun. There is a committee consisting of Justices 
O'Connor, Kennedy and me, who are meeting with the architects 
and their consultants, and we in due course sometime in the 
course of the next year are going to be going back to the Court 
with recommendations.
    The inflation of the figure came as much as, I think you 
probably know--as much as a surprise to us as it has to you. 
There is no question that one reason the figure has turned out 
to be a lot higher than we thought is that there are some yet 
longer-range structural security issues that the Court has got 
to face now that no one was expecting it was going to have to 
face 5 years ago, and that accounts at least for the 
possibility of some of the--possibility inherent of some of 
that upward spiraling of the figures.
    Mr. Rogers. When do you anticipate that the Justices would 
come to a conclusion on the project that would be recommended 
then to the Architect?
    Justice Souter. I am going to give you a guess because that 
is all it is. My guess is it is going to be next fall.
    Mr. Rogers. This coming fall?
    Justice Souter. Yes.
    Mr. Rogers. Well, we will get into this more with the 
Architect in a minute, but there has been, as you suggest, a 
very drastic change in the scope of the proposal. First, 2 
years ago when it was first proposed or presented, it was a $7 
million project, and then last year it was described as a $20 
million project dealing with modernization of the mechanical 
systems, but now apparently plans are being put together for 
$120 million renovation of the entire building. I wonder how 
did it evolve from a fairly modest project to one of some size?
    Justice Souter. I think there are only two things that you 
can say. The high figure that you have mentioned is high--as I 
understand it, is a high figure on the outside range of what 
some independent consultants have come in and said you ought to 
think about doing.
    Mr. Rogers. Sometimes those high ranges become the norm.
    Justice Souter. I don't think this one is going to. The 
Court wants to get a lower figure rather than a higher figure. 
I say I can't speak for the Court yet. I can on that score 
because we have talked about numbers.
    The second reason for a change in the numbers is the one I 
alluded to a moment ago. We are at least being told to consider 
some structural alternatives for Court security, that no one 
was dreaming about 2 years ago, and I don't know where we are 
going to come out on that.
    Mr. Rogers. Well, as I say, we will have a chance to hear 
from the Architect this afternoon on that as well as other 
things.
    Now let me get back to one of your favorite topics and that 
is----
    Justice Souter. What could it be?
    Mr. Dixon [continuing]. Diversity of the Court.

                      TELEVISING COURT PROCEEDINGS

    Mr. Rogers. Well, diversity, but also televising court 
proceedings.
    Justice Souter. I am still a Luddite.
    Mr. Rogers. But there has been a sea change at the Court. 
We do understand that live broadcasts, as you alluded to a 
moment ago, announcement of opinions are now being relayed to 
the Public Information Office. That is a first for 
representatives of the public to be able to have access to an 
audio feed. Is that a first in terms of opening up the Court to 
coverage by modern technology of other sorts?
    Justice Souter. That is as modern as it is going to get, 
Mr. Chairman, if my view prevails.
    Mr. Rogers. Mr. Justice Thomas, do you have a different 
opinion?
    Justice Thomas. I don't have a much different view. I read 
the testimony from prior years on this, and I think Justice 
Souter is close to reflecting my views. I just simply don't 
think that our process will be enhanced by it. In fact, I think 
it would be compromised.
    Mr. Rogers. Are either one of you or both of you using as a 
yardstick for your opinions about whether or not television 
sometimes tends to bring out the ham in people, are you using 
the Congress as a possible example of that?
    Justice Souter. Far be it from us to use----
    Mr. Serrano. Or anything that happened in the last couple 
of months?
    Justice Souter. No. You know, the yardstick that I have 
used is in part--let's bear in mind that we are talking--as a 
general proposition we are talking about trial courts as well 
as appellate courts, so there is no question that part of the 
yardstick does involve some experience in what happens when 
trials get broadcast, but confining the thinking strictly to an 
appellate court and strictly to ours, if you will, my yardstick 
was partly forged by some experience that I know I have 
described to you in the past and seeing how it works in an 
appellate court.
    To me at least, the principal drawback is not the 
temptation to ham up, but the temptation to tailor what can 
sometimes be an extremely vigorous process, dialectical 
process, by fear of how it is going to sound and turn out if it 
is excerpted. And I think I have described to you the 
experience that I had in the past of simply not going as far as 
I wanted to go with certain lines of questioning because I knew 
what the effect was going to be if I did it.
    And my yardstick is also formed by a perception which I 
have from--which I believe is a very fair one, and that is the 
courts are not, under our system, reporting to a constituency 
in the way that the political branches by definition are doing, 
and I find it a positive value that the courts do not utilize a 
process of familiarization which basically would tend to give 
the impression that it was much more of a political institution 
than it ought to be. And I have heard the argument that the 
very fact that the Congress has led an example here should be 
an example to us, and that is a premise that I don't accept for 
that reason in principle. But that is where my thinking comes 
from.
    Mr. Rogers. You have the same feeling about live radio 
broadcasts?
    Justice Souter. Yes, I think, for live radio broadcasts 
from the Court. As you know, we have talked about this in the 
past. The tapes are made of the arguments, and they are, I 
think, released for all purposes to anybody who wants to listen 
to them at the end of the term, but that very salutary time 
lag, I think, makes a difference in the significance of the 
taping and the ultimate accessibility to Court.
    Mr. Rogers. You might be interested to read in the Kentucky 
Law Journal of 1962 an article written by yours truly, the 
title of which was Cameras, Courts, and Confusion.
    Justice Souter. Sounds like a good title.

                       U.S. SENTENCING COMMISSION

    Mr. Rogers. As you know, the U.S. Sentencing Commission 
currently has no Commissioners. The terms of all Commissioners 
expired last fall, and no nominations for new Commissioners, 
let alone confirmations, have taken place. Is that a serious 
situation for the Federal criminal justice system?
    Justice Souter. It is generally, and it is going to have 
its impact on my own Court. The staff, of course, of the 
Sentencing Commission has gone on with its work, but the 
Commission can take no initiative at all. The way it will 
impact on the--let's say there are two impacts, one of which 
will be particularly felt, in particularly felt, in my Court.
    The truth is in the sentencing guidelines, there is a 
constant experiment going on, and that experiment calls for 
midcourse or in-course adjustments from time to time. The 
object of the adjustment is what we popularly refer to rightly 
as justice. The people who can make those course changes don't 
exist right now.
    There is a practical effect on the people who come before 
the Courts for sentencing, and it is a regrettable one. The 
impact on the Supreme Court is simply this: Up to this point, 
the Supreme Court has tended not to take under discretionary 
review cases that come to us out of the circuits on issues that 
involve the interpretation of the sentencing guidelines. 
Circuit one may read the guideline one way; circuit two another 
way. We have tended not to take those cases on our jurisdiction 
because of the fact the Commission is there to make the choices 
for us, and the truth is we are probably going to get a better 
sentencing system if those choices between the interpretation 
that circuit one and circuit two put on them are made not 
merely as it were on a lawyer's reading of which one is coming 
up with the best interpretation of an existing guideline, but 
with the quasilegislative objective of seeing what the 
guideline ought to be in a perfect world in the light of the 
experience we have had.
    Well, that is the best way to solve the problem of circuit 
conflicts. If the Commission, in effect, remains out of 
existence the way it is, the Court or my Court is going to have 
to start taking circuit conflicts on some guideline issues, and 
the truth is we are not the best agency to be doing it. The 
Commission can do a better job at this simply because its 
purview is broader than ours can possibly be, so one hopes that 
a year from now we will have seen a sea change in this 
situation.
    Mr. Rogers. Mr. Justice Thomas, any thoughts?
    Justice Thomas. I think that is reflective of my views. We 
do tend to allow some of the very intricate workings of the 
sentencing guidelines to be worked out by the Commission. Its 
absence is a problem in that respect. We simply do not immerse 
ourselves in the guidelines on a regular basis. From time to 
time we do, of course. And the Commission is more equipped, as 
Justice Souter has indicated, to make sure that the guidelines 
reflect the intentions of Congress at this point.
    Mr. Rogers. Mr. Serrano?

                law Clerk Selection Women and Minorities

    Mr. Serrano. Thank you, Mr. Chairman.
    Gentlemen, Mr. Rogers and I along, with the other members 
of this committee, and in my case with the very important 
support of Mr. Dixon, have to take this bill to the House 
floor, this whole bill, and defend it and get it through to 
support everybody that we feel has to be supported.
    Let's make two assumptions here. If Mr. Dixon's figures are 
correct, and I assume they are, and if we reach those figures 
based on your desire to hire people, if I may paraphrase, who 
are up and ready to go, if that assumption is also correct, and 
I imagine it is, it still gives us a situation where this year 
we may see Members of Congress discussing strongly on the floor 
the issue of the lack of minority representation in the 
positions we have discussed. Keep in mind that you are hearing 
this from a Member of Congress who is still waiting for the 
first Hispanic on the Supreme Court, so I understand this issue 
well. I need to be prepared to deal with this in defense of the 
bill. That is the role I play as a Ranking Member.
    I also understand I am talking to the one entity, if you 
will, that comes before us that above any other entity should 
be free of any political pressure. But lately in this country, 
we have gone after entities that usually were supposed to be 
free of some pressures, and so some people on the floor may 
bring this subject up.
    So my question to you is, assumption one is that Mr. 
Dixon's figures are correct, assumption two is that these 
figures were reached by doing what is best for the Court. When 
you look at this, do you see something wrong with it? And is 
there a way that we can begin to approach it--if the political 
process assigns members to the Court, then why shouldn't there 
be some consideration of the political needs of all communities 
in making the Court staff look more like the rest of the 
Nation?
    Mr. Rogers. Would the gentleman yield on that?
    Mr. Serrano. Yes.
    Mr. Rogers. Is the question should we have a quota?
    Mr. Serrano. No, Mr. Chairman, the question is should we 
have fairness, and a quota has never been in place of fairness. 
A quota has been a word that some people have used when they 
are needed to deal away from the issue of fairness.
    We do have fairness at times. People understood the need to 
have a woman on the Supreme Court. There is a clamoring in the 
country at times to have a Hispanic on the Supreme Court. There 
is nothing wrong with that, and if the idea is then to have 
individuals working within the Supreme Court, in view of what I 
know is coming as an argument on the floor, I just need to know 
from the Justices if they feel the picture as it appears now--
if there is something wrong with that picture--and is there 
something that we can do.
    So in answer to your question, we don't support quotas on 
this side, but we do support fairness.
    Justice Souter. I think the answer to the question, is 
something wrong with the picture, there is something incomplete 
with the picture. There is, so far as I know, no minority that 
has not clerked on the Supreme Court of the United States. 
Someone told me the other day that we may not have had an 
American Indian. I don't know where that figure came from, but 
that point came from, but that may be true. But the fact is 
there has been, so far as I know, no part of the ethnic or the 
racial spectrum that has not found its way into clerkships over 
the years.
    There has been no inkling that anyone on the present Court 
is engaging in either racial or ethnic discrimination. I will 
personally attest to my belief that no one is. The question, 
without using the word ``quota,'' therefore, is not should 
minorities--and I will include women as well as racial and 
ethnic--should the minorities be represented in the spectrum 
that one finds among the clerkships? The answer is obviously 
yes. The question is simply what are the numbers, and how 
should the numbers change?
    The assumption of my rephrasing is that they ought to 
change. It is fair to say that there is no one on the Supreme 
Court today who would not like those numbers to change. The 
question is, I guess, then, the best way to go about changing 
them. If we were in a position to walk into law schools or for 
that matter, I suppose, to walk into conclaves of clerks in the 
other Federal courts and start recruiting, that would be the 
way to do it. The trouble is that there is no practical way to 
do that. This process of selection that goes on in the law 
schools and in the Courts is something to which I will say we 
are captive not in the sense that I necessarily regret it, but 
in the sense that it has consequences for us sometimes that we 
don't like.

                 Change in the Law Clerk Feeder Process

    What I would ask, and what we have asked amongst ourselves 
in discussion this year, is are we going to start seeing 
pressures for change in the process that feeds these people to 
us? I will give you a better answer to that question probably a 
year from now or 2 years from now, but it is inconceivable to 
me that we are not going to see that.
    I know personally of a couple of instances of law school 
professors who have told colleagues of mine that they are 
simply going to push the minority high-achievers in ways that 
they have not done before. I think the assumption has been 
throughout much of the system that everybody understands how 
you get to that point of being the cream of the cream, that 
everybody will naturally want to get there, and nature will 
take its course. Well, I know there are people in the law 
schools today who are saying, we have got to shove a little.
    I think shoving, if I know of a couple of instances of it, 
there are a lot more instances of it out there in the country, 
and I have no doubt that that shoving is going to take place, 
and that it is going to show up, and it is going to show up in 
the pool of people from whom we do our hiring. And I don't know 
of a better practical way for it to happen than essentially for 
it to happen that way.
    Mr. Serrano. Well, Mr. Chairman, certainly at this point of 
this conversation, and I suspect that this will become a 
conversation as we go to the floor later on, I am encouraged by 
your statement that you don't know of anyone on the Court who 
wouldn't want to change those numbers.
    And it is certainly not, Mr. Chairman, an issue of quotas, 
but I must tell you there are ways to deal with that. If you 
were to ask me, ``I need to hire someone who speaks Spanish and 
English, who is bilingual, should I go to the center of 
Manhattan to look for that person, or should I go to East 
Harlem or the South Bronx?'' it would not be a quota statement 
if I told you you are better off going to the South Bronx or to 
East L.A. to find that person.
    So perhaps it is not that the Court hasn't tried to find 
some people, it is that the Court has been looking in the wrong 
places, and I assure you, I am sure, the same people who now 
promote candidates would be able to promote excellent minority 
candidates.
    Justice Thomas. May I add a word there?
    Mr. Serrano. Yes.

                    Law Clerk Selection--Law Schools

    Justice Thomas. I think there is just still a bit of 
misunderstanding about how we hire clerks. We don't look 
anyplace, and that is the point. We are not like an employer 
who recruits, who sends out representatives, as Justice Souter 
suggested. We just don't do that. We are passive in that 
process. We look at what comes to us, and the point that we are 
making is that it is some self-selection who applies.
    There is some, I think the word that was used earlier, 
suggestion that there is an old boy network. Well, I am not an 
old boy, and I am not part of that network. You look at people 
whose words you trust, and you look at indicators of 
performance, again recognizing that we simply can't make a 
mistake.
    Now, I perhaps differ. I am more in the line of the Chief. 
There are some adjustments you can make. I don't hire 
exclusively from the Ivys. Even though I went to Yale school, I 
am not particularly enamored of clerks only from those Ivy 
League institutions. The clerks this year I have are from 
Chicago, which was on your list, and again, those schools you 
named are among the creme de la creme of the law school. They 
are the most exclusive, they are the hardest to get into, and 
they tend to have a collection of the best students. But again, 
even from those, we only hire from the top. I have one clerk 
from Yale Law School. I have one from the University of Texas 
and one from the University of Virginia. In fact, the one black 
clerk I have was also from the University of Virginia and was 
an outstanding achiever there and at the Court. The following 
year I have one from NYU at the top of the class; one from 
Texas; I think two from Chicago. The following year I have one 
from KU, one from Chicago, one from Harvard. I can't remember 
where the fourth is from. I may have those mixed up a little. 
But I do have the opportunity to change the schools, the 
institutions, and to take recommendations.
    There are people in night law school who are brilliant, but 
as Justice Souter said, how do you know that, because the 
tendency would be to go to the safe spot. You would say go to 
South Bronx if you want a certain person speaking a certain 
kind of Spanish, et cetera. Well, I do think you can make that 
as particularly on--I think for me, I think I can make that 
change, and I do like people from diverse backgrounds, but I 
don't do it at the expense of performance.
    And one question that is never asked in this discussion is 
there are some institutions that are required to prepare these 
kids. No questions are ever asked of them, in 3 years why is it 
you haven't prepared any minorities to be at the top of the 
class, or why aren't any pushed in the selection process. There 
are 8-, almost 900 judges in this country who are Federal 
judges, they are State court judges, magistrate judges. What 
are you doing to include them in that process? There are 36 
slots at the Court. No one is talking about the hundreds 
elsewhere.
    So we are looking--I am willing to look at different law 
schools; again, high level of performance and recommendations.
    You also look for, as Justice Souter did not touch on, 
people with whom you can work. There is no need to have someone 
there with whom you are going to be in tension, antagonistic. 
You don't choose friends that way. You choose friends to work 
with. These are our friends for a year and then perhaps for 
life, as was evidenced yesterday at Justice Blackmun's memorial 
service. You become friends. These are your kids. These are 
people who debate with and you get to know and who do very 
sensitive work for you. So there is a high level of trust 
there.
    I am willing to say that virtually all of the 
considerations, the law school, perhaps the individuals from 
whom we receive recommendations, the place these kids are from, 
the parts of the country, all of those are up for grabs. The 
one thing that is not are the indicators of performance. You 
simply cannot risk that, and that is a question, that is a part 
of the equation that is not provided by us. That is a done 
deal, and it is a done deal before they get to us, but it is a 
sine qua non if they are going to come to us, and there cannot 
be a variable.
    And it seems that oftentimes, and it is a little bit, I 
think, offensive in some of the discussion, that if you--I can 
hire Asian clerks, and they are at the top of their class. I 
hire women clerks. They are at the top of their class. I have 
got a young woman coming in from Texas. I think she was number 
one in her class. But the suggestion seems to be implicit there 
that, well, if you go to a black clerk, that person doesn't 
need to be there. And I am not saying that that is suggested 
here.
    Mr. Dixon. I am glad you said that.
    Justice Thomas. I am not suggesting that you are suggesting 
that here. You have been very fair, and I am just simply saying 
that the other things are variables, but that can't be, and I 
don't think that the clerk or the member of the Court would be 
very comfortable if that were. But I do think that, as Justice 
Souter recommended, that this matter, there isn't a single 
member of the Court--I would love to see the day when I have 
just under these requirements four minority clerks who can hold 
their heads proudly and high around that Court and say that I 
am here under the same criteria, doing the same job, and I am 
just as good as anybody else here. It is under those 
circumstances, and I think any member of the Court would be 
proud of that.
    Mr. Rogers. Mr. Dixon?

               LAW CLERK SELECTION--WOMEN AND MINORITIES

    Mr. Dixon. I want to thank the Ranking Member for laying 
out the picture that in our world we will have to deal with 
this issue, as I am sure you understand, as I understand, the 
independence of the Court.
    My strong belief, which may not be relevant at all, is that 
it is not exclusively a matter of race. There are obstacles 
that come along the way that inhibit a person of color or a 
woman, and when you have traditionally selected out of four 
schools, it is very difficult to include people of color.
    If I look at the whole picture, none of us can ignore that 
white males have predominated in society over a long period of 
time, sometimes justified and sometimes not justified. And so 
when we look at statistics, it raises an issue.
    The Chairman raised the issue of whether it was a quota or 
not. The suspicion is that there is a quota, a quota to keep 
out Asians, blacks, and Hispanics. So there is a suspicion of 
that.
    And, Justice Souter, I really liked what you said there, 
and I think that without some probing by the press and the 
NAACP and other organizations, there has been no reason to 
believe that this would have ever been a concern of the Court. 
I have been on this panel for 6 years, I believe, and neither 
Justice Souter nor Justice Kennedy have ever raised this issue 
that we are looking at ways to involve more women, more 
minorities. Until we push, it is the only time that it gets on 
the scope, and so that is the reason for raising it.
    I would call your attention to--you may or may not have 
seen this--Justice Rehnquist wrote a letter to three Members of 
Congress and to the NAACP. The only reason I raise it with you 
is because he says he has discussed this with you. ``As the 
demographic makeup of this pool changes, it seems entirely 
likely that the underrepresentation of minorities to which you 
refer in your letter will also change.'' I don't know what that 
means. If there are more blacks or Hispanics going to law 
school? When I look at the numbers, not unless they are going 
to the University of Chicago or Harvard or Yale.
    And so this letter concerned me because it seemed it was a 
recitation of the independence of the Court and was kind of a 
stiff-arm when it ended with that and you look at the 
statistics of where you come from. So I don't think it is your 
fault personally, I think there are barriers put up that occur 
long before it ever gets to a Justice of the Supreme Court.
    Class is one thing. A minority that gets through Harvard 
Law Review who doesn't have the pedigree, or the background, or 
the inheritance from his grandfather, or is not an 
institutional person, so he cannot dedicate himself immediately 
to public service. He wants to go to the firm that is going to 
make him the best offer. Now, that is not the Court's fault. 
But it does seem to me without a push by someone, and the 
Ranking Member said it well, that this is an issue that is 
going to be dealt with on the floor of the House, and so it was 
for those reasons that I have raised this particular issue.
    And I see Justice--Mr. Justice Thomas shaking his head. We 
may disagree on a lot of things, but we are both black, and we 
both understand that. We may have a different perspective on 
it.
    The second thing, I was very pleased to see Justice Thomas 
suggest that he is looking at perhaps a little bit different 
method of selecting. He has selected someone who has been out 
of law school, who has maybe had a chance to demonstrate 
himself somewhat, as I believe you said that this person had 
been out. And so I would just encourage, nothing about quotas, 
to start looking at some alternative methods of selecting some 
of these people.
    The last thing is that if Chief Justice Rehnquist had just 
said that he was going to``cc'' or talk to the feeder system 
about this, and finally when I raised the issue, everyone made 
the point that these people have to hit the ground running. The 
inference clearly to me was that minorities and sometimes women 
can't hit the ground running; otherwise why raise that issue.
    I am not talking about people in the middle of their class. 
I am not talking about some unqualified person, but when the 
first thing you say is they have got to hit the ground running, 
and I am asking you about minorities and women, I think it is 
fair to draw the inference that women and minorities cannot hit 
the ground running.
    And finally, Mr. Chairman, as we look at this record, which 
I don't think is good, it is clear to me that certain Justices 
for either their sex, Justice O'Connor, or in the case of 
another Justice must have reached out, because their record 
pops out, 28 out of 35 women. She was looking for women. And 
the other Justice had three African Americans. He must have 
been looking for people that can hit the ground running, and he 
found them.
    And so I just want this to be a healthy conversation 
because, as Mr. Serrano says, this issue is going to hit the 
floor, and we have moved past this in our society for example 
with the Intelligence Community, which is sacred and very 
valuable to our country; even to the Supreme Court. We just 
can't stiff anymore and say the independence of the Court. I 
don't want to intrude on that. But just as things are rapidly 
changing in our society, as attitudes towards institutions 
change, we have got to talk about these things sometime. I will 
give you any response, Justice, that you would like.

                 CHANGE IN THE LAW CLERK FEEDER PROCESS

    Justice Souter. There are a couple of things. One is the 
matter of the implication that you raised. The implication of 
hitting the ground running was a preface to my discussion of 
the fact that we are creatures of our feeder systems, and as a 
practical matter, what we can take is what we get from there, 
and our safety in selection is a safety for which we have to 
look to the feeder systems. That was the point that I was 
leading up to.
    Mr. Dixon. The point that I raised about that, if the Chief 
Justice could have said, we are going to talk to the circuit 
judges about this. I mean, there obviously is a give and take. 
There is a Federal judge out there in Virginia that had 20 
clerks go onto the Supreme Court. There must be some dialogue 
that goes on; this person I have identified, Hal Rogers, he is 
one of the best, I would like to recommend him to you. There is 
that give and take if someone would reach out a little bit. 
That is my response.
    Mr. Rogers. I want us to continue the conversation as long 
as necessary. I would point out we do have the Architect of the 
Capitol hearing after this one.
    Mr. Dixon. I understand that. I am through after this, and 
I will shut up. Mr. Justice.
    Justice Souter. I will be brief.
    The second thing is something which has already come up, 
but I think it is worth underlining, underscoring, and that is 
I have been on this Court for, well, going on 9 years now, and 
the conversations about what it is practical for us to do have 
been going on for as long as I have been on that Court. They 
have gone on between me and my clerks in prior years.
    I know I have had--I can think of specific conversations, 
for example, with some of my women clerks. I would say to them, 
why don't I see more of you? And that has without any question 
ultimately led in the case of a number of my colleagues with 
close law school contacts back to conversations with the people 
in the law schools from which, as I said a moment ago, I think 
we are going to see the fruits of some pushing, because there 
is pushing being done today which without doubt was not being 
done when I first came on the Court.
    When I first came on the Court, the law schools, including 
the ones from which I do the bulk of my hiring, probably had--I 
don't know the statistics--but they probably had excellent 
records so far as their class composition was concerned in 
recruiting minorities into the classes. What I think was not 
going on then, and what I think we will see in the future is 
the pushing of the people who are doing well when they got 
there into the pipeline which ultimately gets to us, and that I 
think unquestionably we are going to see.
    Oh, and one last thing. This is irrelevant. I think it is 
irrelevant to the minority question, but Justice Thomas, I 
don't want to take any credit away from him, he is not the only 
one who hires old-timers. I have had a couple of them myself, 
and a couple of years out of law school can make a real 
difference in what you get. So I guess there are some who 
don't, but that is happening.
    Mr. Dixon. Justice Thomas, I will give you the last word. I 
apologize for ``the old boy network.'' It was inappropriate, 
because what I wanted to say is the old school network, and you 
are part of the old school.
    Justice Thomas. I knew what you were trying to get at. I 
really appreciate the manner in which you handled this in a way 
that we can do something about it. I think that is sometimes 
unfortunate that we don't.
    When I was in law school, I knew nothing about clerkships. 
I didn't know how they were gotten. It was a foreign land. I 
understand exactly what you are saying about that. And there is 
so much that can be done about that. That process at the law 
schools also is informal. It is not just minority clerks who 
don't necessarily know. There is sort of a--it is almost 
secretive in some instances.
    Mr. Dixon. A cultural thing.
    Justice Thomas. I understand that.
    I do want to make this point. I do think that the Chief 
Justice and my colleagues on the Court, I stand in defense of 
them on this issue. There is not a person at that Court who 
would not want to change this, but again, I know that we have 
had a generally passive process. You do work--if we have a 
fault, it is that we are quiet about it. Everything is 
informal. It is a phone call. It is talking to people whose 
word you trust, friends you have at law school. That is the way 
we hire clerks, and that is the way we send messages back the 
other way.
    Mr. Dixon. And you and I have been exposed to that all of 
our life. We don't know how it happened, but it happened. As 
you said, it was a phone call or something else that went on.
    Justice Thomas. One of the things that I had suggested 
early on in these discussions was that people be informed about 
that, but it seems to go by the wayside. There is work that can 
be done at every level, but I do have to stand in defense of 
the Chief Justice. By the demographics, he meant the 
demographics of the very pool from which we select clerks, the 
kids from the Courts of Appeals that Justice Souter talked 
about earlier.
    And Justice Souter also made the point that our hiring rate 
reflects the representation in that pool, and his point was 
because there is a relationship between our hiring and that 
pool, that as that pool--the demographics of that pool changes, 
so will our hiring rates, because it is reflective not of the 
law school admissions process or the law school attendance 
process, but the Courts of Appeals pool and the individuals who 
apply to us.
    The final point, there are many of us who prefer kids from 
modest backgrounds. All of my clerks this year are from modest 
backgrounds. I particularly have a preference, if there is one 
preference I have, are kids who perform against the odds, these 
obstacles that you were talking about, because you can have--as 
you and I both know, and there is some discussion about it 
these days, every member of our race isn't from a modest 
background. My preference even there is for the modest 
background.
    And a final point as I reiterate that I must stand in 
defense of my colleagues because I do believe that they would 
love to see more minorities at the Supreme Court in every 
capacity.
    Mr. Dixon. I thank you, Mr. Chairman, for your indulgence. 
This is a very important issue to many of us.
    Mr. Rogers. I understand. I appreciate your bringing it up.
    We do have the Architect of the Capitol waiting, and we are 
seriously out of time here. I don't want you to leave without 
us bringing up another of your favorite topics, and that is the 
ninth circuit. And I am not picking on you.
    Mr. Dixon. Judge Reinhart I bet has some good scholars for 
you.
    Justice Souter. I have had one.
    Mr. Dixon. Have you?
    Justice Souter. You bet.
    Justice Thomas. I haven't.
    Mr. Dixon. I am surprised Justice Souter has.

          NINTH CIRCUIT COURT OF APPEALS--HABEAS CORPUS COSTS

    Mr. Rogers. I want to ask you about the ninth circuit. We 
have got a serious problem. You have got a serious problem. The 
ninth circuit is out of whack in so many different ways, but I 
am only going to point out one of them: Habeas corpus, capital 
habeas corpus cases and other habeas corpus cases in general.
    Eighty percent of the costs of cases, habeas corpus capital 
cases, are composed of attorneys' fees for time spent out of 
court. The cost of cases in the ninth circuit is four times 
greater than the cost of cases in all other circuits. Average 
cost in the ninth is $289,000 per case compared to $62,000 for 
all other circuits combined. The average cost of California 
costs is more than $370,000 compared to about $70,000 for non-
California cases. The median cost of California cases is 
$307,000, compared to the median cost of non-California cases 
of $48,500. The combined impact of the sheer number and high 
average cost of California cases--California cases have 
generated more than 57 percent of the total CJA panel 
attorneys' payments in the last 6 years. Almost 2 out of $3 go 
to California, and all the rest of the country gets 43 percent.
    Is there some magic that I am missing here? Do you have a 
thought about this, either of you?
    Justice Souter. I really don't have a thought. I knew 
nothing about these figures before coming here today, and I 
have no intelligence that I can offer on it. The place that one 
would begin to look, I suppose, if one were looking at factors 
that would be totally neutral would, of course, be in the case 
composition, and we do realize that the increase in the 
criminal filings in the Federal courts this year have included 
a significant increase in criminal matters involving the 
immigration laws.
    But, you know, it is one of those points that one has in 
mind when one starts looking to try to get an answer to what 
you are describing. And beyond that, I don't have a thought. I 
don't know how to explain what you have described.
    Mr. Rogers. They only have 20 percent of the cases, but 
they are generating 57 percent of the costs.
    Justice Souter. I have no idea what the answer to that is.
    Mr. Rogers. Attorneys in that circuit spend almost three 
times as much time working out of court as their counterparts 
in other circuits. Expert costs are more than three times as 
much in the ninth circuit as other circuits. Do we have an 
administrative problem?
    Justice Souter. I don't know the mechanics which are in 
place today for monitoring those costs. It is not a subject, as 
you know, that the Supreme Court deals with as an 
administrative matter, and I don't know how they do it. I just 
don't know how to answer your question.
    Mr. Dixon. Mr. Chairman, while you catch your breath, this 
issue, as you know, has been raised before. I think the 
Administrative Office of Courts said, in part, that most States 
provide that a State habeas corpus petition is handled by the 
judge who presides over the trial, the capital trial in this 
case. In California, State habeas corpus petitions in such 
cases are filed directly with the California Supreme Court. 
Thus, since cases are more likely to be resolved at the court 
trial level rather than the Supreme Court, which has close to a 
100 percent denial rate on habeas petitions, more cases make 
their way to the Federal court for resolution, and it goes on. 
I am not suggesting that that is the only reason.
    Mr. Rogers. We thank you for your appearance here today. We 
have kept you longer than we had planned. We thank you for your 
time and your work. We take this responsibility on the 
committee very seriously, as you can see, and we are very much 
aware that with the division of the government into the three 
branches as our Founding Fathers have dictated, somebody has to 
control the purse strings, and that has fallen into our lot.
    We are very aware that the normal operation of the 
statement, he who controls the purse strings controls, should 
not apply in this instance because we don't want to dictate, 
obviously, what the Court does. But we do have the oversight 
responsibility for spending, and we have always taken the view 
that we will give the Court what you ask. We only ask that you 
be mindful of the shortage of change that we have at this point 
in time.
    So thank you very much for being with us. Our regards to 
the Chief Justice and your brethren and sisters.
    We will take a short recess while we get ready for the next 
hearing.
    [Recess.]




                                         Wednesday, March 10, 1999.

                   SUPREME COURT OF THE UNITED STATES

                    CARE OF THE BUILDING AND GROUNDS

                               WITNESSES

ALAN M. HANTMAN, AIA, ARCHITECT OF THE CAPITOL
MICHAEL G. TURNBULL, AIA, ASSISTANT ARCHITECT OF THE CAPITOL
STUART PREGNALL, BUDGET OFFICER/DIRECTOR OF FINANCIAL SERVICES
DAN HANLON, DIRECTOR OF ENGINEERING
LYNNE M. THEISS, EXECUTIVE OFFICER
JAMES MILLER, FACILITIES MANAGER

                            Opening Remarks

    Mr. Rogers. The hearing will come to order.
    The budget request before us is a very ambitious one not 
only for fiscal year 2000, which includes $22.7 million, an 
increase of nearly 400 percent over fiscal 1999, but also for 
the outyear appropriations, it assumes some $130 million over 
the subsequent 4 years. So we have got quite a bit to chew on 
today.
    Mr. Hantman, welcome. We will make your statement part of 
the record. We would be pleased to hear from you shortly, if 
you care to summarize your statement.
    In the meantime, Mr. Serrano, any opening thoughts?
    Mr. Serrano. Just to welcome the Architect, Mr. Chairman, 
probably the only person to come before us who used to come 
before me when I was Ranking on the Legislative Branch 
Appropriations Subcommittee. So I guess wherever I go, he is 
going to come. I think that is fine.
    We welcome you and look forward to your testimony.
    Mr. Rogers. We are pleased to hear from you.

                           Opening Statement

    Mr. Hantman. Thank you, Mr. Chairman. May I introduce first 
our new Assistant Architect, Michael Turnbull. We hired him 
from the Art Institute of Chicago some 7 or so months ago. He 
is in charge of architecture, engineering and construction work 
for our agency and a very welcome addition to our staff.
    Also to my left, Stuart Pregnall, our budget officer, joins 
us today. We have Mr. Miller here, who is in charge of 
facilities for the Supreme Court.
    As you mentioned, Mr. Chairman, there is a significant 
increase over fiscal year 1999. There are two major components 
to this request, $5.8 million for a perimeter security program 
and $13.5 million related to a detailed design and the 
beginnings of a systematic renovation of this 65-year-old 
monumental building. These projects may ultimately range up to 
$106 million in addition to the fiscal year 2000 request.
    The cost estimates will be refined further as we proceed to 
more detailed design work. I brought kind of an overview 
report, Mr. Chairman, and if it pleases you, we can review this 
page by page, which gives you some of the background of how we 
got where we are at this point in time. Let me just walk 
through page by page.
    [The information follows:]



                       COURT BUILDING RENOVATIONS

    Mr. Hantman. The first sheet talks about the project 
itself, why is it necessary to renovate the United States 
Supreme Court building. In simplistic terms, the building was 
completed in 1935. Since its opening the building has remained 
the same, with essentially no significant building renovations 
or systems upgrades. Many of the original building systems are 
now over 65 years old, and they are very much still in 
operation.
    As you may be aware, normally when buildings are built, if 
you can get a 40-year life out of the business building 
systems, you are doing very well. Mr. Miller and his staff have 
done an excellent job in managing with Band-Aids and bailing 
wire to keep things together. They are in good shape, but the 
systems do need, in fact, replacement at this point in time.
    In the mid-1950s, there were some partial systems upgrades 
basically to minor electrical systems, and they, too, have 
exceeded their life expectancy.
    So I would like to review the following key issues: Life 
safety, security, antiquated systems, indoor air quality and 
space assessments.
    Basically on life safety systems, there are several related 
deficiencies that have been identified to date, and it really 
comes back to just what we are talking about in all the House 
office buildings as well, the installation of sprinklers, smoke 
detection, smoke evacuation systems, improving egress 
capabilities in certain areas, all of the life safety systems 
that we are trying to deal with campuswide.
    Antiquated systems. It is imperative that all building 
systems receive a comprehensive renovation and new systems are 
installed as necessary.
    Mechanical systems. The age of the electrical systems, 
again, range from 40 to 65 years old. A new distribution 
network is needed for power, data, voice, and other emerging 
technologies. Right now conduit is running all over the 
building, and they need to be coordinated and well-integrated 
into the nature of the building itself. The existing 
distribution of systems needs to be replaced and updated. The 
quality of lighting needs to be improved. Plumbing improvements 
are needed in all public and staff bathrooms.
    The next sheet really just talks about what we know today. 
The project is basically a renovation and a systems 
modernization. This is good news from one perspective and bad 
from another. It is not a restoration. The building is 
virtually in original condition. That is wonderful from a 
historical perspective, but from the perspective of base 
building systems, that means we have a lot of work to do.
    The work is going to have to be phased because there is 
going to be continued occupancy while renovations are under 
way, which means we will be playing musical chairs. We finish 
off one area, move one group into that area, finish off another 
area, et cetera.
    It is imperative that the new mechanical, electrical, 
plumbing, fire protection, fire alarm, smoke detection, 
evacuation, et cetera, need to be installed. It is imperative 
that we proceed with these works to avoid the risks of systems 
failure. They are beyond their life expectancy already. The 
basic issue is if it happens, without a proactive involvement 
on our part, it is going to be a major systems failure, take a 
lot longer to replace, rather than going in and doing it before 
it fails.
    This is a perennial problem for any facilities manager, Mr. 
Chairman. When do you replace the roof, when it starts to leak, 
or when you know it has exceeded its life expectancy and you 
can expect you are going to have problems down the road? We 
need to be proactive in some of these systems, sir.
    While the project is a systems modernization, the character 
of the building is to be protected. This is an icon, an 
American monument, and we need to be sensitive to how we do the 
work. That is one of the reasons for the magnitude of the 
project budget as well.
    Additional assessments and investigations are, in fact, 
ongoing. We basically have just completed our master plan 
study, so we are going this year to get into schematic design. 
We are asking you for funding to get into design development 
and construction documents.

                 RENOVATION PROJECT BUDGET DEVELOPMENT

    In developing a budget for the project, we really used two 
methodologies. The first is a compilation of comparable case 
studies. It mentions the National Gallery of Art, West 
Building, where their estimates at this point are in the range 
at the master plan phase, again, of about $167 a square foot. 
That is without full replacement of all systems.
    Philadelphia City Hall is mentioned. Partial work has 
already been done on that project. It is 500,000 gross square 
feet, and the cost per square foot is $350 per square foot.
    Just as a point of reference, the highest budget estimate 
we are looking at right now for the Supreme Court, we are 
talking about $257 per square foot. So that relates to $350 for 
the Philadelphia City Hall, $167 for the partial work at the 
National Gallery of Art.
    The Pennsylvania State Capitol Annex, which is now 
completed, was $260 per square foot, a much smaller building, 
at 65,000 square feet. The Constitution Center in Philadelphia 
is in design now; new construction, new building at 136,000 
square feet. The estimate is $345 per square foot; again, 
related back to the $257 on the high end of what we are looking 
at right now.
    In addition to this benchmarking, if you will, with outside 
facilities, we are talking about a discipline-by-discipline 
analysis of the needs and the development of costs for this 
project. It is something that has not been done before. We have 
talked about it in the past, a $7 million project and a $22 
million project. Those were all based on benchmarks that really 
had nothing to do with work that was done specifically in this 
monumental building. They were benchmarks related to partial 
work, electrical and mechanical work for the $7 million, and 
more total work that was done in the Dirksen Building for the 
$22 million. But it really didn't relate, again, to the fact 
that we have floor-to-floor heights that are basically twice 
the height in the Dirksen building. It is a much more 
monumental building in that the finishes on all surfaces, 
walls, floors, ceilings, are much more quality oriented in 
terms of stonework, bronze, finishes of that nature.
    Looking at these two sources, we have come up with a range 
of costs, if you will. They are all-inclusive, containing 
escalation, phasing premiums, professional fees, et cetera, and 
more estimates will be done as we get into the next phases of 
the work.
    The overall project budget that we look at, the next sheet, 
tries to put all the numbers down in one area and talk 
intelligently to them. The second column then talks about the 
fiscal year 2000 appropriation. The first segment of it totals 
$10 million. There are four basic components to that $10 
million cost. The first, which is under electrical systems for 
$2.2 million, includes $1.5 million for smoke detection and 
fire alarm systems in the attic and basement. We feel these 
spaces need immediate response even before we complete a master 
plan and complete full design documents. We intend to get into 
that building if appropriations are given and make sure that we 
treat these spaces, which really are in need of it.
    In addition, there is some $700,000 in that $2.2 million 
for telecommunications support for the ongoing projects that 
are underway in the Supreme Court.
    Line number 4 on plumbing calls for public and staff 
restrooms to be renovated at $550,000.
    Line number 5 is window security enhancement at $2 million, 
which basically allows us to take care of the windows on the 
first floor of the Supreme Court at this point in time.
    The last budget line in fiscal year 2000 in this category 
is for building repairs, which includes some $4.8 million for 
total design work through construction documents for the full 
renovation of the Supreme Court, plus about $450,000 for mock-
ups to determine the constructability issues we are looking 
into, to test design solutions, identify any unanticipated 
conditions so that we have a very firm estimate before we get 
into the construction phase at all.
    Further down that column, we have a $3.5 million marker, if 
you will, relocation of hazardous work areas and other uses, 
various programmatic needs currently being reviewed by the 
Court. A full program has been developed interviewing all of 
the Court officers, looking at the fact that we are told the 
Court has grown from 160 people to over 410 people at this 
point in time within the same space. We have some desks in 
corridors, people doubled up in areas where they have problems 
working and have acoustical issues. This is a marker for the 
magnitude of the program that the Court finally requests to 
relocate it outside the building to give us the elbow room to 
do the musical chairs and to remove some of the buffer groups, 
if you will, that don't need to be in the main building. That 
totals the $13.5 million in the fiscal year 2000 
appropriations.

                    RENOVATION PROJECT SCOPE OF WORK

    To the right of this sheet, we talk about Scope of Work A, 
Scope of Work B, and Scope of Work C. Basically we have gone 
into these three charts to basically take a look at what we 
could accomplish, what our priorities would be if various 
levels of funding were appropriated other than the full scope 
of work, which is defined in Scope of Work C. For instance, if 
for the base building itself we are estimating that if we were 
given somewhere between $58 to $66 million, we would be able to 
accomplish all the work you see under Scope of Work A. But at 
the bottom of that column, you can see that while option A 
upgrades most of the systems, it neither fully addresses the 
electrical and plumbing systems, nor includes lighting 
improvements, or electronic and internal security.
    If we jump to the next category, this now goes from $72 to 
$83 million, and again, this is a range of costs, Mr. Chairman, 
because we have done master planning at this point in time, and 
we need detailed design to really see where in that range these 
numbers might fall. Option B upgrades all building systems, but 
does not improve the space utilization. This basically relates 
to the interviews, the programmatic information we have been 
getting from the officers of the Court, which are being 
reviewed right now by the Justices.
    Scope of Work C is basically $3 million more than B, and we 
anticipate that that would include all of the upgrades and the 
efficiencies of use of space that the officers are asking for 
within the Court. So that is the first line.
    The next line down below, which is work outside of the 
building envelope, would include three or four elements. The 
first element we talked about. The $3.5 million in the fiscal 
year 2000.
    The next one is a secure entrance and screening area. The 
Court is basically trying to deal with the same issue we are 
looking at relative to the new Capitol Visitors Center. They 
have multiple entrances which people come through. Visitors 
enter the building essentially before they are screened. And we 
are looking at various options so that screening would occur 
outside the base building structure to avoid any damage to the 
base building structure if something should happen in those 
areas.
    What we have identified here is one of the four schemes in 
the $4 to $6 million range. This scheme perhaps looks at what 
we would do if we had a visitor entrance under the existing 
grand stairs on the west front of the main entrance of the 
Court so people would be screened under that area and would be 
led very succinctly and quickly into the areas where tours 
would begin. We are also looking at the north side of the Court 
and areas that are available there for either an above ground 
or below ground entrance where screening could occur before you 
get into the Court.
    So this again is a marker. We think this is a very viable 
option, and we will be examining this further and presenting it 
to the Court for their review and approval.

                              SITE REPAIRS

    The next line item is for site repairs. This basically 
again is a marker that relates to the area between the 
perimeter security and the building itself, including the 
forecourt of the center of the Court. By the time this project 
is finished and ready will be 5 or 6 years down the line, and 
the main entrance to the Court has been patched and repaired 
several times already. There may be some major stonework that 
needs to be done, and there is a mark for this area as well as 
the planting areas between the perimeter of the site of the 
building itself.
    The last line item, number 4, exterior building repairs, 
deals with the fact that we need repointing, cleaning, checking 
of the roof, all of the stonework on the perimeter, and whether 
or not we do this as part of this project or we do it as an 
annual appropriation down the line is something that we 
certainly can talk about. But again, being proactive, we would 
like to be able to come back, and if we are going to expend 
anywhere near the type of dollars inside the building, we need 
to make sure it is waterproof and it is protected so that it 
again can go on for the next 50 years before we do any major 
work there.
    So bottom lines, if we were looking at Scope of Work C, 
which is, in fact, what we would like to aim for in our design 
work, we see $75 to $86 million within the building, somewhere 
between $14 and $20 million outside of the building, for a 
range of $89 to $106 million, in addition to the $13.5 million 
we are looking at right now. And the only thing missing from 
this chart is the $5.8 million for the perimeter security 
itself. So that pretty well runs through the ranges that we are 
talking about and the rationale behind it.

                PRELIMINARY RENOVATION PROJECT SCHEDULE

    The next sheet, Mr. Chairman, talks to preliminary project 
schedule. Fiscal year 1999 the area at the top of this scheme 
talks about the master plan, which we are basically finished 
with in fiscal year 1999. Building testing and assessment will 
be utilizing the fiscal year 1999 dollars that we have to do 
the building testing and assessment in advance of going ahead 
with the construction documents in fiscal year 2000. Schematic 
design should be able to be completed this year, and perimeter 
security design should also be able to be completed this year.
    We have presented to the Supreme Court, and the Justices 
have basically recognized the fact that the security on the 
perimeter needs to be enhanced. They want us to look at further 
studies for the refinement of this before they zone in on what 
this perimeter security program needs to be and what they are 
comfortable with. Basically they recognize the same type of 
philosophy that the Capitol recognizes in that the Capitol is 
the people's building, and the Justices feel equally strong 
that the Supreme Court itself be accessible to all people.
    So these are the type of design challenges we face there as 
well, and what we would recommend, that despite the fact that 
the Justices haven't signed off on the details of the project 
yet, that these dollars be appropriated in this fiscal year so 
that we don't miss a whole funding year cycle going forward, 
but we certainly would want to come back to this committee with 
the plan that is finally approved by the Justices before any 
such dollars would be expended.
    Going down to the next phase, it talks about year 2000, the 
design work we would do, the schedule for it; and then going 
into 2001 and beyond, it begins to show the phasing that we 
would do once all bids were in and we started actually 
constructing, starting with the basement and attic areas, first 
and second floors, another section of the first floor and 
second floor, et cetera, going out to 2006 when we project this 
entire project would be finished.
    The last page basically summarizes again the fiscal year 
2000 elements we just talked about, begin life safety 
improvements through the installation of smoke detection 
devices, sprinklers in the attic and basement, security-related 
features, constructing mock-up prototypes for the new building 
systems, renovation of the six bathrooms or so for the public 
and the staff, relocation of maintenance shops to off-site 
locations and continuing our investigations.
    That is pretty much the summary of where we have come from, 
and we would be more than happy to answer any questions you 
might have. We do, of course, recognize it is very ambitious, 
but a mixed blessing. This is a pristine building. Very little 
has been done to it in 65 years, and we have a lot of catch-up 
to do to prepare it for the next 65 years.
    [The statement of Mr. Hantman and the budget request 
follows:]



                 RENOVATION PROJECT CONSTRUCTION FUNDS

    Mr. Rogers. How do we appropriate construction funds for a 
project without having a final agreed-upon plan and cost 
estimates? This has to be approved finally by the judges. They 
have not signed off on this as yet, have they?
    Mr. Hantman. The basic issue is relative to life safety 
within the Court, relative to security issues within the 
building itself, recognition that the base building systems all 
need to be replaced. I think they are very much on board with 
all of that, Mr. Chairman. The major issues that they are 
looking at right now that are unresolved are the programmatic 
issues relative to whether or not they need 15,000 square feet, 
20,000 square feet outside the building, which is that $3.5 
million marker we have, and the exact components of the 
perimeter security plan.

                     PERIMETER SECURITY ENHANCEMENT

    Mr. Rogers. I am really talking about the perimeter 
security enhancement project. Has that been approved finally by 
the Court?
    Mr. Hantman. The Court has recognized, Mr. Chairman, that 
we need to do something on all four sides of the building. We 
have looked at issues similar to what we are talking about with 
the Capitol Visitor Center, such as bollards, concrete walls 
perhaps concealed in hedges, things that would not be 
obnoxious, but yet would give them that level of security. And 
the issue of stand-off distance is something that we are 
looking at right now, and that is one of the issues that we 
need to talk about within the Court.
    Mr. Rogers. When do you think there will be a final plan 
for the perimeter project?
    Mr. Hantman. What I have done, Mr. Chairman, is I have 
opened a dialogue with the Capitol Police Board. Quite frankly, 
the perimeter security of the Supreme Court in and of itself is 
really part of the Capitol Hill community, and I think it 
really behooves us to take a look at how the issues relative to 
the Court fit in with the concerns relative to both the Senate 
side and the House side on the perimeter as well.
    I would hope that we are going to within the next 6 months 
take a very serious look at that as a larger issue 
incorporating the Court's needs at the same time.
    Mr. Rogers. What are the current plans for a continuous 
barrier around the Court grounds?
    Mr. Hantman. Well, we recognize that certainly on the north 
and the south sides, which would be East Capitol Street and 
Maryland Avenue, that the barriers we are talking about will be 
concealed in hedges. We have choices of whether or not we are 
going to do bollards that are not as decorative as the ones we 
are talking about for the Capitol Visitor Center or Capitol 
Square. Those are the White House bollards basically, but 
bollards that would basically really not be visually detected 
within the shrubbery itself; either that or low concrete 
reinforced walls within shrubbery on those two sides.
    We also recognize that on the east side relative to the 
Court building itself, that some combination of bollards and 
barriers will be necessary there as well.
    One of the things that we are still working through with 
the Court is just what is appropriate at the main entrance to 
the Court itself. The combination of bollards and perhaps 
concrete benches that people could sit on that do not appear to 
be barriers themselves that could serve a dual function are 
things that we are discussing with the Court, and I do not 
think there is unanimity on their part in terms of where they 
are going with that yet.

                         SYSTEMS MODERNIZATION

    Mr. Rogers. In 1998, when the Court building systems 
modernization project, the big project, first surfaced, it was 
described as a $7 million project. Last year, when $2 million 
in design money was requested, it was described as a $22 
million project. Now you are asking for $13.5 million for what 
are you describing in your budget as a $120 million, give or 
take, project.
    How has a $7 million project grown to $120 million, and has 
the scope of the project expanded from what was originally 
envisioned until this complete total overhaul?
    Mr. Hantman. Well, perhaps, Mr. Serrano, you would remember 
one of the issues we talked about on the legislative branch 
appropriations committee. I think there is an analogy here. 
Before I was appointed, there was some $3 million appropriated 
for renovation of the House Cannon garage. This was basically 
because there was a structural issue with the floor slabs. They 
were deteriorating. The reinforcing steel could be seen. Pieces 
of concrete were falling on cars down below.
    I think that budget before I got here was developed in a 
time when the Architect's budget had been consistently cut back 
from $30 million in capital improvements down to $28 or $24 
million. When I came in 1997, that budget was $14 million, and 
the philosophy was, basically, to take care of what you had to 
take care of at that one point in time and not really do the 
full project cost because you probably could not get the 
dollars.
    I have submitted in my fiscal year 2000 budget to the House 
legislative branch appropriations committee the request to make 
this $3 million project an $11 million project. That is because 
my philosophy really is you should be going into a facility 
once, doing everything that is necessary, try not to 
inconvenience the users of the facility, whether it is a court 
building or whether it is a garage. And now we will be doing, 
if the money is granted, mechanical exhaust systems, which do 
not live up to life safety code right now; sprinkler systems, 
which do not exist; security conduits, which are not there now; 
the issue of changing the lighting, which is well below the 
level that we should have in those garages for security as well 
as just basic seeing.
    So the philosophy, Mr. Chairman, kind of goes back to, I 
think, those numbers. The first $7 million number was really 
for electrical and telecommunications type of modification and 
was based on the Longworth and the Cannon House office 
buildings projects. It was not looking at all systems at that 
point in time.
    When I first came in, I had the same philosophy, we cannot 
just look at basic systems.

                    RENOVATION PROJECT DESIGN COSTS

    Mr. Rogers. We are not looking for your philosophy. Your 
philosophy could matter less to me. We are looking for getting 
this building fixed. We do not want to put bells and whistles 
on the building. We want a solid building that is basically 
sound and safe, that restores the integrity and the beauty of 
the building, and we want it to work. We do not want bells and 
whistles, and I think we got a bunch of bells and whistles 
here, and we are going to ask you to go back and come back with 
something more realistic.
    We cannot find that kind of money. In last year's budget 
request, you asked for $2 million for design of the project. 
You indicated at that time that that would cover the design 
phase, which would take 2 years. We gave you a million and a 
half. This year you are asking another almost $6 million for 
continuing design of the project. Design costs have grown from 
$2 million to $8 million in just one year's time.
    Mr. Hantman. Mr. Chairman, those were not total project 
design costs. What we are talking about is full design cost for 
total renovation of the full Court. What we were talking about 
then is getting into the design process. There are many phases 
through the design process that we need to go through to 
clarify design and get approvals.
    But among the reasons we structured this overall budget 
chart, Mr. Chairman, in this way was so that we could eliminate 
things, given the issue of what monies might be available 
through appropriations. For instance, under the work outside of 
the building, the site repairs and the exterior building 
repairs, which go anywhere from $3 to $5 million and $7 to $9 
million respectively, if funds are not available, those would 
be the first things that would be cut out of the budget.
    The issue if we cannot rearrange the building inside and we 
go back to Scope of Work B, there is another several million 
dollars that would go out, and we lose some of the efficiencies 
and space utilization within the building itself. But whatever 
monies are available, we will work to use those monies as 
efficiently as possible.
    As we have refined the work over the last 3 months after 
our first submission, we have also refined down the budget from 
a very loose number, which had been $140 million dollars. We 
think the numbers can range up to $120 million. But it could be 
much lower. It could be $95 or so million.

                      SYSTEMS REPLACEMENT PROJECT

    Mr. Rogers. Well, we had originally talked about the 
original scope of the project was a systems replacement 
project, not a complete renovation of the building, which is 
your philosophy. Our philosophy is we want a systems 
replacement project that makes this building safe, efficient, 
and does not do harm to its architectural beauty and all of 
that. We did not ask for all of these extra things. And I am 
going to ask you to come back at some appropriate time when you 
have had time to reflect and give us a more realistic figure 
and project.
    Mr. Hantman. I certainly can do that, Mr. Chairman, but I 
did want to make the point again that the work within the 
building is all related to the systems. Where we have to chop a 
wall and run a conduit, we are just repairing that wall and 
repainting it. That is all we are talking about doing. There 
are very few frills in this budget at this point in time. But 
clearly, the easiest things to remove from the budget would be 
the site repairs and exterior building repairs, and as 
necessary those can be dealt with down the road.
    Mr. Rogers. I think we need to do some refining work in 
further conversation about this. We are having to live under 
budget caps that are straining us even before today, and we are 
going to have to find ways to do this at a more economical 
cost, doing justice, to coin a phrase, to that building.
    Mr. Serrano.

                             ADA COMPLIANCE

    Mr. Serrano. Thank you, Mr. Chairman. I do not know if I 
missed it in your presentation, but do you in this work have to 
take into consideration ADA compliance? Is that dealt with 
already in this building, or is this something that has to be 
done now?
    Mr. Hantman. It has not been dealt with, and part of the 
work would be involved with ADA. We do have appropriations of 
$25,000 per year for ADA, but there are other related issues, 
including the bathroom work, that would be ADA-related.

               CAPITOL VISITOR CENTER AND COURT ENTRANCE

    Mr. Serrano. Also, is there any relationship between the 
underground work and the Visitors Center and any proposed 
underground entrance to the Court at all?
    Mr. Hantman. To the new Capitol Visitors Center?
    Mr. Serrano. Yes.
    Mr. Hantman. There had been some discussion about that by 
the Justices.
    Mr. Serrano. Is there an old Capitol Visitors Center?
    Mr. Hantman. I am not aware of that, sir.
    One of the concerns that the Justices had was that some of 
the buses that pull up between the Court and the Capitol, some 
of the people just get out of those buses and run across the 
street. They were concerned about the safety of that. And so we 
had talked at one point about a tunnel under First Street to 
allow people to go underneath and come up.
    I think the reality shows that if people can run across the 
street, they will run across the street even if there is a 
tunnel there. So the concept of tying the Supreme Court into 
the Capitol Visitors Center, I believe, has been rejected by 
the Justices, recognizing that the volume of people that might 
come through that visit the Capitol right now could not be 
accommodated within the Supreme Court.

                RENOVATION OF THE BASE BUILDING SYSTEMS

    Mr. Serrano. Speaking of the Justices, you did tell us that 
this has not been approved by them, but yet you are working on 
this plan. So are you working with somebody from the Court that 
has some ideas as to what this should look like?
    Mr. Hantman. No. May I, please? I am glad you brought that 
up again, sir. The Justices have been working with us. We have 
been meeting with a three-Justice committee every 2 weeks 
basically to review every step of the way. They have signed off 
on the need for the renovation for the base building systems, 
for the life safety, for the security issues inside the 
building.
    The two issues that are really looking at being refined is 
the scope of the programmatic space needs over and above what 
we can accommodate in the building right now and what has been 
asked for by Court officers, how many square feet do they need 
outside the building, 15,000 or 20,000 square feet, aside from 
that, the only other issue is the refinement in the security 
program. I believe all the rest of this the Justices have seen 
and they are comfortable.
    Mr. Serrano. Obviously your statements were along the lines 
of bringing up to date a 65-year-old building that has 
supposedly had very few renovations.
    Mr. Hantman. That is correct.

                           SAFETY PRECAUTIONS

    Mr. Serrano. One, have there ever been major renovations of 
any kind that we may be interested in knowing about? And two, 
what percentage of this project would you say is related to 
safety precautions, which is something that we have to be 
concerned about all the time now?
    Mr. Hantman. If I could refer you back, Congressman, to the 
overall project budget. One of the reasons we broke it down 
this way is it talks specifically. So if we are talking about 
mechanical systems, it is $24.5 million to $26 million. 
Electrical systems has a cost, sprinklers, plumbing, window 
security. All of these issues are specifically spelled out in 
ranges of what we estimate they would cost.
    And then again, if, depending on the dollars that are 
available, for instance, in Scope of Work A, the lighting 
improvement would not be done, the electronic internal security 
issues would not be done. It is basically 50 percent of the 
budget that is related to code requirements for mechanical, 
electrical, life safety systems and 20 percent of the budget is 
roughly related to security-related issues.
    Mr. Serrano. Fifty to code and 20 to security?
    Mr. Hantman. Yes. And then lighting improvements would be 
an addition to something that the Court is looking for; window 
security a part of security as well.
    Mr. Serrano. What percentage of the projects are the bells 
and whistles that the Chairman is looking for?
    Mr. Hantman. The bells and whistles, again the first 
recommendation would be, depending on the site repairs, the 
exterior building repairs. We can go back and repaint the 
building years down the road if we needed to. We would recaulk. 
We could fix the roofs. We could do the exterior work and 
request those appropriations as part of ongoing annual 
appropriations rather than in this major request. So those 
would be the first that we would eliminate here.
    The secure entrance, the screening area, that is a very 
important issue. The $4 to $6 million we are identifying would 
be, in my professional judgment, money well spent. And clearly 
we are trying to do that with all of our other facilities as 
well. Lighting improvements again; if the funding weren't 
there, they would not happen. And that is basically why we 
estimated this way.
    If you could see that window security replacement, we would 
do less windows under item number 5 if we needed to cut back. 
We would do less plumbing work. We could be less proactive with 
the plumbing and see that when a pipe failed, we would go back 
in and try to fix the pipe as opposed to replacing systems that 
are 65 years old. And in electrical systems, we can try to get 
a few more years out of some of the components that we have 
over there and take a chance on their not failing again and 
move forward. That is why Scope of Work A for electrical has 
$2.8 to $4.8 million, as opposed to $4.6 to $6.3 million for 
total restoration or renovation of those systems.
    The bottom line is there are not really many bells and 
whistles in the top section. All we are doing is chopping the 
walls, running the conduits, replastering it, painting those 
walls, and trying to give the Court a strong foundation for 
going into the next millennium.

                            SYSTEMS FAILURES

    Mr. Serrano. Have there been systems failures before, any 
major ones?
    Mr. Hantman. In the electrical system. And certainly Jim 
Miller, our facilities manager, can talk to that, that we have 
had burnout of significant lines. The insulation on wiring that 
is 65 years old begins to dry up and deteriorate, and you just 
do not know when you are going to get a short circuit and fire 
in the system.
    Mr. Serrano. Let me just in closing, Mr. Chairman, say that 
I recognize that the Chairman has to live within some caps. I 
tried to make his life easier by voting against those caps, but 
I did not get my way, so we have those caps to deal with.
    I guess the bad news is he is telling you to go back and 
come back with some new figures. The good news is he is not 
telling you what he might tell some other people, not to come 
up with any plan at all for anything.
    So I personally have not found the bells and whistles yet. 
But I understand the caps, and that is a real problem. And I 
think that we need to be able to approach this with the full 
understanding of what we are dealing with here and not have 
anyone over there think that they are being turned down, but 
rather just renovate the renovations package.

                            DETAILED DESIGN

    Mr. Hantman. Mr. Chairman, essentially, of course, what we 
are asking for at this point in time in the fiscal year 2000 
appropriation is the $10 million so we can get into the real 
detailed design and see what we can do to cut back on costs. 
And maybe we drop ceilings and eliminate chopping walls and 
things of this nature.
    There is a good deal of design work that still needs to be 
done, and clearly the ultimate cost that results from those 
designs are things that we would be going forward with in the 
future and coming to this committee again to see. But again, if 
we break down the $10 million, $2.2 million for electrical 
systems and smoke detectors, telecommunications, that is 
necessary.
    The $550,000 for plumbing, there are health issues relative 
to the tiles and the cleanliness of the bathrooms, and ADA 
issues. Window security, that is a $2 million item and very 
much necessary at this point in time. And under the building 
repairs, the big $5.2 million really allows us to get into the 
detailed design as well as looking at doing the mock-ups to 
short-circuit and try to identify short problems, unanticipated 
conditions, before we go into a full renovation.
    So the $10 million we are asking for, Mr. Chairman, would 
allow us to go forward and give you more detailed information 
and better sense of puts and takes as we go forward.
    Mr. Rogers. Before we appropriate a penny, though, we need 
to know here about where we are headed. I have always said, Mr. 
Serrano, and you are new to the committee, but I always said 
this committee's jurisdiction is mind-boggling. We go from 
embassies abroad--and I said this jokingly in the past--from 
embassies abroad to the toilets in the Supreme Court. And we 
are there. We finally got there.

                           CLOSING STATEMENTS

    So thank you for your testimony and the workup. We will be 
talking further as we go along here, but we do want to talk 
more about where we are going finally before we do anything up 
front.
    Mr. Hantman. I appreciate that, Mr. Chairman.
    Mr. Rogers. Thank you very much.
    Mr. Hantman. By the way, if anybody would like a walk-
through of the Supreme Court, we could certainly show you the 
existing conditions and what we are talking about.
    Mr. Rogers. I think we will probably do that.
                                           Thursday, March 4, 1999.

                         THE FEDERAL JUDICIARY

                               WITNESSES

JUDGE JOHN G. HEYBURN, II, CHAIRMAN, COMMITTEE ON BUDGET OF THE 
    JUDICIAL CONFERENCE OF THE U.S.
JUDGE LAWRENCE L. PIERSOL, CHIEF JUDGE, UNITED STATES DISTRICT COURT, 
    DISTRICT OF SOUTH DAKOTA
LEONIDAS RALPH MECHAM, DIRECTOR, ADMINISTRATIVE OFFICE OF THE U.S. 
    COURTS
JUDGE RYA W. ZOBEL, DIRECTOR, FEDERAL JUDICIAL CENTER

                              Introduction

    Mr. Rogers. The Committee will come to order.
    We are pleased to welcome the panel today to this hearing, 
a distinguished panel of jurists from the Federal courts to 
defend the fiscal year 2000 budget request for the Federal 
court system. The panel is being led for the third year by 
Judge John Heyburn, who sits on the United States District 
Court in the Western District of Kentucky, and who has brought 
great distinction to the bench and to his position with the 
Federal judiciary.
    He is here in his capacity as chairman of the Judicial 
Conference Committee on the Budget, and has the task of 
representing the entire third branch before the Congress, to 
make the case for the resources necessary to assure that the 
Federal courts can carry out their duties. It is again a 
pleasure to welcome you, Judge Heyburn, to the subcommittee.
    He is joined at the table by Judge Piersol, Chief Judge of 
the District Court for the District of South Dakota, also a 
member of the Budget Committee; Judge Zobel, Director, Federal 
Judicial Center, who has been here several times; and Leonidas 
Ralph Mecham, Director of the Administrative Office of the 
United States Courts, who has been here for even more times.
    As you know, fiscal year 1999 was a difficult year in which 
we struggled to find every dollar that we could find for the 
needs of the courts. Fiscal year 2000 is a year in which the 
spending caps still in place will tighten significantly, and 
once again we will have a very difficult row to hoe, in fact 
more difficult than the previous year.
    We will make your written statements a part of the record 
and I will soon ask Judge Heyburn to summarize his statement, 
but first let me yield to my friend, Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman. Just to welcome the 
honorable folks here. I had an opportunity to meet with some of 
them in the past week, to get acquainted with the work that 
they do, and I am looking for their testimony. And I am looking 
forward to working with you, Mr. Chairman, and especially now 
that we don't have to discuss the census today.

                           Opening Statement

    Judge Heyburn. I am not going to discuss the census.
    Mr. Rogers. Let me thank you also for accommodating our 
changing schedule in the last couple of days. Judge Heyburn, 
you are recognized.
    Judge Heyburn. Thank you, Mr. Chairman and Congressman 
Serrano and other Members present. I would like to make a few 
introductory remarks.
    It is indeed my distinct pleasure to represent the third 
branch in the appropriations process and to appear before you, 
Mr. Chairman, for whom I have such high regard. It is always a 
great honor. I want to congratulate you on your announcement, 
of course. I don't know about the protocol within the 
committee. Did you have to get consent from the gentleman from 
Tennessee before your announcement? Congratulations.
    Mr. Rogers. Thank you very much, Judge.
    Judge Heyburn. I am very happy for you.
    Mr. Serrano, after our meeting yesterday and learning about 
your commitment to equal justice for all Americans, I feel very 
confident that we can work with you as well as the rest of the 
committee in reaching our common goals.
    This is such an interesting process. The Founding Fathers 
created an independent judiciary for the purpose of maintaining 
a just and a civil society, and the men and women of the 
judiciary, I can assure you, are dedicated to achieving exactly 
that goal.
    Mr. Chairman, we have always benefited from your prodding, 
your constructive criticism, as well as from your deep 
understanding of the delicate constitutional issues that are at 
play here, and we look forward to working with you.
    Also I want to give you my thanks for the appropriation 
that you gave us last year and of course, quite frankly, if the 
Senate had seen fit to go along with the mark that you gave us, 
we would be in a lot better shape than we are right now.
    I am fully aware of the tight budget situation that we all 
face, and we are committed to working closely with you and your 
good staff to determine what resources are necessary for the 
judiciary to do its job. This year our overall budget request 
is about 8 percent more than the obligated funds for fiscal 
year 1999. The appropriations request is unavoidably higher due 
to our declining carryover, which I hope everybody understands.
    The Judicial Conference this year has made a conscious 
decision not to request funds for increased workloads, 
specifically out of respect for the tight budget caps. This is 
a current services budget that we are presenting to you, which 
nevertheless requires an additional $310 million in the main 
accounts over the obligations authority for fiscal year 1999.
    The appearance of that I think is quite deceptive. The 
budget actually freezes overall staffing levels, and this is 
for the second year in a row. The increases, as I think you 
will see when you look at it, are largely uncontrollable. They 
are things like rent; regular pay increases; mandatory costs 
associated with certain increases in cases, such as defender 
representations; and certain other increased security needs.
    In reality what we are doing here today is pledging to you 
the hard work of the many men and women of the judiciary to do 
more work with the same resources. As you know, our job is 
essential to law enforcement. That work is dramatically 
increasing, and let me just give you a couple of examples:
    Criminal filings up 15 percent this past year. Pending 
criminal cases, which is really a better indication of our 
actual work load, up 33 percent since 1996.
    The judiciary through its probation and parole supervises 
95,000 people who are either charged with or convicted of 
crimes. That is almost as many people who are incarcerated in 
the entire Federal prison system, and most people don't 
recognize that or know that.
    Presentence reports, an indication of the work that is 
being done by those people in the field, up 22 percent in the 
last two years. We did 63,000 of those last year.
    Violations of supervision, up 11 percent over two years, to 
32,000 violations of supervision. The reason that they are up 
is because more of the people that we are supervising now are 
those who have already been incarcerated rather than as a 
group, a less dangerous group, those who are pretrial or 
presentence.
    The number of people under supervision with mental 
conditions of one kind or another has quadrupled over the past 
four years.
    The actual criminal defendant representations since 1995 is 
up from 78,000 to over 100,000 now.
    Basically what we are asking for is the funds that we think 
are necessary to do this ever-increasing job.
    Now, there are a couple of things that I think you are 
aware of, but I am going to say them anyway because they are 
important. The judiciary doesn't have the luxury of closing 
down a program or not performing a particular service. Our job 
is what the statutes and the Constitution require. And we do 
our job because the Constitution and those statutes require it, 
and we do it because a free and ordered society requires it.
    Another thing that I know that you know, but I want to 
mention anyway, and that is that nowadays there is a lot of 
emphasis on catching criminals, on getting convictions and 
putting people who are convicted in prison. And I know that you 
know, but sometimes people forget there is something that 
happens in between catching the criminals and convicting them 
if they are guilty, and that is a fair and adequate proceeding 
conducted by judges, and that is something that all the 
automation and all of the efficiencies in the world doesn't 
necessarily help us do it any quicker.
    It takes the hard work of judges and it takes, more 
importantly, the careful work of judges. And we want the 
resources to do the job, so that the judges and the people who 
work with them are not overwhelmed by the torrent of cases and 
can't do the job of protecting the rights of the people who are 
in the process. When all is said and done, and I know that you 
understand this, it is the process and not the obtaining of the 
convictions which is what legitimizes our process and the 
American justice system to our citizens. Again we ask for the 
resources to do that job.
    I said at the beginning that most of the requests in the 
main accounts, $310 million, is what we believe to be sort of a 
mandatory request. It is not anything that we can do anything 
about. About 90 percent of our requests are really things 
beyond our control. Admittedly, there are some things that are 
in theory discretionary, but we believe that they are 
absolutely vital nevertheless. I am going to mention them. We 
have talked about these before. They involve a COLA for judges, 
an increase in hourly rate for defenders, and some security 
enhancements.
    We think that you should provide a COLA for judges and a 
COLA for yourself and a salary increase, when appropriate, for 
the President of the United States. It is unfortunate that we 
have gotten away from the annual COLA for judges, but we really 
believe that it is essential to maintaining the highest 
possible standards in the judiciary. The failure to do so is 
beginning to have very real consequences. It is effectively 
putting a cap on some of the salaries in the Senior Executive 
Service, and more and more of those in the Senior Executive 
Service will be affected every year. Quite frankly, to many 
judges the failure to get a simple COLA is demeaning and 
demoralizing. I don't necessarily speak for myself, but many 
people feel that way.
    The hourly rate for panel attorneys we think needs to be 
increased to $75 an hour. It is not a large amount of money in 
the overall scheme of things. These panel attorneys have 
received one increase in 15 years. Attorney General Reno and I 
believe all of the organized bar are in support of this. The 
Judicial Conference believes that it is essential to provide 
the kind of representation that criminal defendants need in 
Federal court.
    I am here also today, and of course with me are a number of 
other people, to represent important accounts within the 
judiciary. On behalf of the Federal Judicial Center, Judge 
Zobel is present. I think you know what I believe to be the 
success story of the FJC, again with your prodding and I think 
very constructive criticism. They have made a major effort to 
provide better and more inexpensive ways of doing the education 
programs that they need to reach out to people in the 
judiciary. They have done a wonderful job, made a lot of 
progress over the last few years, and I would encourage you to 
grant their modest increase.
    The Administrative Office of the Courts of course is the 
heart of our administrative and policy apparatus, and Leonidas 
Ralph Mecham is here. They ask only for an inflationary 
increase in order to keep on doing the work that they are 
doing, and I would encourage you to grant that increase.
    I will submit my written statement, as well as those of 
Judge Mayer of the Federal Circuit, and Judge Carman of the 
Court of International Trade, and Tim McGrath, who is the 
interim staff director of the Sentencing Commission. I will 
submit those for the record, and again it is a pleasure to be 
here. I am delighted, as well as everybody here, to answer any 
questions that you have and get you any information that you 
need.
    [The information follows:]



                         FY 1999 Financial Plan

    Mr. Rogers. Well, Judge Heyburn, thank you very much for 
your excellent presentation. We appreciate the work that you do 
as a volunteer in this capacity. It is a lot of work, and most 
people don't realize what takes place to get a budget like this 
prepared.
    For fiscal year 1999, in allocating the appropriation that 
we provided, which included a $130 million increase for the 
court salaries and expenses account, your financial plan made 
$50 million in reductions in the court's current services 
operating level in order to create a fund to provide for high 
priority needs?
    Judge Heyburn. Right.
    Mr. Rogers. What were the reductions to the current 
services operations of the court made by that plan?
    Judge Heyburn. What we did was, when we get our 
appropriation, a certain amount based on the staffing formulas 
is allocated to each court unit. What was done was that 1 
percent, approximately 1 percent of the amount that would have 
been allocated to all of the court units was not allocated to 
them; it was taken back, and that was used to create the fund.
    We did not mandate how they would handle the 1 percent 
reduction. We think that the strength of our organization is 
the management at the court level. So I suspect that that 
reduction was handled in a variety of different ways. Perhaps 
travel was decreased, perhaps an employee was not hired here 
and there, perhaps they let additional time go before rehiring 
a person who had left, perhaps there were other savings that 
were initiated.
    But rather than mandate it from Washington, we have had 
over the years excellent managers at the court level, and we 
feel that the decisions as to what would be the priority in 
each district are best made by them. So I don't think that we 
have done a study of how they handled that reduction, but they 
accepted it, and as far as we can tell, so far have done very 
well with it.
    We have used the fund that was gathered from that 1 percent 
reduction to grant additional resources to areas that have 
unusual work load increases.
    Mr. Rogers. First, any negative impacts on the operations 
of the courts that you have noticed or heard about?
    Judge Heyburn. Only in isolated cases, and there we have 
tried to help them with the fund. I don't think we are in a 
situation yet where any impacts are obvious. I think the 
impacts are likely to be more subtle. For instance where the 
huge workload increases are occurring in probation, they may, 
as a discretionary matter, have to make choices about how they 
are going to conduct their work, if they don't feel they have 
quite enough personnel to do the job.
    The problem that we are having, and it is not necessarily 
an immediate problem but it occurs over a period of time as 
people become overworked, is in the probation and parole area 
and the criminal caseload area where we are having our big 
increases. It is not exactly like the bankruptcy situation, 
where as you know we had huge increases in the bankruptcy 
filings, but those bankruptcy filings were particularly suited 
to accommodation by automation techniques and uses of office 
efficiency, where you can handle large masses of paper that 
come through in a bankruptcy filing.
    But probation and parole, when you have the kind of 
increases that we have, is not the kind of thing that a 
computer can take care of. It is really on-the-job supervision. 
It is going out to the places where these people live, checking 
up on their references, and in some cases where there may be 
potential danger, it requires a lot of work. It is not 
something that is routine kind of work. It is not something 
that you can easily make more efficient.
    Mr. Rogers. You were preparing to tell us, I think, what 
high priority needs are being funded with this special fund.
    Judge Heyburn. Yes. Mr. Mecham could comment more 
specifically, but most of the needs that were funded were in 
the probation and pretrial area. There were some districts that 
had particularly unusual increases in civil or criminal 
workload, and those were funded. There may have been a couple 
of bankruptcy courts which had unusual increases that we felt a 
need to take care of, but I would say 75 percent of the fund 
was used in the probation and pretrial area.
    Mr. Mecham. Seventy-three and a half.
    Judge Heyburn. Seventy-three and a half.
    Mr. Rogers. And the balance?
    Judge Heyburn. And the balance was allocated between a 
couple of appellate courts that had unusual increases, a couple 
of District Courts, and the bankruptcy courts split pretty 
evenly, I think.
    Mr. Mecham. Mr. Chairman, in addition to the general 
remarks that Judge Heyburn referred to, there were some 
specific mandated cuts as well. In furniture, even where 
furniture was needed in new buildings, and also what is 
euphemistically called tenant alterations, where it is 
necessary to remodel or make changes in offices and so on, and 
also in automation projects, they were all flatly cut. Only in 
personnel were there emergency funds allocated.
    Mr. Rogers. Who decides who gets what from the fund?
    Judge Heyburn. From the fund, I believe there is a working 
group at the AO that basically reviewed all of the requests 
that came in, and we had far more requests. I think there were 
requests for over 400 additional personnel and we only had--
were able to grant about 250 or so, something like that.
    Mr. Rogers. Who decides?
    Mr. Mecham. In addition to my staff, we also had court 
staff involved in making those allocations, and then we acted 
subject to policy discretion given to us by the Executive 
Committee of the Judicial Conference.
    Mr. Rogers. You decide?
    Mr. Mecham. I didn't make the personal decision, but I 
approved it.
    Mr. Rogers. Somebody has to sign off on it.
    Mr. Mecham. The buck stopped with me under the supervision 
of the Judicial Conference.
    Mr. Rogers. Don't be shy about this.
    Mr. Mecham. I want to be humble, Mr. Chairman. We 
bureaucrats have to be careful around the judges.
    Judge Heyburn. My impression was that there was a lot of 
cooperation. Even though the courts asked for more resources 
than we had available, they understood that we were in a tight 
situation. I don't think that anybody got what they asked for, 
but we gave them attention.
    Mr. Rogers. I will have a series of other questions, but I 
will yield to Mr. Serrano.

                           Use of Technology

    Mr. Serrano. Thank you, Mr. Chairman.
    One of the discussions that we seem to be having with a lot 
of heads of agencies that come before us from the Federal 
Government is the new use of technology and how that will pan 
out, what the plans are and what the costs eventually will be. 
Have you folks also been moving in that direction, and, if so, 
which way and what is your proposal?
    Judge Heyburn. We have a very innovative, far-reaching plan 
of automation and the chairman has been very involved with 
that. We have an automation fund which we have worked 
cooperatively with this committee to establish, so that funds 
that are appropriated can be used in successive years without 
having to be returned. Our automation program, to summarize, is 
far-reaching and has many facets.
    We have a number of programs which attempt to better 
organize and automate the filing system so we can keep track of 
cases. We have a program where we are trying to equip 
courtrooms on a systematic basis with the kind of equipment 
which can be used in trials.
    At chairman Rogers' urging, we are beginning to have now, 
in 35 courts a video conferencing system. So, for instance, 
when you have prisoners that are involved in litigation, rather 
than having to bring them to the court to have a conference, 
you can have a video conference between the United States 
Attorney or the attorney general of the State and the prisoners 
directly from the prison.
    We are getting into electronic filing, which can be 
particularly advantageous in bankruptcy courts where you have 
huge pleadings and rather routine pleadings.
    We are advancing with Internet technology for 
communications among courts and to provide access to the courts 
for citizens through the Internet.
    Judge Zobel can discuss the extensive efforts that they 
have made on the technology front to provide television 
educational programs to members of the judiciary and the staff, 
so we get lower cost educational programs more broadly 
distributed.
    I know that I have left a lot of things out, but technology 
is advancing so quickly and I think in my view you don't want 
to be ahead of the technology because you end up wasting money. 
You want to be somewhat behind the technology, not too far 
behind, and I think we are doing an excellent job of picking 
out where advances in technology can be helpful.
    Part of what we do is simply not subject to that. The work 
of the judges is personal and the technology, from my 
experience, Judge Piersol can comment, helps you to focus on 
the job that we have to do. We are not worrying about the 
management of the cases so much and other things, so we can 
focus on the job of doing justice which is what we ought to be 
doing.
    Mr. Serrano. So what part of your job would be handled by 
video conferencing, for instance?
    Judge Heyburn. Well, for instance in our district a 
substantial portion of our cases are filed by prisoners at the 
various different State institutions, alleging constitutional 
problems with the conditions of their incarceration. We may 
have at any one time 300 or 400 of those cases, and typically 
in a case you would have a pretrial conference among the lawyer 
and among the litigants. In this case the litigant is the 
prisoner who is not represented by a lawyer. The defendant is 
represented by the attorney general of the State.
    Rather than transport the prisoner to the courthouse and 
have the attorney general come, you can have a video conference 
if you have a conference room equipped with video equipment at 
a prison, particularly a large prison where most of the 
litigation comes from. You can have the prisoner and the 
attorney general discuss the case.
    Often they can resolve it, because as a practical matter 
many of these cases are not true constitutional cases. They are 
gripes about what is going on in the prison system, which 
doesn't mean that they are not important. They are just not 
constitutional cases, and the best solution--in our court we 
have a mediation system also to resolve these things, is not to 
litigate them to a constitutional certainty, because the bottom 
line is that they are really not constitutional cases. We 
should not be deciding them. It is in a sense not a good use of 
our time and not a good way to get it resolved for the prisoner 
or the attorney general. So that is just one example of how we 
use the video conferencing.

                    Freeze in Court Staffing Levels

    Mr. Serrano. There is a point of your presentation--either 
I just did not find what I was looking for or you didn't tell 
us, but there is obviously a workload increase.
    Judge Heyburn. Yes.
    Mr. Serrano. But it seemed that the budget increase did not 
include funds for additional staff.
    Judge Heyburn. That is correct.
    Mr. Serrano. How are we going to handle that? And one of my 
concerns, as we federalize more and more crimes, what effect is 
that going to have on your workload?
    Judge Heyburn. Well, it definitely has a workload effect. 
It has an effect of increasing our workload. The reason that we 
didn't ask for the additional resources to handle the workload 
is because, number one, we think and hope that we can handle 
the additional workload in 2000, as we are this year, without 
the additional resources. If we didn't think that we could do 
that and didn't hope we could do that, we would have asked for 
the additional resources.
    But also, quite frankly, we recognize the difficult budget 
situation. And although our obligations request, and this is 
getting into a little arcane budgetary, although our 
obligations requests are very consistent with what we have 
asked for in the past years, in the 7 to 8 percent range, 
because our carryover is less, the appropriations increase we 
are asking for is about 13 percent. If we asked for the 
additional resources that we normally have in every other year, 
to cover the additional workload, our appropriations request 
would have been 17 to 18 percent.
    We just felt in this climate, as justified as we think that 
request is, that it was unfair to the committee to ask for that 
amount. Although we felt that we could justify it, I guess in a 
political sense it would create more problems than it was 
really worth in the end, and we understand the tight situation 
you are under.
    We need the request that we are asking for. We will try to 
do the work with the resources we are given. If it turns out 
after our experience over the next year we feel that we have a 
fundamental problem that can only be resolved with additional 
resources, we will come back and ask for those resources, and 
we will have specific reasons why what we thought was going to 
work didn't work.
    Judge Piersol. Personally, with regard to my own 
experience, in South Dakota we have a very heavy criminal 
caseload. We have a lot of people under supervision and a very 
diverse group, from Native Americans to others that are not 
Native Americans, that are drug dealers and so on, and our 
pretrial services people will be at the outer edge but still 
able to do the job, but we will be at the outer edge.
    Mr. Mecham. I commend the judges and the Budget Committee 
for not playing the usual budget game which often prevails in 
Washington. They didn't come in and ask for more than they need 
on the assumption that they would get less; therefore, less 
would be just fine. This is about as tight a budget as you can 
get. When you freeze personnel two years in a row, when you are 
looking at major increases in workload, I think it shows the 
good faith of the judiciary to try to do their job 
economically.
    The corollary of that is, if we don't get the full amount 
this year, and because the judiciary is intensely personnel and 
labor oriented, the only place I can see where we can make 
significant cuts is by RIFing people, because we are in for no 
personnel increases at all despite the workload increases.

                    USE OF SPANISH IN FEDERAL COURTS

    Mr. Serrano. This is something I probably should have asked 
you when I met with you, but I am just curious. In my 
birthplace in Puerto Rico the Federal courts are handled in 
English; am I correct in that?
    Judge Heyburn. I am sure if there is a need for 
interpreters, they are provided.
    Mr. Serrano. That is my question. I know that there are 
interpreters provided. That has always been a discussion; we 
have a place under the American flag where most of the people 
speak Spanish on a daily basis and the courts are all handled 
in English. Do you have any idea what the cost is of providing 
these interpreters, and how does that compare to Texas or New 
York?
    Judge Heyburn. Judge Piersol may be able to comment on 
that. The courts provide the cost of interpreters in 
proceedings where it is needed. In Kentucky we don't have too 
much of a use for that, only now and then, but in certain 
districts it is a huge expense, I don't know what it is over 
the entire country, but it is of course a requirement that the 
people who are before the court in criminal cases be able to 
understand the proceedings that are ongoing. So any 
interpretive service that is necessary, we provide.
    Judge Piersol. I have quite a few interpreters in South 
Dakota, and I can't give you court figures, but I can tell you 
that the requirements for becoming a certified interpreter are 
very steep. And given what the courts pay, which isn't a lot, 
and given those requirements, it is very difficult to get 
certified interpreters. We have had them very often that are 
Spanish-speaking, also Russian interpreters and others, but not 
very often an interpreter that is certified.
    Mr. Serrano. The whole idea of having the Federal courts 
conduct their business in English, is that something in law? We 
don't have an official language in the country, although there 
is a movement to do that, but we don't have an official 
language. The State and local courts in a place like Puerto 
Rico conduct their business in Spanish, and yet it is under the 
American Constitution and it has to follow the Constitution.
    I am wondering how that decision was made. I am not trying 
to knock out interpreters, but I am just wondering how that 
came to be. So if any of you folks in any of your travels finds 
out how that happened, I would like to know.
    Judge Heyburn. I think in most circumstances the judge and 
the people presiding and involved might not all have the same 
language. In Puerto Rico maybe they would, but not in all other 
areas.

                          FY 2000 S&E FUNDING

    Mr. Rogers. Let me get back to the operating levels. You 
are asking for an increase in the salaries and expense account 
of $400 million. That is a 15 percent increase, and yet that 
would only sustain you at your current levels?
    Judge Heyburn. I think the obligations increase in the 
salaries and expense account is $310 million. What the 
appropriations request is, I am not sure. Once we determine 
what the obligations requirement is, then the appropriation 
level could be adjusted depending on what the carryover level 
would be.
    Mr. Rogers. We are saying the same thing.
    Judge Heyburn. Exactly.
    Mr. Rogers. But that would only sustain you at your current 
operating levels, and not provide any program increases except 
for 11 magistrate judges?
    Judge Heyburn. Yes.
    Mr. Rogers. And I am told that the reason for that is that 
you are anticipating much lower carryover monies.
    Judge Heyburn. That is correct.
    Mr. Rogers. A carryover of $22 million?
    Judge Heyburn. No, it will be higher than that. Right now 
it is $51 million.
    Mr. Rogers. We are talking salaries and expenses now.
    Judge Heyburn. Yes, you are right that we currently have 
$22 million in hand that will carryover into FY 2000. I was 
thinking of the overall projection that by the end of the year 
we anticipate a carry over of $51 million.
    Mr. Rogers. That compares to a level of $200 million-plus 
over the last three years.
    Judge Heyburn. Right.
    Mr. Rogers. Normally that carryover has resulted from such 
things as slippage in filling judicial vacancies, hiring court 
employees below the authorized level, slipped delivery of new 
court space, and what have you. Why the big reduction this time 
in your anticipated carryover?
    Judge Heyburn. There are a couple of reasons for it. Number 
one, the appropriation that we received last year was less than 
we anticipated. It wasn't your fault. The Senate mark was low, 
and so we have less money to work with. It is just a much 
tighter situation overall. The courts are aware of this, and 
with the increasing workload we think there is simply going to 
be less money turned back.
    Also, the budget overall was just tighter. As you know, 
there are lots of different areas where carryover can be 
created from lapsed personnel, resources, benefits. All kinds 
of things end up being carryover funds.
    Mr. Rogers. Is this going to have any negative impact on 
operation of the courts, if you have no additional personnel or 
program increases?
    Judge Heyburn. We hope that it won't. If we thought that it 
was going to have a negative impact, we would have asked for 
more. It is a risk. We don't exactly know what the consequences 
will be a year and a half from now of the probation and parole 
folks having to work under these circumstances.
    We hope, assuming that we get something close to what we 
are asking for, and there continue to be increases in 
probation/parole workload, we will be able to provide them with 
the resources to do the job, and it may be necessary to reduce 
the funding to the rest of the courts. Now that is a risk. I 
can't sit here and tell you that there is no risk.

                           NEGATIVE ALLOWANCE

    Mr. Rogers. Let me ask you, this is the first time that I 
have ever seen this happen; perhaps Mr. Mecham and others might 
be able to correct me on this. You submitted a request to the 
President of a $400 million increase for the S&E account. That 
is just--normally the President's budget simply transmits 
whatever you sent to him. I have never seen it otherwise.
    This time they cut your request. They said, ``Hey, we don't 
think that the courts need this much money,'' and they cut your 
request by $159 million, reducing your $400 million increase to 
$241 million. What do you think about that?
    Judge Heyburn. Well, I don't think much of it; and of 
course you shouldn't think much of it either, because they did 
the same thing to the legislative branch.
    Mr. Rogers. Have you ever seen this happen before in any 
administration?
    Mr. Mecham. Yes, we have had it four times before, and they 
have twice succeeded.
    Judge Heyburn. Last year we had extensive conversations 
with Frank Raines, who is a friend of mine, and ultimately they 
decided not to do this. And this year we met with them, and 
they went ahead anyway. We think that it is contrary to law, 
contrary to good policy.
    It would be one thing if they analyzed our budget and said, 
``You know, we think that you can really do the job with $150 
million less.'' They did not do that. We are not like the 
Secretary of Agriculture who can come in and plead the case 
with the director of OMB. We are not part of the executive 
branch. They just very arbitrarily created the negative 
allowance.
    Mr. Rogers. What business is it of the President to say how 
much money the Federal courts can get? There are three branches 
of government, as I best recollect. Is that still true?
    Mr. Mecham. We hope so.
    Judge Heyburn. I hope so.
    Judge Piersol. We believe that.
    Mr. Rogers. And the Constitution says that the Congress 
shall appropriate the funds for all branches of government, but 
where in the Constitution does it say that the President has 
any say-so at all in the court's budget? Tell me.
    Judge Heyburn. It doesn't, and I would only amplify that by 
saying it is an interesting constitutional situation. I have 
had extensive conversations with Jack Lew, and Frank Raines 
before him, and our position has always been if they want to 
come up here to your committee and tell you that we are asking 
for too much money or you should appropriate less to us, as far 
as I am concerned, that is their prerogative. It is a free 
country, and they can analyze our budget and say we are asking 
for too much if they want to.
    What we think that they can't do under the law is, when we 
as a matter of statute send our budget up to OMB, as a matter 
of statute we think that they are supposed to pass it to you 
unchanged and that is the legal requirement. If Jack Lew----
    Mr. Rogers. I resent it terribly. OMB is overreaching in 
every aspect. They are overreaching on the census question, and 
trying to tell the Federal courts how much money you can have. 
It is outrageous, and it is also stupid. This is a level of 
ignorance that I didn't realize still existed.
    Mr. Mecham. Mr. Chairman, the statute is very clear. As 
Judge Heyburn pointed out, Congress in its wisdom and the 
President who signed the bill at the time it was passed said 
that ``the President shall send the judiciary's budget to 
Congress without change.''
    This negative allowance in my estimation is a devious 
device to get around the plain meaning of the statute. Congress 
decided that it was unwise to have the principal litigating 
branch of government control the budget of the judiciary. 
Congress has the fiscal powers to do that. I personally think 
that we have a good lawsuit against OMB at some point, but I am 
more of a militant than some of the judges.
    Mr. Rogers. I will pay your filing fee.

                         JUNE 15 FUNDING CUTOFF

    While we are on the subject, Mr. Mecham, aside from the 
budget resolution which is coming up, the next potential 
calamity is the cutoff in funding for the judiciary which is 
set to take place on June 15. The appropriations run out on the 
Federal courts, the Supreme Court salaries, expenses, paying 
the water bill at the Supreme Court, paying all of your 
salaries. All of the Federal courts, all of the operations of 
the Federal system are set to shut down, not to mention the 
U.S. Attorneys, the Drug Enforcement Administration, the 
National Weather Service, the State Department's operations 
around the world, and payments to the United Nations, all set 
to go out of business on June 15, unless legislation is passed 
to continue the funding for these offices for the balance of 
this fiscal year.
    And it was caused because the administration insists, in 
the Commerce Department, upon using a particular procedure to 
fund the census, the decennial census, which the Congress has 
disagreed with them on. Their position is, okay, just shut down 
everything, including the Federal courts. Deny justice to all 
Americans because we can't get our way on the census. What do 
you think about that?
    Mr. Mecham. Since you addressed the question to me, we 
don't think much of the idea with respect to the judiciary. The 
judiciary would prefer to remain neutral in a contest between 
the White House and the political parties in Congress and we 
think that we ought to be neutral, and for that reason we think 
we should not be included under this limitation. If you don't 
do anything else, Mr. Chairman, we hope that you and your 
committee will exempt the judiciary immediately from being 
under that provision.
    Just Monday I talked with the Chief Justice and he 
underlined his concern about this. He said that the courts are 
supposed to be neutral. Why are we being projected into this 
political fight? I suppose it is because by accident our budget 
appears before you in the form of the Commerce, State, Justice 
budget, and by accident the Census Bureau is there. So we are 
facing the unprecedented prospect, I don't think it has ever 
happened in history, where the judiciary could have its money 
cut off in the middle of a fiscal year.
    We would hope that the supplemental or whatever you want to 
do, that you would exempt the judiciary from that provision.

                   SAMPLING FOR THE DECENNIAL CENSUS

    Mr. Rogers. Well, you know, it is ironic that the cause for 
the cutoff, the question of sampling for the decennial census, 
is a question that will be decided by the courts eventually, no 
doubt. And I wonder, does that cause you any embarrassment, or 
do you get the idea that somebody is trying to pressure you to 
make a certain decision?
    Mr. Mecham. I would rather have the judges comment on that. 
I have my own view.
    Judge Piersol. It has crossed my mind.
    Mr. Rogers. And it has crossed my mind. Judges?
    Judge Heyburn. I don't have a census case so it hasn't 
pressured me.
    Mr. Rogers. But you are speaking for the judiciary.
    Judge Heyburn. I suspect to the extent that a case comes 
before the Supreme Court, they are perfectly capable of 
deciding a case without any concern for whatever pressure might 
be placed on them. So the ultimate answer to your question, I 
have no doubt in my mind that they would not be affected by any 
pressure, assuming for the moment that there is some.
    But it is not a good situation. We should not be in the 
middle of this thing. We do our very best to stay out of 
politics in every way that we can, the courts and the judges 
do. Sometimes we are unavoidably dragged into it; but where it 
is avoidable, we ought to be out of it.
    Mr. Rogers. Have you ever seen an instance like this where 
one could conclude that the President's insistence on a certain 
way to conduct the census or any other type of issue of that 
sort is being coerced upon the courts, it would seem at the 
expense of cutting off their salaries and doing away with the 
Federal courts, unless he gets his way on the census sampling? 
It is absolutely, fundamentally a serious question. What do you 
think?
    Mr. Mecham. Well, as I said, I have a personal view. The 
judges deal with the cases and they don't feel any pressure, 
but I guess as a one time political scientist and a student of 
government, it worries me that impliedly the judiciary's 
appropriation is being held up until a decision is made on the 
census.
    Mr. Rogers. Until the right decision is made on the census.
    Mr. Mecham. Arguably you could say that. I don't know which 
side wants us to rule which way, but it does look like a little 
pressure to me.
    Mr. Rogers. Is it extortion, do you think?
    Mr. Mecham. I would not wish to go that far, Mr. Chairman.
    Mr. Rogers. Thank you. Mr. Latham.

            IMPACT OF FEDERAL LEGISLATION ON CIVIL CASELOAD

    Mr. Latham. Thank you very much, Mr. Chairman, and I 
apologize for being a little late here. I had another hearing 
right across the hall going on this morning. I welcome the 
panel here this morning.
    Judge Heyburn, as you know, last year we spoke about the 
increased federalization of crime and its impact on the court 
system and your resources. I really would be interested in 
knowing today about your thoughts as far as the impact of 
Federal legislation on the civil caseload.
    And I am not a lawyer. I am not really looking for a growth 
industry here, but I would like to get your thoughts on whether 
you think the steady increase in the Federal civil caseload--I 
guess there was a dip last year--is that a result of increased 
legislation here in Congress, and specifically what type or 
what area, and are there some other explanations?
    Judge Heyburn. That is a very good question, and the answer 
is somewhat complicated. The civil caseload has had its ups and 
downs over the past five or six years. It is generally up, but 
it does bounce around, and whatever Congress does has an 
impact.
    It could have an impact to increase the caseload when 
statutes are passed which create a Federal cause of action. It 
can also have an impact to reduce the caseload. The habeas 
reform, some of the reforms in prison litigation have had--and 
we discussed this at the hearing last year--a tremendously 
beneficial impact, we believe, in getting some cases out of 
Federal court that should never have been there in the first 
case.
    So it is true that anything Congress does can have both 
positive and negative influences. I shouldn't say positive or 
negative influences. It may be that you decide there are 
certain claims that ought to be decided in Federal courts, and 
we have no problem with that as long as it is a considered 
judgment.
    But when you create additional cases, unless there is some 
other action taken, then that is going to increase the overall 
caseload. If it is important enough, then it ought to be done, 
but there ought to be a sense of balance.
    And of course everybody understands that a huge majority of 
all of the civil cases that are conducted in the United States 
occur in State courts, and the Federal courts ought to be 
reserved for those special circumstances which are best decided 
in Federal court or where our citizens need an alternative to a 
local forum. As long as Congress bears that in mind when they 
pass the laws that they pass, then we are prepared to do the 
work that is a consequence of it.
    Mr. Latham. Is there any specific area where you have seen 
a real explosion on the civil side?
    Judge Heyburn. We see an increased number of discrimination 
cases of all kinds in my district. Judge Piersol could comment 
also. It does vary from year to year.
    Judge Piersol. That is the area where I see, in 
discrimination cases. My huge increase is criminal, not civil.
    Mr. Mecham. There have been quite a few immigration cases 
under the new law, and from time to time there are student loan 
cases and Social Security, in addition to the ones that you 
might think of otherwise.
    Judge Heyburn. The system is somewhat self-correcting. When 
there becomes a surge of cases, someone will recognize it and 
Congress will tinker with the system to bring it back into 
order. The good thing about our American justice system is that 
there are a lot of avenues for release. The Federal court 
system is not the only court system.
    For instance, a lot of our jurisdiction is essentially 
concurrent with the State diversity jurisdiction. You can file 
in the State or you can file in the Federal courts, and 
discrimination cases are much the same. A lot of those cases, 
you can file them in State court or Federal court.
    When the Federal courts become too crowded and it becomes 
difficult to get a trial, lawyers and litigants make logical 
decisions. They will go to a court where they think that they 
can get to trial faster, and then they will file in State 
courts. And when it balances the other way, we will see them 
coming back into Federal court. The court systems work well 
together in that way.

                      INCREASING CRIMINAL CASELOAD

    Mr. Latham. Judge Piersol, you are from South Dakota?
    Judge Piersol. That is correct.
    Mr. Latham. Obviously, being from Iowa, you are directly 
impacted and share the increased burden of what we are seeing 
with the drug problem in our part of the country, especially 
with meth. I guess my question to you would be, do you think 
the request is sufficient for the increased work load that you 
are seeing? What do we need to do?
    Judge Piersol. As I commented to Mr. Serrano earlier, we 
are very similar to you. Our criminal caseload went up 36 
percent, and yours in Iowa is up 29 percent. We have a big 
influx of methamphetamine cases, as you do. One difference is 
that they are cooking it themselves pretty much in Iowa, and we 
are importing it from California; but the result is the same.
    Mr. Latham. Ninety percent comes in from California to 
Iowa.
    Judge Piersol. If we get all that we are asking for this 
time, we can handle it, but we are at the upper edge. I suspect 
that Iowa is in the same situation. I am so close to Iowa, we 
have some feedback with the Sioux City probation officers 
particularly. We have to get everything that we are asking for, 
and then we are getting close to the red line but I think we 
can handle it.
    Mr. Latham. We have a new presence of INS in the area, too, 
are you seeing more cases from the increased presence?
    Judge Piersol. Yes, because we have an INS enforcement 
office in Sioux Falls, and there wasn't one before.
    Mr. Latham. And we have two in Sioux City that we didn't 
have before.
    Judge Piersol. That immediately pushed up the INS cases, 
and I know that the judges in Sioux City are having exactly the 
same experience.

                            VIDEO TECHNOLOGY

    Mr. Latham. That is a problem that we need to work on to 
make sure that you have the resources, because the caseload is 
going to be much worse. We have a lot more resources on the 
enforcement side, and obviously that is going to directly 
affect you.
    I think the question, Mr. Mecham, was approached earlier 
somewhat as far as savings through video conferencing 
technology. Do you have any specific numbers as to what kind of 
savings you expect, or where your savings will come from? 
Transportation costs, staffing, or elsewhere?
    Mr. Mecham. Well, I can give one example.
    Mr. Latham. We can reduce your budget because of all of 
these savings?
    Mr. Mecham. We do have a Federal judicial television 
network, and Judge Zobel will talk to that. But just in the 
case of our own budget for the salaries and expenses for the 
judiciary, we anticipate that we will save more than $1 million 
dollars in travel because of the training that we are doing on 
TV. We have about 30 hours a week that we now put over that 
network. I think the FJC puts out about 10 of those, and we do 
about 20. We are doing a lot of our training over the network 
that we were not able to do before, and we are saving money.
    But in the video conferencing that Judge Heyburn talked 
about, the courts are able to save significant amounts of money 
when they can do as he described. Particularly in that area, 
Judge Zobel would be able to amplify on that. Those are some of 
the savings that we see, and we expect more will come.
    Mr. Latham. I appreciate that very much.
    Thank you, Mr. Chairman.
    Mr. Rogers. Judge Zobel, do you want to comment on the 
question?
    Judge Zobel. Well, I can't speak for reductions in travel 
with respect to the S&E account or the Administrative Office. 
We have done, Mr. Chairman, what you have asked us to do, and 
we have since 1995 reduced the FJC travel budget by 40 percent. 
We went from over $5 million to just over $3 million. The 
travel budget, which was 30 percent of our entire budget, is 
now 15 percent. It was 16 percent of the entire judiciary's 
travel; it is now 8 percent of the entire judiciary's travel. 
So we have saved, and we have put some of that money into our 
distance learning technologies.
    Do you wish me to go on with this now?
    Mr. Rogers. Please.

                 FEDERAL JUDICIAL CENTER FY 2000 BUDGET

    Judge Zobel. We do seek a program increase for eight new 
positions. We at the Federal Judicial Center are the managers 
of the Federal Judicial Television Network. Four of our 
employees do just that, and we took those employees from the 
cadre of those who were producing videos, both for broadcast 
and also video tapes that we use in various of our in-court 
training programs. And what we are looking for is four new 
positions to replace and add to those that now run the 
television network, so we can have these people again assist 
with the production of videos for the various purposes that I 
mentioned.
    In addition to that, the technology that is really emerging 
to assist us in training and education is that which is web-
based, and we seek four additional employees to help us to do 
more with the J-net. We did produce one program, for example, 
with a browser that allows employees in the courts to process 
requests for tenant alterations and the like. There is a need 
for much more of that, and we can do it if we have the staff to 
do it, but we don't have enough staff now to fill all of the 
needs in this area that we should be filling.
    So those are the program requests that we seek, which total 
only $563,000. The other piece, the $700,000, is for 
adjustments to base. As you know, our budget was for one year 
cut and for two years frozen, and last year, despite your great 
efforts, we received a minimal increase. So we have cut our 
personnel in order to allow for the regular increases in salary 
and fringe benefits that we have to give every year.
    We went from 158 FTEs in 1994 down to 135 now, and we can't 
keep doing what we are doing if we don't get our adjustments to 
base and then we just have to cut staff even more.
    Let me just briefly add to what Judge Heyburn said earlier. 
One of the ways in which we assist the courts to be more 
productive is with the training that we do for the courts. We 
provide programs on maximizing productivity for clerk's 
offices.
    We have also developed what we call a risk prediction 
index, which probation officers can use to assess how they need 
to supervise each of the defendants who come out on supervised 
release from prison. It has a benefit in allowing probation to 
assign maximum supervision to those who need it and minimum 
supervision to those who don't need more, but it is also of 
administrative assistance to the chief probation officer in 
figuring out the maximum that any particular probation officer 
can do by being able to predict the kind of workload that this 
officer will have with a series of offenders that that person 
needs to deal with.
    We put out a bulletin that helps probation officers in the 
field understand the special need offender populations. This 
one happens to be on sex offenders. We have done it on gangs. 
This is just a piece of it. They get the bulletin that 
describes in detail what this population looks like. It is then 
supplemented by a video that we also produce. It is for that 
kind of purpose that we need the video specialists, as well.
    We have two video conferencing facilities as part of our 
network now that are used by the Administrative Office, by the 
Sentencing Commission and by us for all kinds of conferencing. 
For example, not too long ago when we were looking to fill a 
senior position, we interviewed one of the candidates by 
television rather than paying her way from California to 
Washington. I know that the Administrative Office similarly 
uses our facilities in order to minimize the cost of bringing 
people together. We do it with courts, we do it for 
administrative purposes, and we do it for teaching purposes.
    I do wish to thank you for all of the courtesies that you 
have extended to us in the past. As you know, this is my last--
my swan song with this committee. I will say that I will miss 
you guys, and I will be going back to my court.
    I will inquire, Mr. Serrano, about the question that you 
asked. Juan Torruello is my chief judge, and he will certainly 
know how it happens that the Federal court in Puerto Rico 
speaks English. I know that they do, and I know that all of the 
proceedings are subject to being interpreted, every one of 
them, and for criminal cases it is the judicial branch budget 
that pays for the interpreters. For civil cases usually it is 
the parties who provide the interpreter, if they have the means 
to do that.
    So I wish to thank you Mr. Rogers, for your courtesy, for 
helping us out last year, both with the mark and in particular 
with playing a starring role in launching our system. You 
should know that we have shown that video many times because 
every time another court comes online, we need to explain to 
them what the system is all about, and there you are. It is 
great. Thank you very much. I am happy to answer any questions 
that you may have, and I hope that I have answered yours.

                    FEDERAL JUDICIAL CENTER DIRECTOR

    Mr. Rogers. Well, Judge Zobel, I want to congratulate you 
on your accomplishments at the Federal Judicial Center. When we 
first started dealing with you on your budget, the FJC looked 
more like a travel office than anything else, and now I am very 
pleased to say it looks like a training machine which is what I 
think it should be. You have presided over the transformation 
of that Center into a very modern, technologically up-to-date, 
up-to-speed organization, and I want to thank you for doing a 
wonderful job. We are very sad that you are going back to your 
old job.
    Judge Zobel. Now I can be efficient in Massachusetts.
    Mr. Rogers. That is correct.
    Judge Zobel. But I think you need to be clear how much you 
are responsible for what we have done. Really, it was very much 
your prodding that got us there, but I thank you for your kind 
words.
    Mr. Rogers. I look upon our relationship with the Federal 
judiciary, this subcommittee, as sort of a model of how a 
funding subcommittee ought to work with an agency, not that you 
are an agency, but it is a model of how we should be working 
with all agencies--collaborative, and, constructively critical.
    Before you leave us, though, we want you to leave us some 
advice about how your successor should look at this job and the 
direction the new person should take for the future. If you 
would like to give us a quick summary now, and then if you have 
the time, if you could prepare something more detailed that you 
would submit for the record if you would like.
    Judge Zobel. I would be pleased to prepare something for 
the record. I think that the job of director will have to be 
defined to some extent by whoever my successor happens to be. I 
think it is clear that we will continue to take advantage of 
technologies. I think we are moving more toward computers and 
the web without question.
    I think Judge Heyburn is absolutely correct that we can't 
be ahead of the curve, that the judiciary as a whole and the 
Center as part of the judiciary will need to work with tried 
technologies, those that have already proven themselves in the 
private sector. We can't afford to be too experimental, but we 
do need to be imaginative and innovative always.
    I have no doubt that whoever my successor will be, he or 
she will carry on the very important work of the Center. The 
Center I think is often not seen to be as important as in fact 
it is. The kind of training and the kind of research that we do 
for the judiciary is essential for the judiciary to be able to 
do what it is asked to do, and to do it with the fewer dollars 
that, we know, are going to be the way that it is in the 
future.
    So I hope, I hope that this committee and others will 
continue to recognize the very important role that this very 
small and inexpensive institution actually does play.
    Mr. Rogers. Well, you have certainly elevated its 
importance and its notoriety, and you have done a wonderful job 
there. I know all of the judges in the Federal judiciary thank 
you and appreciate what you have done, and that includes us 
here on the subcommittee.
    Judge Zobel. Thank you, very much.
    [Clerk's note.--Subsequent to the leaving, the following 
information was provided:]

    You asked my views on how my successor should look at the 
job of Federal Judicial Center director and the direction in 
which that person should take the Center.
    By statute, the Center's Board, which is chaired by the 
Chief Justice, determines its overall policies and direction. 
In 1997, the Board adopted a strategic plan for the Center, 
which provides ``that the Center must continue to rely on its 
strong automation capabilities to support its administration, 
its research activities, and its educational activities, and 
that it should devote its technological resources exclusively 
to serving those needs. In particular, the challenge of using 
technology to bring education and training to the third branch 
will only grow.''
    Thus the new director will operate within the guidance of 
this and the plan's other mandates and additional guidance the 
Board offers. I envision no major change in the direction the 
Center has taken in recent years. The Board fully understands 
the necessary role of technology and the importance that this 
subcommittee, and the Congress in general, attach to modern and 
efficient ways of providing education and research to the 
judicial branch.
    Of course, the new director will face many challenges in 
determining how to carry out these general policy directives. 
These include:
    1. Staying current with new technologies but avoiding 
costly ventures in unproven methods--We know, for example, that 
the satellite network is in some ways an interim step toward 
the day that we will be able to send video signals by other 
means.
    And, as I said during the hearings, web-based education and 
training through the internet and the judicial branch's 
``intranet'' (the J-Net) are emerging as very powerful tools, 
which is the reason for four of the eight FTEs we requesting.
    2. Embracing technology while realizing that it is not an 
end in itself--Our goals are quality education and research, 
provided in a cost-effective manner. Both high and low 
technology can produce these results. For example, even before 
the satellite network, the Center was providing the bulk of its 
education by means other than travel, relying heavily on self-
contained curriculum packages that courts could use for in-
court training. The satellite network has complemented our in-
court training, not replaced it.
    3. Persuading judges and staff to embrace technology--As 
you have said, the legal culture does not always welcome 
change. Our challenge is not to preach to judges about the 
virtues of new methods, but rather to be creative in finding 
new methods that judges will accept and will use.
    In that regard, I attach my introductory message to the 
Center's 1998 Annual Report, which encourages judges to come up 
with creative ways to use the Federal Judicial Televisions 
Network.
    4. Continuing to inform the Center's education with the 
findings of its research--Although the Center is thought of as 
an education agency, because about 80% of its resources are 
allocated to that program function and the support of that 
function, in fact the Center's research activities play a very 
important educational role.
    For example, we are a national leader in analyzing the use 
of alternative dispute resolution to save litigation costs and 
time and improve the process. That research contributes 
directly to our education. Similarly, we have a multi-faceted 
science and technology research project, the results of which 
teach judges how to deal more effectively with expert 
testimony.
    5. Appreciating when traditional forms of education are 
necessary--Although we have dramatically reduced our use of 
travel, there are, as you have noted, some types of education 
and training for which face-to-face interchange with colleagues 
and skilled faculty are essential. The challenge is to identify 
those needs and reserve our scarce travel dollars for them.



    Mr. Rogers. Ms. Roybal-Allard.

                             ILLEGAL ALIENS

    Ms. Roybal-Allard. Thank you, Mr. Chairman.
    As I was sitting here, I was thinking this whole mess 
dealing with the census probably could be solved if both the 
administration and Congress stop meddling and let the experts 
at the Census Bureau, based on their education and training, do 
their job, and the result would probably be that we could solve 
your problem and at the same time come up with a fair and 
accurate census by using the expertise that is now at the 
bureau.
    Judge Heyburn, in your written testimony on page 9 you say 
that there is a decline in the average annual costs of the 
criminal cases, and that part of that is being driven by more 
emphasis on the criminal prosecution of illegal aliens and the 
de-emphasizing of the higher cost criminal cases such as drugs 
and violent crime.
    Could you explain to me what that exactly means? Does it 
mean that we are not vigorously----
    Judge Heyburn. I don't think that I said de-emphasize. 
Maybe I did.
    Ms. Roybal-Allard. That was my wording.
    Judge Heyburn. In fiscal year 1998 the number of criminal 
cases increased from about 49,000 to about 57,000. As far as I 
know, the proportion of all the cases remained pretty much the 
same. There maybe were general increases across the board.
    Where we saw a difference was a dramatic increase in 
immigration cases, so I don't think that there was a de-
emphasis on other cases. There does not seem to be any dramatic 
change in the proportion of the other cases brought. There were 
increases across the board, but there was a dramatic increase 
in the number of immigration cases that were brought.
    Now, what we are beginning to see is that many of those 
cases appear to be handled, and Judge Piersol can comment from 
personal experience because we don't have a lot in Kentucky, 
but many of those cases seem to be handled rather expeditiously 
one way or the other. And many of these defendants are 
indigent, so a Federal defender or a panel attorney must defend 
them, but the cost of that defense is much less than a drug 
conspiracy case.
    So what we are seeing is that because these cases are 
proportionally a greater portion of our criminal caseloads, and 
those defended by panel attorneys or the Federal defender are 
an increasing share of that cost, the per case cost is going 
down.
    Ms. Roybal-Allard. So when you say, and I will read it so I 
don't misquote you, ``Should the DOJ decide to de-emphasize 
immigration in favor of other more complex, higher cost 
criminal cases, such as drugs and violent crime, the average 
annual cost per case will likely grow again,'' is that implying 
that we are not as vigorously investigating and prosecuting 
these higher crimes?
    Judge Heyburn. No.
    Ms. Roybal-Allard. I wasn't clear what that meant.
    Judge Heyburn. I didn't mean to imply that at all. It is 
just if you have however many United States Attorneys out 
there, somebody has to decide how we are going to use those 
resources. And let's just say, for instance, and this is a 
theoretical situation only, someone decided we are not going to 
handle immigration cases in Federal court, we are going to make 
it an administrative procedure, so we would have all of those 
United States Attorneys out there, and they would either be 
fired or they would do something else.
    In the drug areas, over the entire United States you 
basically have concurrent jurisdiction. It can be a State case 
or a Federal case, within reason. And in every jurisdiction 
they divide up those cases, and typically the more complicated, 
more complex, bigger cases the United States Attorney takes, 
and the lesser cases, typically, not in every jurisdiction, the 
State will take.
    If the administration or any administration decided we want 
to put more Federal resources into prosecuting drug cases as 
opposed to INS cases, then they could go further down the food 
chain, if you will, in bringing more drug cases in Federal 
court. And if we had the same number of cases brought, that 
would increase our defender costs tremendously because the cost 
to defend each one of those, to provide an adequate defense on 
each one of those drug cases, would be a lot more than it would 
be to provide the defense in an INS case.
    But of course all of that is a matter of policy and what 
the resources are at any particular place to do the job that 
the administration believes is important in the war, the fight 
against crime. It is certainly not my intention to take a 
position. We are here to do the job. It does emphasize that the 
workload that we take care of is uncontrollable from our point 
of view.
    We have no say in the policy of this administration or any 
previous administration as to how they want to direct the 
resources of the Justice Department in the area of crime. And 
if they decide to bring a lot of complicated environmental 
cases, we handle those. If they decide to bring a lot of 
relatively uncomplicated INS cases, that is less work for us 
and less work for the Federal defender. It sort of emphasizes 
the point, we handle what comes to us.
    Ms. Roybal-Allard. You don't feel we are letting these more 
serious criminal cases go by the wayside?
    Judge Heyburn. I have no evidence of that.
    Judge Piersol. An INS office opened just very recently in 
my jurisdiction and we had a big upsurge in INS cases. All of 
the rest kept going up, but at the level that I would expect 
the others to go up. I have a lot of drug cases, too, and there 
is no reduction in the zeal in which those have been 
prosecuted.

                    COURTHOUSE CONSTRUCTION FUNDING

    Ms. Roybal-Allard. Thank you for clarifying that.
    Mr. Mecham, you recently wrote a letter to the Chairman of 
the Appropriations Committee in support of courthouse funding. 
Could you tell me what prompted you to write that letter and 
what the need for courthouse construction is, for the record, 
please?
    Mr. Mecham. I have written quite a few letters on that 
subject, but I assume the most recent one would have been 
calling attention to Congress that for the third year in a row 
the Office of Management and Budget has chosen in the 
President's budget to zero out the judiciary sponsored 
buildings. The budget is included under the General Services 
Administration funding. We work closely with GSA, and by and 
large we have been in general agreement on which buildings were 
needed and when they ought to be built, and so we have had a 
pretty good partnership with GSA in developing priorities to 
meet the burgeoning needs for new space for the judiciary.
    The Judiciary went about 40 years without any buildings 
being built, and there has been a vast expansion in the 
judiciary, not so much in the number of judges but in staff, 
probation, pretrial and court staff. There are also unique 
security problems that we didn't have before. A lot of the 
buildings are totally inadequate, and most of them were 
designed without technology in mind.
    So there has been a great pent-up need. From fiscal year 
1991 to fiscal year 1997 the judiciary was well-treated by OMB 
and by Congress, but for the last three years OMB has decided 
that they shouldn't build any buildings, and it has been very 
clear why. In my view it is clear why: Because of budget caps, 
they see every dollar that goes to the judiciary as a dollar 
they don't have to take care of their priorities. So there are 
about $579 million in buildings ready to go, scattered 
throughout the United States.
    Ms. Roybal-Allard. L.A. is number one.
    Mr. Mecham. I am well aware of that. I understand one of 
your colleagues raised that question with Mr. Lew, the head of 
OMB----
    Ms. Roybal-Allard. Mr. Hoyer raised it first and I 
supported him.
    Mr. Mecham. Well, I congratulate you. I didn't know it was 
you. We feel that Congress should effectively overrule OMB and 
appropriate the money which was requested by the judiciary and 
the GSA. These projects are based on good solid planning. The 
process has now gone on since about 1990. We have tightened 
that up. The guidelines have been worked out closely with GSA 
and the committees of Congress. We feel that they are justified 
and ready to go and we need them, and we hope that you will do 
what you did last year.

                        Abuse of Female Inmates

    Ms. Roybal-Allard. This is in regards to an article that 
was in the Washington Post this morning where it reported 
that--it highlighted a report by Amnesty International--that 
said that women inmates in prisons and jails are routinely 
being subjected to sexual abuse by male guards, and I know that 
you do not administer the Bureau of Prisons, but what can be 
done to address this accusation? Are you seeing more actions 
brought against guards and the conditions in Federal prisons? 
Did you see the article?
    Judge Heyburn. I did not see the article. In my experience 
I have not seen any significant number of those kinds of cases. 
I am not sure that I have seen any, as a matter of fact. That 
is an area where if there are claims, lawsuits filed, the 
judiciary responds appropriately to handle the cases. Of course 
we don't have the direct responsibility in any way, shape or 
form.
    Ms. Roybal-Allard. I understand. But you are not seeing 
anything? It talks about not only are they subjected to sexual 
abuse, but there are serious problems in terms of medical care, 
where they have examples of women being put in shackles when 
they are delivering a baby.
    Judge Heyburn. I have not seen the article, and of course I 
would hope that is not happening.
    Judge Piersol. Let me speak to a part of that. I have a 
Federal prison but we don't have female inmates, and I don't 
know if the article spoke specifically to Federal prisons.
    I am aware with regard to pregnant women, there are 
programs at least in the 8th Circuit, which is where I am, 
where when somebody is pregnant, if they can meet certain 
requirements, they can be accorded a treatment where they get 
prenatal and postnatal time for bonding. We have been able to 
have that with a number of pregnant women. So they at least get 
accorded care during those important times.
    Ms. Roybal-Allard. I will be talking to the Chair of the 
appropriate committee and perhaps we can look into this more. 
Thank you very much.

                     Bankruptcy Filing Fee Increase

    Mr. Rogers. Thank you.
    Now, your proposal seeks to increase bankruptcy fees by $25 
which would raise $28 million, and you would have the proceeds 
go to the U.S. Trustees in the Department of Justice. Do you 
have a position on the increase in bankruptcy?
    Judge Heyburn. That is not our proposal, that is the 
Department of Justice's proposal.
    Mr. Rogers. How did it get in your budget?
    Judge Heyburn. I don't know that it is in our budget 
exactly. The U.S. Trustee is not controlled by the judiciary. 
This would be funds that the Justice Department would use with 
the additional fee to run the U.S. Trustee's office.
    Mr. Rogers. Let me get this straight now. This proposal is 
in the budget that we received, but it was not something that 
you all proposed? This was an administration add-on to what 
your budget proposes to do?
    Judge Heyburn. Well, it is not in our budget. We didn't 
know about it. The position of the Judicial Conference 
generally is to be very, very careful about additional fees 
because they tend to deny access to Federal courts. So although 
there are a number of fees that the judiciary does administer 
and form a part of our fee income to the extent of about $150 
million a year, we are very cautious about increasing those 
fees, and generally are opposed to increases in fees for the 
reasons that I have stated. They tend to deny access to courts.
    Mr. Rogers. If they are raised, do you support all of the 
revenues going to the U.S. Trustees?
    Judge Heyburn. Mr. Mecham is more familiar with the 
feelings of the Judicial Conference on that.
    Mr. Mecham. Well, first of all we were not consulted on it, 
and it is sort of a forced role, forced on the Federal courts 
to tax the litigants for the benefit of the Justice Department. 
They may have need for it. Since they didn't consult us, I 
don't know if they need that money or not.
    I would just say that the position of the Judicial 
Conference for many years has been that the trustee program 
should not be located in a political department of government. 
It ought to be an independent agency. We fear that it invites 
conflict of interest and perhaps corruption. I am not saying 
that there is corruption presently but there is that danger. I 
couldn't comment on whether this is useful money or not. I can 
say that they didn't consult us, although we would be required 
to collect the fees and give the money to them.

                           Defender Services

    Mr. Rogers. For the Defender Services program, the huge 
run-up in the cost appears to be moderating to some degree. The 
requested increase is more moderate than in the past several 
years. In part this is a result of carryover from 1999, in 
which estimated costs are now projected at $29 million lower 
than what you projected last fall when we were in conference.
    Judge Heyburn. Right.
    Mr. Rogers. To what do you attribute that slowdown in the 
growth of the defender program?
    Judge Heyburn. Well, all across the board, the things that 
we were concerned about and had discussions with you about over 
the past couple of years, the dramatic increases in capital 
defense costs. We have put a lot of effort into making sure 
that we had better qualified attorneys representing capital 
defendants, that the billing procedures were better organized, 
and so the result has been that the per case cost of capital 
defense has declined.
    Also we had a staggering increase, as you know, over just a 
few years, an increase from 23 to 150 in the number of ongoing 
Federal capital cases, and that dramatic increase has leveled 
off now. So the cost of capital cases is less.
    As you know, in the capital habeas area we had huge 
increases there which, after many discussions with you and 
hiring a consultant, we did a systematic study and determined 
that many of these cost increases were related to problems in 
the 9th Circuit. So over the last year and a half the 9th 
Circuit in cooperation with the AO has instituted a number of 
programs, training for lawyers, research assistants, much more 
detailed fly specking of bills, with particular attention to 
the cost of habeas defense in certain areas of California and 
also in cases that involve over $100,000. The result has been a 
30 percent decrease in the average annual cost of habeas 
capital defense and an actual $1.7 million decrease in the 9th 
Circuit's budget for habeas capital defense.
    You had several years ago really a not very healthy 
situation, in which the 9th Circuit was accounting for about 65 
percent of all the money spent on capital habeas cases. It was 
really not a good situation, to put it mildly, and that has 
turned around. Now the percentage of money that goes to capital 
habeas in the 9th Circuit is below 50 percent, so we think that 
we are on the right road on that.
    Mr. Rogers. But you are barely on the right road.
    Judge Heyburn. You have to take small steps before you can 
achieve proper results.

                  California Capital Habeas Case Costs

    Mr. Rogers. We are not looking for small steps. California 
is hogging the money, and that isn't going to happen for very 
long. We got after you last year about it. We put in report 
language, and here is where it was. That report that we 
requested indicated that the average cost of California cases 
was $370,000 each, compared to $70,000 for a non-California 
case. And between 1992 and 1998, cases originating in 
California, which are 20 percent of the cases, accounted for 
almost 60 percent of the total panel attorney payments.
    Now, you are making a little progress, but with one State 
still getting half the money out of all 50, something is wrong. 
Now either 9th Circuit straightens this out or we will 
straighten it out for them. Which do you prefer? And more 
importantly, which does the 9th Circuit prefer--a circuit with 
which there have been interminable problems for years. A lot of 
things about that 9th Circuit are screwy, and they are taking a 
lot of our fundings, and that can't last very long. Shall you 
fix it or shall we?
    Judge Heyburn. We would prefer to fix it ourselves, and I 
know that the 9th Circuit would prefer to fix it.
    Mr. Rogers. It has not been happening fast enough. I 
suspect that we are going to do something in this bill, unless 
between now and markup time the 9th Circuit comes around and 
says "Here is what we are prepared to do." I know that it is 
tough on AOC, it is tough on you, but it is not tough on me. I 
would enjoy it.
    The 9th Circuit is nothing but trouble, and we saved their 
butts last year. People wanted to divide up and carve up the 
9th Circuit, and we stood in the way and we said no, let's let 
the courts study how to do this. I see nothing reciprocal 
coming from the 9th Circuit. They are taking a lot of our 
funding. They are arrogant. What shall we do? Will you convey 
to the 9th Circuit folks that we are demanding immediate action 
on this problem?
    Judge Heyburn. It will be the first thing I do.
    Mr. Rogers. Before we mark up, and if they don't come 
forward with a reasonable proposal so that the rest of the 
country can have some funds with which to spend for Defender 
Services, then we are going to do it for them. Is that a deal?
    Judge Heyburn. That is a deal. I will certainly convey 
that, and we understand your sentiments, and we think we are 
making progress.
    The only thing I would say, and I understand precisely your 
sentiments and agree with many of them, but the way to get a 
handle on this problem is with case budgeting at the beginning 
of these cases. Many of these cases unfortunately last years, 
and if you try to get in the middle of it, it is very difficult 
to achieve dramatic savings. So we think a 30 percent decrease 
over 1 year is a pretty darn good start.

                           9th Circuit Split

    Mr. Rogers. There is no reason why we should be doing this 
for a border case in California, that we are not doing the same 
thing for an equally expensive case in New York City or in Iowa 
or Kentucky or anywhere else. They are hogging the money, and 
it is not going to last.
    While we are on the subject of the 9th Circuit, we let you 
all last year recommend what you wanted to do about dividing up 
the 9th Circuit rather than us doing it, and the report comes 
back apparently recommending that the circuit be maintained but 
be divided into three regional divisions. What is going to 
happen to that recommendation? And if you don't act, do you 
mind us involving ourselves in the 9th Circuit?
    Judge Heyburn. That recommendation is going to be presented 
to the Judicial Conference. Of course, ultimately Congress has 
the prerogative, after hopefully adequate consultation with the 
judiciary, to do whatever it thinks is best for the system as a 
whole. It is a complicated issue, and men and women of goodwill 
disagree on what would be the best solution or solutions.
    Mr. Rogers. I have a solution in mind, and that is to break 
it up. It is a mess. Things are a mess out there.
    Judge Heyburn. There are a number of people who agree with 
you, and then they disagree over precisely how it should be 
broken up. I know at last year's Senate hearing Justice Souter 
said the 1st Circuit would be glad to take on Hawaii if that 
would help solve the problem.
    Mr. Mecham. This circuit study was not done by the 
judiciary. Although the Chief Justice appointed five members, 
it was a report from the commission established by Congress to 
report to Congress. So you have already received the report.
    Mr. Rogers. You are correct.
    Mr. Mecham. And the Judicial Conference may review it, but 
ultimately Congress will decide.
    Mr. Rogers. Unless the 9th Circuit is quickly able to get 
their house in order, we can't afford them. We simply can't 
afford them. They are going to have to find another home.
    Mr. Serrano.

                            CENSUS SAMPLING

    Mr. Serrano. As I sit here in front of these distinguished 
judges, I remind myself of when I fulfilled a dream and played 
a judge on TV on Law and Order. I had told the whole world that 
I was interested in being an actor all my life, and they called 
me in and I read for the part and they said, ``You are fine, 
but there is one problem.'' I thought, ``They are going to ask 
me to play a corrupt Hispanic judge, something I don't want to 
do.'' But they said that this judge was very, very liberal, and 
I told them for me that was typecasting. The show has been 
played a few times on A&E, so I guess I wasn't that terrible, 
but they haven't called me back, so I guess I wasn't that good 
either.
    I guess that is some way of telling you that I am troubled 
by something that I heard, and the tone of what I heard, in 
your exchange with the Chairman over the census issue, troubled 
because I do, not only on one evening of my life, have 
incredible respect for the judiciary at all levels. I led an 
early fight in my political career to bring about the 
appointment of judges in New York, because I felt that electing 
them and submitting them to political clubs is not the proper 
thing to do, only, incidentally, to find out later that 
electing them was the best way to get black and Hispanic 
judges. The system would never appoint them at that time.
    But on the census issue, I heard one of you say it had 
crossed your mind that the White House was trying to force 
people to make decisions on the census. And no one was outraged 
when the Chairman in his very dramatic way used the word 
``extortion,'' so I thought that maybe I should either caution 
or advise as a friend against getting involved up front, 
although you have a constitutional right to do it, in a fight 
that is more than what some people think it is.
    This census fight to some of us is a very, very serious 
fight. It is about what the Constitution intended the census 
count to be, and it is about what the courts interpret the 
Constitution to say. Let me preface by saying that the Supreme 
Court didn't make this easier by saying that you can do both, 
so maybe it is the judiciary that put us somewhat in this 
fight. But for some of us this is a very, very serious issue, 
and we don't appreciate people taking sides where you don't 
necessarily get the whole picture.
    I represent the most undercounted congressional district in 
the Nation, and you should know that 28 of the 35 most 
undercounted districts in the Nation are represented by African 
American Members of Congress or Hispanic Members of Congress, 
and therein lies the story. Twenty-eight are represented by 
people like me. That also means that the people we represent 
are sent fewer Federal dollars for education and housing and 
women's issues and caring for children and perhaps the courts.
    And so if I may be so outrageous as to make a suggestion, 
an educational suggestion to people of your intellectual 
height, it is that this issue goes beyond politics. This issue 
is at the center of the next struggle in this society between 
the haves and the have-nots. An accurate count means more 
justice for my district, and justice is what you are all about.
    Having said that, I would go as far as to join the Chairman 
in seeking a way in which you could be excluded from this 
fight, because that is how much I respect what you do and what 
you have to do. But in the process of being angry, as I would 
be if I found out that this fight prevented me from getting 
paid next month, let's be careful that we see the whole 
picture, because there are people you will never see who live 
or die by that census count. There are people who may only come 
before you as criminals if they don't get the right education, 
if they don't get that census count, and the district that I 
live in in the South Bronx lives or dies by that census count. 
I hope that you don't think that I am out of order. In another 
place maybe you could rule me out of order.
    Judge Heyburn. Not at all, and I hope that nothing that was 
said from this table made you think that we want to in any way 
inject ourselves into that process. Certainly it is just the 
opposite. I think everyone at this table recognizes that it is 
a political and policy dispute, a legitimate one that is being 
fought out in the traditional way that these things are being 
fought out, and we presume that it will be resolved at some 
point.
    As I suggested, regardless of what anyone else thinks, I 
think that no judge wants to be in the middle of it, and no 
judge would be intimidated by whatever situation exists. They 
will make the correct decision that they believe is correct 
under the law. I haven't reviewed the Supreme Court decision, 
but certainly if they had an ideological bent they could have 
resolved it for one side or the other. I presume that they 
reached the decision that they did because they felt that 
irrespective of any political consequences, this was the right 
decision to make.
    We don't want to interject ourselves in it. We have been 
very sensitive to, as I indicated in my statement, the 
judiciary being drawn into politics in any direct or tangential 
way, and we seek to avoid it where at all possible.
    I appreciate your comments about getting us out from under 
the June 15 cut off because that does cause us some problems. 
But personally I understand that this is a fight which we are 
not in, and we are, just as other departments of government, 
innocent bystanders who are, if you will, effected 
tangentially. The State Department may feel the same way. We 
accept that, and we hope that we are going to keep on doing our 
job and hope that there is going to be no interruption, and 
personally I don't anticipate that there will be any 
interruption.
    Mr. Serrano. Neither do I. Thank you.
    Judge Piersol. That was just an aside. Obviously we want 
judiciary to be no part of the dispute, and I was only speaking 
personally. I am personally concerned about the precedent of 
the judiciary being involved in any way in this because we 
don't wish to be, other than cases which come to us. That is 
the only way in which we would want to be involved in the issue 
at all.
    Mr. Serrano. Thank you.
    Mr. Mecham. Mr. Serrano, since I responded to the question 
about pressure, I was very careful not to say which side was 
putting on the pressure. My concern was that there was 
pressure, I felt, implied in that funding decision, from 
whichever side or both, I wasn't sure.
    Mr. Serrano. Pressure comes every day to the judiciary, and 
that particular issue should not be the one that everybody is 
outraged about. On any given day an elected official condemns a 
judge who didn't give out enough time to a guy that he wants to 
be put away forever. We apply pressure, or try to, 
unfortunately on the judiciary. This is just an issue that will 
leave a major political blood trail, and as many people as can 
save themselves from it should.

                           DEFENDER SERVICES

    Mr. Rogers. In Defender Services, in fiscal year 2000 you 
anticipate Defender Services attorneys will represent some 88 
percent of all criminal defendants. There is some dispute about 
whether or not that percentage has been increasing. Let me ask 
you, that is nearly 9 out of 10 criminal defendants. Is there 
something wrong in a system where the Federal Government pays 
for 9 out of 10 criminal defendants' defense?
    Judge Heyburn. Well----
    Mr. Rogers. Specifically, does it say that we are missing 
situations where the defendant is able to pay and we are not 
catching it?
    Judge Heyburn. Depending on your point of view, there could 
be lots of things wrong with it. That we are indicting indigent 
people, certainly there is something wrong if we are paying for 
the cost of those who otherwise have the ability to pay. I am 
not here to say that has never happened. We do check pretty 
thoroughly the financial backgrounds of those who apply for 
services of the Federal defender or for a panel attorney, and 
that is a reasonably rigorous check.
    When we find out even in the middle of a case that it turns 
out that someone has assets that we were not aware of, we 
require them to get their own attorney. It is not always an 
easy process, as you can understand. But it is I think true 
that in many respects those who are indicted are those who have 
less of the advantages in life for a whole variety of reasons. 
Some relate to their criminal background and some relate to----
    Mr. Rogers. The question is, can we do more to ensure that 
criminal defendants are not fooling us on their assets?
    Judge Heyburn. Well, I think we are doing everything that 
we can. The other problem, it is not in the overall scheme of 
things a big problem, but when the hand of the law comes down 
upon those who are indicted, it comes down in many ways, and 
sometimes those who actually have the resources to take care of 
their own defense find those resources forfeited.
    So those folks who would otherwise have resources to pay 
for their own defense, in some cases we are funding lawyers for 
indigent defendants whose resources we have just maybe not 
forfeited but we have seized so that they can no longer use 
them. So it is a complex dynamic there, and sometimes these 
laws have unintended consequences.
    I am not here to of course testify for or against the whole 
forfeiture concept, but I know from my own personal experience 
that has come into play in a number of cases.

                             COURT SECURITY

    Mr. Rogers. Let me talk about court security, because we 
are nearing the noon hour and we have a vote on the floor as 
well. On court security you request a $31 million increase.
    Judge Heyburn. $21 million in obligations. I'm sorry.
    Mr. Rogers. $31 million in appropriations?
    Judge Heyburn. That is correct.
    Mr. Rogers. And that is for 120 additional contract 
security officers?
    Judge Heyburn. Yes.
    Mr. Rogers. How many of those officers are for new space 
versus existing space?
    Judge Heyburn. We can provide you later the exact detail. I 
believe almost all are for new or renovated space.
    Mr. Rogers. For existing facilities, we would like to know 
the rationale for the increases since last year, for the second 
time the committee fully funded positions at existing 
facilities to bring those facilities up to current standards.
    Judge Heyburn. You did.
    Mr. Rogers. Can you help us out?
    Judge Heyburn. We will provide that information to you.
    [Clerk's note.--Subsequent to the hearing, the following 
information was provided:]

    The fiscal year 2000 budget submission requests $3.1 
million for 120 new Court Security Officers (CSOs). While the 
formula used to determine the staffing levels for a facility 
has not changed, the increase in new CSO positions is based on 
the opening of new facilities and changing circumstances in 
existing facilities requiring additional positions. 26 
positions are requested for new facilities opening in fiscal 
year 2000. 94 positions are requested for existing facilities 
due to changing circumstances.
    A variety of factors drive the need for additional 
officers. These are:
    Expanded hours of coverage--Includes expanded hours for 
screening and operations. (14)
    Control room credit--To staff control rooms that are 
currently unstaffed and/or staff them for an expanded number of 
hours. (21)
    Increased staffed entrances--Increases in staffed entrances 
(i.e. loading docks, garages and handicapped entrances not 
previously staffed). (10)
    Expansion of space to include additional judges and/or 
floors.--Expansion from small to medium facility, or medium to 
large facility. This category could also provide additional 
credit for roving posts. (13).
    Increased Grand jury usage--Additional credits are allowed 
for instances where grand juries are active for more than 2 
weeks per month. Grand jury usage is based on the number of 
days a grand jury is in session. For small and medium 
facilities it's 0.5 staffing credit for a minimum of one grand 
jury panel meeting twice a week and for large and extra large 
it's 1 for a minimum of two or more grand jury panels meeting 
more than twice a week. (6).
    Change in building status--Additional credit is provided 
when a judicial officer begins holding court part time at a 
visiting facility. Further, where a judicial officer goes from 
holding court part time in a visiting facility to full time in 
that same facility, additional CSOs are required as the 
building is occupied full time. (24)
    Technical errors--Increased requirement due to errors made 
in the original formula calculations. (2)
    Unallocated postions--Positions will be used for unforeseen 
requirements that may occur during the fiscal year. 
Historically, changing circumstances have required this type of 
flexibility. (4)

    Mr. Rogers. On security equipment, this is the first year 
of an attempt by the committee to establish an equipment 
tracking system, equipment purchases on the basis of life 
cycle, and provide a means to monitor what the U.S. Marshals 
are doing. All we have to do is get the numbers to match.
    Your financial plan and your budget request indicate that 
you are spending $27.2 million on equipment and Y2K compliance 
in 1999 and you are requesting $22.6 million in fiscal year 
2000. Your equipment plan that you submitted to the committee 
on March 1st indicates that you are spending $18 million in 
1999 and requesting $27.5 in 2000. You are going to have to 
help us straighten those numbers out.
    Judge Heyburn. We will get you something that hopefully 
will reconcile that. I don't know the answer to that particular 
question right now.
    [Clerk's Note.--Subsequent to the hearing, the following 
information was provided:]

    For FY 1999, the financial plan indicated that we are 
spending $26.6 million, not $27.2 million, for equipment and 
Y2K compliance. The equipment plan submitted on March 1 
indicated that we are spending $18 million in 1999. The 
difference between those two figures is $8.5 million which is 
the cost of security systems contracts; this cost was not 
included in the March 1 equipment plan.
    For FY 2000, you indicated that we are requesting $22.6 
million. In fact, that is our requested equipment enhancement 
for FY 2000 in addition to a $2 million increase for associated 
installation costs, offset by a $15.2 million reduction in non-
recurring costs. The total FY 2000 request is $34.1 million. 
That is $6.6 million more than the $27.5 million included in 
the March 1 equipment plan. As in 1999, the $6.6 million 
difference between the March 1 equipment plan for 2000 and our 
2000 budget request is for security systems contracts.

    Mr. Rogers. We don't want to mess around with court 
security. We want to be sure that we are doing all that we can 
do.
    Mr. Serrano, any final comments?
    Mr. Serrano. Just to echo your last words, what we have to 
do for court security and to make sure that everything is fine 
there, just have enough support, and let's do the right thing.

                     ACCOMPLISHMENTS OF JUDGE ZOBEL

    Mr. Rogers. Judge Zobel, again we thank you for your 
service to your country and to the court system and to this 
Committee.
    Judge Zobel. Thank you very much, Mr. Chairman.
    Mr. Rogers. You have been a joy to be around and be with, 
and we have watched you renovating and bringing up to at least 
the 19th century----
    Judge Zobel. We are well beyond that.
    Mr. Rogers. We have a ways to go yet. They say that the 
difference between a pat on the back and a kick in the rump is 
about 18 inches, so I want to give you a pat on the back, but I 
want your successor to feel that there are kicks coming to keep 
modernization taking place because it saves us so much money 
and it is so much more efficient and it helps the 
administration of justice. Thank you for your wonderful 
service, and good luck in the future.
    To the judges and Mr. Mecham, thank you again for your 
splendid work. We will be working with you as time passes to 
help you realize your ambitions for the courts, and ours as 
well.
    Judge Heyburn. Mr. Chairman and Mr. Serrano, thank you very 
much.
    Mr. Rogers. The Subcommittee is adjourned.



                                          Wednesday, March 3, 1999.

                       LEGAL SERVICES CORPORATION

                               WITNESSES

DOUGLAS S. EAKELEY, CHAIRMAN
JOHN N. ERLENBORN, VICE-CHAIRMAN
JOHN McKAY, PRESIDENT

                   Chairman Rogers Opening Statement

    Mr. Rogers. The meeting will come to order. This morning 
the Committee will begin our hearings for the fiscal year 2000 
appropriations cycle.
    We would like to welcome the Chairman of the Board of the 
Legal Services Corporation, Douglas Eakeley; the Vice Chairman 
of the Board, a former colleague of ours in this body and very 
highly respected, John Erlenborn, originally from Illinois, 
still from Illinois; and the President of the Corporation, John 
McKay. We are pleased to have all of you with us today to 
discuss the fiscal 2000 budget request for the Legal Services 
Corporation.
    LSC is requesting a budget of $340 million for Fiscal 2000, 
a 13 percent increase over the amount provided in Fiscal 1999. 
This Committee will face the difficult task of doing its part 
to implement the balanced budget agreement which is still in 
place, while at the same time finding a way to fund a number of 
competing and equally important priorities, everything from the 
War on Crime, the War on Drugs to the 2000 bicennial census.
    So it is going to be another year of tough choices. We will 
be looking for ways to maximize scarce resources.
    In addition, there are numerous policy issues which we will 
face as we continue to debate how we insure that indigent 
people have access to our civil legal system. Clearly, this 
Committee is well aware of recent actions related to 
implementing the reforms adopted by the Congress over the last 
three years. We continue to be interested in closely monitoring 
how LSC implements and oversees these restrictions.
    I would also like to thank both the Members and the 
witnesses here for their patience while we have had to modify 
our hearing schedule this week due to the full Committee markup 
tomorrow. So we will try to accommodate you as best we can.
    At this point we will insert your record into--your written 
statement into the record. We ask that you then proceed with an 
oral summary as briefly as you would like to make it.
    [The information follows:]



    Mr. Rogers. Before we do that though I would like to 
recognize Mr. Serrano for any opening remarks he would like to 
make.
    Mr. Serrano. Well, thank you, Mr. Chairman. I'd just like 
to tell you that I am looking forward to the testimony. I 
welcome them here. As a political child of the 1960s and early 
1970s it is almost impossible for me not to be aware of the 
work that you do and I am looking forward to your suggestions 
on ways we can continue to work together.
    I thank you, Mr. Chairman.

          Opening Statement of the Legal Services Corporation

    Mr. Eakeley. Good morning, Mr. Chairman, Members of the 
Committee. It is a pleasure to be here again to plead our cause 
of access to justice on behalf of all Americans.
    This is the 25th year since President Nixon signed the 
Legal Services Corporation Act into law in July of 1974 and 
this past year we have continued to build on a base of 
bipartisan support an institution that we hope will survive and 
thrive during the next 25 years.
    Some of the results of our work are presented in our budget 
request, but they include the third year of implementation of a 
new system of competitive grant making. We have now completed 
the first year of a new program focused on state planning 
designed to maximize the efficient and effective use of federal 
funds to be applied for the purposes intended by the Congress. 
They include continuing regulatory reform, to streamline our 
operations and also to assure that we have a system that is in 
compliance with restrictions imposed by the Congress.
    We have continued to improve upon our compliance and 
monitoring systems with the active assistance of our Inspector 
General, again, nothing finished, everything continuing to be 
worked on on the theory that it is never, that there is always 
room for improvement and I think the past year, we have shown 
we have continued to improve under the leadership of John McKay 
and his management team.
    We have also successfully and vigorously defended the 
restrictions imposed by the Congress three years ago in federal 
litigation both in Hawaii and in the 9th Circuit and then in 
New York City and in the Second Circuit. And we are here today 
to request, as the Chairman indicated, a $340 million 
appropriation for FY 2000.
    That appropriation essentially breaks out into a cost of 
living increase of 3 percent for our basic field grants which 
would come to about $297 million. And then three new 
initiatives, two in the areas of unmet legal needs of children, 
and of course, children are the largest single segment of our 
poverty population in the United States today and they are our 
most vulnerable. Twenty percent of all American children today 
live in poverty. Roughly one third of those live in families 
with a working parent or parents who are still unable to earn 
enough to get above the poverty level, but we seek funding to 
increase our ability to serve those children's needs.
    We also are back with a renewed request for further 
initiatives in the area of aid to victims of domestic violence. 
With the encouragement of the Chairman last year, we initiated 
a very effective engagement with the Justice Department and I 
think that the results of that collaboration continue to be 
demonstrated as a number of our grantees have been able to 
qualify for grants under the Violence Against Women Act.
    Thirdly, we are seeking funding for client self-help and 
information technology, both in terms of some hardware 
increases as well as funding to help clients help themselves, 
both through self-help clinics, through legal education and 
through the use of kiosks and other interactive informational 
technology.
    That in a nutshell is our request. We are seeking nothing 
more than a very small cost of living increase for our 
management and administration line. No new staffing at any 
levels of the Office of Inspector General or the management and 
administration.
    And with that I will turn the table over to our 
distinguished Vice Chair, if I may.
    Mr. Erlenborn. I think the Chairman has given a very good 
overview of the current situation at the Legal Services 
Corporation. Let me repeat what I have said here a couple of 
times in the past. First of all, I have served on the board of 
the Legal Services Corporation, appointed by President Bush, in 
1989 and 1990 and I served as Vice Chair at that time. I was 
appointed about three years ago by President Clinton and I have 
served now for about three years again as Vice Chairman.
    These two periods of service are starkly different. In the 
1989 and 1990 time frame about half of the Board was dedicated 
to destroying the Corporation and the other half to saving it. 
And the President of the Corporation was on the side of those 
who wanted to destroy it. They were not successful, but it was 
a very trying time to be on the Board where everybody seemed to 
be at someone else's throat during that period.
    Joining the Board about three years ago, I came before this 
Subcommittee about a few months after I joined the Board, maybe 
six months or so. One of the observations I made is still true 
today and that is you could not tell Democrat from Republican, 
conservative from liberal, my sitting in and listening to the 
Board conduct its business. We are all working together.
    That means also and the Chairman has touched on this that 
we are all working to see that the will of Congress is 
expressed and the enactment of restrictions is carried out. We 
have been very successful in doing that. He mentioned two of 
the cases. He did not mention that we were successful totally, 
I believe, in one case, and almost totally in the other case 
with the use of pro bono counsel, without using a lot of funds 
that had been appropriated by the Congress for the Legal 
Services Corporation.
    I am now going to be heading a Commission, looking at the 
issue of what does the limitation on appropriation mean when it 
says that the Legal Services lawyers, grantee lawyers, may 
represent aliens who are in the United States, who are present 
in the United States. It does not say when present. Present 
when the cause of action arose, present when they contacted the 
attorney, present when the case is tried. This issue has never 
been addressed before although this limitation has been in the 
law for a number of years.
    We have through the Board's action in authorizing the 
appointment of the Commission a very distinguished panel of 
mostly law professors and in fact, I think only one is not 
currently practicing as a professor, either fully or as an 
adjunct, as I do at George Washington Law Center, or Georgetown 
Law Center.
    But these professors have an awfully good background in 
immigration law and statutory construction. We are going to 
have hearings in North Carolina and California and on the basis 
of what we find out as being the real impact of this limitation 
language, we will advise hopefully the Corporation how to 
interpret this language and in what way.
    I have nothing further to say. I am happy to be here. Happy 
to have the opportunity to answer whatever questions you might 
have.
    Mr. Rogers. Thank you.
    Mr. Eakeley. Mr. Chairman----
    Mr. Rogers. I wanted to introduce----
    Mr. Eakeley. But I forgot one thing so let me interrupt at 
any event. We were very fortunate after a nationwide search two 
years ago to find John McKay, then private attorney in Seattle, 
Washington who had Washington, D.C. experience to serve as 
President of the Corporation and just last week Mr. McKay and I 
signed a contract extending his term of office so that he can 
continue with the many reforms and institution building that he 
and his management team are about and I am very pleased and 
proud to be with both Mr. Erlenborn and Mr. McKay today.
    Mr. McKay. Mr. Chairman, good morning, Members of the 
Subcommittee. I appreciate very much our Chairman's remarks and 
wanted to let the Committee Chair know and all Members here 
present that we take our charge very seriously to continue the 
mission of the Legal Services Corporation which is to provide 
legal services to those in terrible need in this country.
    We are not here to tell you that the need has decreased for 
our services. We are not here to tell you that we have stopped 
leveraging the federal dollars and bringing many more resources 
into the lives of low income and disadvantaged people who are 
otherwise kept out of the justice system because, in fact, we 
have been successful at that in adding state dollars into our 
system in bringing nonfederal funds into the system. But we are 
here again to tell you, I believe I made this point last year 
when I had the privilege of testifying before the Subcommittee, 
that the federal investment is a key part of our public/private 
partnership that keeps the doors of the courthouse open for low 
income and disadvantaged people. We believe in this mission 
very, very strongly. Our Board supports us and we are very 
pleased that the Congress continues to demonstrate very strong 
bipartisan support for the mission of the Legal Services 
Corporation.
    As our Chairman mentioned, we are in the 25th year of the 
Legal Services Corporation beginning in July. We look to the 
future with great anticipation. We are proud to be the 
guardians of the door of the courthouse for low income and 
disadvantaged people and we are here really here before the 
Committee asking for the opportunity to earn your trust again 
as we have, I think, developed a very strong record of making 
sure that we comply with the refocusing the Congress asked us 
to undertake beginning in 1995 and 1996. I think our record of 
compliance has been very good. We administer a large system 
here to keep those courthouse doors open. And in any system you 
will have some errors, but I hope that in my relatively brief 
tenure, I have demonstrated to the Committee my intention to 
make certain that those congressional requirements are met 
fully by all of our recipients.
    I am here again today to pledge that we will both keep in 
mind our mission and the focus that Congress intends us to keep 
on our mission.
    I appreciate the opportunity very much to be here today and 
I know all of us are available to answer any questions.
    Thank you, Mr. Chairman.
    Mr. Rogers. Thank you, Mr. McKay and Mr. Eakeley. I want to 
say at the outset here that we have seen improvement from our 
perspective and the operation of LSC over the years that you 
have been involved and I do not hear as many complaints as we 
once did. Maybe they have grown hoarse, I do not know. But I 
think we can say that you are making some substantial progress 
of being aware of the problems that the Agency was facing as it 
worked at in the countryside. Not to say it is perfect, but I 
think we made some real positive progress.

               FUNDING FOR DOMESTIC VIOLENCE AND CHILDREN

    Now you are asking a $17.5 million new initiative, targeted 
primarily at domestic violence, as you indicated.
    First off, let me say that this Subcommittee has been as 
supportive of anti-domestic violence as anybody in the country, 
in fact, more so. It was us that increased funding for domestic 
violence programs in the Department of Justice by over 1,000 
percent for $26 million in 1995 to $283 million in Fiscal 1999, 
$12 million above the previous year. And two years ago, this 
Subcommittee created and funded a new program within the 
Department of Justice specifically for civil legal needs of 
domestic violence victims. That program alone grew from $12 
million in Fiscal 1998 to $23 million in the current fiscal 
year, a near doubling of that program.
    We also cleared LSC grantees so that they can receive and 
do receive funding from the Violence Against Women Act, 
domestic violence grant programs. In fact, LSC grantees have 
received about $7 million since we spoke last here last year 
and we had, if you recollect, a discussion about that, about 
why in the dickens nobody had applied for it. But since you are 
now eligible to receiving funds that we have flooded the 
Department of Justice with for those grant programs for 
violence against women grants, why do we need a new program 
that you are requesting $12.5 million for?
    Mr. Eakeley. I will defer to Mr. McKay for a moment. It is 
a new initiative, but it is really a chronic constant problem 
that is most severely visited upon low income women and Legal 
Services attorneys who deal with domestic violence day in and 
day out are the legal experts out there in the country doing 
this work.
    Most or a lot of the grant that the Committee has 
appropriated is not available to be taken down. We have been 
able to take down some of the direct legal assistance grants, a 
significant portion of that, but the request for funding in 
this area is intended to supplement and complement the work 
that is being done through the Justice Department grants. And I 
will let Mr. McKay supplement that, if I may.

                      DEPARTMENT OF JUSTICE GRANTS

    Mr. McKay. Mr. Chairman, we do bear in mind very directly 
your comments from a year ago and our management staff have 
worked hard with the Department of Justice. I think the numbers 
indicate that we had a significant increase in LSC grantees in 
1998. Those numbers are not all yet in completely, but we 
expect to have received a somewhat significant increase over 
recipients in the past. Some of those funds, of course, as the 
Justice Department administered them go to other Legal Service 
providers. In fact, they go to pro bono programs and work in 
concert with shelters, for example. They do not all come to LSC 
recipients. But we certainly appreciate the efforts of the 
Committee and the Chairman in helping us to access those 
following last year's hearing. We will continue to do so.
    The truth of it is that all LSC funds go toward this 
problem in one way or another. It is a little bit of an 
overstatement, but really 60 percent of our efforts in terms of 
our case statistics relate to domestic cases in one way or 
another, and most of our priorities in our field offices are 
set so high that when we handle a domestic case in some place 
in that case you find either violence or threat of violence. 
That is what it takes these days to get the attention of a 
Legal Services lawyer.
    What we are hoping to do in this special request is to ask 
our field programs to put together new requests, new programs 
which we would then have the opportunity to fund. And there are 
some very interesting things that are occurring out in the 
field, in particular, around technology which we think can be 
very, very helpful.
    Before I came to the Corporation, I served as a pro tem 
judge out in the State of Washington, and I issued many 
restraining orders to victims of domestic violence, to women 
who have come in without representation. In many cases, Mr. 
Chairman, I think that victims of domestic violence are first 
looking for information. Our Inspector General, I think, is 
doing some tremendous work with consultants, and has led the 
way for us in helping to put forward ideas that information 
technology can address some of these needs.
    So the hope is in this special request in our new budget 
that we will encourage ideas coming up from our field which we 
can then replicate around the country.
    So this is not by any means our sole funding source for 
domestic representation. In fact, the effort here is to try and 
create new ways, in particular, around information technology.
    Mr. Rogers. Sixty percent of your cases have some domestic 
violence connection.
    Mr. McKay. Yes.
    Mr. Rogers. And I would assume that a big portion of those 
are violence against women?
    Mr. McKay. Yes, that is true.
    Mr. Rogers. So of your total cases, what percent would you 
say are violence against women?
    Mr. McKay. Well, when I give the 60 percent number, we are 
talking about representation involving children. We are talking 
about----
    Mr. Rogers. I asked you about women. How much of the 
casework pertians to women?
    Mr. McKay. I could not tell you exactly. In most cases, we 
are representing families, Mr. Chairman, so we have a woman and 
her children. Whether the children have been abused or only the 
spouse has been abused----
    Mr. Rogers. Where I am coming from is in funding the 
Violence Against Women Act in a huge way, this Subcommittee was 
the driving engine on that and we did that because there was a 
problem, one. But two, we felt there needed to be some place 
where it is coordinated from, some headquarters, some place 
where we could go to and say why have not you done so and so? 
We wanted some discipline in the system. So we went through 
DOJ.
    And we flood them with money. They got plenty of money. In 
fact, they got more money than they can spend. We chewed them 
out last year too because they had not spent the money we gave 
them. And they still have not.
    Nevertheless, there is vast amounts of money laying there, 
available for grants to LSC grantees as well as anybody else. 
Now, DOJ program requires a comprehensive State plan and 
competition within the various grant applicants for providing 
those resources. Now am I to take it that you have not been 
competing very successfully in those State competitions for 
those funds. Is that the problem?

                            GRANT RECIPIENTS

    Mr. McKay. Well, I know we had about 80 of our recipients 
receive grants in 1998 and only 16 the year before. We had an 
increase in the funds that went to our program.
    Maybe another way to look at this, I think clearly we had 
an increase in the number of applications, Mr. Chairman, by our 
recipients after our discussion last year and the Justice 
Department, in fact, awarded more grants to our recipients. But 
the numbers, when you look at them, we project in 1998 to be 
somewhere around $5.5 million to our recipients.
    The money is getting out there, I think, for the Department 
of Justice. They are doing a good job. They are not giving all 
of their money or even most of their money to our recipients.
    I think of it this way. The bread and butter representation 
of women who are victims of domestic violence, today continues 
to be done by LSC recipients. They either train the pro bono 
programs to do that work, or they do it themselves. And so a 
significant portion, the point I am trying to make, is a 
significant portion of our current appropriation from this 
Subcommittee actually goes to representing women who are 
victims of domestic violence who often have very complicated 
legal issues that go beyond a restraining order. They may need 
an order of separation. They may need some issue with regard to 
custody. They may need some help with the legal issue regarding 
housing and their home.
    I think it is helpful for the Subcommittee to think of the 
Legal Services recipient as the day to day bread and butter 
agency repreesenting women who are victims of domestic 
violence.
    Mr. Rogers. We do on legal matters.
    Mr. McKay. Yes.
    Mr. Rogers. But you mention in your testimony at least two 
examples where some of this money was used to hire social 
workers into those programs. Now I do not have anything against 
social workers, but we have already got that going in the 
Department of Justice. We wanted you to get all the money you 
can for legal representation. That is what your specialty is. 
You are not social workers.
    And so what I am trying, maybe I hammered at you too hard 
last year and got you too enthused because you are going beyond 
where I think you ought to go now, in my opinion. So I would 
like to see your grantees go after the monies as best you can 
and be the legal representator of people in court.
    But we have got other programs in DOJ that we are counting 
on to do the social work and that end of it.
    Mr. McKay. Yes. I completely agree with you, Mr. Chairman. 
With respect to the VAWA grants, it is my understanding that we 
have now instructed our recipients in the use of the VAWA 
grants that are strictly for legal representation.
    In most of our recipients, and I think I visited 50 more 
offices now, where we have a staff individual who interacts 
with clients, they are much more along the lines of a paralegal 
who is doing the work more cheaply than a member of the bar can 
do in terms of contacting, finding, assessing the current needs 
so that the lawyers can do that work.
    We are also urging our recipients to get out there and 
interact with those agencies so they do not have to be sort of 
the one stop shop for low income people. We want them focused 
on individual client representation. That is our philosophy. 
That is what we should be doing and you are right to mention it 
and we will continue to make sure that we stay focused as we 
should.
     Mr. Rogers. Well, I expect you to keep your grantees in 
line too.
    Mr. McKay. Yes sir.
    Mr. Rogers. I mean you are nice people and they are nice 
people, but sometimes they do not like what you say.
    Mr. McKay. I think they have heard from me perhaps more 
than others in the past and I want to just assure the Chairman 
that they will continue to hear from me on these specific 
issues and I appreciate your highlighting it for me again.
    Mr. Rogers. Well, we have plunked a lot of money into this 
Violence Against Women, domestic violence period, but we are 
doing it through DOJ. That is where we want it to go. That is 
where we want it to be coordinated from. That is where we want 
the big picture to be seen. You are a part of that big picture, 
but you are not the big picture. Do you hear me? Are we 
communicating?
    Mr. McKay. We are communicating, Mr. Chairman. I think what 
we are trying to say though is that this $17 million supplement 
that we seek deals with the complexity of legal issues 
affecting children, in particular, as well as women that go 
beyond what we can draw down, or grantees can draw down under 
the Justice Department programs. And that this would complement 
and supplement that work but not be a substitute for a new 
program for the Committee to have to launch in competition with 
that which you have already done with the Justice Department.
    Mr. Rogers. Well, that is what I am afraid of.
    Mr. McKay. That is not the intent of this request.
    Mr. Rogers. Yes. Well, we can talk further. Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman. I have been listening 
to the Chairman and I know where--I think I have a feeling 
where he was going with these questions. I respect him. My only 
concern is that perhaps some of your initial contact with 
people, some of that may look more like social work than it 
does like legal services, but in fact, it is part of what you 
have to do in order to deal with the issues at hand.

                            LSC UNMET NEEDS

    In addition, it seems to me from the testimony that the 
bulk of your increase will go not into domestic violence 
against women, but also into unmet needs, which I would like 
you to elaborate on, unmet services to children as well as 
technology and promoting client self-help.
    So I would like you to respond to that and tell me what are 
the unmet needs for services to children that we have to 
address. And I will go also in the same category as the 
Chairman has discussed, needs that are being met or attempted 
to be met by someone else.

                        LSC SERVICES TO CHILDREN

    Mr. McKay. Yes, thank you, Mr. Serrano. Let me just say 
that to introduce this, to tell you that I think the legal 
needs of children are oftentimes very complicated and bound up 
in other issues that they face. A child client, if you will, a 
Legal Services lawyer often has issues involving criminal 
conduct and maybe wrapped up in the juvenile courts. There may 
be a question of housing. Many of the children that are 
represented have been--are homeless. They have either been 
kicked out or they are runaway and so there are issues about 
where they are going to live.
    Many, many times they involve whether they can continue in 
school some place and they are shuffled from agency to agency 
and what we are hoping is that by receiving this supplemental 
funding that we can begin to address some of those issues.
    There is a wonderful program called Team Child, for 
example, I think it has gotten terrific reviews, bipartisan 
interest in different parts of the country where we actually 
work much more closely with prosecutors and with judges on the 
criminal side because there is a difficult bridge that is 
necessary to cross when you are representing children who do 
not present the way other clients present and it requires sort 
of interdisciplinary activity to try and protect their legal 
rights which is our principal interest, but to keep them from 
falling into drug abuse or crime. And that if we can help them 
in advancing their legal rights, that we really are going to be 
an important player in making sure that they do not end up 
someplace else in our system like in jail or again being 
shuffled from social service agency to social service agency.
    It is somewhat an unfortunate comment on our times, but I 
think a true comment on our times that these problems evolve 
into legal issues and they evolve into civil legal issues.
    We feel that the system has not really been designed in 
many cases, including, unfortunately, in a number of our 
offices, to address these special needs, and so we are looking 
for ways like the Team Child program which is a tremendous 
resource to advance those legal rights.
    We have, I think, in our budget request submitted a number 
of potential ideas that we have at LSC, but we think one of the 
strong features of our system is that ideas come to us from the 
field which would be the streets or it would be rural America, 
places where the kids really are and where they really need our 
help. So Team Child is one example, but another is simply to 
develop the expertise in some of our offices for the unique 
educational issues that face children, homelessness issues, 
interrelationship between drug treatment programs, for example. 
These are complex issues and they require specialization.
    We hope through this budget request to focus on those 
needs.
    Mr. Serrano. And those needs in many cases, I imagine, or 
in some cases, are not related to domestic violence as we know 
it, they are separate suffering that a child has, not 
necessarily related to that kind of a situation.
    Mr. McKay. I think that is correct although I would say in 
my experience as a volunteer lawyer which is how I came to be 
associated with Legal Services as many private lawyers have, in 
many cases although it is not the legal issue that presents to 
you, there are--it begins with violence in the home or a 
breakdown somehow in the home and violence is just too 
prevalent, as you know.
    But you are right. It may present as a legal issue in 
denial of education which would be unlawful and therefore 
require legal assistance. Special education needs: many of 
these kids are troubled and eligible for special education. 
Health care, disabled kids are often left out of our system and 
we are attempting to begin to address those issues and again to 
seek the appropriate leveraging with state and private 
resources.

                          COMMISSION ON ALIENS

    Mr. Serrano. On another subject you mentioned that there 
was a Commission, I think, set up to look at the issue of the 
undocumented aliens, am I correct?
    Mr. Erlenborn. Not necessarily undocumented. These could be 
permanent resident aliens who have a job. They have small 
incomes and some legal problems and they may be qualified 
clients of the Legal Services program, but the limitations in 
the appropriation says that the Legal Services lawyers may 
serve these qualified legal resident aliens if they are--when 
they--I have forgotten the exact language. When they are 
present in the United States.
    The issue has been raised that these are not necessarily 
all agricultural workers. You take a permanent resident legal 
alien who is qualified and has a Legal Services attorney 
representing him. If that alien crosses the border into Canada, 
takes a week long trip down to Mexico, goes home to some place 
in Europe, do they lose their right to be represented by a 
Legal Services attorney, is that the intent of that limitation? 
It is not clear and that is why we were going to have these two 
hearings, one in North Carolina and one in California to find 
out what the real impact of this language and its 
interpretation would have out there in the real world.
    Mr. Serrano. Now that limitation does not exist for 
American citizens?
    Mr. Erlenborn. That is right.
    Mr. Serrano. You could be represented regardless of where 
you are.
    Mr. Erlenborn. Right.

                  TECHNOLOGY-BASED DELIVERY MECHANISMS

    Mr. Serrano. One last point, we have mentioned quite a few 
times here the area of using new technology, but I would like 
you to just very briefly elaborate how you would do that, and 
would you do it in conjunction with local courts or how would 
that work?
    Mr. Eakeley. It is a combination of both, but I think 
John's probably the best to address that.
    Mr. McKay. Yes. We know that Legal Services and those who 
do Legal Services work, in general, not just our recipients are 
reaching probably one in five of eligible clients with serious 
legal needs. Some of those we believe are seeking information. 
Some need a referral to a source maybe other than our Legal 
Services recipient and some will need direct Legal Services 
from one of our attorneys.
    We want to take advantage of the information boom that is 
out there, this revolution that is sweeping the world, and be 
in a position to provide not only information, but also brief 
advice that might be able to intervene before someone's problem 
becomes so severe as to require them to be in court.
    One of the things I think we do very well, but we do not 
get much focus on is we advise our clients of their legal 
responsibilities, not just enforce their rights and in advising 
them of their responsibilities, we often say well, you know, 
you have to pay the rent. And we will help you do that. Or we 
will tell them what their responsibilities are in terms of 
their educational components.
    So we advise about responsibilities and not just rights. We 
want to get that information out there, so there are--yes, we 
want to link up with courthouses who I think are going through 
tremendous change today in the way that they make information 
available to any citizen, but certainly someone who may be 
involved in the court system and we are working closely--this 
was what I referred to with our Inspector General working 
closely now with our recipient in the State of Georgia, and the 
idea is to try and replicate that.
    We have a number of programs that are just beginning to 
work with 1-800 numbers with the computer technology that will 
allow a quick referral to someone with expertise. For example, 
a pro bono lawyer. So the people are not falling through the 
cracks.
    We think we can greatly expand our ability to provide key 
and critical legal information where it can be used by people 
without having to take them into court or wait until they have 
got a subpoena in their hands.
    This is exactly what we are hoping to do and in our 
request, in our FY 2000 budget we are asking for the 
opportunity to create special grants which will allow us to 
administer them, encourage replicability so that we can run 
these programs elsewhere and then report back to the Congress 
on our success.
    We think this is a good way to leverage federal dollars and 
to get to more of these eligible clients that we have been 
missing.
    Mr. Erlenborn. Mr. Serrano, I would like to add to that 
that there are many different ways that technology can help. 
For example, there are quite a few people that have said why 
you do not have more pro bono attorneys who are doing this 
work? And to a great extent pro bono attorneys are used, but 
you have to have an intake point and there is where technology 
can be very helpful. You cannot manage pro bono attorneys just 
by having a list that you give to a prospective client and say 
maybe one of these attorneys can help you. You have to have an 
intake point to manage putting the prospective client in touch 
with the pro bono attorney who has the capability of 
representing them in the problems that they have. That is just 
one other use of technology.
    Kiosks, where they can get forms, they can fill them out 
and represent themselves. There are many different ways that 
technology can help to make these dollars, precious dollars 
that we get from the Congress go a lot further.
    Mr. Serrano. Thank you.
    Mr. Rogers. Mr. Latham.

                      PROGRAM CASELOAD STATISTICS

    Mr. Latham. Thank you, Mr. Chairman. Legal Services 
officials have used the number of cases produced each year in 
testimony, in their reports to Congress, as justification for 
receiving the federal funding for the program. Last year, the 
fact book to Congress indicating that in 1997 LCS served about 
1.9 million cases and closed 1.46 million cases with an 
investment of $283 million.
    There was also testimony last year that LSC would be able 
to increase the total number of resolved cases by 200,000 if 
the Congress increased program funding for the fiscal year 
1999.
    How did the Corporation determine the number of clients 
receiving legal assistance, the number of cases closed and the 
amount of additional monies that would result in 200,000 case 
increase?
    Mr. Eakeley. The Corporation has a basic 20-year-plus old 
information statistic gathering system called the CSR Report, 
which is in the process of being upgraded and expanded, and it 
is through the medium of the CSR Report that we get from each 
grantee the statistics that we report to the Congress.
    Over a year, more than a year ago, we started focusing on 
the accuracy and reliability of that information gathering and 
reporting function and issued an updated and new handbook 
advising grantees on what we expected them to report in the CSR 
report. We are also doing a survey to expand the report itself 
so that we collect more information from our grantees. And our 
Inspector General has been in the process of auditing a number 
of grantees to make sure that the information we seek and rely 
upon and provide to the Congress is also reliable.
    We are in the period of transition now and we are finding 
that the older system needed improvement and I think that the 
handbook and the revised reports have addressed that particular 
need, but what we have not yet done is figured out how to 
capture the other information about what grantees do that helps 
those in need that do not meet the definition of a case the way 
we require them to be reported.
    Mr. Latham. How did you get to the number, $1.9 million?
    Mr. Eakeley. I think it is--I will let John McKay answer 
that.
    Mr. McKay. That is strictly a counting of the number of 
cases reported by our recipients and they report them to us and 
we report them back to the Congress.
    What our Chairman has just pointed out is that through an 
initial contact through our Inspector General we looked at our 
definition of case because there can be some confusion. In 
fact, it gets a little surrealistic, actually, as to what a 
case is. Some might think a case would be an appearance in 
court, but that is never been how we define it.
    What we are trying to capture is the service that we 
provide eligible clients so that you and others in the Congress 
can determine what they are getting for their investment.
    We are in the process, based on the Inspector General's 
comments of making sure that we are tightening up our reporting 
requirements. We do not anticipate a real significant change in 
the number of cases we handle which is substantive discussions 
or representation with clients. Sometimes a case may be handled 
purely on the telephone. And we found in this review that we 
did have some confusing instructions for our recipients. 
Therefore we issued very recently a new--handbook which 
describes to our many recipients how to report cases. And so we 
have tightened up those provisions which we thought were vague 
and which our Inspector General has begun to report back to us 
now that we do have some small errors in how these cases are 
reported to us.
    We do not expect that number to change dramatically, but 
again, we are very committed to making sure that we accurately 
report the services provided.
    Mr. Latham. Could you explain how the Corporation defines 
and uses the term client and case? I think you probably touched 
on some of that. A case is basically someone calls up--just 
calls on the phone, and that is a case?
    What is a client?
    Mr. McKay. The client has to be eligible. In other words, 
we open a file and we make a determination that the client is 
an LSC eligible client and that that person has a matter which 
fits within the parameters of what Congress tells us we can 
represent.
    Once a case is open in one of our programs around the 
country, and once a service is provided, it is under our 
reporting requirements incumbent on the recipient to eventually 
close that file. So what we report to the Congress basically 
are case closings, so once we provided a service we determine 
that we have concluded that service and report that as a matter 
that has been reported on.
    Mr. Eakeley. But I think my understanding of this 
complicated issue is that the--our definition of case does not 
capture a lot of the brief advice and referral services that 
grantees do day to day and that is one of the reasons why we 
are in the middle of another survey.
    Mr. Latham. You are saying if someone calls up, you do not 
report that as a case?
    Mr. Eakeley. That is my understanding.
    Mr. McKay. It should not be reported that way and we have 
made that clear in our revised handbook that a telephone call 
asking for directions to the courthouse is not a case. But we 
are convinced in having looked this matter over----
    Mr. Latham. In 1997, were those considered cases in your 
request?
    Mr. McKay. I would be shocked to find that that occurred in 
a significant way, but literally when you have got millions, 
when you have a million and a half cases, there are going to be 
some errors and I have welcomed the Inspector General's inquiry 
in this area. I have supported it out in the field to our 
recipients. The Inspector is independent of my office, but I 
have--he knows he has my support in terms of doing this work 
and the reason is we want to make sure that we report 
accurately to the Congress the work that we do.
    I just want to emphasize our Chairman's comments. Part of 
our review has revealed that we are not asking some of the 
right questions of our recipients. They are performing more 
work than the categories that we provide allow them to report, 
including public education matters where you may have 150 
senior citizens and you describe what their legal rights and 
responsibilities are in a nursing home and those are not--I 
think that is tremendously valuable work which we do not 
report.
    So we are going to tighten those things up and I will 
certainly make sure that the Committee and you, Mr. Latham, are 
made aware of our efforts in that regard.
    Mr. Latham. Do many clients who are accepted into the local 
Legal Services program have more than one case?
    Mr. McKay. Yes. Oftentimes, it presents as one case, but 
will end up being, well, let me be careful of that. We have one 
client. There may be more than one matter that we work on for 
that client.
    Mr. Latham. As a result, would that not result in an 
overstatement of the clients served in the way it is reported?
    Mr. McKay. It does and we have had some confusion in our 
programs because what we have asked them to do, you may have a 
client that comes in, you work on a matter for 8 months. You 
conclude the matter, but something that came up during that 
time then becomes another case. This happens many times when we 
are dealing with kids on education matters, for example. It may 
turn out that there is an issue involving violence in the home, 
and that may come under our prior definitions more than once.
    Mr. Latham. So they would be double counted, basically, or 
triple counted?
    Mr. McKay. I would not think that is double counting. If 
someone has got a----
    Mr. Latham. If they are counted as clients, they would be 
counted two times.
    Mr. McKay. That is possible. That is possible. There has to 
be a way to capture the distinction between cases for a client 
and I do the same thing in private practice in my own practice. 
If I represent a corporation on a particular matter for two 
years and a completely different matter arises in the meantime, 
I have just handled two cases. I have billed them separately. 
They may involve different subject matter and so as far as the 
client is concerned, I have performed two services for them.
    We will handle it any way the Congress wants us to. We want 
to be as accurate as we can, but you can see there is an issue 
there between cases and clients. ``Clients'' would probably not 
be revealing of the efforts that our offices undertake.
    Mr. Latham. Well, I mean, you understand that when you come 
before Congress, the way you determine your numbers is 
basically that you simply add up the open and closed cases and 
if you have duplications of clients, if you are double 
counting, the numbers are not accurate then.
    Mr. McKay. Absolutely. We do not want to have double 
counted cases, but I want to make sure we are not 
misunderstanding each other and the problem would be mine and I 
want to make sure I am addressing your question.
    We do have clients with multiple cases under our guidelines 
and those are counted separately and that is why we report 
cases and not clients.
    Mr. Latham. And you have never questioned the reports from 
the local Legal Services grantees as to the quality of their 
information, their report to you?
    Mr. McKay. Again, that responsibility initially is ours in 
terms of making sure that the distinctions are clear to the 
recipients and I have indicated to you I do not think we have 
been as clear as we should have been. But the enforcement of 
that is the responsibility of the Inspector General in making 
sure that those programs are reporting accurately. As I have 
said, I think the Inspector General has correctly launched a 
series of audits out into the field to check the accuracy and I 
support that.

                           LSC STRATEGIC PLAN

    Mr. Eakeley. Actually, Mr. Latham, could I just add to 
that? The Board of Directors adopted a strategic five year plan 
according to the GPRA over a year ago, and part of that 
strategic plan included just precisely the point you just asked 
about, namely, not only questioning grantees about the accuracy 
of what they report to the Corporation, but also establishing 
an independent basis for verifying the accuracy.
    It was pursuant to that five year plan and the annual 
performance plan of the Inspector General that we now have, 
that actually set in motion a process that has already 
generated a new handbook, new instructions, clarification of 
reporting formats and statistics.
    Mr. Latham. Are you aware of any specific cases where the 
numbers were way off, going into the 1997 submittal?
    Mr. Eakeley. We have received verbal reports from our 
Inspector General as part of the process that generated a 
thoroughly revised new handbook on reporting and also generated 
a subsequent staff effort that is now under way to do a survey 
and get out to the field.
    We have not gotten any audit reports yet though. That is in 
the process.
    Mr. Latham. Have you reported inaccuracies to Congress like 
you are required to?
    Mr. Eakeley. My understanding of the audit process is that 
the Inspector General does an investigation, opportunity is 
given to the program that is being audited to comment on the 
audit. Then that is sent to the Corporation's compliance unit 
for verification, follow up, enforcement, whatever. And then 
we, the Board, get the report and then we provide that to the 
Congress.
    My understanding is that we are a couple of months away 
from receiving any reports from the Corporation management 
which means that they, well, let me ask Mr. McKay whether he 
has received anything from the IG?
    Mr. McKay. We have received one report which would be on 
the one program in Northern Virginia which did indicate some 
substantial concern in that program about cases reported.
    We have oral indications from the Inspector General on some 
others as well. This, of course, led to our request on the 
management side that we reissue the case reporting handbook. It 
has been completely reissued to the field as I have just noted, 
I want to note also that of the three principal areas 
addressed, by us, one of them was, in fact, to make more clear 
when you report separate cases where you have a single client, 
separation of time, separation of subject matter, different 
attorney working on it, that sort of thing. So we have 
clarified that to the field.
    I think the key is our response to the Inspector General's 
initial findings and they are very, very initial at this point. 
I think we have been as aggressive as appropriate.
    Mr. Latham. The Virginia case is the only one that you are 
aware of that has been reported?
    Mr. McKay. Yes, that is the only one that has been 
delivered to management. I have been in contact, of course, 
with the Inspector General so that we can make sure that we are 
very supportive of his efforts out there.
    Mr. Latham. Is that correct, is that the only case that you 
are aware of is the Virginia case?
    Mr. Eakeley. No, there are two different----
    Mr. Latham. That you reported?
    Mr. Eakeley. I anticipate----
    Mr. Latham. That you are aware of.
    Mr. Eakeley. No, there are about, I think there are six 
audits in process. I think he is done; he has submitted one to 
the President. At some point in time this comes to the Congress 
through our semi-annual report to you.
    It has not gotten--these are audits that are in process and 
I think the Northern Virginia one was the first one. There is a 
second one, I think, in San Diego and I do not know where the 
other three or four are, but these were planned out about a 
year and a half ago as part of the annual performance plan of 
the Inspector General. We are just getting, or management's 
just getting, the results of that and the interactive process 
that yields a written report to the Board and then to the 
Congress.
    But we are in regular--the Inspector General reports on the 
process of these reports of these audits in the course of each 
one of our board meetings and in between as well.
    Mr. Latham. I would like a second round here, Mr. Chairman, 
but in the one case were the inaccuracies significantly off?
    Mr. Eakeley. Yes, they were enough to be, enough to take 
immediate corrective action.
    Mr. Latham. Did you report that to Congress?
    Mr. McKay. No, we did not.
    Mr. Latham. Did the Inspector General report it to 
Congress?
    Mr. McKay. I think the mechanism for reporting is the semi-
annual report to Congress.
    Mr. Latham. I do not think the way the Inspector General 
Act is stated that that is the case.
    Mr. McKay. Well, I cannot speak for the Inspector General.

                       INSPECTOR GENERALS' REPORT

    Mr. Quatrevaux. I would be happy to answer any questions.
    Mr. Rogers. Identify yourself?
    Mr. Quatrevaux. I am Inspector General of the Corporation. 
My name is Edouard Quatrevaux.
    Let me say to you, Mr. Latham, that we conducted these 
audits in 1998. We published one report that is final, that 
dealt with our grantee in Northern Virginia. We saw a 13 
percent overcounting of closed cases there.
    We also saw problems with the open cases and other types of 
case management problems, basically administration problems.
    We will publish next week a final report on another grantee 
and this may be the one that you are referring to. There, we 
saw that the grantee should have reported under LSC guidelines, 
approximately 10,000 cases and they reported 32,000, so a very 
significant overstatement.
    This is a category, most of that error rate came from 
reporting in a category known as referred after legal 
assessment. The cases, 14,000 of the cases reported did not 
qualify under LSC requirements to be reported as such.
    Mr. Eakeley. I am sorry to interrupt. Those are real cases, 
but these are the referrals we were talking about before. These 
are people with real needs coming in, but the substance of the 
engagement was not sufficient to qualify as a case?
    Mr. Quatrevaux. That is correct. Under LSC guidelines you 
have to have some meaningful contacts and legal assessment and 
you have to establish eligibility and that was not done in 
these cases. In another 5,000 cases that were reported they 
were actually conducted with non-LSC funds and should not have 
been reported, in that particular case.
    We are aware, to give you some perspective, out of 1.4 
million closed cases reported in 1997, only 176,000 were 
reported in this category referred after legal assessment. We 
are aware of two other situations, one where we have conducted 
the audit and we are about to put out a draft for comment where 
once again, these kind of contacts that while they consume 
resources and may have been necessary to screen and that sort 
of thing, did not warrant reporting under LSC guidelines. I do 
not have the numbers handy on that, but it is a pretty severe 
overstatement.
    As to reporting, we are in this audit process. We follow 
our standards and we have to finalize those reports before we 
can issue them. Next week we will issue one report and then 
five more by May. Of course, the regular semi-annual report to 
Congress will also report on this, but we will see to it 
knowing now the Subcommittee's interest in that, we will make 
sure you will get those reports expeditiously.
    Mr. Latham. Okay.
    Mr. Rogers. Before we move to Mr. Dixon let me ask one 
question in this respect, is it to the grantees' financial 
benefit that these numbers are higher than true?
    Mr. Quatrevaux. No, not to my knowledge.
    Mr. Rogers. They get no financial rewards based on the 
numbers?
    Mr. Quatrevaux. That is correct.
    Mr. Eakeley. As I understand it, Mr. Chairman, these are 
actual clients in need with legitimate legal problems who 
actually are served by the local programs, but should not have 
been reported as cases as the Corporation in this earlier 
handbook defined those cases to be.
    Mr. Rogers. But there is no financial reward for them to 
overstate it?
    Mr. Eakeley. No, but it is part of the leftovers of this 
20-year-old information gathering system that we are taking 
pains to improve upon.
    Mr. Rogers. Mr. Dixon?
    Mr. Dixon. Thank you very much, Mr. Chairman. It is 
certainly a pleasure to welcome the three of you gentlemen here 
and Mr. Chairman, it makes me feel kind of old because I had 
the pleasure of serving with Mr. Erlenborn.
    Mr. Erlenborn. It was a long time ago.
    Mr. Dixon. That is my point. But it is nice to see that 
there is life after Congress. John looks very prosperous and 
very happy and it is nice to see all of you, but in particular, 
John.
    I know that last year Mr. Taylor raised some very important 
issues, one that John has touched upon. I think you have got a 
panel of distinguished men and women to try to sort out what 
the law is as to when a cause of action can be brought by Legal 
Services.

                           PRO BONO ACTIVITY

    The other issue that Mr. Taylor pursued last year and one 
that has been pursued by this Committee is can the private bar 
do more? There have been several articles on that and we have 
talked about it in Congress since 1965.
    Mr. McKay, I asked you last year if you would be prepared 
this year to talk about that. I think in 1965, before you came, 
there were 150,000 cases that you could identify that were 
served by the private bar. There are many of us that think that 
a plateau is reached in pro bono recruitment, but the issue 
will come up time and time again.
    Although Mr. Taylor is not here, could you offer some 
guidance as to whether there are a great deal of law firms or 
individuals out there that you have not exhausted that will 
take these cases?
    Mr. McKay. Thank you, Mr. Dixon. Yes. We are required under 
our own regulations to expend 12.5 percent of our funds in each 
of our programs for private attorney involvement, for pro bono 
work. I think it is a very important part of our responsibility 
to leverage federal funds, to bring in investment from the 
private sector and it is probably the best way that we do that 
and the most effective way is by bringing in pro bono 
attorneys.
    Many pro bono cases are handled for low income people that 
have nothing to do with the Legal Services Corporation. They 
are referred out from our office. There may be pro bono 
programs for the elderly run by a local bar association. In 
many of those cases, trainings occur by Legal Services lawyers 
who have the expertise, but they are not directly related. The 
12.5 percent number is a funding requirement and it requires a 
lot of programs to build the capacity in every single Legal 
Services recipient to refer cases out to private attorneys and 
not use paid staff.
    I come from the private bar with a pro bono history of 
doing legal work for low income people and a lot of private 
attorneys do that. I am not so sure that it is a plateau, but I 
suppose if you look strictly at the numbers in terms of the 
private attorneys who handle cases and I am sorry, I do not 
have the exact number of cases. I will supplement that to you, 
if I may, but we really are seeing a fairly flat number through 
Legal Services recipients and I think the reason for that is I 
have always said you have to have a place with the lights on 
and a place where low income people can find you and those like 
churches who often refer people in the community to us and my 
law firm was on the 70th floor of a building in Seattle and I 
would say in a not very nice joking fashion, it is difficult 
for a low income person to find me on the 70th floor. And the 
way it really works is they are referred out of other agencies 
including Legal Services.
    So we are kind of caught between a rock and a hard place. I 
think that private lawyers in the organized bar do a tremendous 
job in focusing on the needs of low income people. Many of 
their needs are highly specialized. When you get to issues 
involving disability benefits that may have been improperly 
denied someone, that is not something that a lawyer who is 
often working for paying clients understands and it needs to be 
undertaken by someone with expertise.
    So I think there is a reason why we see a plateau, despite 
all of the efforts of the bar association, despite the efforts 
coming from our recipients who have a requirement to reach out 
for pro bono assistance and to leverage federal dollars. We are 
at a place where we are using them in the most effective and 
the greatest way and yet the need out there continues to be 
overwhelming.
    So my hope always is that we can do better. I think you are 
astute in pointing out that we, in fact, seem to be at a place 
in which we are using private attorneys in the best way that we 
can to try and encourage new and younger lawyers to do this 
work, but they are not going to solve the problem of access to 
justice for low income people alone.
    Mr. Dixon. Thank you, Mr. McKay. Mr. Inspector General, Mr. 
Latham raised an issue and was follow up of Mr. Rogers on the 
issue.
    One might argue that there is an economic incentive to 
overreport cases, in that you may have a larger staff. Although 
you are not being paid by the case, perhaps you only need three 
attorneys in this particular facility and you have got six or 
eight.
    I do not know if you looked at that, but did there appear 
to be overstaffing of any of these Legal Services?
    Mr. Quatrevaux. We have not done any work that would 
attempt to get at that issue, but I can tell you that the 
grants are established in the appropriation. The size of the 
grant is based on the poverty population in the service area, 
so there is no correlation between the size of the grant and 
the number served or reported as served.
    Mr. Dixon. So although, perhaps inaccurately reported, 
there is no incentive, either per case or in staffing, as it 
relates to the size of the grant. The size of the grant is 
determined by the population that meet a certain threshold. Is 
that fair?
    Mr. Quatrevaux. That is how it is determined. I suppose 
there is a theoretical or hypothetical advantage in some future 
competition that the case load appear larger.
    Mr. Dixon. Did you reach any judgment as to why this 
overreporting occurred?
    Mr. Quatrevaux. Yes.
    Mr. Dixon. What is that?
    Mr. Quatrevaux. We have, again, part of it is coming from 
reports that have not yet been issued and are not subjected to 
our normal quality controls, but it is a variety of sources. I 
think the most prevalent is just insufficient attention of 
grantee management to the accuracies of these reports.
    We have seen frequently that that requirement is just 
handed off to an administrative person, that is, a grant 
requirement to be satisfied without the kind of management 
oversight that would have said, this cannot be right, we need 
to go back and check it.
    We have seen, as was alluded to earlier, some vagueness in 
guidance provided by the Corporation. The Corporation has 
revised that guidance in an attempt to clarify it.
    We have seen some interesting things like the Corporation, 
to its credit, is collecting this data over the internet, which 
has lots of savings associated with it. Unfortunately, the 
grantees automated case management systems are not connected. 
They simply produce an annual report and then someone takes the 
output of one automated system and enters approximately 500 
elements into the Corporation's reporting mechanism and there, 
as we saw in one case, 4,000 cases, some figures were higher, 
some figures were lower.
    Those are just some of the--as much as you might imagine 
with any administrative reporting, the usual kind of excuses or 
reasons.
    Mr. Dixon. Thank you, Mr. Chairman.

                          WELFARE REFORM LAWS

    Mr. Rogers. Thank you, Mr. Dixon. As we discussed last 
year, a group of LSC grantees and outside parties filed suits 
challenging the constitutionality of the restrictions that the 
Congress faced on LSC funding. Those restrictions, except for 
one, were upheld on appeal. The one remaining issue is the 
restriction on challenging welfare reform laws which you 
indicate in your testimony that you are appealing.
    Do you have an idea of when that----
    Mr. Eakeley. Actually, petitioned the Second Circuit for 
rehearing en banc and the Solicitor General of the United 
States has joined in that petition. The actual petition for 
cert., if that petition is denied, does not start to run yet 
and our General Counsel is here. I am not sure we know when the 
Second Circuit will decide the petition for rehearing.
    Mr. Rogers. Do you have a general idea?
    Mr. McKay. I would think that some time in the spring we 
would be facing a question of a cert. petition to the Supreme 
Court.
    From our standpoint, Mr. Chairman, we intend to pursue the 
defense of those restrictions because they are our regulations 
and if we are unsuccessful in the rehearing before the Second 
Circuit, then we intend to pursue that.
    Mr. Rogers. All right, that is what I was driving at.
    Prior to the enactment of those restrictions on grantee 
activities, LSC had not defunded or severely sanctioned any LSC 
grantee in over 15 years. The IG has conducted a number of 
audits, but no real sanctions.
    Now have you performed any sanctions, administered any 
punishments, any grantees since we last spoke?
    Mr. McKay. Yes, Mr. Chairman.
    Mr. Erlenborn. Mr. Chairman, the President, Mr. McKay, can 
certainly answer the last part of your question. Let me address 
your premise and that is that no sanctions have been imposed 
earlier.
    The fact is it was built into the law prevention of 
defunding. There was a right for recipient to be refunded and 
it was a long complicated process to overcome that presumption 
with appeals and so forth. And it was one of the restrictions 
enacted by Congress requiring competition that made it possible 
for the Corporation to effectively introduce sanctions and 
defund. But with that as a preface, I would like to now yield 
to our President.
    Mr. McKay. Mr. Chairman, yes, and our recipient, our former 
recipient in Oakland, Alameda was essentially defunded in a 
decision that I made based on a series of errors there, 
including, we believe, violations of the LSC regulation. Their 
funding was terminated. An interim provider is currently 
providing those services.
    I also terminated effectively the funding to the North 
Carolina farm workers' program. That funding ceased as of the 
first of this year for violations of the LSC Act.
    You are right. To my knowledge, this had not been done in 
over 15 years. We also substantially fined and admonished the 
program in South Texas, Texas Rural Legal Assistance, based on 
their handling of the case known as Casarez. We have imposed 
requirements for their continued receipt of LSC funds, 
including being subjected to spot audits by our team led by our 
Compliance Director, Mr. Danilo Cardona, who just recently 
returned from Texas to indicate that they have imposed the 
requirements that I ordered, shortly after becoming President 
of the Corporation.
    We have also, there are a number of programs in our 
competition process who were not refunded. Some of those based 
on what I think the Committee would be pleased to hear based on 
what we felt were better competitors, higher quality legal 
services and in some cases poor performance, and so we were 
able to replace the recipient. They are no longer receiving 
federal funds. That has occurred in several places, but in 
terms, I think your question really went to have we disciplined 
people and so yes, I think we send a pretty clear message, in 
particular, in the Alameda case and in the North Carolina case 
that no violations of LSC regulations will be tolerated by 
Corporation.
    Mr. Rogers. Now what are you doing to maintain oversight?

                     INSPECTOR GENERAL'S OVERSIGHT

    Mr. McKay. Well, as you know, Mr. Chairman, the structure 
of oversight shifted significantly in the expansion of 
responsibilities by the Inspector General and the Inspector 
General's oversight of independent auditors who must audit 
every single recipient.
    That, I think, it is fair to say is the principal oversight 
responsibility in terms of compliance with congressional 
regulations, with financial accountability to recipients, 
etcetera. However, we take it as our responsibility on the 
management side. My responsibility as the President to make 
certain that we expend our funds appropriately, that when we 
receive complaints or we receive knowledge of inappropriate 
behavior or conduct, that we will respond. If the complaint 
involves a violation of the law, if it is a criminal violation 
we refer it to the Inspector General. And those, of course, 
have been very rare.
    If it involves a violation of our regulation and it is a 
complaint, then we follow up on it and take appropriate action. 
Often, we will send an auditor or team of auditors out to the 
field. That is what happened in Alameda. That is what happened 
in North Carolina.
    We also have undertaken to recover funds and question cost 
proceedings which we also did in North Carolina, which we also 
did in Texas, effectively fining those programs and questioning 
costs. So we very aggressively take on the management side, not 
just the direct responsibility of the Inspector General, but on 
the management side, to make certain that we fulfill our 
responsibility in assuring compliance.
    Mr. Rogers. I think it is been the idea of the Subcommittee 
that for all those years, once you became a grantee, regardless 
of what you did, you would be refunded and that breeds 
sloppiness, to say the least. So now that those grantees know 
they have got to compete the next time, it will force them 
hopefully to do a better job now in anticipation of trying to 
get refunded. Is that the general scope within which we are 
operating?
    Mr. McKay. Absolutely. And we also have more leeway now to, 
I think, as Mr. Erlenborn pointed out, within competition to 
deal with programs who we think have exercised poor judgment or 
violated our regulations or the Act.
    It does give us, and it gives me as the manager of this 
network, much more opportunity to let people know that if they 
violate, there will be a response. I want to assure you that 
our actions in Alameda, in North Carolina and in Texas have 
been very well publicized by us and once they were taken, our 
recipients, I think it is fair to say, sat up and took a lot of 
notice beginning with Texas, continuing with Alameda and North 
Carolina. I take every opportunity to inform programs that we--
as I said in my initial remarks, we are completely dedicated to 
our mission of keeping the courthouse door open to low income 
people and we are on fire to do that. It is our job, but we 
also take very seriously our responsibility in making sure they 
comply with the will of the Congress and the way they provide 
those Legal Services. I think they know that I am committed to 
that.
    Mr. Rogers. Let me talk briefly with you on the IOLTA 
funds, LSC grantees receive almost 40 percent of their total 
funds from nonfederal services, the largest source, nonfederal 
source being the States' interest on lawyer trust account 
programs, which the Supreme Court has now said those funds are 
the private property of clients and may not be used for the 
purposes for which we have been using them and they sent the 
case back to the Texas lower court for a hearing on whether or 
not the State has quote taken end quote private property.
    What do you think?
    Mr. McKay. Well, if I may, Mr. Chairman, we continue to 
view this as a tremendous threat to the viability of our 
programs and our ability to provide legal services.
    As you correctly point out, we are a private/public 
partnership and this is another source of funding that LSC 
recipients have utilized. Again, they cannot expand those funds 
in any other way than Congress has indicated they must. In 
other words, even if the funds came from a congressional 
appropriation, they could not spend them on a non-LSC 
authorized event. But they are a very important source of 
funding. It varies in different programs, but they are very, 
very significant. I think it points up the importance of the 
federal investment in this system. Most of our programs provide 
basic legal services, some more successfully than others in the 
sense that they are able to reach those who need it through a 
combination of funding sources, the congressional 
appropriation, in many States, a State funding share, through 
United Way contributions and other private sources and IOLTA. 
And we know that if we lose IOLTA, we are going to be in 
substantial trouble.
    My understanding of the time frame involved now that this 
has been referred, that we are still a year or two away from 
this matter coming back to the Supreme Court and it will have 
to come back to the Supreme Court, depending on what the 
District Court in Texas does. So the United States Supreme 
Court did not throw IOLTA out in the sense that we are not 
receiving any funds. In fact, our recipients received a slight 
increase last year.
    So we are watching it very carefully and I think from our 
standpoint, as the agency responsible for the careful 
marshalling of federal funds in this system, that we know that 
the burden very likely will fall even greater on us.
    Mr. Rogers. Could not the Supreme Court rule that, in fact, 
the State has taken private property, given it to Legal 
Services grantees, could they not rule, the Supreme Court, that 
you have got to pay that back for the last several years, 
however long you have been taking it?
    Mr. McKay. You are sort of outside my--I suppose the United 
States Supreme Court could order just about anything. My 
understanding is that that is not perceived to be a risk by the 
lawyers who studied this very carefully. That we are really 
talking about a going forward issue here.
    Mr. Rogers. Well, we are talking about a substantial chunk 
in some States. Kentucky is not a big deal. It is 5 percent of 
the grantees of monies, but in some States it is upwards of 40 
percent IOLTA funds of the total budget. So we are talking a 
pretty good chunk in some States.
    Are some of those--are you aware that some States are 
trying to replace the IOLTA funding as a result of the Supreme 
Court challenge?
    Mr. McKay. No, that has not yet occurred in any States to 
my--I understand that there are one or two States that for a 
period of time stopped paying out IOLTA out of the concern that 
that might be the decision, but I believe that every State that 
has an IOLTA program--and I think that is every State, is 
continuing to pay out IOLTA funds. So I know there was some 
consideration, Mr. Chairman, but I think most, in fact, every 
State is convinced that that is not a significant risk and the 
two that considered it a risk have now changed that viewpoint. 
In other words, it will be a going forward problem and not a 
past problem.
    Mr. Rogers. Well, given that the States created the IOLTA 
program, it is a State problem. You are not saying it is our 
problem, right?
    Mr. McKay. Again, I think our problem will be the pressure 
it will put back on us if we lose it. I mean we will have 
substantial impact and we are very hopeful that that is not the 
final result in the United States Supreme Court, that we would 
lose that funding.
    Mr. Serrano.

                      Poor Performance of Grantees

    Mr. Serrano. Thank you, Mr. Chairman. I am not a lawyer, 
but you spoke about grantees who had committed illegal acts. I 
probably would look at that and determine that they were pretty 
illegal too if they are blatant. But you also spoke about poor 
performance. Without getting into specifics, if you can, about 
any particular group, tell us what poor performance is? I mean 
it seems to me that with the case load and so many cases, 
somebody can say poor performance is you have not taken care of 
my file yet, similar to what happens in our offices, when 
people come to us and say I went to your office and they did 
not take care of me. I say what do you mean? They threw you 
out? They say no. They did not solve my problem. I say well, 
they took care of you. They did not solve your problem. It is a 
different issue altogether.
    Anything you can tell us about poor performance?
    Mr. McKay. I have fielded and our staff have fielded a 
number of those complaints directly at our office in Washington 
and the complaint is you people are no good, you would not help 
me. And the real answer is we do not have the resources to help 
everyone, even those who are eligible for Legal Services.
    I do not consider that to be poor performance. I prefer 
not, and I hope you will not ask me, to single out any 
particular program.
    Mr. Serrano. No, I will not.
    Mr. McKay. I think that one of the benefits of competition 
has been that we are able to in some cases select a provider 
who simply does a better job. I mean they have better training. 
They have better standards. They have better technology. They 
simply serve their clients better in our judgment. And that is 
one of our responsibilities. We administer a grant system. We 
believe it is our responsibility to seek the highest quality, 
most efficient use of our funding and so we are out in the 
field, if you will, we are out across the country trying to 
encourage programs in different geographic areas to do a better 
job. And one of the ways that we are able to do that is to say 
if you do not do a better job, we will award the grant to 
someone else in your area to do that work. And that is what we 
mean.
    In some of those instances, under our competition 
regulation, we are, where we have two live competitors, for 
example, we perform assessments. And in some of those places we 
found that in relation to the competitor, the performance of 
the current recipient has been poor.
    I think it is relative. It is poor in relation to the new 
competitor. But I think that is a positive comment on the 
system of competition. That is what I meant by poor 
performance.
    Mr. Serrano. So we are not talking about you being able, 
although in same cases I am sure you do, to look at someone in 
a vaccum and say I would not want to be represented by this 
group or they are not doing what I think they should be doing.
    Mr. McKay. I am completely unaware of a situation where 
that is the case. Where we can match a lawyer up with, for 
example, a woman who is not safe in her home or her kids are 
unsafe in their home, she has got a tremendous advantage over 
the pro se individual person with no lawyer who shows up in 
court, no question about it.
    Mr. Serrano. Okay. One last point, there is a rumor 
floating around, and I know on this Committee we are not 
dealing with rumors, Mr. Chairman, but there is a rumor 
floating around that the Senate may decide to fool around with 
$13 million for fiscal year 1999 from your Corporation as an 
offset to the supplemental for Mitch. More than just saying oh, 
that would be devastating, do you have an idea of how it would 
impact immediately if that was the case?
    Mr. McKay. Oh yes. I think that you would see, once we 
received our FY 1999 appropriations, our recipients hired 
staff, made a decision to keep an office open, made a 
determination as to what priorities that office will undertake 
which are established by local boards at the local level and 
they did it based on the assumption that the FY 99 budget was 
the FY 99 budget. And every dollar in that, if it is $13 
million and I have not heard the specifics of the rumor, but if 
there were a rescission, if there were a take back of the funds 
from 1999, you would see staff layoffs. And of course, I would 
not know exactly what those are, but you would certainly see 
staff layoffs and you would see office closings where we have 
managed to get doors opened and lights turned back on again.
    I just returned from Alaska where an office was opened in 
Nome, Alaska, previously for a geographic area covering 
thousands of square miles. A lawyer had to come from Fairbanks 
by plane to serve the Inuit peoples there who were low income 
and they had not seen a Legal Services lawyer up there in four 
years. And I spoke with clients there and the difference of 
having that place open is going to make a huge--that is the 
office, figuratively, but I think we are at literally in that 
case, that is the office that would be closed.
    Mr. Serrano. That is Fairbanks and Nome?
    Mr. McKay. Yes, Fairbanks to Nome.
    Mr. Serrano. I used to make that trip.
    Mr. McKay. You know what I am talking about then because it 
is--I will bet you did not stop in Rose Hill which is the third 
airport going up a hill like this. I did that. That is tough.
    Mr. Serrano. Yes. Mr. Chairman, I have no further 
questions. I just want to tell you, in my initial comments last 
week I remarked that I would be leaning to my left here to Mr. 
Mollohan and Mr. Dixon, and in 30 seconds Alan has explained 
IOLTA to me, the case. Previously I thought it was something 
that is going to give us fat-free cookies or something. And in 
30 seconds Alan explained it. Already, I appreciate his 
assistance.

                      Accuracy of Client Case Data

    Mr. Rogers. Well, he is a good man. Mr. Latham?
    Mr. Latham. Thank you, Mr. Chairman. When I asked earlier 
about being aware of any problems with the accuracy of the 
client case data, you talked about the Virginia case. I would 
just like to know, are you saying that the Corporation had 
never received audit briefings on the results of case report 
reviews from Northern Virginia, the Houston programs in 1998, 
the San Diego program in August and November of 1998, the Miami 
program of 1998, in 1998. In addition, the July briefing, the 
Inspector General and his staff informed the Corporation 
management that there were serious problems with client and 
case statistics provided by the Florida Rural, and San 
Francisco programs. Are you saying that did not happen? Are you 
aware of that?
    Mr. Eakeley. No, the Board has received periodic briefings 
by both the Inspector General and management as to the progress 
of these various audits and the corrective actions being taken 
by management in the form and particular of this new CSR 
Handbook and the tight reporting regulations.
    We have only gotten one audit report so far, but this is an 
on-going process and my understanding from the Board level is 
that this is an interactive process between management and the 
IG that has been on-going and working the way it is supposed to 
work for the past six to nine months.
    Mr. Latham. I mean my specific question was what are you 
aware of or what information have you got, and you said you 
talked about the Virginia case and that is it. And I just cited 
six instances here where you have been informed of real 
problems and cases that you did not mention. I would like to 
know why?
    Mr. Eakeley. Mr. Latham, let me--I said that I was aware of 
six audits in process, only one of which had been completed 
which was Northern Virginia.
    Mr. Latham. Can you discuss what the problems were and the 
magnitude of the problems that you were briefed on?
    Mr. Eakeley. Just there seemed to be problems in these 
areas that needed (a) to be further audited, and (b) that 
corrective action should be taken while awaiting the final 
audits.
    Mr. Latham. Can you give us any kind of numbers as to the 
magnitude of the problem, on those six cases?
    Mr. Eakeley. My understanding is that as a result of the 
tightened reporting requirements imposed by the new CSR 
Handbook, the new reporting requirements, we will be looking at 
approximately 5 percent reduction in case load reports.
    Mr. Latham. And you are saying that that is all that you 
were ever told that may be inaccurate?
    Mr. Eakeley. Overall, that will be a correction of about 5 
percent in the however many hundreds of grantees we have. But 
no doubt, this Northern Virginia program had serious problems 
with numbers of cases reported closed. So too, in San Diego.
    Mr. Erlenborn. If I might address your original question, 
my understanding is that we have one draft report from Northern 
Virginia. We have had one oral briefing about San Diego. That 
is the extent of what the Board has had.
    Now the question is not what would we do with an oral 
briefing of San Diego, for instance, why has not that come to 
the Subcommittee. There is a process that is followed. After 
the oral, oral briefing, the audit is concluded. The draft 
report is produced. That will be given to management. It will 
also be given to the program that is being audited and they 
have an opportunity to respond. And then when the final report 
comes out, that goes to management.
    We certainly will know on the Board as well. But as far as 
I know, it is not our function nor has it been our process to 
send reports up here as to oral briefings on audits that are 
underway.
    Mr. Latham. If I may, is it not the responsibility of the 
Inspector General to report to Congress?
    Mr. Erlenborn. He does with semi-annual reports and he 
could answer better than I.
    Mr. Latham. This was not reported to Congress.
    Mr. Erlenborn. What is that?
    Mr. Latham. This was not reported to Congress as required 
by the Inspector General Act.
    Mr. Erlenborn. I will have to ask the Inspector General to 
address that.
    Mr. Latham. All right.
    Mr. Quatrevaux. First of all, we do not typically report on 
incomplete projects and until an audit report is issued, is 
final, it is an incomplete product.
    We have because of what we saw, briefed LSC management as 
the audits progressed on what we were finding. We cautioned 
that these were draft, that our findings still had to be 
staffed with the grantees that we audited, get their comments 
and then issue the reports.
    As far as the semi-annual report to Congress, the last 
report period closed on the 30th of September 1998 and none of 
those audits were finalized. However, I believe we did make 
mention and I may be wrong, but I thought we had made mention 
of the fact that we had initiated these audits. But it is 
simply premature and I am even loath to discuss draft findings 
with the Board of Directors simply because they are draft and I 
do not want to make the mistake and that is what the Government 
auditing standards are about, to insure that what we report is 
indeed accurate.
    Mr. Latham. Let me just say you are aware of the Inspector 
General Act, to keep the head of the establishment and the 
Congress fully informed, fully and currently informed and also 
to prepare semi-annual reports summarizing the activities of 
the office during the immediate six month period before that. 
The Chairman is also very well aware of this, that we were 
basing the appropriation at that time on the information we 
were given as being valid. Maybe you can clarify, since you 
were reported to, was it not a fact that the staff from the 
Inspector General reported that in the six programs, there were 
149,000 open and closed cases to the Corporation in 1997 
specifically and that nearly two-thirds of those were deemed to 
be invalid.
    Were you aware of that?
    Mr. Eakeley. That is not accurate. I am just saying that I 
have not seen some of these draft reports which apparently make 
up the total here.
    Mr. Latham. You do not think that would be significant?
    Mr. Eakeley. Well, it would be, but I was not informed----
    Mr. Latham. If you were informed?
    Mr. Eakeley. I am telling you, I was not----
    Mr. McKay. You have the Inspector General here, Mr. Latham, 
who has indicated to you he did not inform us of that number 
because his audits are not completed.
    If I may----
    Mr. Latham. The briefings that you had in July of last year 
and August and November, you never were briefed and told of up 
to two-thirds of the cases being misreported
    Mr. McKay. No, I do not believe that is right. It was maybe 
50 percent, anywhere from----
    I was advised by the Inspector General of his concern, and 
I agreed with him, at that time did not have an audit, which I 
think he appropriately cautioned. He has only completed one. We 
have received it. I take the one audit he has very seriously, 
which is why we reissued our CSR guidelines, redrafted them to 
try and make sure, get out in front of this issue. It is a very 
important one.
    We created a new unit within our office to work directly 
with our programs to try and make sure that our data was 
accurate on a going forward basis. So I have been alerted by 
the Inspector General of his impression that there are issues 
regarding accuracy of cases. But, again, all we can do is 
respond to the reports of the Inspector General, and we have 
one out of 262 in our hands.
    Mr. Quatrevaux. Let me also say that we met with 
management. I presume you are speaking--we have periodic 
meetings with management--my office, my leadership, with 
management. And to the best of my knowledge, we did not cover 
with them some of those audits, one you mentioned in Houston, 
for example, with them.
    It may be that an individual auditor doing the work 
discussed it with an action officer in the corporation's 
management team. But no, officially, as part of our activities, 
no, we have made no reports. We provided no totals of that 
type. And, in fact, I would welcome the opportunity to review 
that information and see how it compares with the information 
that we have and get back to you.
    Mr. Latham. And with the briefings you had, as far as the 
six programs with the inaccurate '97 statistics, did you ask 
anybody to correct those figures?
    Mr. Eakeley. I am not--I do not recall briefings on all six 
of the audits in process. Let me get--Mr. Erlenborn, as Vice 
Chairman of the Corporation, is also head of the liaison with 
the Office of Inspector General.
    But I do not recall--from the board perspective, Mr. 
Latham, we were--first, we reinforced the idea that both Mr. 
McKay and Mr. Quatrevaux were suggesting that we look at the 
accuracy of the case statistic reporting and look at it 
carefully.
    Secondly, when the first verbal reports started coming back 
of what Mr. Quatrevaux's office was finding, we supported this 
change in the case reporting, case statistic reporting handbook 
and process to correct what was coming up without waiting for 
the final audits. And my understanding of the audit process is 
that the grantee itself reacts to, or is given an opportunity 
to respond to the audit before it gets to management.
    So it does not come up to the board for me to go back to. 
The way I see it, the board is either--it goes from the OIG to 
management, and management either reacts in a way that the 
Inspector General approves and the matter is resolved, or it 
comes to the board as an unresolved matter. We have no 
unresolved matters, as I know of, in any of these case 
reporting audits. And as I understood it, the next report to 
the Congress, if, and when we got a final audit, would contain 
those audit reports.
    Mr. Latham. My question was: did the corporation ever ask 
any of these programs to correct their figures, that you were 
reported and informed that there were some real problems with?
    Mr. McKay. My only hesitation is whether we have informed 
the North Virginia program, which is the only one we can 
specifically follow up on. We have issued a number of 
advisories to all of our programs alerting them to this issue, 
and asking them to go back and look at their numbers and make 
sure that they are accurate based on the new guidelines.
    So, again, we are trying to stay in front of these audits. 
We will have an audit follow up process that is established 
with regard to North Virginia. And then when he gets us the 
other audits, we will follow up on them.
    So I think that the Inspector General would agree that we 
are very aggressively responding to this issue, and I do not 
think it is--I think it is falling into a problem here when we 
talk about responding to specific information. We may have an 
advisory from the Inspector General, but we have no audit 
report to follow up on until he gives us one.
    Therefore, our response to you, Mr. Latham, is that we 
are--our response has been system-wide. We are trying to solve 
any problems that are resulting in accurate audits. From the 
management side, we think that the end result is going to be a 
fairly modest decrease in the number of cases that we report to 
you, not that we did not provide services but that cases, as we 
defined it, were slightly overreported. That is how we think it 
is going to work out, but we await the audits.
    Mr. Latham. Are you aware--you say slightly overreported. 
Florida Rural reduced its reported case number voluntarily by 
over 39,000 cases. The San Diego and San Francisco reduced 
their reported numbers voluntarily by over 34,000 cases.
    Mr. McKay. Right.
    Mr. Latham. And you are saying this is a minor 
overstatement?
    Mr. McKay. Well, they are--
    Mr. Latham. Those are two cases, and we are at about 75,000 
out of, what, 1.9 million cases. Those are just two of the--how 
many, 260 some grantees, right?
    Mr. McKay. Well, as I said, when we became aware of this as 
an issue, without the detail of the audits, we advised our 
programs to go back and look, and these programs are responding 
to that advisory. That does not--I do not think----
    Mr. Latham. They were never asked to change or to revise 
their numbers, though. I mean, that is your testimony?
    Mr. Quatrevaux. Mr. Latham, I think what you are seeing is 
the deterrent effect associated with the knowledge that we are 
conducting these audits.
    Mr. Latham. No, this is revising '97 numbers. These are 
numbers that we based your appropriation on with bad 
information at that time. And there is very reliable 
information that says that the board was aware of it, 
management was aware that these numbers were cooked, and that 
we based the appropriation on it. And it is outrageous, as far 
as I am concerned.
    I mean, there are 263 programs, and we have two cases here 
where there are voluntarily about 75,000 bogus cases. And you 
were aware of it, and you have never informed us of this at 
all. Is that correct?
    Mr. Quatrevaux. We have----
    Mr. Latham. Have you ever informed Congress of this?
    Mr. Quatrevaux. No, because I am not supposed to under 
government auditing standards.
    Mr. Latham. On what basis do you say that?
    Mr. Quatrevaux. We have to staff that report with the 
people who have been audited.
    Mr. Latham. Are you aware of the Inspector General Act at 
all?
    Mr. Quatrevaux. I am quite familiar with it.
    Mr. Latham. That you are to keep management and Congress 
currently informed and fully informed of what is going on?
    Mr. Quatrevaux. I believe I have a great track record in 
that regard.
    Mr. Erlenborn. And accurately informed. And that is why 
they have standards. That is why they have audit standards.
    Mr. Latham. And would not the fact that there were two 
programs where they have voluntarily changed their numbers 
dramatically, if 75 percent of cases were bogus, would that not 
be accurate, knowing that those numbers were changed by the 
local organization? Would that not be, in fact----
    Mr. Erlenborn. It might. I think the accuracy is based upon 
the auditing standards, government auditing standards, and the 
GAO standards, which are being followed by the Inspector 
General. And to release individual changes in numbers, on a 
piece-by-piece basis, just dribbling them out, I do not think 
is going to serve anyone very well at all.
    Mr. Eakeley. And I do not think the board has ever 
intentionally misinformed the Congress or saw a statistical 
reporting fluke and tried to pump up numbers so that we could 
get more money out of the Congress. From our perspective, we 
are trying to improve the system and the information that we--
--
    Mr. Latham. Then, you are not being--someone is not 
informing you, then, of what is going on.
    Mr. Erlenborn. They are in the regular order of business.
    Mr. Latham. The regular order, under the Act, would say 
that the report should state to you and to Congress what is 
going on in activities, and accurately report that and 
currently report that.
    Mr. Erlenborn. Right.
    Mr. Latham. As we were going through the process last year 
appropriating dollars, in fact, that did not happen.
    Mr. Eakeley. Well, may I--I do not think--I learned a long 
time ago that it is not--I do not mean to even suggest an 
argument here. We are not disagreeing with you. To the extent 
that these audits show that the information that was reported 
as inaccurate, they will be revealed in those audits, and those 
audits will be conveyed to the Congress in our semiannual 
report.
    Mr. Quatrevaux. It was my decision to commence these 
audits, and no one else's.
    Mr. Eakeley. No, but we approved--I mean, we approved it as 
part of the strategic plan.
    Mr. Quatrevaux. Well----

                      COMMUNICATIONS WITH CONGRESS

    Mr. Latham. Why were we not informed? I would really like 
to know. As we are in the process of appropriating dollars, and 
we are seeing up to two-thirds of the cases--I do not even know 
how many nationwide are bogus or cases that are double 
reported, misrepresenting contacts, referrals? I mean, it is 
hard to believe that we can appropriate dollars in an honest 
way knowing that the information is not valid that we were 
given.
    As you know, Mr. Chairman, we are going through the process 
and trying to find the dollars available.
    At the time the questions about the client, the 
unreliability of the client data, was not forthcoming to 
Congress, was there ever any dispute between the board and 
Inspector General as far as his performance appraisal? Was 
there ever any concern in terms of performance appraisals, the 
board or the Inspector General?
    Mr. Eakeley. Well, we had a--not this year, last year, we 
had a disagreement about communications policy.
    Mr. Latham. About communicating with Congress?
    Mr. Eakeley. Yes. And Mr. Erlenborn took the lead on that.
    Mr. Erlenborn. Correct.
    Mr. Latham. What raised those concerns, if you are now 
saying that communication was there? Why was that an issue?
    Mr. Erlenborn. Why is it an issue? Because there were a 
number of times that the board and the Inspector General 
disagreed, that wound up with letters going to the Congress. 
The matter went to the General Accounting Office at the request 
of House committee staff, and the General Accounting Office 
helped us conclude that we do not need to dispute the 
communication policy. We are in tune now.
    I chaired the Performance Reviews Committee this year, and 
we gave Mr. Quatrevaux an unqualified pass on each one of the 
items in the review. Last year we had one qualified pass. He 
was passed in every one of the categories, except one was 
qualified because of this dispute we had as to communications.
    And let me add, by the way, that there was never any 
question of restraining Mr. Quatrevaux from notifying the 
Congress or being forthcoming to the Congress with any question 
they had relative to the Corporation.
    Mr. Quatrevaux. I might add that the GAO told me that I am 
the most independent IG that they have encountered.
    Mr. Latham. Obviously. And I am going to stop, Mr. 
Chairman. But to have any confidence in these numbers here is a 
real stretch, and I think we have real concerns, and we have 
got to look into this further. So thank you very much.
    Thank you, Mr. Chairman.
    Mr. Rogers. Thank you, gentlemen, for your appearance here. 
Mr. Latham has raised a legitimate concern that we have. And I 
think it needs not to be said, but I will say it anyway, we 
want accurate information, and we want you to report to us any 
discrepancies that are there.
    Rest assured, we will find it out, you know, one way or the 
other. And I know you want to be truthful in representing to 
the Congress, and we want you to be truthful, and we want to be 
truthful with you.
    We do make our judgment based on the volume of the load 
that is represented to us, and so it is important that we know 
what volume you are having to deal with on an accurate, 
objective basis. And we look forward to the IG's reports, and 
yours as well.
    You may want to put an asterisk on the instructions you are 
sending out to the grantees about sending accurate information, 
an asterisk that says, ``The Committee would love to find 
someone who is misrepresenting facts to Congress.'' And we 
would. We would like--if there is somebody doing that, I would 
like nothing better than to bust them. Whoever it is, your 
agency or the Justice Department, or the Supreme Court, does 
not matter--if they are misrepresenting, they are going to pay.
    Thank you all for your testimony, and we look forward to 
seeing you again soon.
    Mr. Eakeley. Thank you, Mr. Chairman.
    Mr. Rogers. The Committee is adjourned.



                                          Thursday, March 25, 1999.

                   U.S. SMALL BUSINESS ADMINISTRATION

                               WITNESSES

AIDA ALVAREZ, ADMINISTRATOR
JOHN L. GRAY, ASSOCIATE DEPUTY ADMINISTRATOR FOR CAPITAL ACCESS
GREGORY A. WALTER, DEPUTY CHIEF FINANCIAL OFFICER
BERNARD KULIK, ASSOCIATE ADMINISTRATOR FOR DISASTER ASSISTANCE

                  Opening Statement of Chairman Rogers

    Mr. Rogers. We are pleased to welcome to the Subcommittee 
today the Administrator of the Small Business Administration, 
Aida Alvarez. The fiscal year 2000 budget request for SBA 
totals $762 million, an increase of $43 million from the 1999 
level. The administration is also requesting an additional $233 
million in emergency appropriations to support the fiscal year 
2000 Disaster Loan Program. We will want to hear today about 
how SBA is improving its lending and other programs to support 
and assist the Nation's small businesses in a climate of 
limited resources. We would like to know what programs and 
administrative efficiencies are being achieved and what you see 
as the major opportunities and challenges facing SBA in the 
coming year.
    So shortly we will entertain your opening statement.
    Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman.
    I have no formal opening statement; I'll just do something 
that embarrasses the heck out of the Administrator all the 
time, and that is just to tell you how proud I am that she is 
here today, and that I confess to the fact that she is a friend 
for a thousand years, and I confess to the fact that in my 
community we have always led a fight to try to get some members 
of our community in important positions in the government of 
this country, and she is one of those people we are very, very 
proud of.
    Now I will completely embarrass her by telling you that 
once upon a time, before she became a much better human being, 
she was a journalist.
    Ms. Alvarez. Don't hold it against me.
    Mr. Serrano. I had been interviewed some 20-something years 
ago by a few people for the Spanish language newspaper, but 
never in English. It was a big deal for me to be interviewed by 
an English newspaper, and they sent a cub Puerto Rican reporter 
to interview me.
    Ms. Alvarez. Just in case you had a language problem.
    Mr. Serrano. And the big picture that I have in my 
scrapbook, Mr. Chairman, is Ms. Alvarez and me pointing at a 
roof, a ceiling that was falling apart in a public housing 
project, and that is how this career began. And she quickly 
learned that the reporter wasn't supposed to be in the picture.
    I welcome you here, and I join the chairman in his welcome. 
I look forward to your testimony, and now that I have 
embarrassed you, I apologize.
    Mr. Rogers. We are pleased to have you here, and we will 
make your written statement a part of the record.
    [The statement of Ms. Alvarez follows:]



         Opening Statement of the Small Business Administration

    Ms. Alvarez. Thank you, Mr. Chairman. Thank you, 
Congressman Serrano, and all the folks here today.
    I appreciate the opportunity to testify about the SBA's 
budget for the year 2000 which, as the chairman said, is a 
budget that in total requests $994.5 million, and, which I 
believe any budget should be, is a blueprint for the future, 
for the future success of small businesses in the 21st century.
    It is a modest budget, and requests nearly level funding 
for the current programs when you take into consideration that 
a significant part of the increase is the lack of carryover 
funding available in previous years--carryovers due primarily 
to fluctuations in the demand for disaster loans and for the 
7(a) loan program. Even so, it is one that will offer 
unprecedented levels of credit and capital to small businesses.
    We are requesting $10.5 billion for the 7(a) program, up 
from $10 billion; $3.5 billion for the 504 program, and $2.4 
billion for the SBIC program, which is an increase of $1 
billion in program level. This also will enable us to carry out 
a number of statutorily mandated programs, including $9 million 
to support an expanded Women's Business Center network, and $4 
million for the HUBZone program, which we just kicked off this 
week, and we are very proud of that.
    The budget also contains modest requests to carry out the 
New Markets initiative, which is an initiative that we have 
been working on for some time, focusing on filling the critical 
gaps that exist for smaller sized loans, smaller amounts of 
equity investments, and much needed technical assistance for 
newer and smaller businesses. This will be very helpful to 
rural businesses, to inner city minority-owned businesses and 
women-owned businesses, the start-ups.
    This is, I believe, also a sound and fiscally prudent 
budget. We will respond in more detail to the chairman's 
inquiries about efficiencies, but this budget continues the 
trend towards lower credit subsidy rates, which of course 
allows us to extend credit to small businesses at a lower cost 
to the taxpayer.
    As of today, since the beginning of the Clinton 
Administration, we have reduced the number of employees at the 
SBA by about 18 percent, and the budget that we are proposing 
for the year 2000 would further reduce our operating budget by 
an additional $10 million. With significantly fewer employees, 
we are actually doing a lot more. We have delegated much 
greater authority to our lending partners, so that right now we 
rely on the credit decisions of our lending partners for about 
75 percent of the loan portfolio. But that loan portfolio has 
grown to almost 500,000 loans, worth about $40 billion, which 
is nearly double what it was 6 years ago when it consisted of 
260,000 loans worth just over $20 billion.
    This budget requests $8 million to continue the systems 
modernization. It is a multiyear modernization at the SBA, 
which we need in order to go into the 21st century, and be able 
to better identify and manage portfolio risks, to have systems 
that are integrated with those of our private sector partners, 
and of course it also is necessary for us to carry out staff 
training that goes along with the modernization.
    I am proud to say that SBA was the first credit agency in 
the Federal Government to receive an unqualified opinion from 
an independent auditor, which is the highest rating attainable, 
and that we received that opinion 2 years in a row. We are 
confident, notwithstanding the new requirements placed on us in 
the auditing process, that when all is said and done we will 
once again attain an unqualified opinion.
    We believe the $8 million that is part of our request for 
modernization will go a long way towards helping us achieve the 
sort of modernized systems that are necessary for us to respond 
in a timely way to the newer requests in the auditing process.
    As the chairman mentioned, there is $761.5 million 
requested in regular appropriations, and $233 million in 
contingency appropriations for disaster assistance. The budget 
also includes $1.4 million for the Office of Advocacy and $11 
million for the Office of the Inspector General.
    I believe that this is a fiscally sound blueprint for how 
the SBA can help small businesses going forward. I am 
especially pleased about the ideas contained in the New Markets 
initiative, which, as I said, will couple not only smaller 
sized loans through our regular 7(a) program, through the 
microloan program, but much needed equity investments and 
technical assistance. I look forward to continuing to work with 
this committee to meet the needs of America's small businesses, 
and I certainly welcome your questions.
    Mr. Rogers. Thank you. Before we talk about your budget 
request, I need to follow up with you on a 1999 issue that we 
have talked about, you and me.
    Ms. Alvarez. Yes, sir.
    Mr. Rogers. As you know, I have a problem with the way you 
are reallocating the 1999 appropriations that we talked about.
    Ms. Alvarez. Yes.

                         DISASTER LOAN PROGRAM

    Mr. Rogers. In fact, we postponed an earlier hearing 
because I wanted you to have your counsel talk about this.
    Last year, it should have been clear to everyone that the 
congressional intent was to provide funding for the disaster 
program, if necessary, at the expense of other SBA activities. 
For that reason, we included report language that the funds 
provided for disaster loan administrative costs were 
specifically for the direct costs of loan-making and servicing. 
It is no coincidence that we provided the exact amount 
requested for that purpose, $116 million. I mean the intent was 
as plain as the fingers on your hand.
    Now, you decided to divert $34 million away from those 
direct activities, and instead use it for regular SBA operating 
expenses, without the approval or even knowledge of the 
committee. How do you explain that?
    Ms. Alvarez. Sir, we did talk about this, and I did bring 
counsel here. When the supplemental was approved a few days 
later, the Chief Financial Officer requested an opinion from 
the General Counsel about the transferring of these funds. We 
received an extensive opinion from general counsel basically 
supporting the transfer, based on the way in which we have done 
transfers for the past many years, since credit reform. There 
is a cost associated with delivering the disaster loan program 
that involves overhead and administrative support, which is 
ongoing, and the opinion provided by counsel, which is somewhat 
lengthy, bases its recommendation on the consistent decisions 
that have been made in the past.
    So we felt that----
    Mr. Rogers. But in the past, there was explicit report 
language prohibiting such.
    Ms. Alvarez. There is a whole statutory history and 
practice we followed. We were in consultation with the staff of 
the committee about what we were doing and what we were 
proposing to do. There was an agreement that if we did not 
transfer this funding, we would have to reduce our staffing by 
anywhere from 500 to 1,000 employees, which would have 
significantly affected the program.
    Mr. Rogers. But no one on the committee staff said it was 
okay, did they?
    Ms. Alvarez. I think that they had an understanding that 
they told us that they did not want to see that kind of a 
reduction in force, and therefore, we needed to take this 
action.
    Mr. Rogers. Well, the chairman didn't. There was no 
reprogramming request, much less any reprogramming approval, 
and I have to insist that that be done.
    Ms. Alvarez. Yes, sir.
    Mr. Rogers. Enough has been said about this. I think that 
you will see some very explicit language because of your 
actions. If you want to make it specific, we will make it as 
specific as you want. This shall not be done.
    That brings me again to the disaster loan. I don't know 
what it takes, a sledge hammer maybe, but you know that we are 
going to find the money for these disaster loans and you are 
sandbagging us. This is the third straight year that you have 
come up here with a budget that has not enough money, and last 
year no money, for the disaster loans that we all know that 
Congress is going to have to try to find the money to fund. So 
last year you suggested that we raise the interest rates on 
disaster victims to finance this loan fund. You knew we 
wouldn't do that. We are not going to raise the interest rates 
on people who can't get a loan, even at the bank. The most 
destitute people there are, having been wiped out, and you 
would go even further in raising their interest rates on these 
government loans, and we obviously said no way.
    This year, you are requesting only enough regular 
appropriations to support one-fourth of an average annual 
disaster loan level. I made it clear last year that we expect 
serious proposals to provide base funding for that program. Why 
do you continue to play games and sandbag the Congress with the 
disaster loan program? It puzzles me. Can you help me?
    Ms. Alvarez. Sir, since the beginning of credit reform, we 
have, as an agency, been funding disasters through a 
combination of regular appropriations and supplemental 
appropriations. So again, what we are doing is consistent with 
historical practice. We, the Administration, believe that there 
is certainly an unpredictability to disasters and the amount of 
funding required. The Administration prefers to fund these 
through an emergency fund and allocate existing limited funds 
to programs where we can actually estimate the impact on the 
lives of Americans.
    Mr. Rogers. Well, the Congress has always put forth a 
reasonable average program level from regular appropriations, 
and then where there is extraordinary needs we then pass 
emergency supplementals. But what you are doing is requiring 
that we finance all or three-fourths of these--this regular 
loan program out of emergency supplemental appropriations, 
which we don't do, we don't like to do. And so you are not 
going to change our ways. So what you are doing is you are 
forcing us to do as we have done in the past and find the money 
for the disaster loan program out of your hide.
    Ms. Alvarez. It is a difficult situation.
    Mr. Rogers. Now, if it causes RIFs, you caused it. I am 
sorry. I thought we had gotten this straightened out last year.
    Now, you are going to be hurting again, except this time 
the language is going to be so strict that you can't take money 
out of the disaster loan program to fund your salaries and 
expenses. I don't know what it is going to take to get you 
people to understand that we are not going to put up with this 
game-playing with disaster loans. You are playing games with 
the people who are at the end of their rope, and that is 
unfair.
    Now, what was your request to OMB for the disaster loan 
program? Is it their fault, or yours?
    Ms. Alvarez. Well, we are all part of the same 
Administration.
    Mr. Walter. Mr. Chairman, my name is Gregory Walter, and I 
am deputy CFO. We requested a 10-year average funding from OMB, 
but we didn't specify the source of the funds in our request.
    Mr. Rogers. How much did you ask for the full 10 years?
    Mr. Walter. We calculated the 10-year average a little 
differently than OMB did, so we asked for $1 billion in loans 
and approximately $100 million for the direct costs of the 
loan-making activity.
    Mr. Rogers. And OMB passed back enough in regular 
corporations to provide only a $225 million program?
    Mr. Walter. That is correct, sir.
    Mr. Rogers. And you, Ms. Alvarez, you have to acknowledge 
that that is not even close to an adequate level of funding, is 
it?
    Ms. Alvarez. Well, when we looked back, sir, at the way in 
which the disaster program has been funded, every year since 
credit reform, one-third of the funding has come through the 
regular appropriation, and two-thirds has come from 
supplemental funding. So what we are proposing is actually 
consistent with the history of the funding of this program 
since the beginning of credit reform.
    Mr. Rogers. Well, those were extraordinary events. The 
North Ridge earthquake, we don't have one of those very often. 
So the North Ridge Earthquake is not an historical--it doesn't 
represent an historical dollar figure for that account in this 
committee's history.
    Now, what makes it even worse is that you are using this 
gimmick in order to fund a bonanza of program increases that 
you have requested, a whole host of new programs. By any 
account, you are asking for at least $56 million in new 
programs, many requiring new legislation which has not passed 
and is unlikely to pass, and $82 million in increases for 
existing programs. All of this, as usual, made possible by a 
sham disaster loan request.
    How can you put anything higher in your priorities than 
helping people who are at the end of their ropes after a 
disaster?

                    NEW MARKETS VENTURE CAPITAL FUND

    Ms. Alvarez. Of the new programs that we are proposing, 
there is actually only one that requires legislation, and that 
is the New Markets Venture Capital Fund because it differs from 
our Small Business Investment Company program. In fact, the 
other day Chairman Greenspan gave a speech following up on a 
study that was just done by the Fed, which highlighted the real 
discrepancies in access to capital and credit, particularly for 
minorities, as well as for women. He pointed to the fact that 
this probably goes beyond discrimination to certain structural 
problems and certain inefficiencies in the financing system. We 
are proposing a program that will make equity capital, which he 
said is every bit as important as credit, available to smaller 
sized businesses, and that that equity investment would be 
accompanied by technical assistance. That is the new program we 
are suggesting.
    Mr. Rogers. But do you put that on a higher priority than 
helping someone who is just at the end of their rope in a 
disaster, a flood or an earthquake?
    Ms. Alvarez. They are two totally different circumstances. 
One, we have----
    Mr. Rogers. But it is the same dollars. You have a certain 
amount of dollars. We are going to fund the disaster program, 
and that money is going to come from somewhere. Now, if we were 
to take the $138 million for program increases that you have 
asked for and redirect that to disaster loans, we could get to 
a program level of over $800 million. The 1998 program was $639 
million, so we would be in the ballpark of a reasonable annual 
level. I would welcome your suggestions about where we get the 
additional funds to fill a hole that you have left for us in 
the disaster loan program, and we will be happy to take them 
from the least important of your activities, but they are going 
to come from somewhere.
    Ms. Alvarez. I understand. The parameters of the budget go 
beyond the SBA's budget, which is a very modest one in terms of 
funding. I do think that the new proposals which include a 
small loan proposal, a reduction in fees so that there will be 
an incentive for lenders to make smaller sized loans, are a 
critical part of our blueprint for the future.
    Mr. Rogers. Well, I have to say that I am going to buy you 
a copy of Carnegie's book, How To Win Friends and Influence 
People. I mean you ignore the Congress' intent for the last 2 
or 3 years; specific, written intent. Again, you have come to 
us underfunding the disaster loan program, knowing that it is 
at the top of our priority list, and then on top of that you 
suggest $82 million for new programs, while you gut the 
disaster program. I don't understand that kind of logic.
    We will get back to the authorization for these new 
programs on another round.
    Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman.
    Before we begin with some questioning, could you tell me, 
Ms. Alvarez, when there is a disaster and you go in and FEMA 
goes in, can you tell me the function of each one and how they 
differ and how they complement each other?

         RELATIONSHIP WITH FEDERAL EMERGENCY MANAGEMENT AGENCY

    Ms. Alvarez. FEMA has the overall responsibility for 
coordinating the entire Federal response in times of disaster. 
They land, if you will, first on the scene and try to 
immediately get an assessment of the conditions and bring in 
the various agencies. We actually colocate with FEMA, and, we 
are the screeners. We screen requests from disaster victims and 
make determinations as to whether those victims are either 
eligible for our loan program, or eligible for a grant, or 
perhaps they can get private support for their needs.
    It is a complementary relationship, our focus being the 
providing of loan assistance to disaster victims. We had an 
infrastructure that was able to be transferred to the disaster 
program.
    Mr. Serrano. And in the last couple of years, due to the 
many disasters that we have been having in this country--either 
I didn't read the right newspapers or watch the proper TV, but 
when I was growing up, I remember that most disasters were in 
other countries, but it seems that something has happened where 
in the last few years most disasters, if not major disasters, 
are right here in this country--we call on you and FEMA to play 
a role you never played before, and it seems to me at times you 
don't get credit enough for what you are doing quietly, even 
when you are supposed to be doing it quietly.
    So can you give me just a brief description of some of your 
latest ventures in assisting people? I know Mitch and Georges 
and all the others.

                        RECENT DISASTER ACTIVITY

    Ms. Alvarez. Actually, I would like to ask Mr. Kulik to 
come and join me, because he runs our disaster program and has 
done so for many years.
    We initially had to deal with Hurricane Georges, which had 
a tremendous effect on Puerto Rico and the islands and in Texas 
and parts of the Southeast. Mr. Kulik, would you like to speak 
to the work that we have done?
    Mr. Kulik. Mr. Chairman, my name is Bernard Kulik, 
Associate Administrator for Disaster Assistance at SBA.
    Thus far this fiscal year, our major activity was as a 
result of Hurricane Georges in Puerto Rico and in parts of 
Florida, Louisiana, Mississippi, and Alabama. We have approved 
for that hurricane a total of $352 million in loans, the 
largest single amount being in Puerto Rico where we approved 
13,600 loans, for over $157 million. The balance of our 
activity for the most part this year was as a result of Texas 
floods that were a major disaster, and a number of tornadoes 
occurring around the country. Thus far in the year we have 
approved total loans of just under $600 million.
    If I may answer or expand on an answer of our relationship 
with FEMA, FEMA's basic purpose at the outset of a disaster is 
to provide the immediate response necessary. They provide 
temporary housing, they provide meals, they provide health 
matters, health needs, et cetera. When it comes to response 
that is rebuilding, SBA is the prime factor for all private 
sector, nonfarm recovery efforts. We, as the Administrator 
said, serve as a filter for FEMA in that individuals who are 
not eligible or don't qualify for an SBA disaster loan, get 
referred to a joint FEMA-State grant program.
    Also, FEMA does repair work and replacement work with 
State, local, city, county governments, that SBA does not do.
    Mr. Serrano. And prior to this year, your agency also, I 
don't know how long you have been there yourself, but----
    Ms. Alvarez. A few years.
    Mr. Kulik. Lots.
    Mr. Serrano. You have been involved in just about every 
disaster plan, right?
    Mr. Kulik. That is right.
    Mr. Serrano. In fact, I remember debates on the floor a few 
years ago where the issue was not a disaster, but it was to 
tell you to identify people's green card in the middle of the 
flood before you gave them any aid. I remember luckily we were 
able to defeat that. I remember how the idea was you get a 
person in water up to here and ask them for a green card before 
you give them aid. But such was the mentality.
    Very quickly, what were some of the other disasters?
    Mr. Kulik. Disaster, unfortunately, became a growth 
industry in 1989 with the occurrence of Hurricane Hugo in the 
islands and in South Carolina and North Carolina, and 30 days 
later the earthquake in California. Since then we have had such 
things as the grandaddy of all, the North Ridge Earthquake in 
California. We have had Hurricane Andrew in Miami, South Dade 
County, the Midwest flooding which covered some 9 States in 
1993, the Los Angeles riots in 1992, the Red River-Upper 
Midwest flooding in 1995, and just a litany of sizable 
disasters that we think we handled pretty well.
    Mr. Serrano. Well, let me tell you that obviously in a 
legislative body like ours there are always concerns about how 
to make an agency better, and I am no different in that sense 
and I want to make every agency better. But I also want to take 
the time to commend people for the fact that they are always 
there and not getting publicity. SBA is not one of the agencies 
that you see on the 6 o'clock news. You see the President 
declaring a disaster and after he speaks you see people, but 
they don't show SBA. With all due respect to the FBI agents in 
the room, they always wear their logo on their back. You guys 
never do. So I personally thank you for that.
    Ms. Alvarez, am I correct in saying that the transfer of 
money for indirect expenses is consistent with the Credit 
Reform Act, and how do you find it as to cost?
    Ms. Alvarez. There is, and Mr. Kulik can certainly speak to 
this, an ongoing cost associated with the disaster program. We 
do temporary hires for individual disasters, but we have not 
only permanent staff assigned to the disaster function, but our 
other officers perform disaster functions in an ongoing way. So 
we have some fixed costs, if you will, from year-to-year to 
maintain a structure that supports this program. There may be a 
year that is busier than another year, and that will affect 
what we need for loans and direct service. But there is always 
an ongoing cost to have an infrastructure for disaster.
    Mr. Kulik, would you like to respond?
    Mr. Kulik. The disaster cost is really made up, on the 
administrative side, of three pieces. One is the indirect cost 
that the Agency assumes with respect to disasters. For example, 
the amount of the Administrator's time that is devoted to 
disaster matters; the amount of General Counsel's time, et 
cetera. Also, we obviously take up a good bit of the Agency's 
computer effort, and just the general administrative effort in 
handling our locations.
    There is also an ongoing expense for disaster loan 
servicing. That does not vary as much from year-to-year as 
disaster loan making. The service loan function is a fairly 
steady function that may go up or down, slightly depending on 
the amount of activity that we have in a given year. It is the 
disaster loan making side that is variable, and while we do 
have obviously fixed expenses to begin with, our costs and our 
personnel go up and down with the demand for disasters. At one 
point in the North Ridge Earthquake we had a total of over 
3,500 employees in the disaster program.
    Ms. Alvarez. Which is about the size of the agency.
    Mr. Kulik. That is right.
    Mr. Serrano. Thank you, Mr. Chairman.
    Mr. Chairman, I have no further questions at this time.
    Mr. Rogers. Mr. Mollohan?
    Mr. Mollohan. Thank you, Mr. Chairman.

               ACCESS TO VENTURE CAPITAL IN WEST VIRGINIA

    One of the most difficult problems that we have run into in 
West Virginia in our efforts to diversify our economy is access 
to venture capital. I know that your specialized small business 
investment company initiative in some ways addresses our 
efforts. Could you talk a little bit about this initiative in 
the context of rural areas like West Virginia? Our rate of 
access to venture capital money is abysmal, and we would like 
to improve that. I would like to hear you talk about our needs, 
and how this program fits in.
    Ms. Alvarez. We are trying to address this need for venture 
capital in a number of ways. Most recently, this week we kicked 
off a series of workshops that will occur around the country. 
We have invited investors, Small Business Investment Companies, 
and many of the CDC's and the community development 
organizations from around the country to talk about targeted 
investments in low and moderate-income areas. Within the 
construct of our existing SBIC program, we are proposing a 
debenture, an LMI, a low and moderate income debenture, which 
will be focused on areas, rural and urban, that have higher 
unemployment and poverty rates, and where there is a need for 
venture capital. We would like to direct that venture capital 
there.
    In addition, we see that there is a real gap, as you said, 
for equity-type investments in smaller businesses. Our current 
SBIC program makes investments in the range of a quarter of a 
million to $5 million. The New Markets Venture Capital Program 
proposes investments in the range of $50,000 to $300,000. It 
also proposes that type of investment be accompanied by 
technical assistance. In order to make it feasible for the 
investor, because they need to get a return on their 
investment, we are proposing an appropriation for grants which 
they would then have to match in order to ensure that those 
investments are successful.
    There is a lot of interest on the part of many community 
development organizations that are already trying to find ways 
to do equity investments. Many of them attended our meeting the 
other day, and we think that it is an unmet need that could be 
easily addressed through this proposal, this New Markets 
Venture Capital Program proposal.
    Mr. Mollohan. Where is this request reflected in your 
budget?

                  NEW MARKETS VENTURE CAPITAL PROGRAM

    Ms. Alvarez. This is the request we have for New Markets 
Venture Capital Program; specifically, that is the name, and 
what we are requesting is about $45 million--$30 million for 
the technical assistance funding, and $15 million for the 
subsidy, for the equity investment. That is the New Markets 
Venture Capital Program, specifically.
    Mr. Mollohan. Now, that is a part of a different fund that 
specialized in the small business investment company 
initiative?

           DIFFERENCES FROM SMALL BUSINESS INVESTMENT COMPANY

    Ms. Alvarez. Yes, it is. Because there are sufficient 
differences between the New Markets Venture Capital Program and 
the SBIC program we felt that we needed legislation.
    Mr. Mollohan. How are they different, and how are they the 
same?
    Ms. Alvarez. Well, the key component of course is the 
technical assistance component, which does not exist in the 
SBIC program.
    Mr. Mollohan. You mean, hands-on, showing you how to do it?
    Ms. Alvarez. Grants where there is money allocated to be 
used by the investor himself or herself to do hands-on work, 
which will take time and money, or they can purchase the 
technical assistance, depending on the nature of the need. That 
doesn't exist in the SBIC program. In the SBIC program, often 
the investors target high-growth companies that require much 
less involvement from a management standpoint, and there is a 
substantial return. This New Markets Venture Capital Program, 
we expect, should produce a return, but a much more modest 
return. There is a need for investment capital accompanied by 
technical assistance to make it work. As I said, many of the 
likely candidates to become New Markets Venture Capital 
companies are existing community development organizations.
    Mr. Mollohan. That sounds like an interesting program. I 
would like to follow up with that.
    In your New Market initiatives, you mentioned that you are 
going to be working with HUD on its America's Private 
Investment program.
    Ms. Alvarez. Yes, sir.
    Mr. Mollohan. Could you elaborate on that?
    Ms. Alvarez. HUD will be the lead and develop a proposed 
legislative package. Our folks have been meeting with them to 
support their efforts. The reason for HUD's leadership on this 
is because the focus is on big businesses, going into 
communities, these low and moderate-income communities, and 
receiving a package of incentives that would allow them to make 
investments. The idea is that with some incentives, big 
companies, working with small companies, can provide an 
infrastructure that is needed in certain communities.
    I think the legislative package from HUD is still in the 
works.
    Mr. Mollohan. So to get this program off----
    Ms. Alvarez. They would be the lead.
    Mr. Mollohan. Do you have an authorizing requirement here? 
You are suggesting that you do not, but HUD does?
    Ms. Alvarez. HUD does, yes. If it were passed into law, we 
would help them with the implementation.
    Mr. Mollohan. All right. Okay.
    Thank you, Mr. Chairman.

                      AUTHORIZATION OF NEW PROGRAM

    Mr. Rogers. So but this is not authorized; it would require 
an act of Congress to authorize it to be done?
    Ms. Alvarez. Yes, sir.
    Mr. Rogers. Well, in fact, there is $117.5 million in your 
budget request that is dependent upon enactment of separate 
authorization legislation; is that correct?
    Ms. Alvarez. Yes, that is about right.
    Mr. Rogers. And since we are looking for disaster loan 
money, if those matters aren't authorized by the time we mark 
up this appropriations bill, I guess we will assume that they 
are not going to happen and we can look at that $117 million 
roughly to the disaster loan program.

                           7(A) LOAN PROGRAM

    Ms. Alvarez. Sir, I have a proposal from the President's 
budget, and I think we have suggested ways in which we can fund 
this package.
    Mr. Rogers. Now, the bill has passed the House and the 
Senate authorizing a new loan guarantee program for small 
businesses to address Y2K problems. But doesn't the existing 
7(a) program already provide loans for that purpose?
    Ms. Alvarez. Yes, sir, it does. The Congress wanted to take 
it a step further and designate as much as $500 million in 
loans to those businesses that needed help with the Y2K issue 
and raise the limit. Currently we have a limit, a loan 
guarantee limit of $750,000. This would allow exemptions for 
sources with 7(a) loans to have a guarantee limit up to $1 
million.
    Mr. Rogers. I gather you don't feel that a separate 
category of loans are necessary to address the problem, since 
you didn't include it in your request.
    Ms. Alvarez. This would be a part of our existing 7(a) loan 
program.
    Mr. Rogers. Are you recommending that the President sign 
the bill to pass then?
    Ms. Alvarez. The Administration has no objection to that 
legislation.
    Mr. Rogers. I understand that CBO estimates the subsidy 
costs of those loans at $16 million in fiscal year 2000. That 
estimate, though, is dependent upon demand. Do you believe that 
the demand will be manageable within the overall 7(a) program 
level that you are requesting for fiscal year 2000?
    Ms. Alvarez. Well, we certainly hope so. We certainly hope 
so.
    Mr. Rogers. Now, in fiscal year 1999, you received an 
appropriation of $4 million to conduct a drug-free workplace 
demonstration program. Can you tell us how you are doing?
    Ms. Alvarez. There have been meetings for some time now 
with other agencies to discuss the implementation, and very 
shortly an RFP will be going out that describes the nature of 
the program and requests proposals for implementation.
    Mr. Rogers. But you didn't request any money for fiscal 
year 2000 for this?
    Ms. Alvarez. Well, we have $4 million, which we have yet to 
spend, and we think we need to go ahead and do that and 
evaluate the effectiveness.
    Mr. Rogers. Well, you were authorized at $10 million in 
both 1999 and 2000. It is not up and running yet, is it?
    Ms. Alvarez. The drug-free program? No, sir. We are in the 
process of releasing an RFP, which would result in the 
implementation.
    Mr. Rogers. We are halfway through the fiscal year and you 
are just now requesting an RFP?
    Ms. Alvarez. Well, it is a brand-new program, and it 
involves a number of agencies, and there was a fair amount of 
discussion about the implementation and how to most effectively 
do that. Because it is a new program, it often takes a while to 
get it up and running.
    Mr. Rogers. Now, staffing, let's talk about staffing. Your 
staffing was reduced about 20 percent in the 1992 to 1996 
period, and then in 1998, your on-board staffing increased 
dramatically. We have been told that that was due to an 
aggressive filling of vacancies. But I now understand that you 
have recently put on a hiring freeze. Can you tell us why the 
freeze?

                          SBA'S HIRING FREEZE

    Ms. Alvarez. SBA has operated under a freeze for about 5 of 
the past 6 years. It is true that last year we looked to 
strategically fill certain vacancies because the Agency has 
been evolving and we wanted to make sure that we were covered 
in areas related to the mission, to new legislative programs, 
and also to meet the needs of the Small Disadvantaged Business 
certification program. So that is where the hirings occurred. 
We are operating under a freeze right now, and we are sorting 
through our hiring priorities, because again we need to make 
sure that we fill the jobs that are priority positions.
    There are any number of reasons for having a hiring freeze, 
not the least of which is that Congress has not authorized 
spending for SBA for the final quarter of this fiscal year, so 
we don't know at this moment what circumstances we will find 
ourselves in on June 16. We also don't know if our budget will 
remain the same as was appropriated last year. We understand 
that Congress has been considering ways to pay for the 
emergency supplemental appropriation to provide aid to the 
disaster victims in Central America by making cuts to agencies 
that received emergency appropriations last year, and we have 
heard a number as big as a $5 million cut.
    In addition, we are proposing $10 million less in spending 
for salaries and expenses for fiscal year 2000. So I felt that 
it was the responsible thing to implement a hiring freeze to 
take a very hard look at where we are, which is a somewhat 
tenuous place, and where we need to be next year, which is a 
reduction from where we are.
    We have had a very decentralized hiring process at the SBA. 
Hiring decisions have been made in 130 locations, and I really 
felt that we needed to have a much more strategic hiring 
process for the Agency. We needed to put a stop to that so that 
we could get some control over it.
    Mr. Rogers. Well, this staffing increase over the last year 
is something that we have been following. It seems that you 
were adding more staff than we had funded. Is that more or less 
what has happened?
    Ms. Alvarez. Well, we hired staff--a net increase of about 
120 hires for a period running from about June of last year to 
January. About 88 of those hires were for the Small 
Disadvantaged Business program, and that funding came from 
other agencies and didn't come out of our budget. Of course we 
felt that we needed to do some hiring for a number of other 
programs, particularly, to ensure the oversight of our lending 
programs, to staff the Women's Business Centers, to staff 
LowDoc centers and other servicing centers. We felt that this 
was responsible strategic hiring that was accounted for in the 
budget.
    Mr. Rogers. Now, your request includes an unallocated 
reduction of 71 positions in fiscal year 2000. We don't know 
where they are coming from. Where do you anticipate that those 
reductions will take place?
    Ms. Alvarez. I want to look at the impact that the asset 
sales will have on our staffing. I want to look at the impact 
that the outsourcing of the servicing of our loan portfolio 
will have on our staffing. I am contemplating some other 
proposals to centralize functions that are currently 
decentralized. I think we are going to make some strategic 
decisions.
    Mr. Rogers. Now, SBA's role is changing. Your role now is 
primarily oversight and monitoring. There is more delegation to 
lending partners. There are pilot projects underway to set off 
loan assets and to privatize loan servicing.
    Ms. Alvarez. That is right.
    Mr. Rogers. Will those changes affect how you allocate your 
staff reduction?
    Ms. Alvarez. I think they should.
    Mr. Rogers. And how does that impact staffing beyond 2000?
    Ms. Alvarez. We are discussing that right now, sir. We 
realize that we need to have a longer range view of this.
    Transitions have to be managed, because often, at the end 
of a period of time, you will see a need for a dramatic 
reduction. But in the meantime, we have some ongoing 
responsibilities that need to be staffed. That is what we need 
to discuss.
    Mr. Rogers. Now, you also are asking for $5 million to 
facilitate quote, ``a work force transition, including 
buyouts.'' Assuming you get the buyout authority, how many 
buyouts do you figure you will have in fiscal year 2000?
    Ms. Alvarez. We are discussing that right now. I think a 
buyout strategy has to be very much tied to a plan for 
reduction, based on the changing functions of the SBA. That is 
precisely what we are discussing right now.
    Mr. Rogers. Does your plan for reducing the 71 positions 
depend on vacating those positions through buyouts?
    Ms. Alvarez. I think buyouts can play a role in vacating 
some of those positions. The buyouts need to be tied to 
strategic downsizing.
    Mr. Rogers. Well, it looks to me like you staffed up by 
allowing managers to fill vacancies across the board, and now 
that you need to cut, I don't think it is wise to just take 
those cuts wherever there may be a vacancy occurring. The 
changes in the SBA role, and I think you agree, require 
strategic management of staffing and reductions.
    Ms. Alvarez. That is right.
    Mr. Rogers. And we want to work with you and make sure that 
that is the policy that you are following; is that correct?
    Ms. Alvarez. Yes, sir. That is the policy we are following.

             DIFFERENCES BETWEEN EXISTING AND NEW PROGRAMS

    Mr. Rogers. Now, to the New Markets initiative. It doesn't 
seem that different from what you are already doing in the 7(a) 
and the SBIC programs. Why are we getting into these new 
activities, ones that require new authorizing legislation which 
I hear is dead on arrival in the committee over there?
    Ms. Alvarez. My job, I believe, is to have a vision for 
what small businesses need going forward and to address gaps 
that exist for small businesses. If you look at our 7(a) loan 
program, which is a very effective and important loan program, 
the average loan size last year was $229,000, and growing. And 
so you have to ask yourselves, how many newer, smaller 
businesses are going to benefit and take advantage of a loan 
that is that large. That is a loan that normally goes to more a 
sophisticated, more mature firm. When we look to the future, to 
the 21st century, we have got to help those newer, smaller 
sized businesses that are laying the foundation for being the 
successful businesses in the future, and that means smaller 
sized loans, which is why we are looking to reduce fees for 
smaller sized loans. We are working with the lenders to create 
some financial incentives as well as some efficiencies so that 
they can make the smaller loans that these newer, up and coming 
businesses need. The rural businesses, the minority-owned 
businesses, the women-owned businesses, they are the ones that 
need the smaller sized loans. So that is part of the focus.
    Likewise with the Small Business Investment Company 
program, a terrific program that helps create jobs by 
supporting fast-growing small businesses that need venture 
capital, but the level of investment is fairly large relative 
to some of the newer businesses. That is why we need 
legislation to create that program.
    Mr. Rogers. Since it is going to be, it looks like 
impractical to--or it looks like the effort to authorize the 
so-called New Markets initiative is probably not going to 
happen, why don't you just call the 7(a) program a New Markets 
initiative and go ahead and use the 7(a) program to do what you 
are talking about. I mean you have the authority under 7(a) to 
do micro loans and small loans.
    Ms. Alvarez. Most of what we are asking for, sir, doesn't 
require any new legislation. The only legislation is for the 
New Markets Venture Capital Program. We are actually working 
very well with our 7(a) lenders, and the reducing of the fees 
for both the borrower and the lender would be within the 
confines of the 7(a) loan program. Just the other day, we 
entered into an agreement with 10 major lenders, our preferred 
lenders, in which are working with them to do smaller sized 
loans, loans under $250,000. They are going to be providing 
technical assistance free of charge to the borrower. They 
recognize that there is a gap for smaller sized loans, and they 
are going to be working with technical assistance providers to 
ensure that these businesses can pay back their loans and grow 
their businesses. We are doing that, sir.
    Mr. Rogers. Now, on the Inspector General, you are asking 
for $11 million. To maintain what we have had in 1998 would 
take about $12 million. You would eliminate the provision under 
disaster loans that provides additional funding for the OIG, 
oversight for that activity. Why is that?
    Ms. Alvarez. I am sorry, the provision----
    Mr. Rogers. In your request, you would eliminate the 
provision for disaster loans that provides additional funding 
for the OIG, from that fund, for that activity. Can you tell us 
why?
    Ms. Alvarez. Well, actually, the Inspector General 
presented a budget directly to OMB. We do not in any way pass 
judgment on the Inspector General's budget, and they basically 
negotiate what ultimately becomes part of the President's 
budget. So we don't have a position on that.
    Mr. Rogers. Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman.
    Ms. Alvarez, on the Y2K issue, could you just give me some 
feeling as to, first of all, how it will affect your agency, 
and what you are doing to make sure that it doesn't affect the 
agency? I mean, after all, you also have a need to deliver 
services and those services could fall apart at a given time. 
And secondly, what is the agency's perception of what is going 
to happen to the small business community, and could you 
elaborate on what their needs are and what we can do to help 
them through your agency?
    Ms. Alvarez. We have really been very vigilant and active 
in speaking to the small business community about the Y2K 
issue. We have a web page that is a very good one, and it 
provides a diagnostic for small businesses to identify whether 
or not they might have a problem. They can also tap into a 
whole list through Pro-Net of small firms that could assist 
them with their needs.
    Greg just passed me a note to tell me that we have the Y2K 
outreach effort. There is $4 million in funds in 1999 for the 
Y2K outreach effort. In fact, we are about to embark on a Y2K 
action week, and we have already done one. When we do that, we 
have activities all around the country, hundreds of activities 
at the local level, which our district offices organize, to 
create an awareness and bring the small business community in. 
We have worked with other Federal agencies.
    Mr. Serrano. What do you provide at that awareness session? 
What are you telling them? What do they need to know from you? 
What can you do for them?
    Ms. Alvarez. What we ultimately can do for them is they can 
come to us for an SBA-guaranteed loan of up to about $750,000, 
I believe. Basically, what we do is we say, let's help you do a 
diagnostic. First you need to be aware that it is a real issue. 
Secondly, let's go through a checklist of what you need to 
assess to know whether you are ready or not. Very often, it is 
not just a matter of the kinds of systems and computers they 
have, but who their vendors are, who their providers are, who 
their banks are so that they can be sure that they are not 
going to have to shut down or be delayed because they are 
interacting with other institutions that are not Y2K ready. 
Then we suggest that they can also obtain an SBA-guaranteed 
loan if they have problems within their own business.
    It is hard to really get a handle on the numbers, but we 
have been very active from day one. As I said, next week we are 
kicking off yet another series of events. Fred Hochberg is here 
with me, he is my Deputy, and he has been the lead on the Y2K 
action that we have taken. We have also worked with utility 
companies, banks, our private sector partners, and have asked 
them to put mailers, flyers in their mailings, in their bills, 
so that when the customers get bills, they are made aware of 
our web page and are made aware of what is available to them.
    We also have a Y2K classroom on-line, so that a small 
business can get on-line and learn about Y2K.
    Mr. Serrano. Now, that is what you are doing, providing for 
small businesses. That sounds very encouraging. Now, how about 
for your agency itself. You can't come up with a Y2K problem 
which then will create a problem for the rest of the world.
    Ms. Alvarez. We actually have a very proactive Chief 
Information Officer, Larry Barrett, who has us ahead of 
schedule in terms of testing our systems, and we have been 
working closely with the Inspector General on our Y2K. They are 
part of the team that looks at Y2K for us internally. We work 
with GAO. So we feel that we are Y2K ready.
    Mr. Serrano. I was thinking the other day, Mr. Chairman, 
that the Y2K problem may be worse on paper than it is in 
computers.
    Ms. Alvarez. We hope so.
    Mr. Serrano. My son has a varsity baseball high school 
jacket that says he is going to graduate in the year 2000, 
right, the class of 2000. It has the name of the high school 
and 00. And each ball player is calling each other a big zero. 
There is no I.D. as to when they graduate. It is a terrible 
thing.
    You know, unfortunately in the last few years in this 
country we have spent a lot of time, a lot of energy, wasted 
energy, in what I call immigrant-bashing, and yet we know that 
those immigrants are playing a major role in becoming part of 
our society in general.
    Could you give me just for my information a little overview 
as to how new Americans are becoming a part of the small 
business community?
    Ms. Alvarez. Our focus as we go forward with the New 
Markets initiative, which again really focuses on smaller, 
newer businesses, is the recognition that there is actually a 
tremendous growth rate of new small businesses being formed by 
women and minorities. As we look at the Census Bureau 
projections for the year 2050, the Census Bureau projects that 
there will be no single majority in this country.
    Mr. Serrano. Oh, no. Somebody brought up the census issue.
    Ms. Alvarez. But that is a different Agency.
    Mr. Serrano. That is an ongoing thing here.
    Ms. Alvarez. You led me into that.
    Mr. Serrano. That is an ongoing thing between the chairman 
and me.
    Mr. Rogers. And then we will talk about Cuba.
    Ms. Alvarez. I have no comments about Cuba.
    But there is an enormous diversity, there is an enormous 
diversity in this country that reflects itself in the small 
business activity. It is good, productive activity, and we need 
to not only help the existing small businesses, but the newer 
ones.
    Mr. Serrano. One last question, which is the dumbest of 
them all, but you know, every day we have arguments in the 
press about what constitutes the poverty line. So what 
constitutes it officially now within the Small Business 
Administration?
    Ms. Alvarez. Oh, dear. Well, a small business can be a 
self-employed person, and many, many of them are. We actually 
have an office of standards that looks at small businesses and 
what qualifies small businesses is based on any number of 
different indicators, including the number of barrels of oil 
produced----
    Mr. Serrano. I am sorry I asked the question.
    Ms. Alvarez. But generally the maximum is about 500 
employees.
    Mr. Serrano. Five hundred employees, okay.
    Well, thank you very much.
    Thank you, Mr. Chairman.
    Mr. Rogers. Mr. Mollohan.
    Mr. Mollohan. Thank you, Mr. Chairman.
    Following up on Mr. Serrano's question about equipment, do 
you have major information systems challenges in the agency? Do 
you want to speak to those?

                          MODERNIZATION EFFORT

    Ms. Alvarez. Well, we have, I mentioned earlier, a 
multiyear modernization effort under way, which we have 
estimated over the course of 5 years is about a $40 million 
overhaul. We have an $8 million request in our budget this 
year. We have been working very closely with GAO in following 
the steps required by law to develop a plan in advance of 
spending the money. We don't want to spend money without a 
plan, and we have pretty much completed the eight planning 
steps, and we are getting ready to go forward.
    Mr. Mollohan. With purchasing?
    Ms. Alvarez. Yes, sir.
    Mr. Mollohan. Have you----
    Ms. Alvarez. We have monies that we have not spent, but 
that we have committed. But we will not do that until----
    Mr. Mollohan. Have you begun the contracting process?
    Ms. Alvarez. Not for the systems acquisition on 
development.
    Mr. Mollohan. Do you plan to do that this fiscal year, or 
next fiscal year?
    Ms. Alvarez. We are ready with the steps this fiscal year. 
We will be spending this year.
    Mr. Mollohan. What will this first solicitation be for?
    Mr. Gray. Mr. Mollohan, my name is John Gray, Associate 
Deputy Administrator for Capital Access.
    The first proposal that will go out will be for a loan 
monitoring system which integrates the loan application process 
with loan servicing and loan liquidation.
    Mr. Mollohan. That is for software?
    Mr. Gray. Well, we are not exactly sure if it will be 
software and hardware or just software. We hope to find a 
system that exists today.
    Mr. Mollohan. Well, in your budget summary, you cite, major 
problems with your mainframe systems, or you describe it as 
being very old.
    Mr. Gray. Yes, sir. We are operating off of an old 
accounting system which we are trying to use for lender 
oversight, and rate analysis. The new loan monitoring system 
would be an integration of all of the systems we have today 
with a new key component for gathering information.
    Mr. Mollohan. Okay. Thank you.
    What key requests are part of your budget request, new 
fees?

                              NEW SBA FEES

    Ms. Alvarez. New fees. The SBDC--well, yes, how could I 
forget?
    The only area requiring a legislative change is for the 
Small Business Development Company program, SBDC, where there 
is currently in law a prohibition against their charging fees 
for counseling, notwithstanding the fact that they do charge 
training fees. We believe that they can meet the needs of the 
American people and their own budgetary needs by charging fees.
    Mr. Mollohan. So you are asking for some $20 million in 
fees to be generated by charging SBDC customers, is that 
correct?
    Ms. Alvarez. Yes, sir.
    Mr. Mollohan. And that requires an authorization?
    Ms. Alvarez. Well, yes, because Congress put into law a 
prohibition against the charging of fees a couple of years ago.
    Mr. Mollohan. Was that in the authorization bill, or was 
that carried in an appropriation bill?
    Ms. Alvarez. It was in the authorization bill.
    Mr. Mollohan. How do you propose to now charge fees under 
SBDC----
    Ms. Alvarez. Part of our legislative package would strike 
that.
    Mr. Mollohan. What is the status of your legislative 
package?
    Ms. Alvarez. It is over at OMB.
    Mr. Mollohan. Do you expect to have it before the Congress 
this year?
    Ms. Alvarez. Yes, sir.
    Mr. Mollohan. Have you talked with the authorizing 
committees about this issue?
    Ms. Alvarez. Yes.
    Mr. Mollohan. Are they sympathetic or unsympathetic to this 
proposal?
    Ms. Alvarez. I would say that the SBDCs have been very 
effective in making the case for the status quo.
    Mr. Mollohan. Are the authorizers, to your knowledge, 
sympathetic or unsympathetic to this proposal? You may not 
know. I am just asking. Do you know?
    Ms. Alvarez. I don't have a solid answer for you there.
    Mr. Mollohan. You are not asking this committee to approve 
these fees, are you, or you don't anticipate asking us?
    Ms. Alvarez. We would like to----
    Mr. Mollohan. You would like to charge the fees, and 
anybody who will give you permission, you would like to have 
it?
    Ms. Alvarez. We would like to work with the SBDCs to 
develop a plan----
    Mr. Mollohan. I know that I am looking at the legislative 
side of this. How do you expect to get this authorized?
    Ms. Alvarez. We would love to have your support to get this 
authorized.
    Mr. Mollohan. If you aren't successful before the 
authorizing committee, do you anticipate coming to this 
committee, and asking us to impose these fees?
    Ms. Alvarez. I would anticipate coming to this committee 
and working with you to develop a fee schedule, because we 
don't have a specific fee proposal for you.
    Mr. Mollohan. Okay. Thank you, Mr. Chairman.
    Mr. Rogers. Mr. Latham?

                    ENVIRONMENTAL COMPLIANCE PROJECT

    Mr. Latham. Welcome.
    As you know, in the last few years the subcommittee 
provided $1 million for the small business development centers' 
funding for a pilot regulatory compliance program to increase 
coordination of environmental, OSHA and IRS compliance 
requirements and to avoid duplication within the programs for 
compliance assistance to small businesses. I believe the SBA 
received a proposal on how to carry out the provisions of the 
legislation.
    Would you please provide me with an update on the SBA's 
implementation of the program and to whom, in fact, the dollars 
are distributed?
    Ms. Alvarez. I think you are referring to the environmental 
compliance project?
    Mr. Latham. Correct.
    Ms. Alvarez. We have an RFP that will be released by April 
1 for the implementation of that project.
    [Clerk's note.--Subsequent to the hearing, the following 
additional information was provided:]

    As you know, $1M was appropriated in FY98 for a regulatory 
compliance simplification program. That money was awarded to 
the Iowa SBDC which developed a multi-state program to increase 
coordination of environmental, OSHA, and IRS compliance 
requirements. The Iowa SBDC is responsible for the 
administration, coordination, evaluation, and teting of this 
program. It has subcontracted with the Iowa Waste Reduction 
Facility to develop the environmental regulations component, 
the Nevada SBDC to develop the OSHA regulations component, and 
the South Texas Border SBDC to develop the IRS regulations 
component.
    An additional $1M was appropriated in FY99 for this 
simplification program. SBA requested a proposal from the Iowa 
SBDC on February 12, 1999. We have not yet received the 
proposal.

    Mr. Latham. Okay. You did not request funding for the 
initiative in the 2000 budget. Are you expecting to continue it 
with fees, or how would you provide funding in the future?
    Ms. Alvarez. I think that once we actually implement the 
project, then we are in a position to evaluate its 
effectiveness and any future need associated with it. We are 
not there yet.
    Mr. Latham. But you--obviously don't have it in the budget, 
so are you looking at fees to pay for it?
    Ms. Alvarez. Our budget is very tight, as the chairman 
knows, and we need to find as many ways as possible to support 
these programs.
    Mr. Latham. I am glad at least the hearings lasted longer 
than last year, anyway.
    The Small Business Development Centers provide a return of 
investment of about $2 for every $1 spent. Do you have a cost-
benefit ratio or return on investment data for the SCORE 
program or the 7(a) programs?
    Ms. Alvarez. I think this is what GPRA wants us to do and I 
think it is one of the things that many agencies are continuing 
to work on since there is no tradition of providing this kind 
of analysis.
    Mr. Latham. I think I asked for it last year.
    Ms. Alvarez. Did you get it? Well, we will do our very best 
to get it to you.
    Mr. Latham. Okay.

                           OFFICE OF ADVOCACY

    As you know, according to the SBA's GPRA submission, the 
SBA's Office of Advocacy is the only office within the Federal 
Government responsible by congressional mandate for evaluating 
the state of small business and its contribution to 
competition, as well as the impact of regulations of small 
business. As a small businessman and farmer, I know how 
critical this tiny office is to working for the interests of 
small businesses, so I am pleased to see the request for an 
increase in funding. In fact, there is so much important work 
to do and you are doing it so well, I will go so far as to 
request that this subcommittee at least double that request in 
the year 2000.
    One of the submissions listed in Advocacy's area of study 
for the year 2000 is mergers in selected industries. Will 
agriculture, that sector, be included in the study, 
particularly with the vertical integration that is going on in 
different aspects of livestock, as well as mergers of biotech 
companies, and within the seed industry--will that be included?
    Ms. Alvarez. I don't know the specifics of their proposal. 
I know that Advocacy does a very fine job and has been 
following the effect of the mergers of the banks and the 
lending institutions and the possible impact that that will 
have on small businesses, and we are very interested in staying 
on top of that, because we don't want to see a reduction in 
access for small businesses.

               AGRICULTURALLY DEPENDENT SMALL BUSINESSES

    Mr. Latham. Well, you realize a lot of small businesses in 
my State, at least, are agriculturally dependent, and there is 
real concern out there within a lot of small businesses. My 
family is in the soybean seed business, a family operation, and 
we look at the huge mergers out there and we need to, I 
believe, find some way of quantifying the impact.
    Ms. Alvarez. I agree with you. I am concerned about the 
mergers as they affect small business in general. Clearly, as 
they merge, they are looking to big business globally, they are 
not necessarily focusing on the small businesses, and we don't 
want to have the small business interest lost in the process.
    Mr. Latham. And it is frustrating. I recently questioned 
the Attorney General regarding this and it was not really on 
her radar screen as far as what is happening in the industry in 
its entirety. They are finally getting some focus now. But you 
know, this is critical to rural America. It really is.
    Ms. Alvarez. There is, in the course of these 
restructurings, so much going on that a focus is lost on 
existing programs. Some of the lenders I have spoken to assure 
me that once the dust settles with the integration that has to 
occur with these mergers that they will, once again, focus. But 
we need to remind them to focus. In the meantime, opportunities 
are lost.
    Mr. Latham. Thank you, Mr. Chairman.
    Mr. Rogers. Thank you.
    Well, thank you for your testimony.
    Ms. Alvarez. Thank you, sir.
    [Recess.]



                                         Wednesday, April 14, 1999.

                U.S. SECURITIES AND EXCHANGE COMMISSION

                               WITNESSES

ARTHUR LEVITT, CHAIRMAN
JAMES McCONNELL, EXECUTIVE DIRECTOR

                            Opening Remarks

    Mr. Rogers. The Committee will be in order.
    We are pleased to welcome today Mr. Arthur Levitt, Chairman 
of the Securities and Exchange Commission. He is accompanied by 
James McConnell, the Commission's Executive Director.
    The fiscal year 2000 budget request for the SEC totals 
$360.8 million, an increase of $30.8 million over the 1999 
enacted level.
    The Commission is responsible for the oversight of the 
Nation's financial markets. We are now in the midst of the 
longest bull market in history. The numbers are staggering. The 
Dow has eclipsed 10,000, up 300 percent since October, 1990. 
Between 1983 and 1995, the share of American families who own 
stocks directly or through funds doubled to more than 40 
percent.
    In addition, Internet technology is changing the ways and 
the rate at which securities markets do business. This has had 
important benefits for investors but also has opened up new 
opportunities for fraud. We will want to hear today about how 
the SEC is maintaining market integrity and protecting the 
interest of investors in such a climate. We would also like to 
know what program and administrative efficiencies are being 
achieved at the SEC.
    Chairman Levitt has appeared many times before the 
subcommittee. We have always enjoyed his presence, and we look 
forward to his testimony today.
    Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman. Just a couple words 
to welcome both Mr. McConnell and Mr. Levitt.
    Mr. Levitt is a very distinguished person from a very 
distinguished family and a very distinguished State that I live 
in, and I take that very seriously. We had an opportunity to 
chat about my beginnings in politics, his family and their 
contributions to our State. So not only do I look forward to 
his testimony, both of your testimonies, but I am also 
delighted that he is before the committee today.
    Mr. Rogers. Mr. Levitt, we will put your written statement 
in the record and we invite your comments.

                              Introduction

    Mr. Levitt. I appreciate the opportunity, Chairman Rogers 
and Ranking Member Serrano, to testify here today in support of 
the SEC's budget request for the year 2000. I am deeply 
grateful for the support the subcommittee has given to the 
Commission and its work, and I come before you this morning to 
ask that you continue your commitment to America's investors 
and to our capital markets. I think that commitment at this 
point in time has never been more crucial.
    Precedent-setting trading volume, tremendous market growth, 
increasing complexity and volatility, globally integrated 
markets, and continual advancements in technology have become 
the defining characteristics of our markets on the eve of the 
21st century. These changes present tremendous challenges for 
the Commission. To meet them we seek an appropriation of $360.8 
million for the year 2000, which represents an increase of 
$19.5 million and 55 staff years over last year's spending and 
staffing levels.
    Today, approximately 5 million people trade on-line on a 
typical day, accounting for approximately 25 to 30 percent of 
all retail stock trades. That is men and women all over America 
with computers just pounding keys and executing orders, a 
phenomenon that existed to a much lesser extent, hardly at all, 
as recently as 2 or 3 years ago.
    The number of investors in our markets has grown to the 
highest level in history. The value of mutual fund assets is 
now nearly double the total value of deposits in U.S. 
commercial banks. One out of three Americans today invests in 
mutual funds. As recently as 1980, that number was one out of 
18.
    The Commission needs additional resources simply to keep 
pace with the demands and the developments of our 21st century 
marketplace. Already we are instituting new measures to crack 
down on fraud on the Internet, stopping abuses in the microcap 
sector, pursuing complex litigation, and protecting the 
fundamental building block of investor confidence in our 
markets by aggressively pursuing accounting fraud. We are 
asserting effective oversight of the exchanges and of new 
technologies for trade, reviewing companies' financial 
information, initial public offerings and merger and 
acquisition filings.
    Our request is not just for additional staff. We really 
desperately need additional technical resources. It is awfully 
difficult to monitor securities fraud on the Internet if you 
don't have the technical capability to keep up with the 
fraudsters. Our examiners in the field need the tools to 
analyze mutual fund data, and our litigators need document 
management capability comparable to that of opposing counsel. 
Without additional resources, it is obvious that we simply 
cannot keep up. I don't say that lightly.
    For over 60 years, the Commission has been known as an 
efficient and an effective agency. We have leveraged our 
resources wherever we can; we have worked with the industry to 
create the conditions necessary for strong capital formation, 
while passionately protecting the interests of investors.
    Today, the Commission is confronted with an almost 
unprecedented confluence of challenges that are pushing our 
resources beyond their limits. Our fiscal year 2000 request 
will help but, quite frankly, only for a short while. I expect 
that similar staffing increases will be needed in subsequent 
years.
    U.S. capital markets are the strongest, deepest and most 
liquid in the world. They are fair to investors, they are 
efficient for business, and they are vital to our Nation's 
economy. I say to you this morning that we cannot take for 
granted our international supremacy in terms of capital markets 
in the face of unprecedented competition coming at us from 
abroad.
    I know that you share my commitment to ensuring that our 
markets retain their primacy and their supremacy, their 
fairness to America's investors, which is our primary mission 
and goal. I continue to look forward to working with you as we 
try to collectively meet these issues.
    Mr. Rogers. Mr. Chairman, thank you for your testimony and 
your appearance. We do also this morning have the FCC. That 
hearing will take place immediately following, so we will by 
necessity be keeping it brief.
    [The prepared statement follows:]



                        FISCAL YEAR 2000 REQUEST

    Mr. Rogers. Now, your 1999 appropriation gave you a base 
operating level of $330 million, plus additional one-time Y2K 
funding of $7.4 million, and your next year's request is for 
$360.8 million. That is a base increase of $30.8 million, 9.3 
percent. Beyond adjustments to base, you include program 
increases of $10 million, including 42 new positions, and $5.9 
million for information systems.
    As you know, as we talked, our allocation from Congress on 
this subcommittee for the year 2000 is going to be very tight. 
In fact, it is probably going to be less than last year. So 
that means we have to make some very, very tough choices over 
here. In the event that that takes place and that we are faced 
with some tough choices, we need to know your priority resource 
needs. We need to know what you need the most out of the 
shopping list that you have given to us. Help us out there. 
What would you do?

                         ENFORCEMENT RESOURCES

    Mr. Levitt. I think that, as far as priority is concerned, 
by far and away our most compelling priorities are resources 
for our Enforcement Division, and those are resources not just 
in terms of people power but also in terms of technology. In 
the budget we called for an additional 42 positions, 25 of them 
going to the Enforcement Division.

                      INFORMATION TECHNOLOGY NEEDS

    Resources for technology will better enable us to not only 
monitor Internet transactions, but also using our Division of 
Market Regulation, to stay on top of changes that are taking 
place in our electronic markets these days. There are now no 
fewer than nine electronic markets in America, with new ones 
coming on stream almost by the month. Plus some 144 firms are 
trading on-line.
    So our responsibility is, how do you surveil that activity? 
And, more important than that, how can we plan for it? Rather 
than thinking in terms of just patching holes in the dike, we 
have to make certain assumptions about the future. How many 
Americans will be trading? What are the risks involved? What 
kind of capacity can these electronic markets handle; and, if 
they can't handle it, what backup is there to account for the 
kind of disruption that could occur?
    Mr. Rogers. Now, you asked for $5.9 million to improve your 
information systems--that would be on top of the base funding 
of $25 million--and $7.4 million in emergency funding to meet 
the Y2K problems. Is that $5.9 million a one-time need or a 
base increase?
    Mr. Levitt. I think that would be pretty much a base 
increase.
    Mr. Rogers. Well, that would be a 24 percent base increase 
for systems. Is this an area that has been neglected in the 
past that we need such a big increase overnight here?
    Mr. Levitt. I think if I could relive the past number of 
years, I would have made a greater priority of systems 
development early on. So much has changed in the country in 
terms of what markets and firms are doing that, to some extent, 
we are trying to close a substantial gap.

                             Y2K COMPLIANCE

    Mr. Rogers. Now, the money we gave you for Y2K compliance, 
how are you doing? Are you compliant?
    Mr. Levitt. I sure hope so.
    Mr. Rogers. A lot of us hope so.
    Mr. Levitt. Probably no issue before the Commission has 
consumed more of my emotion than Y2K. We are really placing 
great emphasis on it. We meet with regularity with responsible 
people within the Commission and vendors. I am cautiously 
optimistic, but I have learned that when you deal with 
technology, saying anything more than cautiously optimistic is 
absolutely inviting problems. I think we are on top of it.
    Mr. Rogers. When will you know?
    Mr. Levitt. I will have a better idea next week, still a 
better idea a month later, and I won't be totally confident 
until January the 2nd, 3rd and 4th. I think the 1st is a 
holiday.
    In August, we will have tested everything, but I will 
believe it when I feel it and touch it.
    Mr. Rogers. So you are going to have a simulation?
    Mr. Levitt. Yes.
    Mr. Rogers. In August?
    Mr. Levitt. Yes.
    Mr. Rogers. Will that be publicly dealt with?
    Mr. Levitt. I believe so.

                      IMPROVED INFORMATION SYSTEMS

    Mr. Rogers. Now, investments in systems could only be 
justified by demonstrating how they will improve efficiency and 
productivity. How will that additional $5.9 million translate 
into the real world?
    Mr. Levitt. Well, in terms of what we are going to use that 
money for, a large part of it will go toward new automated 
tools, including automated mechanisms to track and monitor our 
examinations. The examination program is particularly important 
in terms of new markets, new stock exchanges, new problems in 
terms of self-regulatory organizations, broker dealers, and a 
multitude of investment companies and advisors.
    Second, we are using part of those funds to establish an 
infrastructure replacement program and to improve data 
distribution to our regions. We have become far more efficient 
in terms of improving our regions as part of the overall 
structure of the Commission, rather than having separate 
fiefdoms in different parts of the country. We are in the 
future going to transmit our Commission meetings, our closed 
meetings, electronically to most of the major regions in the 
country so there can be an up-to-date interface with them.
    We are going to further enhance our document and 
correspondence management system. We have been inundated with 
correspondence since we placed greater emphasis on investor 
education. We are getting hundreds of thousands of letters a 
year, and a decision that I have to make as a manager is: do I 
divert people from our enforcement effort or our market 
regulation effort to respond to letters? And, I really believe 
that response to letters is absolutely critical. When we go to 
these town meetings, I am constantly being called to task by an 
investor who said, I wrote you a letter 2 months ago, and you 
didn't respond to it. That is intolerable.
    Mr. Rogers. You get those letters, too?
    Mr. Levitt. We are also going to use part of that money to 
improve our imaging, storage and retrieval capabilities. The 
paper era is largely behind us. For us to really stay on top of 
our responsibilities, we have to use electronics. So that will 
account for the bulk of this $5.9 million.

                     PERCENT OF ELECTRONIC TRADING

    Mr. Rogers. Now, tell us, if you know, what percent of all 
trades are now taking place electronically?
    Mr. Levitt. Twenty-five to 30 percent, and growing.
    Mr. Rogers. What was it 3 years ago?
    Mr. Levitt. I don't know the answer to that. I would guess 
that it was under 10 percent. Probably under 5 percent. I will 
get back to you with that answer. It is an interesting 
question.
    [Clerk's note.--Subsequent to the hearing, the following 
additional information was provided:]

    On-line trades accounted for approximately 5 to 6 percent 
of all retail stock trades in 1996.

                            INTERNET TRADING

    Mr. Rogers. Can you characterize the people that trade on 
the Internet?
    Mr. Levitt. There is an astonishing array of people; and 
they purely anecdotally, range from serious-minded academics to 
taxi drivers, every conceivable kind of person--the people that 
you generally see accessing the market at the top of constantly 
rising market activity, people that are ill-equipped to 
understand markets. Day traders in particular are operating in 
an environment where fundamentals such as earnings and the 
history of the company are totally irrelevant. They are moved 
almost entirely by emotion rather than intellect.
    Mr. Rogers. Is that somewhat akin to the horse race they 
have on the first Saturday in May sometimes?
    Mr. Levitt. I think the same emotional impetus is certainly 
there. We have developed a culture in America of deifying the 
trader. The trader has been written about in books, and we have 
seen movies about them. I have the feeling that when they get 
before a computer and have the ability to buy or sell hundreds 
of thousands of dollars with the stroke of the key, they fancy 
themselves as professional traders. However, they lack the 
resources, they lack the experience, they lack the temperament 
of professional traders, and they operate, in my judgment, at 
considerable risk.
    Mr. Rogers. I gather that you think it is of great 
importance to a person investing in the market to have the 
advice and oversight of an experienced trader on the exchange?
    Mr. Levitt. Not necessarily. I think some individuals are 
prepared to do their own homework, to do their own research, to 
ask the right questions. Those people are fully equipped to 
make their own investment decisions. But the individuals that 
operate on the basis of innuendo or rumor, I think would do 
well to seek professional advice.
    I think our markets have more than ample room for investors 
that do their own research and are prepared to make their own 
decisions, investors that wisely seek out the aid of financial 
counselors, investors that deal with a combination of both. I 
think investors that operate on the basis of emotion will find 
that the market is a harsh disciplinarian, and what concerns me 
is the large group of investors that have never experienced a 
down market. How will they react when our markets cease going 
in one direction?

                          INTERNET ENFORCEMENT

    Mr. Rogers. Now, last year we approved a reprogramming 
request that you had made to establish an Office of Internet 
Enforcement. Last month, GAO testimony to the Senate warned 
that increased Internet securities fraud may overtake the SEC's 
capacity to respond to that. For example, just last Thursday, a 
fraudulent Internet posting, elaborately designed to look just 
like a Bloomberg news page, broke a false story about a 
takeover of Pairgain Technologies. All of a sudden, a 32 
percent surge in that stock based on that false information. 
How are you equipped to respond to that type of a case?
    Mr. Levitt. We have set up an Internet office within our 
Enforcement Division. We have also set up an office in the 
Enforcement Division to address microcap fraud. We have also 
assigned lawyers in our regions all over the country, 
approximately 150 of them, to surveil the Internet.
    I am satisfied that we presently are on the track to having 
the ability to refer more cases than our Enforcement Division 
can handle with their existing resources. By that, I mean a 
combination of investor education efforts, a fairly creative 
website, and the determination of the Internet fraud office 
within our Enforcement Division has developed an unprecedented 
number of possible Internet fraud cases. We need more lawyers, 
more resources within the Enforcement Division to turn those 
cases into real action. But the Internet, at the same time, is 
open for everyone to see. If there is fraud out there, no one 
perpetrating that fraud can tell when someone from the SEC will 
be watching.
    So a combination of what we are doing and our investor 
education program, which has prompted many, many people to 
refer Internet fraud to us, has given us a backlog of cases. We 
have brought 66 cases to date. We are going to bring many more 
Internet fraud cases in the future.

                       ADEQUACY OF BUDGET REQUEST

    Mr. Rogers. Now, is your fiscal year 2000 request adequate 
to address the problem?
    Mr. Levitt. I think it probably is adequate. We will 
undoubtedly be asking for additional resources to supplement 
our Enforcement Division. We need more people power in 
enforcement and more technology.
    Mr. Rogers. Did you request more from the OMB than we see 
today?
    Mr. Levitt. We have had some discussions with OMB about 
this kind of allocation.
    What is the status of that, Jim?
    Mr. McConnell. It is ongoing. We did request slightly more 
from OMB than is in this request.
    Mr. Rogers. For this particular activity?
    Mr. McConnell. Not for this particular activity. This is 
sort of a new one.
    Mr. Rogers. Well, the GAO says you are behind the curve on 
this, and we are interested in making sure that you are on top 
of the Internet fraud problem. So we would be interested I 
think to know what it would take in your judgment, above your 
request, to make us feel comfortable and make you feel 
comfortable on the Internet fraud issue. If you could reflect 
on that and perhaps get back with us with an idea, we would 
appreciate it.
    Mr. Levitt. I will do that.
    Mr. Rogers. Mr. Serrano.

                           INVESTOR EDUCATION

    Mr. Serrano. Thank you, Mr. Chairman.
    Thank you for your testimony.
    I have a thought and a question, and you sort of spoke to 
it but coming at it totally from the other side of where I 
wanted to go. You showed concern for people who use the 
Internet to invest, play the market, if you will, who may not 
be equipped to do so. And I wanted to go in a similar direction 
without causing those folks any problem, and that is to find 
out what, if anything, we could be doing to add to the base of 
investors that we have in this country.
    You know, I represent a district, as you know, in the South 
Bronx which is a poor district, but there are people there who 
are beginning to make their way into the society and beginning 
to reach that point where they have perhaps a decent or a 
middle income salary. And they don't know the market, no one 
ever told them that that was for them, and other than savings 
bonds and perhaps a retirement account they never go into that 
area.
    First of all, my first question, is there anything within 
your agency that could be done to educate or to alert other 
folks in our society to the fact that there is a stock market, 
that there is a way to invest money? Then, on the other hand, 
how do we protect them from what you are talking about, the 
fact that they may buy a computer and that computer may be the 
way to have become then investors and lose their shirt?
    Mr. Levitt. I think that the answers to those questions are 
related. I think our Office of Investor Education and 
Assistance is the best enforcement tool as well as the best 
educational tool to protect and enhance investors in our 
markets.
    In a couple of weeks, I am going to Los Angeles for one of 
our periodic town meetings. We expect 6,000 investors to come 
out and ask questions about how to pick a broker, how to choose 
a mutual fund, how to protect yourself on the Internet. The 
Office has produced a variety of terribly important brochures 
on how to buy a mutual fund, how to buy a municipal bond, and 
how to trade on the Internet. So I think education is a much 
better tool than regulation in terms of protecting investors.
    People in your district, through 401(k) plans and access to 
mutual funds, are in the market more than we may suspect. I 
think it is terribly important that they understand both the 
opportunities and the risks in the market; and I think the key 
to this is taking the time to try to educate them to protect 
themselves.
    There is no agency in government that has the resources or 
the people power adequate to protect people against their own 
foolishness, their own unwillingness to take the time to study 
the risks and opportunities of investments. I think we are 
making great progress today. American investors are better 
informed than ever, because the media focuses on it more and, 
there is more information out there. But I worry because our 
markets have recently become, in my judgment, more emotional 
than intellectual and, because of that, the need for education 
is greater than ever.
    Mr. Serrano. Now, would it be possible then to provide 
those educational materials right on the Internet to make it 
possible for them to access that as they get into the market, 
so to speak?
    Mr. Levitt. Yes. We have a site on the web that provides 
all kinds of information. Some of the principal questions asked 
of me at these town meetings around the country were, ``How do 
I determine which mutual fund is best for me, and how do I know 
what a mutual fund is actually costing me because I can't 
follow what is in the prospectus?''
    As a result, our chief economist developed a mutual fund 
cost calculator, that we put on the web last week, where one of 
your constituents can just get on the computer, put in certain 
information and find out precisely how much money he or she is 
paying for a mutual fund. Tools like that, I think, will be 
very useful to investors. And you are absolutely right, we 
should be using the web for education as well as meetings, 
brochures, and all the other things that we are trying to do.

                        BASIC INVESTOR EDUCATION

    Mr. Serrano. One last point here. What you are talking 
about obviously is to deal with that individual who has taken 
that step of deciding that there is a market to invest in. I 
also have a concern, and I don't know that it falls within what 
your agency does, to introduce a whole new community to the 
market. We in this country spend quite a bit of money, not as 
much as I would want to, but certainly more than some people 
think we should spend, on educating people on everything from 
what is in a good education to what vaccines your children 
should have and all proper things. But there is at the center 
of our existence as a system, as a society, this capitalist 
system that we have that functions well for so many people and 
could function well for all people, and yet there is a segment 
of our society that has no clue, other than paycheck to 
paycheck, what it is that they could be doing.
    I am suggesting that there are some people, even in my 
district, who have now reached the point where they could set 
aside a little money every month or whatever to invest, but the 
retirement fund that you talk about, that is really not what I 
am talking about, because somebody is handling that for them. 
So all they know is, I have a retirement account. They have no 
clue what it is, and the fact that they can take some extra 
money they come across and put it in there on their own.
    Mr. Levitt. You are right, and it is something of great 
concern to the Commission. We are spending time and effort and 
resources on education in the schools. We are having seminars 
and meetings in various colleges and high schools around the 
country to develop job fairs in those communities to bring 
people into the investment business. We are producing our 
education brochures in Spanish specifically to get some of 
those communities.
    Later this month, we are going to have a major savings 
campaign to help people understand how they can use our markets 
to save for retirement and education. We are combining with 
other government agencies to spearhead this effort, so this is 
very much in mind.
    I also intend to spend time in the schools as well. Last 
year, I talked to a group of high school students in Manhattan 
and answered questions about the industry, how they can get 
into it, what it means to invest, and how important it is to 
them and to their families and futures. Yes, we have a role to 
play.
    Mr. Serrano. Well, I appreciate that.
    Let me just close Mr. Chairman, by saying that I certainly 
would like to follow up with you on that. There are plenty of 
high school students in my part of the world that should know 
these things. I invite the Army recruiters to come in. I think 
it is okay to invite someone else to come in.
    Mr. Levitt. Absolutely.
    Mr. Rogers. Mr. Wamp.

                 INTERNATIONAL ELECTRONICS TRANSACTIONS

    Mr. Wamp. Thank you, Mr. Chairman, and welcome. Of the 
estimated one-third of the transactions that are electronic, 
how many of those are overseas transactions?
    Mr. Levitt. Let me seek some counsel on that.
    Mr. Colby. Do you mean that come overseas or that go 
overseas?
    Mr. Wamp. Either way.
    Mr. Colby. This is primarily a U.S. phenomenon, primarily 
focused on U.S. securities, but--I will have to do a rough 
estimate. I would say less than 10 percent involve foreign 
securities.
    Mr. Rogers. If you don't mind, identify yourself for the 
record.
    Mr. Levitt. This is Robert Colby, Deputy Director of the 
Division of Market Regulation.
    Mr. Wamp. Thanks.
    I was interested about the Y2K compliance, because all the 
hearings that I have sat through, we become more and more 
comfortable domestically about the preparation but less and 
less comfortable about preparations abroad. And I just wonder 
if there is a risk that that percentage becomes a problem for 
all of your electronic transactions in the event of nonY2K 
compliance, whether it is either--a sale either way. Is it a 
problem?
    Mr. Levitt. I would be surprised if that was a problem. I 
think U.S. broker-dealers are having to go through the process 
of determining whether counterparties abroad are Y2K compliant 
and how to handle that in the event----
    Mr. Wamp. So they protect themselves on the front end to 
make sure that their transactions are secure.
    Mr. Levitt. They should be.
    Mr. Wamp. Either way.
    Mr. Levitt. Yes.
    Mr. Wamp. What is the percentage of investment from 
overseas interest in our markets?
    Mr. Levitt. Again, I would ask Mr. Colby to respond to that 
question.
    Mr. Colby. I don't have a specific number. There is a 
considerable investment by large money managers from abroad in 
the U.S. markets, but I don't have a number.
    Mr. Wamp. So it would be hard to determine exactly where 
that money comes from?
    Mr. Colby. It comes typically from Europe and the Far East.
    Mr. Wamp. Is it mostly public monies or private monies?
    Mr. Colby. It is mostly pension monies.

                       Effect of Market Downturn

    Mr. Wamp. In the event of a sharp downturn in the market, 
who gets hurt the worst in our society? Who takes the bat 
first?
    Mr. Levitt. If there is a sharp market downturn, the 
investors would obviously be the ones.
    Mr. Wamp. I mean, which investors? You talked about the 
taxi drivers and the electronic transactors that really don't 
know what they are doing. I mean----
    Mr. Levitt. I would say careless investors are the ones who 
would be affected first.
    Mr. Wamp. The rookies, the new guys?
    Mr. Levitt. The ones who are investing by emotion, the ones 
who haven't had the experience of understanding that markets go 
two ways, the ones who haven't adequately considered balancing 
their portfolios, the ones who have invested on the basis of 
rumor rather than analyzing companies. Everybody will get hurt, 
but some will get hurt much worse than others.

                        Global Impact on Market

    Mr. Wamp. Will a prolonged engagement in the Balkans have 
an effect on your management or your long-term planning or is 
it not really an issue as of yet?
    Mr. Levitt. I think at this present point in time it is not 
an economic issue. Depending upon the magnitude and duration of 
the engagement, of course that could have some economic impact. 
But it is very difficult to assess that, except to say that, as 
of this point in time, it has not had an economic impact.
    Mr. Wamp. In, say, the last 10 years, has there been a 
dramatic increase or pretty much status quo in foreign 
investments in our market through these pension funds that you 
referred to?
    Mr. Levitt. I would say there has been an increase.
    Mr. Wamp. A dramatic increase?
    Mr. Levitt. I rarely use that word when we talk about our 
markets, but there has been a considerable increase.
    Mr. Wamp. Is the increase from Asia or from Europe or both?
    Mr. Levitt. Both.
    Mr. Wamp. Thank you, Mr. Chairman.
    Thank you, sir.
    Mr. Dixon. No questions, Mr. Chairman.

                            Fee Collections

    Mr. Rogers. Now, the budget authority you request for 2000 
would come entirely from offsetting fee collections.
    Mr. Levitt. Yes.
    Mr. Rogers. But I understand that the rate for 6(b) 
registration fees continues to decline, as planned, in the 
authorizing legislation. I know that the volume of market 
activity has so far resulted in greater than anticipated 
section 31 transaction fees, but are we nearing the point where 
your offsetting fee collection may not be adequate to cover the 
requirements of your operating budget?
    Mr. McConnell. This is obviously a very difficult area to 
estimate because it is based upon market activity, but OMB has 
in their long-term estimates identified that as early as 2001 
it will be quite close; and, in 2002, there would be a negative 
difference in the offsetting collections against what our 
appropriation would likely need to be. CBO can give other 
estimates as well, but it is certainly coming, and it could be 
fairly soon.
    Mr. Rogers. What is your reaction to the proposals to cap 
fees or to change the fee rates that were put in place in 1996?
    Mr. Levitt. That is a very difficult issue. I don't know 
what the answer to that should be. I think a cap is a possible 
response, but we are dealing with so many different committees 
on this and so many different interests, that to balance them 
all is almost Herculean. All I can say is that a cap appears to 
be the least unreasonable of the solutions that have been put 
forward.

                     Status of Edgar Modernization

    Mr. Rogers. Now, last year we approved a very large 
reprogramming request for a multiyear investment of $22.5 
million in the modernization of the EDGAR database. Are you on 
track?
    Mr. Levitt. I believe we are on track.
    Jim, would you want to respond?
    Mr. McConnell. We are in the first year of the 3-year 
modernization. The first major deliverable came in on time. It 
was a new text management system and a whole new dissemination 
system. We are still probably 2 years away from finishing.
    Mr. Rogers. Now, that reprogramming was for 3 years.
    Mr. McConnell. Correct.
    Mr. Rogers. We would like to know annually how you are 
doing, and we understand that you will give us an update on 
that.
    Mr. Levitt. Yes.

                      Social Security Investments

    Mr. Rogers. It is very vital.
    Quickly, before we conclude here, there is some discussion 
these days about Social Security investments in the market by 
the government. What do you think about that?
    Mr. Levitt. Well, boy, that is a big, loaded question. In 
the event that it is decided to invest some of the Social 
Security funds in the equities market, my major concern is 
seeing to it that America's investors are educated to 
understand exactly what that entails and, depending upon the 
number of choices they are given, that investors are educated 
to make those choices intelligently. If they are given no 
choices, this becomes irrelevant, but it is hard for me to see 
any of the plans that I have heard about to date not involving 
some level of choice.
    Mr. Rogers. One proposal would have the government invest a 
portion of the Social Security Trust Fund in the stock market. 
What is your opinion on that?
    Mr. Levitt. I think that--having the government do it--
entirely by itself creates certain problems in terms of how the 
selection of securities would be made. Would the government 
then be in a position to politicize the choice of investments?
    I think the issue is in sufficient controversy at this time 
that I am trying to work closely with both those that, on the 
one hand, would give investors the total responsibility for 
investing their funds and, on the other hand, those that would 
give the government total responsibility for investing funds. I 
think both of those poles are practical and political 
nonstarters, and I would opt for some balance between the two.
    I think giving investors total responsibility creates other 
problems. I don't think America's investors are prepared to do 
that. I think the cost of doing that would be considerable. So 
without weighing into this argument any more, I feel that there 
should be a balance between what government and the private 
sector do, but I have no inherent objection to Social Security 
funds being invested in equities.

                               Conclusion

    Mr. Rogers. Anyone else have any questions?
    We thank you, Mr. Chairman and Mr. McConnell, for your 
testimony, and we thank your staff. You are riding a wild 
bronco over there these days, the market. It is zooming 
upwards, and people are trading in so many different ways these 
days that no one anticipated.
    I know it is a rat race to try to keep up with the 
electronic world. You are not the only agency that is suffering 
from that dilemma. But certainly we want to help you to do just 
that, and we would be very interested to know what additional 
monies it would require for you to feel comfortable and make us 
feel comfortable in preventing fraud on the Internet 
especially.
    Mr. Levitt. Thank you very much. I appreciate that level of 
support and the depth of the questions that have been presented 
this morning. Thank you.
    Mr. Rogers. Good to see you. Thank you for being here.
    We will stand in recess for 5 minutes.
    [Recess.]
                                         Wednesday, April 14, 1999.

                   FEDERAL COMMUNICATIONS COMMISSION

                               WITNESSES

WILLIAM E. KENNARD, CHAIRMAN
ANDREW S. FISHEL, MANAGING DIRECTOR

                      Chairman's Opening Statement

    Mr. Rogers. The Committee will be in order.
    We are pleased to welcome today, in his second appearance 
as Chairman before the subcommittee, William Kennard, Chairman 
of the Federal Communications Commission. He will testify 
regarding the budget request and activities of the FCC.
    For fiscal year 2000, you are requesting a budget of $230.9 
million. That is an increase of $38.9 million, or 20 percent 
over the 1999 enacted level.
    It has been more than 3 years now since the passage of the 
landmark Telecommunications Act. In that same 3 years, there 
has been unprecedented growth in the telecom sector of the 
economy. But there is dissatisfaction with the results so far. 
Deregulation and competition have been delayed in many sectors. 
Anticipated consumer benefits such as cheaper rates and more 
options have not met expectations. There is debate now about to 
what extent shortcomings result from deficiencies in the Act or 
from the ways the FCC is implementing the Act.
    So, we will want to hear today about how FCC resources are 
being used to encourage competition and to bring better and 
less expensive services to Americans.
    Mr. Serrano.
    Mr. Serrano. Well, I welcome the gentlemen here. I am very 
fascinated by all the work that the FCC does. Such as overseas 
communications in this country, and I am very much interested 
with this testimony. I may have some areas of concern that 
probably are slightly unexpected. Thank you.
    Mr. Rogers. Chairman Kennard, we will make your written 
statement a part of the record; and we welcome your statement.

                    Opening Statement of Mr. Kennard

    Mr. Kennard. Thank you very much, Mr. Chairman and members 
of the subcommittee, for the opportunity to discuss with you 
the FCC's fiscal year 2000 budget estimates. I would also like, 
with your indulgence, to share with you some of the major 
points that are set forth in my written testimony and outline 
for you our vision for implementing the Telecommunications Act 
and what is happening out in the marketplace and what has 
happened in the last 3 years since the Act was passed.
    In 1996, we began the process of updating the rules for 
what we call the ``new economy,'' which is really an economy 
driven by information-age technology. It is centered on skilled 
workers, broad access to technology and entrepreneurial 
markets. We recognize that, as we make this transition from a 
monopoly environment to a more competitive environment, as the 
marketplace changes so must the FCC. I sincerely believe that 
the old top-down regulatory model of the industrial age is as 
out of place in this new economy as the old rotary telephone.
    So what are we doing about it? We are working very hard to 
change and restructure and update the Federal Communications 
Commission. I recently released a report entitled, A New 
Federal Communications Commission for the 21st Century, which I 
have submitted for the record in this proceeding; and with your 
indulgence, Mr. Chairman, I would ask that it be submitted with 
my testimony.
    Mr. Rogers. Without objection.
    Mr. Kennard. Essentially, the plan outlines a 5-year vision 
for how the FCC must change with the marketplace. It sets forth 
the core functions that the FCC would revolve around, which 
would be universal service, consumer protection and 
information, enforcement and promotion of pro-competition goals 
domestically and worldwide, and our core function of spectrum 
management.
    The steps we are taking to transition to this model include 
restructuring, streamlining and automation, deregulation and 
implementation of this 5-year strategic plan.
    Our primary goal must be to continue opening markets to 
competitors to bring more choices at affordable prices to all 
Americans and, at the same time, we have got to make sure that 
the public is provided with clear information so that they can 
make sense of all of these new technologies and services so 
that they can choose what is best for them. We will continue to 
enforce the law that you have written, resolve industry 
disputes, manage the spectrum and work in international 
coordination.
    Finally, we will monitor the competitive landscape on 
behalf of the public, implementing important policies such as 
universal service in ways that are compatible with competition.
    Of course, we can't do this alone, and we look forward to 
your continued support and working closely with you as well as 
industry, consumers, and State and local governments as we move 
into the next century with a new and updated FCC.
    Now, of course, this will also require budgetary support. 
As you mentioned, Mr. Chairman, the FCC is requesting a fiscal 
year 2000 budget of $230 million. That would allow us to have a 
staff of 1,930 full-time equivalents. This represents an 
increase of almost $39 million over the FCC's fiscal year 1999 
funding level but no increase in staff.
    That increase really falls into two categories. One is the 
money directly related to the FCC's recent relocation to the 
Portals Building, approximating $20 million, and the remaining 
increase covers mandatory salary and benefit increases, $6.8 
million, and $11.3 million for increases in automation 
enhancements. These automation enhancements are very important 
to the FCC as we try to transition to a new structure, because 
we need to ensure that the people that have to get licenses 
from the FCC and deal with us day to day can do so in a 
paperless world so that we can speed service.
    We are also paying for this increase through regulatory 
fees and not a direct appropriation, which I believe is 
significant. We are anticipating an increase in our regulatory 
fee collection from $172 million in 1999 to $185 million in 
2000.
    Also, to make this transition we are going to need 
additional tools. We are requesting buyout authority so that we 
can redeploy our resources and bring in a different mix of 
employees as the mission of the agency changes. We have also 
requested legislation to be able to get licenses out of 
bankruptcy, licenses that have defaulted in the auction 
process.
    In sum, Mr. Chairman, I do believe that the 1996 Act is 
working. We see this every day in the marketplace. All of the 
economic indicators in the telecommunications and information 
sector are up--job growth, stock values, revenues. Consumers 
are enjoying in most cases more choices and lower prices, 
particularly in long distance and wireless services. We are 
working hard to bring those same benefits to local phone 
service and cable television service.
    We are also pleased to report that the FCC has made 
substantial progress in alleviating its Year 2000 compliance 
problems. By the end of this month, we will be 93 percent 
compliant. That is, 93 percent of our systems, internal 
systems, will be compliant; and we fully expect to be compliant 
well before the end of the year for 100 percent of our systems.
    The bottom line, though, is that this transition from 
monopoly regulation to open markets is not complete. The job 
that you gave us in the 1996 Act is not complete. We still have 
much work to do to promote competition in all sectors of the 
communication's marketplace, to protect consumers in this new, 
more competitive marketplace, and to ensure that all Americans 
have access to the wonders of the communications revolution.
    So our agenda in all of these areas is a full one, Mr. 
Chairman. I believe it is a very important one, and with your 
support I am confident that we will succeed. Thank you.
    Mr. Rogers. Thank you.
    [The statement of Mr. Kennard, the Chairman's Agenda for 
1999, and a report entitled ``A New Federal Communications 
Commission for the 21st Century'' follow:]



                             PORTALS COSTS

    Mr. Rogers. Now let's talk about the Portals II building 
again. Let me summarize for those who may have missed the last 
few years.
    In 1997, in an arrangement that we found out about after 
the fact, GSA and FCC had secretly entered into an agreement 
where GSA would front all the money for the costs of the move 
to the Portals, knowing that we refused to fund it, and FCC 
would pay 80 percent more rent per square foot and that the FCC 
would seek increased appropriations to repay those costs.
    Well, we were never a party to that agreement; and, as a 
result, the Congress did not approve those increases in fiscal 
years 1998 and 1999.
    Now, you held up your end of that bargain with GSA. Your 
request for fiscal year 2000 again includes $20.3 million for 
Portals-related costs and indicates that you intend to request 
an additional $70 million over the following 9 years.
    Well, I can tell you right now that as long as I sit in 
this chair we are not going to provide that money. Last year, 
you were concerned that the FCC's appropriations could be 
debited for the amounts owed for rent, necessitating deep 
program cuts. It seems that, instead, you arrived at an 
understanding with GSA and that FCC operations will not, in 
fact, suffer despite the absence of appropriations for those 
Portals-related costs. Is that correct?
    Mr. Kennard. Well, we have--I hope you will understand, Mr. 
Chairman, the predicament of the FCC. When I was here a year 
ago testifying before this subcommittee, the FCC faced a very 
difficult dilemma. We were ordered by GSA to move. We had no 
choice. GSA has the legal authority to order us to move, and 
they did just that. We did make the move.
    I was concerned then that not having any certainty about 
how we would be able to pay for the move would put us in 
jeopardy. I still am uncertain about that. We are working with 
GSA closely to make sure that our programmatic activities are 
not jeopardized by this move. I am cautiously optimistic that 
we will be able to work these details out with GSA, and I would 
be happy to report back to you in about a week's time hopefully 
with something more definitive on that.
    Mr. Rogers. Well, before your tenure, GSA and FCC made 
their bed. Now let them sleep in it. This subcommittee all the 
while said, we would not pay the costs of the move, and you 
went ahead anyway. So if that is the way you want to do it, 
then that is the way it will be done. But don't look to us to 
bail you out. And we are not going to provide $70 million on 
top of everything else to pay for somebody else's mistake.
    And there has been an arrangement made, as I say, that 
protects the FCC from taking these monies from other places in 
order to pay the GSA for this exorbitant rent, so we are not 
going to stand for that.
    So we look forward to something better out of it. I realize 
you are stuck in the middle here, but--and OMB is calling the 
shots here. I understand that, too. And it seems like every 
hearing we have, it is the OMB that is doing some damage, and 
they are not here. They ask agency heads to come, having 
written their script for them, and you have no leeway.
    And I think--I have said this before to our other 
agencies--I think from here on out on this subcommittee we are 
going to ask the relevant OMB person to sit here beside you so 
that we have somebody to pick on. We ask you, and you say, 
well, it is OMB; and OMB is not here to say, no, it is not us, 
it is him. So I want both of you in the room at the same time. 
Because this just is not going to work.
    So just relay the message to OMB. It is not necessary to 
ask us to foot the bill for the Portals in 2000 or beyond. 
Because it ain't going to happen.
    Mr. Kennard. Well, it is very clearly understood, Mr. 
Chairman. But I hope you understand that my duty, of course, is 
to implement the law and to follow the law. And the Federal 
Communications Commission was ordered to move by GSA. We didn't 
have any choice in the matter. We have worked closely with GSA 
to try to make this situation work so that the agency that I 
head can continue to operate and serve the public and fulfill 
our statutory duty. I don't see that we have any choice in the 
matter, and we will certainly do everything we can to cooperate 
with you and this subcommittee to make the best of this 
situation.
    Mr. Rogers. Well, at first, the previous cost estimate of 
the move was $40 million. We objected to that price tag as 
being too high; and we urged that it be brought down, which you 
were never able to do. We declined to appropriate any funds for 
that relocation in the last 4 years.
    The costs are still estimated at around $40 million, but 
because of this deal with GSA and FCC, you would front the 
money. Supposedly, we would give you the money, and they would 
amortize this payment over 9 years, but that would increase the 
cost to us to $78.3 million. And I will not participate in that 
kind of a fraud, especially since we were never consulted about 
it, the Congress. And so I think you can see why we feel 
strongly about this, do you not?
    Mr. Kennard. I beg your pardon, sir?
    Mr. Rogers. Do you see why we feel badly about this?
    Mr. Kennard. Yes, I do understand your frustration. And I 
must say that I have had my share of frustration as well, Mr. 
Chairman; and what we are trying to do at the FCC is make the 
best of this situation.
    Mr. Rogers. Mr. Serrano.

        minority-owned and minority-formatted broadcast stations

    Mr. Serrano. Thank you, Mr. Chairman.
    Obviously, we could discuss quite a bit about the physical 
aspects of your operation; and we will do that, given time. I 
want to touch on some of the issues that you deal with.
    For instance, I understand that the FCC earlier this year 
released a study, conducted a forum on the impact of 
advertising practices on minority-owned and minority-formatted 
broadcast stations. Could you please tell us a little bit about 
this study and what will happen now?
    This issue, incidentally, is one that is taken very 
seriously in my home State in terms of some allegations and 
some information about how people advertise on these stations. 
Will you fill us in?
    Mr. Kennard. Certainly. The FCC commissioned a group to 
study the impact of advertising decisions on minority-formatted 
broadcast stations and minority consumers, and what we found 
was really quite remarkable. We found that advertisers are not 
advertising on minority formatted stations. We are not talking 
about minority-owned stations, but minority-formatted stations, 
stations that serve minority communities.
    In some cases, advertisers are issuing outright dictates: 
Don't advertise on Hispanic stations or Spanish language 
stations or stations serving African-American communities. In 
other cases, we found that they were advertising on those 
stations but only after receiving a fairly steep discount.
    We found that this was a situation where stereotypes among 
some members of the advertising community were really hurting 
consumers, because consumers weren't getting the information 
they need that should be provided over the broadcast airwaves. 
And so we issued this report. We have held a lot of meeting 
cooperatively with some advertisers to try to shed more light 
on this situation so that we can rectify it so that consumers 
get their fair share of information.
    Mr. Serrano. Now, I am on the side of some folks who want 
this issue to be handled. I mean, we can't force people to 
advertise on WAD and WSKQ in New York to a Spanish audience or 
LIW to an African American audience, but we know they should. 
So what is available to us, to all of us, to get them to do the 
right thing?
    Mr. Kennard. Well, there are a number of things we can do, 
Congressman.
    First of all, we can shed light on the problem. I have 
talked to a number of advertisers who didn't even know that 
these what they call ``no-urban dictates'' or ``no Spanish 
dictates'' practices exist. I have worked with the American 
Advertising Federation to urge them to educate their members to 
adopt voluntary codes of conduct.
    We are not talking about government mandates here. We are 
talking about getting the advertising industry and the 
broadcast community to work with minority communities to try to 
understand better this problem, why it exists and try to 
address it.
    Mr. Serrano. You know, it is interesting to me that this is 
happening, and maybe you could shed some light on why this is 
happening. Some advertisers would have no knowledge basically 
that this market may exist or it exists in the form that they 
should be in it. It comes at the same time that you see more 
and more advertising directed at my community and at the 
African American community.
    There are now more African American actors and actresses 
working in commercials, pushing products, and there is more 
Spanish thrown in along with salsa music or Tejano music in the 
background. While this is happening, there is one other 
problem. I can't believe that these people are just totally 
dumb to the market. Is it just that they haven't paid 
attention?
    Mr. Kennard. Well, in conducting this survey we surveyed 
some 3,900 radio stations and advertisers and found that their 
reasons varied. It is a somewhat complex problem.
    In some cases, advertisers were not relying on quality 
demographic information. They didn't know who exactly was 
buying their products necessarily or didn't realize that, in 
many minority communities, there was untapped purchasing power 
for some products. Some advertisers admitted that some of these 
decisions were based just on stereotypes about who they wanted 
associated with their product, some of the really most 
outrageous and cruel stereotypes in our society.
    So by shedding some light on this situation I think that we 
are making progress. Some advertisers have agreed to adopt a 
voluntary code of principles that I proffered, and I am hoping 
that others will and that we can, at least for a good segment 
of this marketplace, make some progress.
    Mr. Serrano. I encourage you to let them know that our 
community is just as good at drinking Coke and Pepsi as 
everybody else. They should know that.
    Mr. Kennard. Thank you, Mr. Serrano.

                             Y2K COMPLIANCE

    Mr. Serrano. I know you touched on it, but just to fill me 
in a little bit more, how secure do you feel that your agency 
will take care--not take care of the Y2K problem, but be in 
shape for it? Because, I can't picture you guys falling apart.
    Mr. Kennard. We are in pretty good shape. As I mentioned 
earlier, by the end of this month we hope that 93 percent of 
our systems will be Y2K compliant and validated as such. There 
are two systems that we are still working on, but we expect 
that they will be fully compliant well before the end of the 
year.

                        MONITORING THE AIRWAVES

    Mr. Serrano. I have, Mr. Chairman, one more subject I want 
to touch on at this moment. It is something that has always 
fascinated me as to how these decisions are made.
    My understanding is, and I hope I am talking to the right 
agency, that you oversee, you monitor, if you will, you accept 
complaints about monitoring what goes on the airwaves; and, 
therefore, you at times levy fines for behavior on the 
airwaves. And I know in the last 2 years you have made--you, 
the Treasury, whatever--made a lot of money off Howard Stern 
and the Howard Stern conglomerate. Yet I wonder how those 
decisions are made and who determines what is offensive to 
them.
    For instance--and I am giving these people free publicity--
I don't know that Jerry Springer has been fined. I know Stern 
has been fined. And, I don't know that HBO's total lewd 
programs after hours--and let me preface by saying that, I am 
your classic liberal who believes that you just have to turn it 
off. You don't have to be taken off the air. But, I don't hear 
that they are fined. I know Stern has been fined in the 
millions. How are those decisions made?
    Mr. Kennard. Well, we make those decisions based on a 
provision in the law which requires the FCC to act on 
complaints for indecent broadcasts over the airwaves. It is an 
area that has evolved over time.
    In the case of Howard Stern, in his broadcasts, the 
Commission went through a period of about 5 or 6 years ago when 
there were a lot of complaints, actionable complaints against 
the Stern show. We worked with that company to make sure that 
they put some controls in place to tone down the program. They 
have a 7-second delay on the Stern show, and the complaints 
subsided somewhat.
    But we still are levying fines against indecent broadcasts. 
I believe that we have at least one complaint that I know of 
against the Springer show. I don't know exactly--I haven't 
looked at it personally. I don't know how it will be disposed 
of, but it is a delicate area because, obviously, there are 
First Amendment concerns involved there, and we have a 
definition of indecency, and we apply it in a given case. It 
only applies, though----
    Mr. Serrano. But, the definition of indecency is one that 
we have discussed over and over in this country. In fact, it is 
perhaps, I think, at the center of the debate between many 
political people in this country, and you interpret that, 
right? So you could interpret it one way one time and another 
way another time.
    Mr. Kennard. Yes.
    Mr. Serrano. And in the case of the Stern show, it was 
interpreted very heavily against that show while not heavily 
against other shows is my point. I mean, we are talking about 
millions of dollars in fines, right?
    Mr. Kennard. That is right.
    Two points: First of all, we react in response to 
complaints. Some shows just don't get complaints. We don't have 
a team of people monitoring the airwaves and deciding to act on 
our own motion.
    The second point is that this definition is somewhat of an 
evolving one because, under our law, we have to apply 
contemporary broadcast standards, and that standard evolves 
over time.
    So I don't want to give you the impression that we have 
only focused on Howard Stern. He has probably been the most 
high-profile target of complaints over the past several years, 
but we have processed complaints against many, many other 
broadcasts, and those complaints have been acted upon.
    Mr. Serrano. Let me, just before I turn over my time, Mr. 
Chairman, say that while it may not seem like an important 
issue it certainly was a New York issue since the program was 
based in New York, and I do believe that your predecessors, or 
whoever did target that program--and I am shocked to find out 
that it is based on complaint. I thought you monitored 
yourself.
    Mr. Kennard. No.
    Mr. Serrano. So if I dislike a program--it is interesting, 
it is ironic that people listen to the program to complain 
about it, and as they fall down on the floor with laughter then 
they come back and are outraged by that laughter. So I am 
surprised and shocked that the FCC doesn't monitor it, rather 
than accept complaints.
    Mr. Rogers. Mr. Latham.

                             E-RATE PROGRAM

    Mr. Latham. Thank you, Mr. Chairman.
    Welcome, Mr. Kennard. I just have one question.
    On January 29th, the Commission adopted a declaratory 
ruling which essentially prohibits the Iowa Communications 
Network from being eligible for Federal E-rate funds under the 
Telecommunications Act of 1996. I would just say it is bad 
enough for Iowans to have to pay the E-rate tax, which I don't 
think is legal anyway, but not to be able to benefit from the 
taxes that we pay really adds insult to injury. Even 
Commissioner Furchgott-Rott thinks the ICN should be eligible; 
and he said, and I quote,

the Commission should not support such a strict interpretation 
of the rules that disadvantages State-based networks when the 
Commission continues to allow noncarriers such as large 
computer companies to receive money for providing other 
services under section 254.

    He goes on to say that

these State education networks are closer to being eligible 
telecommunication carriers than many of those who are receiving 
universal service support today.

    So can you tell me, why are Iowans paying taxes to the fund 
when they are basically penalizing the State for being forward-
thinking and setting up a telecommunications network, but we 
cannot access the funds?
    Mr. Kennard. Sure. I would be happy to.
    First of all, let me say that I hate the result in that 
case. I don't like the result in that case, and we struggled a 
lot with it. At the end of the day, though, we determined that 
we just did not have the statutory authority to reach any other 
result.
    The Communications Act is very clear that in order to 
qualify for funding for this program, for the E-rate program, 
the applicant must be a telecommunications provider, and has to 
be a common carrier. One way to solve this problem would be for 
the Iowa legislature to determine that this particular network 
is a common carrier, and that would clearly solve the problem. 
We had a lot of contact with the governor in Iowa and the 
governor's people to see how feasible that was, and we were 
told that it wasn't very feasible, and we had to go ahead and 
issue our decision.
    I agree with you. I don't like the result, but we are 
ultimately bound by the statute.
    Mr. Latham. So what do I tell my constituents when they pay 
this, I think, illegal tax, but they can't get the benefits?
    Mr. Kennard. Well, I think the solution is pretty clear for 
Iowa, and that is that if the State legislature would pass a 
bill that would determine that this network is a common carrier 
for all purposes, we would easily, happily, include them in the 
E-rate program. But, unfortunately, until we have that change, 
we are boxed in by the statute.
    Mr. Latham. I am not sure I am going to buy that either.
    Thank you, Mr. Chairman.
    Mr. Kennard. Thank you.

                     INFORMATION TECHNOLOGY FUNDING

    Mr. Rogers. Mr. Dixon is next, and he has gone down 
temporarily to vote. Until he comes back, I will fill in with a 
couple of questions before we recognize Mr. Wamp.
    Now, the only program increase you are seeking that is not 
related to Portals is $11.3 million for information technology.
    Mr. Kennard. Yes.
    Mr. Rogers. Last year, you asked for an increase of $5.8 
million for Y2K and indicated that the funding was necessary to 
keep Commission-critical systems functioning. You got more than 
that, $8.5 million, in fact, from the fiscal year 1999 
emergency Y2K funding. $6.5 million of that money was for 
replacement of Commission modernization critical systems.
    We also last year approved a reprogramming of $3.9 million 
in excess fee collections, again for Y2K-related improvements.
    Finally, you are devoting $11.3 million to information 
technology from your fiscal year 1999 base.
    So all of that totals $21.7 million within the last year 
that you have devoted to base, one-time funding to improving 
and surveying your automation systems and get those systems Y2K 
compliant. We assume that the funds for Y2K should represent 
one-time needs and that those fixes should be accompanied by 
streamlining and linking systems. How is it that you require an 
additional base increase of $11.3 million in fiscal year 2000?
    Mr. Kennard. Well, first of all, Mr. Chairman, let me thank 
you for the support that you gave us last year in enabling us 
to upgrade our systems and make them Y2K compliant. The reason 
for the additional increase really falls into the category of 
continuing system upgrades and maintenance requirements.
    The FCC does a lot of its business electronically. In 1996, 
just 3 years ago, we would get about an average of 19,000 hits 
per month on our e-mail system, our web site. That number is 
now over 400,000 hits per month. In addition, we do an awful 
lot of our licensing electronically. In fact, we are in the 
process of trying to convert and have converted a number of 
these systems electronically. So our telecommunications needs 
have increased.
    I do think, though, that the budget is quite modest. For 
example, if you compare the FCC's expenditures in the 
information technology area with an agency like the Federal 
Trade Commission, for example, we have significantly more 
employees, and significantly more electronic filing 
requirements, but our budget request is about the same.
    Mr. Rogers. Well, as you know, we are under extremely tight 
budget caps, and we will have less money to deal with this 
year, so we have to be very careful on how we spend our monies, 
and we have to insist that you do the same. We don't want to--
we want to make sure that you are not using Y2K funds as part 
of your recurring base. It truly is a one-year expenditure.
    So we want you to look through your list of planned 
expenditures. Some are probably more crucial than others, and 
we would like you to scrub that list and let us know which 
items are of the highest priority in case we don't have the 
funds to fund all of them. We want you to focus, of course, on 
your truly mission-critical needs as you rescrub that list.
    Mr. Kennard. We will absolutely do that.
    If I might comment, first of all, I wanted to emphasize 
that the funding for our IT needs would be from regulatory 
fees, and we are not requesting a direct appropriation to do 
that. Second, as we go through that list, I am sure we will 
determine that--in fact, I know we will--determine that much of 
this is for upgrades in maintenance, for not inputting in new 
systems.
    Mr. Fishel.
    Mr. Fishel. As we have worked to put in place the Y2K 
systems, and they will be in place by this year, they now will 
need to be maintained and continually upgraded as new software 
developments come out. So even after you put those systems in 
place, it can't be the end of the funding for those new 
systems.
    Mr. Rogers. Mr. Dixon.

                         STATUS OF PORTALS MOVE

    Mr. Dixon. Thank you, Mr. Chairman.
    Chairman Kennard, may I just gingerly return to the Portals 
issue that is continually raised every year. As you can see, it 
is a festering issue with the committee, and it certainly 
impedes progress to come up every year on what I would consider 
a losing battle.
    First, what is the status of the move? As I understand it, 
there is only a partial move at this time, but I may be totally 
incorrect.
    Mr. Kennard. Well, virtually all of our organizational 
units have now been moved to the Portals. We will be completed 
with--everyone will have moved into the building--by June of 
this year.

                     AMORTIZATION OF PORTALS FUNDS

    Mr. Dixon. And as the Chairman indicated, there is a 
proposal to amortize this over 8 years at roughly $8.7 million. 
Now, where did this come from? I mean, was this something your 
staff came up with, or was this something imposed by OMB?
    Mr. Kennard. Well, Mr. Dixon, we have had to work very 
closely with GSA to figure out how we were going to be able to 
make this move. As you know, this move has a long and tortured 
history; and when GSA ordered the FCC to move, we were in the 
position of having to find out how we could make the best of 
this situation. We didn't have the money in order to make this 
move out of our appropriations. GSA has offered to make the 
move possible by basically loaning us the money, with the 
understanding that we would continue to press for money out of 
our appropriations, and we have continued to work out those 
details, and out of that process came this decision.
    Mr. Dixon. Assuming that your bill moves forward and you 
receive no money through conference, what is the impact on your 
budget? I mean, is there a direct impact? If you don't get the 
$8.7 million--and there is express language in the bill that 
says that no money shall be paid to GSA for reimbursement for 
moving what position does that place you in? Because I would 
think it should not impact your budget at all and you just tell 
GSA to go talk to Chairman Rogers and the committee. Is that a 
fair assessment?
    Mr. Kennard. We would be severely at risk in that 
situation, because the money has to come from somewhere. If the 
money is not appropriated in our budget and GSA doesn't agree 
to pay the money, my understanding is that GSA has the legal 
authority to pull the money out of our appropriated funds, in 
which case that could have a devastating impact on the FCC. We 
are a small agency, as you know. A $9 million hit from our 
budget, unplanned for, would be devastating; and, basically, a 
lot of the work at the agency would just halt.
    Mr. Dixon. Well, Mr. Chairman, I really think that your 
suggestion is a good one. If the Senate feels as strongly as 
this committee, I think it is unfair to Mr. Kennard, and it is 
certainly a policy issue as to whether GSA or the executive 
branch wants to cripple another agency of government by taking 
$8.7, million out of its budget. Maybe we could be helpful by 
making it clear to them that we are never going to pay this, 
and that they should not penalize the FCC and leave you as a 
have a man in the middle here.

                         OVERLAY OF AREA CODES

    Mr. Dixon. I would just like to move on to a couple of 
other things, and one that I think your staff has talked to you 
about, and I raise it because it is a local concern in 
California and Los Angeles, but I suspect it is ultimately a 
national concern. That is number allocation. In my community in 
particular, but in other communities as well, people are 
complaining about what they perceive as an additional technical 
burden, and that is the aea code overlay.
    As you may know, the California PUC has ordered an overlay 
starting on July 17th, one of probably more to come. And as I 
understand it, and we have had some brief discussions, in part 
it is a shrinking of alternatives of State utility commissions 
based on a ruling that you have made--not you personally--but 
that the FCC has made as it relates to segregating an area code 
or codes for cellular or particular phones. It appears to be 
creating some hardship on communities with what we call an 
overlay.
    The first thing, as I understand the law, there is a 
procedure for a waiver, and that all waivers thus far have been 
turned down. But before your ruling, New York went ahead and 
issued, in fact, an edict that in your view is discriminatory. 
Is that about where we are?
    Mr. Kennard. Well, the----
    Mr. Dixon. I think it is of national concern. If I call my 
neighbor right next door, I am going to have to go ultimately 
to, what, 10 digits or something.
    Mr. Kennard. Yes, the broader context here which you put 
your finger on is that we are running out of numbers, because 
more people are getting computers and faxes in their homes, 
more people are getting cell phones and PCS phones, and so we 
just don't have enough numbers to go around. So we have in 
place what is, in effect, an interim plan. We are trying to 
give as much authority to the States as we can to deal with 
these number administration problems on their own.
    But you gave us exclusive authority over this issue, and 
you delegated some of our authority to the States with one 
important caveat, and that is, we want to make sure that the 
States administer numbers in a way that doesn't frustrate 
competition, and that really creates some problems. For 
example, if the State decides that if you are a wireless 
provider and that your customers have to be stuck with the new 
area code, that would be a competitive issue. So we have to 
work with the States to make sure that they are exercising 
their authority in a way that doesn't frustrate competition.
    The second thing we are trying to do, which is very 
significant, is to come up with new ways of administering the 
numbers in smaller blocks. Right now--
    Mr. Dixon. Other than the 10,000 block?
    Mr. Kennard. Yes, right. This spring we are proposing rules 
that would hand out numbers in 1,000 blocks, and that would 
significantly increase our ability to conserve numbers. In the 
meantime, though, we will continue to work with States to give 
them some flexibility in doing splits and overlays and dealing 
with the number exhaust problem.
    Mr. Dixon. Do I understand that you are trying to work out 
an arrangement where you will be issuing numbers in less than 
10,000?
    Mr. Kennard. Yes. In order to conserve numbers.
    Mr. Dixon. Right. And will that substantially alleviate the 
problem?
    Mr. Kennard. It will help. It is one of a number of 
proposals to help with the problem.
    The other thing that we have done is to require 10-digit 
dialing when there are overlays or splits; and we've found that 
in many States, although there is a lot of initial concern and 
publicity around this, once the 10-digit dialing is 
implemented, people adjust to it quite readily, and it is not 
the problem that people anticipated. So knowing that and 
dealing with the 1,000 block conservation----
    Mr. Dixon. Where do you get that information, Mr. Chairman?
    Mr. Kennard. This is what they tell me.
    Mr. Dixon. Well, for instance, if my neighbor moves and 
after a certain date a new person moves in, they will have, as 
I understand it, a different area code.
    Mr. Kennard. Depending on where they live, yes.
    Mr. Dixon. Right. So it does cause confusion if another 
friend of mine knows my neighbor and knows that I am 310 and 
assumes because this person is next door that they are 310, but 
it turns out they are really 424. I am not saying that it is 
anyone's fault, but I think it is a tremendous political 
football that maybe the FCC should be more aggressive in 
explaining.
    I don't think it is your fault, but I raised the issue once 
and now even my staff is telling me, no, this is FCC's fault 
because they have limited options.
    The States are going to continually say that it is your 
fault. I have a letter here where the California PUC says they 
are coming back here in the latter part of April, if they 
haven't been out here, to ask for a waiver. One member of the 
State legislature has introduced a bill that prohibits the 
issuance of new area codes. Now, he is a lawyer, and he knows 
that he can't get away with that.
    I just think somebody has to be more aggressive in 
explaining to the consumer what is happening. I am in an area 
code that is affected; and other than a few small articles, 
everybody is passing the buck.
    Mr. Kennard. I think that is a very good suggestion. We 
have sought to work closely with the States and to delegate 
more authority to the States on this issue because, frankly, we 
feel that they are closer to the situation, and they know more 
about the local politics.
    Mr. Dixon. Yes, and their position is, we only have three 
bad choices. One is to split an area code; one is to overlay; 
or, three, to realign. And they are saying, they are being 
restricted.
    All I am saying is that this is a festering problem in more 
and more communities--and New York is always cited as getting 
in before the barn was closed, and it is leaving a bad taste in 
Massachusetts which has tried to make an appeal. California is 
going to try to make an appeal, and pretty soon we are going to 
be marching on New York trying to destroy all of their 
equipment because it is unfair.
    Mr. Serrano. You are lucky I wasn't listening.
    Mr. Dixon. So I am just raising it because I know that, in 
my local community, we are going to get a lot of phone calls 
about, one, I have to dial all of these digits and, two, the 
woman down the street has a different area code than I have.
    Mr. Kennard. I was just handed the web site from the 
California PUC which does a fairly good job explaining on their 
web site what consumers need to know about these changes. But I 
take your point. I think that we need to do more. For example, 
in Florida they do media campaigns and the people on the Public 
Utility Commission actually take to the airwaves and explain 
what is happening with some of these consumer issues. So I take 
your point; and when we meet with the California PUC later this 
week, we will be sure to raise this concern.
    Mr. Dixon. Thank you, Mr. Chairman.
    Mr. Rogers. Mr. Wamp.

          Bell Operating Companies' Long Distance Applications

    Mr. Wamp. Thank you, Mr. Chairman.
    Welcome, Mr. Chairman.
    Two points here. Three years after the Telecommunications 
Act, it is my understanding that Bell Operating Companies' 
long-distance applications are still held up; and I just 
wondered what the status is on trying to break that logjam.
    Mr. Kennard. Certainly. Well, we don't have a Bell Company 
application before us right now. We are optimistic that we will 
see some applications very soon. We are working very closely 
with the Bell Companies and various State regulators.
    As you know, the States have a strong role in this process 
as well, and I expect that this year we will see applications 
from a number of States, and hopefully we will get applications 
which we can really work with.
    Mr. Wamp. Is there any reason that a State public service 
commission should withhold approval of a meritorious Bell long-
distance application right now, based on a recent Supreme Court 
ruling?
    Mr. Kennard. Well, the short answer is no. The more 
complicated answer is that the Supreme Court issued an 
important decision in this area in late January which remanded 
an issue back to the FCC for further consideration. And we are 
working with the States to explain that process and try to give 
them a little bit of certainty so that it doesn't slow down the 
271 process. My goal is to keep this process going.

                      Products Targeted to Minors

    Mr. Wamp. Okay. Secondly, and this is much more 
complicated, I met with you last year on an issue that I really 
think hasn't gotten enough attention, and that is the fact that 
in the last 4 years we have heard a lot about Joe Camel, but we 
haven't heard much about the Budweiser frogs, and the issue is 
whether or not beer wholesalers or beer companies are targeting 
their product to minors.
    If you go, as I did last year, to Florida for spring break, 
granted you can go to the right place or the wrong place, but I 
went to the wrong place. I saw a sickening tendency of minor 
consumption of beer to the point of people being injured, just 
sick, just ridiculous behavior, and I can't help but believe 
that that is taking place, that being the targeting of beer 
products over television at our kids, young kids. And I just 
wondered if the FCC is monitoring this, if they are studying 
this, if there is a major effort to determine what kind of 
devastation this can cause. I just think that it is getting out 
of hand.
    The cigarette attention in many regards to me is not near 
as important as this attention. Because alcohol kills people, 
abuse of alcohol; and, frankly, beer by teenagers is every bit 
as deadly as any drug that they can consume if it is abused; 
and it is being abused by teenagers, by minors. I just wondered 
what your role is there or what help you need to determine 
whether or not these beer companies are acting in an improper 
way.
    Mr. Kennard. I think it is certainly a serious issue, and 
one that may warrant further study.
    I know that Congress directed the Federal Trade Commission 
to look into the issue of distilled alcohol advertising on 
television, and I am not exactly sure what the status of that 
review is, but I know they have a few proceedings going. So I 
know that the Federal Trade Commission is doing something in 
this area. If there is sentiment in Congress that the FCC, in 
its role of evaluating public interest obligations of the 
broadcast industry, should have a role in this area, then I 
would certainly suggest that the Congress make those views 
known to the FCC through legislation or otherwise.
    Mr. Wamp. Thank you.
    Thank you, Mr. Chairman.

                            Fee Collections

    Mr. Rogers. This committee provided you with an overall 
funding level of $186.5 million, after we stipulated that it 
would be offset by fee collections of $162.5 million. I 
understand that in fiscal year 1998, for the first time, you 
were not able to collect the amount of offsetting fees that we 
designated in bill language. We asked you to look into it, and 
I wondered what you found out so far.
    Mr. Kennard. Well, on the collections issue, we are still 
trying to collect some of the fees that we assessed last year. 
I will allow Mr. Fishel to give you more detail on the status 
of that.
    Mr. Fishel. We continue to review who has paid and how much 
they have paid. Since the beginning of this fiscal year, we 
have collected over $1 million in fee payments that should have 
been paid last year. So we continue to try to collect that.
    The fee process is established in statute and provides a 
rather complicated formula by each of the licensees on how much 
they should pay, and we continue to work inside the agency to 
make sure that all of the licensees understand their 
obligations.
    Mr. Rogers. Well, we asked you to look into why it took 
place. Can you tell us why it took place, why they didn't pay?
    Mr. Fishel. In some cases, the industry projections about 
how much earnings would be made and therefore, how many people 
would be taking part in that particular industry, particularly 
in the telephone area, there was a substantial reduction in the 
amount of revenue coming in, which constitutes about half of 
the shortfall that was not paid into the regulatory fee 
program.
    Mr. Rogers. And what are we doing to avoid another 
situation like that in fiscal year 1999?
    Mr. Kennard. One thing I think it is important to point 
out, Mr. Chairman, is that in order to accurately collect these 
fees we have to make some assumptions about what is going to 
happen in the marketplace. We have to make assumptions as to 
deployment of technology, assumptions as to what rate levels 
consumers will be facing, and this marketplace is so dynamic, 
it is changing so fast, that we are being challenged 
increasingly to make these projections when the target is 
moving.
    Now, the only silver lining in this cloud that I might 
point out is that the reason why our collections in the 
telephone industry were not what we projected is that consumers 
saw rate reductions that were more than we anticipated. I think 
as a result of more competition in the marketplace, rates have 
been going down for telephone services, so our projections were 
off. We will continue this year to try to make more accurate 
projections.
    Mr. Rogers. Well, is part of the problem the inability of 
your systems to adequately track who has paid and who has not 
paid?
    Mr. Fishel. Yes. We are aware of that, and we are actively 
working on a process that would actually allow us to identify 
all of the licensees and more accurately match up whether or 
not they paid and how much they paid.
    Mr. Rogers. I understand GAO is also looking at this, so we 
will get their report later in the summer, and we would like to 
hear from you as well.
    Mr. Kennard. Certainly.

                                 CALEA

    Mr. Rogers. Now, on CALEA, this matter comes to this 
subcommittee from two and three different places--namely, the 
FBI and the Justice Department, DEA and the like and, of 
course, the FCC--and for 4 years, industry and law enforcement 
have argued about CALEA, what it means, what it requires. This 
subcommittee has taken the lead in trying to hammer it out, get 
it over with.
    Last year, to try to break the stalemate between industry 
and government, we asked the Attorney General to petition the 
Commission to rule on the technical standards that are required 
by the CALEA Act, and I encouraged the Commission to act as 
quickly as possible on the petition. It has now been 1 year 
since that petition was filed. I am not asking you anything 
about the substance, just the procedure. Have you completed 
your final ruling on the technical standards; and, if not, when 
can we reasonably expect it to be completed?
    Mr. Kennard. Certainly.
    First, Mr. Chairman, let me commend you for the work that 
you did on CALEA. I know that you wrestled with this problem 
for 4 years; and by the time the issues did come to the FCC, 
thanks to you, a lot of the issues were narrowed somewhat; and 
it has made the job somewhat easier.
    It still is a difficult job. Last year, we put out proposed 
technical standards. We have been working closely with the 
Department of Justice and industry and privacy groups to narrow 
the issues for decision, and I expect that we will have final 
reporting ordered in the May-June time frame.
    We did have a breakthrough on this in the past few weeks. 
The Department of Justice, working with Nortel, was able to 
come together on some software licensing standards which 
ultimately should lower the cost to the industry, which has 
been, you know, the major bone of contention here. So I am 
hopeful that we will have a good set of rules for you in May or 
June.
    Mr. Rogers. Well, it is all hinging upon your ruling. 
Because we will insist that both government and industry abide 
by how you rule.
    One of the key disputes over CALEA has been the costs 
associated with the additional capabilities included on the 
punch list. I understand that just last month the Commission 
decided to attempt to include cost estimates as part of your 
ruling on the technical standards. Is that correct?
    Mr. Kennard. Yes. We have been working to get more and 
better quality cost estimates from the industry, because this 
has been the gravamen of a lot of the arguments, that it is 
just not cost-effective for them to use the cost requirements. 
So we are endeavoring to get much better financial information. 
And I know that they have been tussling with the Department of 
Justice over this as well.
    Mr. Rogers. How can you independently verify the cost, 
since it is purely up to the industry, is it not?
    Mr. Kennard. Well, what we can do is independently evaluate 
the basis of their cost estimates, and we have our own 
engineers who have a fairly good sense of what it costs to 
deploy this technology. We can get a fairly good sense of 
whether the industry's cost estimates are within a zone of 
reasonableness.
    Mr. Rogers. Well, do you believe that you will be able to 
resolve that cost dispute or will we simply have to come up 
with three different numbers now, as opposed to two?
    Mr. Kennard. I am hopeful that we will be able to wrap this 
up comprehensively by June at the latest.
    Mr. Rogers. And will your decision try to include cost 
estimates--will that cause any delay in issuing a final ruling 
on the standards?
    Mr. Kennard. Hopefully not. If that changes, I will 
certainly be back to you well before we make a decision on 
that, Mr. Chairman.
    Mr. Rogers. Well, I think we have the broad parameters of a 
grand deal for the industry, for the government; and, 
hopefully, in utilizing the FCC as the arbiter of the technical 
cost advantage that we will be able to provide software at a 
more reasonable cost to all of the companies, that we will pare 
off and not worry about the smaller companies, smaller 
exchanges that likely would never have court-ordered wiretap, 
so why deal with that now, and then concentrate on the larger 
exchanges--larger companies where 70 percent plus of the 
wiretaps take place, and then give some flexibilities to the 
companies in view of the delayed decision here and implementing 
the standards that the FCC comes down with.
    So we have, for the first time, I think, a grasp of a final 
solution here, some light at the end of the tunnel. It is a 
matter that has to be dealt with, because the FBI and the law 
enforcement agencies clearly must have the capability to 
conduct court-ordered wiretaps and listening posts, because it 
is vital to our national security and people's well-being.
    So I thank you for expediting that decision as quickly as 
you can.
    Mr. Kennard. We will certainly do that.

                 Free Air time to Political Candidates

    Mr. Rogers. Now, last year we disagreed over the 
Commission's involvement in the issue of providing free air 
time to political candidates. You decided not to pursue a rule-
making absent some consensus in the Congress. But the last time 
we talked you indicated your intent was to go forward with a 
notice of inquiry. What is the status of that?
    Mr. Kennard. Well, we haven't proceeded with that notice of 
inquiry to date. I continue to believe that because there is 
interest from a number of Members of Congress about this issue 
that perhaps the FCC, as the expert agency, could develop a 
record which we could present to the Congress which could 
certainly include legislative proposals in this area as well. 
But we have not proceeded with any proposed rules at this time.
    Mr. Rogers. Do you intend to bring that to a Commission 
vote this year?
    Mr. Kennard. It is quite possible that we will release a 
notice of inquiry, a general notice of inquiry, but it would 
be--we probably would not bring that to conclusion by the end 
of this year.
    Mr. Rogers. Well, I would hope not. I would continue to 
strongly oppose any further action by the FCC on that issue 
absent some legislation from the Congress. Quite simply, the 
Congress makes policy, the FCC implements it, and the Congress 
has not yet spoken on that issue. I know you differ on that 
point.
    Mr. Kennard. Yes, we do. I fully appreciate your views on 
this, Mr. Chairman; but, again, one of the benefits of a notice 
of inquiry proceeding is that we can assist those Members of 
Congress who are interested in this issue in helping to 
formulate some views on that.

                       5-Year Reengineering Plan

    Mr. Rogers. Now, in your testimony you mentioned your plan 
to submit for the record a 5-year reengineering plan.
    Mr. Kennard. Yes.
    Mr. Rogers. Can you give us a sneak preview of that, 
particularly how you plan to incorporate the mandate of the 
Telecom Act regarding deregulation?
    Mr. Kennard. Certainly. We have outlined what I think are 
the major challenges in restructuring the agency. As the 
marketplace moves to a more competitive model and away from the 
old monopoly model, the role of the FCC is going to be much 
more focused on consumer protection and consumer information 
and enforcement. I want the agency to get out of the role of 
being the gatekeeper, who decides who gets in and out of the 
marketplace, and focus much more of our attention on the back 
end, enforcing those rules of competition that are required by 
the Act and also making sure that consumers have the 
information that they need in some marketplace.
    We are seeing a tremendous amount of consumer confusion out 
in the marketplace, Mr. Chairman. It is the result of more 
competition, more providers out there vying for consumer 
dollars. In fact, tomorrow we are coming up with new guidelines 
on how telecommunications providers communicate with their 
customers on the bills. We have received about 30,000 
complaints about phone bills, people who say their bills are 
too confusing. So tomorrow we hope to come up with guidelines 
in this area.
    This is an example of the changing role of the agency. Less 
of the top-down, rate-of-return, regulatory approach and more 
of the back-end consumer protection approach.
    So our blueprint calls for the creation of an Enforcement 
Bureau to consolidate all of the enforcement activities of the 
agency under one bureau, streamline that operation, to beef up 
the consumer outreach and consumer information requirements and 
also, over time, to try to deal with the problem of 
convergence. As we see the marketplace becoming more 
competitive, providers dealing with consumers and providing all 
sorts of bundled packages and services, we want to make sure 
that the agency's regulatory structure facilitates and doesn't 
inhibit that process.
    Mr. Rogers. Well, we will be anxious to see what you are 
proposing. I think you are right in that convergence is a 
phenomenon that the FCC has not kept up with. Don't you think--
I think you are saying that convergence is going to have to 
take place within the FCC?
    Mr. Kennard. Yes, I think so. Increasingly, we are seeing 
the challenges of convergence as cable operators, for example, 
are starting to provide telephony and telephone companies are 
providing cable and other services. The market is not divided 
into these neat little regulatory niches anymore, and I am 
committed to making sure that the FCC changes to accommodate 
that change in the market.
    Mr. Rogers. When would we expect to see that?
    Mr. Kennard. Well, we submitted for the record the outlines 
of a process for developing a more complete plan that we will, 
of course, work with you on. We have established a deadline of 
July for establishing our more comprehensive blueprint, 
hopefully with your input as well.
    Mr. Rogers. We will look forward to working with you on 
that.
    Mr. Serrano.
    Mr. Serrano. No questions.
    Mr. Rogers. Well, thank you very much, Mr. Chairman----
    Mr. Kennard. Thank you.
    Mr. Rogers [continuing]. For your testimony, and your 
staff. You have a big challenge ahead of you. There is probably 
no sector of the economy that is changing more rapidly than 
what you deal with, and you are dealing with an agency that is 
still operating under 1934 laws and rules. That is as old as I 
am. So no wonder it is archaic over there.
    Mr. Kennard. You are in much better shape, Mr. Chairman.
    Mr. Rogers. Well, sometimes I don't feel like it.
    But if you have something that you want to deal with us on, 
be sure and let us know.
    Mr. Kennard. Thank you.
    Mr. Rogers. We have a very tight budget this year, of 
course. I mentioned that earlier. And we don't know yet what 
the dollar figure we are going to deal with is, we just know it 
will be less than we had before. So for that reason we want you 
to tell us the most important things that you would like to see 
rather than the whole list, because I doubt we can do the whole 
thing. So stay in touch with us.
    Mr. Kennard. We understand your constraints. We appreciate 
your support. Thank you very much.
    Mr. Rogers. Thank you.
    [Questions for the Record follow:]




                           W I T N E S S E S

                              ----------                              
                                                                   Page
Alvarez, Aida....................................................   329
Bosley, D.E......................................................     1
Donnelly, Tony...................................................     1
Duff, J.C........................................................     1
Eakeley, D.S.....................................................   265
Erlenborn, J.N...................................................   265
Fishel, A.S......................................................   405
Gray, J.L........................................................   329
Hanlon, Dan......................................................    59
Hantman, A.M.....................................................    59
Heyburn, Judge J.G., II..........................................   103
Kennard, W.E.....................................................   405
Kulik, Bernard...................................................   329
Levitt, Arthur...................................................   369
McConnell, James.................................................   369
McKay, John......................................................   265
Mecham, L.R......................................................   103
Miller, James....................................................    59
Piersol, Judge, L.L..............................................   103
Pregnall, Stuart.................................................    59
Souter, Hon. D.H.................................................     1
Suter, Bill......................................................     1
Theiss, L.M......................................................    59
Thomas, Hon. Clarence............................................     1
Turnbull, M.G....................................................    59
Walter, G.A......................................................   329
Zobel, Judge, R.W................................................   103


                               I N D E X

                              ----------                              
                                                                   Page

                 The Supreme Court of the United States

Accessibility of Supreme Court Information.......................    35
Automation Positions.............................................    31
Building Improvements............................................    42
Change in the Law Clerk Feeder Process...........................47, 51
Federalizing Crime...............................................    33
Jury Nullification...............................................    34
Law Clerk Hiring Process.........................................    36
Law Clerk Selection Criteria.....................................    37
Law Clerk Selection Law Schools..................................39, 47
Law Clerk Selection--Women and Minorities....................40, 45, 49
Ninth Circuit Court of Appeals--Habeas Corpus....................    53
Opening Remarks..................................................     1
Perimeter Security...............................................    41
Police Pay and Retirement Parity.................................    30
Questions for the Record--Charles H. Taylor......................    55
Questions for the Record--Julian C. Dixon........................    58
Questions for the Record--Tom Latham.............................    57
Security Supplemental............................................    30
Statement of Justice Souter......................................     2
Summary of Budget Request for FY 2000............................    13
Televising Court Proceedings.....................................    43
U.S. Sentencing Commission.......................................    44
Use of Modern Technology.........................................    32

  Supreme Court of the United States--Care of the Building and Grounds

ADA Compliance...................................................    98
Capitol Visitor Center and Court Entrance........................    98
Court Building Renovations.......................................    70
Detailed Design..................................................   100
Opening Remarks..................................................    59
Opening Statement................................................    59
Perimeter Security Enhancement...................................    95
Preliminary Renovation Project Schedule..........................    74
Renovation of the Base Building Systems..........................    98
Renovation of the United States Supreme Court....................    61
Renovation Project Budget Development............................    71
Renovation Project Construction Funds............................    95
Renovation Project Design Costs..................................    97
Renovation Project Scope of Work.................................    72
Safety Precautions...............................................    98
Site Repairs.....................................................    73
Statement of Alan M. Hantman.....................................    76
Systems Failures.................................................   100
Systems Modernization............................................    96
Systems Replacement Project......................................    97

Courts of Appeals, District Courts, and Other Judicial Services; Admin. 
   Office of the U.S. Courts; Federal Judicial Center; U.S. Court of 
                    Appeals for the Federal Circuit

Abuse of Female Inmates..........................................   250
Accomplishments of Judge Zobel...................................   259
Bankruptcy Filing Fee Increase...................................   251
California Capital Habeas Case Costs.............................   252
Census Sampling..................................................   254
Congressional Budget Summary for FY 2000.........................   167
Court Security...................................................   257
Courthouse Construction Funding..................................   249
Defender Services................................................   252
Defender Services................................................   256
Federal Judicial Center FY 2000 Budget...........................   242
Federal Judicial Center Director.................................   243
Freeze in Court Staffing Levels..................................   233
FY 1999 Financial Plan...........................................   230
FY 2000 Salaries and Expense (S&E) Funding.......................   235
Illegal Aliens...................................................   248
Impact of Federal Legislation on Civil Caseload..................   239
Increasing Criminal Caseload.....................................   240
Introduction.....................................................   103
June 15, Funding Cut Off.........................................   237
Negative Allowance...............................................   236
Ninth Circuit Split..............................................   253
Opening Statement................................................   104
Question for the Record--Rep. Julian C. Dixon....................   261
Question for the Record--Rep. Tom Latham.........................   260
Questions for the Record--Rep. Lucille Roybal-Allard.............   262
Sampling for the Decennial Census................................   238
Statement of Gregory W. Carman...................................   154
Statement of Haldane Robert Mayer................................   151
Statement of Honorable John G. Heyburn II........................   107
Statement of Leonidas Ralph Mecham...............................   134
Statement of Rya W. Zobel........................................   128
Statement of Timothy McGrath.....................................   157
Use of Spanish in Federal Courts.................................   234
Use of Technology................................................   232
Video Technology.................................................   241

                   Federal Communications Commission

5-Year Reengineering Plan........................................   467
Amortization of Portals Funds....................................   460
Bell Operating Companies Long Distance Applications..............   463
CALEA............................................................   465
E-rate Program...................................................   457
Fee Collections..................................................   464
Free Air Time To Political Candidates............................   467
Information Technology Funding...................................   458
Minority-Owned and Minority-Formulated Broadcast Stations........   454
Monitoring the Airwaves..........................................   456
Opening Statement of Mr. Kennard.................................   405
Overlay of Area Codes............................................   461
Portals Costs....................................................   453
Products Targeted to Minors......................................   464
Questions Submitted to the Record by Chairman Rogers.............   470
Questions Submitted to the Record by Rep. Charles Taylor.........   474
Questions Submitted to the Record by Rep. Dan Miller.............   488
Questions Submitted to the Record by Rep. Tom Latham.............   482
Statement for the Record of Ida L. Castro, EEOC Chairwoman.......   489
Status Of Portals Move...........................................   460
Y2K Compliance...................................................   456

                       Legal Services Corporation

Accuracy of Client Case Data.....................................   308
Chairman Rogers Opening Statement................................   265
Commission on Aliens.............................................   292
Communication with Congress......................................   313
Department of Justice Grants.....................................   288
Funding for Domestic Violence and Children.......................   287
Grant Recipients.................................................   289
Inspector Generals' Oversight....................................   304
Inspector Generals' Report.......................................   299
LSC Services to Children.........................................   291
LSC Strategic Plan...............................................   297
LSC Unmet Needs..................................................   291
Opening Statement of the Legal Services Corporation..............   284
Poor Performance of Grantees.....................................   306
Pro Bono Activity................................................   300
Program Caseload Statistics......................................   294
Questions for the Record--Dan Miller.............................   327
Questions for the Record--Rep. Charles Taylor....................   315
Questions for the Record--Rep. Tom Latham........................   321
Statement of Douglas S. Eakley...................................   266
Technology-Based Delivery Mechanisms.............................   293
Welfare Reform Laws..............................................   302

                U.S. Securities and Exchange Commission

Adequacy of Budget Request.......................................   397
Basic Investor Education.........................................   399
Conclusion.......................................................   403
Effect of Market Downturn........................................   401
Enforcement Resources............................................   394
Fee Collections..................................................   402
Fiscal Year 2000 Request.........................................   394
Global Impact on Market..........................................   401
Improved Information Systems.....................................   395
Information Technology Services..................................   394
International Electronics Transactions...........................   400
Internet Enforcement.............................................   397
Internet Trading.................................................   396
Investor Education...............................................   398
Percent of Electronic Trading....................................   396
Social Security Investments......................................   402
Status of EDGAR Modernization....................................   402
Testimony of Arthur Levitt, Chairman.............................   372

                   U.S. Small Business Administration

7(A) Loan Program................................................   350
Access to Venture Capital in West Virginia.......................   348
Agriculturally Dependent Small Businesses........................   360
Authorization of New Program.....................................   350
Differences Between Existing and New Programs....................   353
Disaster Loan Program............................................   342
Environmental Compliance Project.................................   358
Modernication Effort.............................................   356
New Markets Venture Capital Fund.................................   345
New Markets Venture Capital Program..............................   349
New SBA Fees.....................................................   357
Office of Advocacy...............................................   359
Opening Statement of Chairman Rogers.............................   329
Opening Statement of the Small Business Administration...........   341
Questions Submitted for the Record--Rep. Roybal-Allard...........   364
Questions Submitted for the Record--Rep. Tom Latham..............   361
Recent Disaster Activity.........................................   346
Relationship with Federal Emergency Management Agency............   346
SBA's Hiring Freeze..............................................   351
Statement of Aida Alvarez........................................   331

                                
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