[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



                 DEPARTMENTS OF COMMERCE, JUSTICE, AND

                   STATE, THE JUDICIARY, AND RELATED

                    AGENCIES APPROPRIATIONS FOR 2002

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS
                              FIRST SESSION
                                ________
  SUBCOMMITTEE ON THE DEPARTMENTS OF COMMERCE, JUSTICE, AND STATE, THE 
                    JUDICIARY, AND RELATED AGENCIES
                    FRANK R. WOLF, Virginia, Chairman
 HAROLD ROGERS, Kentucky            JOSE E. SERRANO, New York
 JIM KOLBE, Arizona                 ALAN B. MOLLOHAN, West Virginia
 CHARLES H. TAYLOR, North Carolina  LUCILLE ROYBAL-ALLARD, California
 RALPH REGULA, Ohio                 ROBERT E. ``BUD'' CRAMER, Jr., 
 TOM LATHAM, Iowa                   Alabama
 DAN MILLER, Florida                PATRICK J. KENNEDY, Rhode Island 
 DAVID VITTER, Louisiana            
                                    
 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.
    Gail Del Balzo, Mike Ringler, Christine Ryan, and Leslie Albright
                           Subcommittee Staff
                                ________
                                 PART 8
                              THE JUDICIARY
                                                                   Page
 The Supreme Court of the United States...........................    1
 The Federal Judiciary and the Administrative Office..............   67
                            RELATED AGENCIES

 Federal Communication Commission.................................  203
 Securities and Exchange Commission...............................  281
 Small Business Administration....................................  325

                              

                                ________
         Printed for the use of the Committee on Appropriations
                                ________
                     U.S. GOVERNMENT PRINTING OFFICE
 77-310                     WASHINGTON : 2002





                       COMMITTEE ON APPROPRIATIONS

                   C. W. BILL YOUNG, Florida, Chairman

 RALPH REGULA, Ohio                  DAVID R. OBEY, Wisconsin
 JERRY LEWIS, California             JOHN P. MURTHA, Pennsylvania
 HAROLD ROGERS, Kentucky             NORMAN D. DICKS, Washington
 JOE SKEEN, New Mexico               MARTIN OLAV SABO, Minnesota
 FRANK R. WOLF, Virginia             STENY H. HOYER, Maryland
 TOM DeLAY, Texas                    ALAN B. MOLLOHAN, West Virginia
 JIM KOLBE, Arizona                  MARCY KAPTUR, Ohio
 SONNY CALLAHAN, Alabama             NANCY PELOSI, California
 JAMES T. WALSH, New York            PETER J. VISCLOSKY, Indiana
 CHARLES H. TAYLOR, North Carolina   NITA M. LOWEY, New York
 DAVID L. HOBSON, Ohio               JOSE E. SERRANO, New York
 ERNEST J. ISTOOK, Jr., Oklahoma     ROSA L. DeLAURO, Connecticut
 HENRY BONILLA, Texas                JAMES P. MORAN, Virginia
 JOE KNOLLENBERG, Michigan           JOHN W. OLVER, Massachusetts
 DAN MILLER, Florida                 ED PASTOR, Arizona
 JACK KINGSTON, Georgia              CARRIE P. MEEK, Florida
 RODNEY P. FRELINGHUYSEN, New Jersey DAVID E. PRICE, North Carolina
 ROGER F. WICKER, Mississippi        CHET EDWARDS, Texas
 GEORGE R. NETHERCUTT, Jr.,          ROBERT E. ``BUD'' CRAMER, Jr., 
Washington                           Alabama
 RANDY ``DUKE'' CUNNINGHAM,          PATRICK J. KENNEDY, Rhode Island
California                           JAMES E. CLYBURN, South Carolina
 TODD TIAHRT, Kansas                 MAURICE D. HINCHEY, New York
 ZACH WAMP, Tennessee                LUCILLE ROYBAL-ALLARD, California
 TOM LATHAM, Iowa                    SAM FARR, California
 ANNE M. NORTHUP, Kentucky           JESSE L. JACKSON, Jr., Illinois
 ROBERT B. ADERHOLT, Alabama         CAROLYN C. KILPATRICK, Michigan
 JO ANN EMERSON, Missouri            ALLEN BOYD, Florida
 JOHN E. SUNUNU, New Hampshire       CHAKA FATTAH, Pennsylvania
 KAY GRANGER, Texas                  STEVEN R. ROTHMAN, New Jersey    
 JOHN E. PETERSON, Pennsylvania
 JOHN T. DOOLITTLE, California
 RAY LaHOOD, Illinois
 JOHN E. SWEENEY, New York
 DAVID VITTER, Louisiana
 DON SHERWOOD, Pennsylvania
   
 VIRGIL H. GOODE, Jr., Virginia     
   
                 James W. Dyer, Clerk and Staff Director

                                  (ii)

 
DEPARTMENTS OF COMMERCE, JUSTICE, AND STATE, THE JUDICIARY, AND RELATED 
                    AGENCIES APPROPRIATIONS FOR 2002

                              ----------                              

                                          Thursday, March 29, 2001.

                   SUPREME COURT OF THE UNITED STATES

                               WITNESSES

JUSTICE ANTHONY M. KENNEDY, SUPREME COURT OF THE UNITED STATES
JUSTICE CLARENCE THOMAS, SUPREME COURT OF THE UNITED STATES
SALLY RIDER, ADMINISTRATIVE ASSISTANT TO THE CHIEF JUSTICE
DALE E. BOSLEY, MARSHAL
BILL SUTER, CLERK
ALAN M. HANTMAN, ARCHITECT OF THE CAPITOL
TONY DONNELLY, DIRECTOR OF BUDGET AND PERSONNEL

                           Opening Statement

    Mr. Wolf. Justice Kennedy and Justice Thomas, we welcome 
you to the hearing today. Before I begin, I would like to 
welcome Chairman Rogers, who was chairman of this subcommittee 
for 6 years. We have actually switched. I was on 
Transportation, now I am here and he is on Transportation. So 
if you need a road or mass transit, a subway, he is the one to 
talk to.
    We are honored that you are here. I had an opportunity to 
go over on Monday and look at the Court and was reminded, 
seeing the statue and all the information you have on Chief 
Justice Marshall, my congressional district is the district 
that Chief Justice Marshall was from. Actually in reading the 
biography it said, I think, in 1799 President Adams actually 
offered him the associate justice spot, and he turned it down 
and he ran for the House and he was elected to the House. Then 
he went on, of course, to become the Chief Justice.
    Justice Kennedy. He was always a man of good judgment, Mr. 
Chairman.
    Mr. Wolf. The book also said that if George Washington 
founded the country, he sort of defined the country. It is 
interesting to note that. With that, I would just welcome you 
and recognize Mr. Serrano for an opening statement and we will 
go to your statements. Mr. Serrano?
    Mr. Serrano. I just welcome the justices, and once again 
thank you, Mr. Chairman, for your courtesies. I do have a sort 
of an opening statement which leads to a question, so perhaps I 
will do that when the period for questions comes around.
    Mr. Wolf. Mr. Justice, you may begin.
    Justice Kennedy. Mr. Chairman and members of the committee, 
thank you very much for the gracious welcome you have given to 
me and to Justice Thomas. We bring to the committee greetings 
from the Chief Justice and from all of our splendid 
colleagues.This is a collegial, friendly Court, probably the 
most collegial, friendly Court in the history of the 
institution, and we bring you greetings from them.
    We have with us today, in the event we need technical 
assistance, most of the principal officers of the court: the 
Administrative Assistant to the Chief Justice, Sally Rider; on 
her left, the Marshal of the Court, Dale Bosley; on her right, 
William Suter, the Clerk of the Court. Tony Donnelly, our 
budget and personnel officer, is known to your staff, and we 
very much appreciate the good communication that our staff has 
with yours, Mr. Chairman. It has been an immense help. We also 
have our Reporter of Decisions, Frank Wagner, with us, who has 
done a magnificent job of closing the gap between the time that 
decisions are issued and U.S. Reports are published. He has 
really done remarkable work in that respect.
    When we have visitors from the judiciaries of foreign 
countries here or when we visit foreign countries, they are 
fascinated by this process that we are undergoing this morning. 
In countries which are struggling for the rule of law, I make 
the point to their legislators and to their judges that law is 
a capital resource. A functioning legal system is as important 
to a dynamic society as roads and bridges and schools. In those 
countries where they have tremendous needs and demands for the 
basic necessities of life--food and shelter and medical care, 
and roads and bridges--resources are scarce; and so this is a 
hard sell to make, because if you ask for judicial resources, 
it just does not sound very exciting.
    But this Committee and this Congress as an institution, I 
think, has been very responsible and cognizant of their 
constitutional obligations to the Court over the years in 
appropriating the resources we need. There are a few areas of 
disagreement among us about resources, but so far as our 
supporting resources--courthouses and staffs and equipment--the 
Federal judiciary is the best supplied in the world. When 
foreign visitors come, again we show them the Federal Judicial 
Center right by Union Station. They are in awe of this as a 
teaching tool. Courts are essentially teaching tools. Even 
State judges from State courts in our own country are impressed 
by what they see at the FJC.
    We appreciate the concern and the responsibility that the 
Congress has shown over the years in supporting the courts.

                          SUPREME COURT BUDGET

    The budget that we have today is, as is customary, in two 
parts: the first part is for salaries and expenses; and the 
other for buildings and grounds. What is not quite customary is 
that Justice Thomas and I propose to discuss in more detail 
than usual the buildings and grounds portion as well, at the 
request of the committee, because of the unusual and 
extraordinary appropriation that we are asking. I know that 
Alan Hantman, the Architect of the Capitol, is here. He has 
become our very good friend, and we admire his professionalism 
and his help in this project. So there are two parts of the 
budget: salaries and expenses and buildings and grounds.

                  SUPREME COURT SALARIES AND EXPENSES

    Let me talk about salaries and expenses first. The 
appropriation request is for $42 million. I will use round 
numbers. It is $42,114,000. This is an increase of 12 percent. 
The increase is $4,500,000. Slightly over half of that increase 
is for adjustments to base, and those are the kind of things 
this committee is quite familiar with: inflationary costs, 
increases in benefits, et cetera. Our inflationary costs 
sometimes puzzle me. Law books for some reason always go up at 
much greater than the rate of general inflation, and I have 
asked people why that is. I just do not know the answer. But 
you will see it as part of the adjustments to base.
    Then there is the sum of just over $2 million for program 
increases and personnel increases. These are really in three 
different categories. The first is for our library system, some 
$250,000 we are requesting for that. We have what is called the 
Virginia Tech Library Catalog and Indexing System. It is very 
good except it is on disk, DOS operated. We have to transfer it 
to the Windows-type format. That is the reason for that 
appropriation request.
    Then we have requests for five new positions for an offsite 
location. Because of the modernization project that I will 
discuss in a few minutes, we have the need to expand our 
offsite space. This will be for warehousing, storage, swing 
space, and a mail facility. We have no secure mail opening 
facility. Any business must open its mail and distribute it on 
an accurate time-sensitive basis just for the ordinary payment 
of bills. It is especially important to us because of filing 
dates. And so we are requesting five positions for warehousemen 
and mail clerks to operate that facility, and we think it is 
going to improve the security and the efficiency of the Court. 
We are also moving to that place some semihazardous or 
hazardous enterprises that now take place in our shop, like 
wood-staining which has paints and such materials we do not 
think should be in the Court. Those will be at the new 
facility.

                            COURT AUTOMATION

    The most significant of the program increases is for 
automation. Our Court is now automation-dependent, as is the 
rest of the government and society, and we have done a good job 
in the sense of making each of our departments aware that they 
are automation-dependent. But we are not up to date. Justice 
Thomas is the chairman of our automation committee, and we rely 
on him to keep the Court current and up to date. I am talking 
about his technical expertise, not his jurisprudence. We have 
gone over this with some care because it is a significant item.
    Just to give you an example, I have found in preparing for 
these hearings that our own personnel office must communicate 
with the Treasury Department only on e-mail. The Treasury 
Department won't give you certain things in hard copy. You have 
to have that on e-mail.
    I wondered why we needed quite so much equipment and it 
breaks down into, again, five positions for one hardware 
specialist; for two software specialists; for a security and 
internal communications specialist so that our systems can talk 
to each other; and for a clerical position to coordinate those 
four. All of our current technical personnel are absorbed just 
in maintaining the equipment we have. They can't design new 
programs, they can't integrate in new equipment. They just 
don't have the time. We are asking for that capacity and for 
that authorization.
    It is not just a matter of extrapolating. I did some work. 
I thought, well, we have some 250 computer terminals and I 
suppose I could go to some computer store and buy these things. 
But it is not that. We are an automation-dependent institution 
which wants to teach the public about our function. We have a 
Website that began in April of last year. Just since then, we 
have had 11 million hits on that. It is a marvelous tool to 
explain to the public our history and our traditions, the 
biographies of the justices, as well as materials needed for 
attorneys, docketing information, calendar information, and 
obviously the written dispositions that the Court issues. So 
automation is for us now a very important priority.
    This budget request and this attempt of ours to bring the 
Court up to date in its technology is with the encouragement of 
this committee in past hearings. I remember when Chairman 
Rogers was with this committee, and as chairman he encouraged 
us and supported us very much in bringing the Court's automated 
electronic data capacities up to date.
    Just before ending my comments on this first part of the 
budget for salaries and expenses, we do acknowledge with much 
appreciation the fact that in this year's budget for the 
current fiscal year, because of the action of this committee 
and of the Congress, our police force has been given benefits--
pension benefits--that bring them into line with theCapitol 
Police and the Uniformed Secret Service. This has already made a 
tremendous and marked increase in the morale of our people and will 
help us retain dedicated and skilled law enforcement officers.
    That is the close of act one.

                   SUPREME COURT BUILDING AND GROUNDS

    Part two is the buildings and grounds request. I think, 
Chairman Rogers, that it was in 1997 or 1998 when we first gave 
the committee warning about this, and we said, well, now this 
may cost as much as 7, maybe up to $20 million. The Architect 
of the Capitol then retained outside consultants to come in and 
look at the building. I remember the day that Justice Souter, 
and Justice O'Connor and I--who are on our building 
modernization committee--sat down and heard the figures, and we 
heard that it was going to be well over $100 million, perhaps 
as high as $170. I conferred with Justice Souter. The first 
thing I did was to call then-Chairman Rogers. I reached you in 
the District, I think, Mr. Chairman. I told your secretary, get 
him no matter where he is. I told the Chairman the number, and 
I remember the silence on the other end of the line. But we 
conferred with you and your staff, and what we did was to 
proceed on three fronts.
    The first thing we did was made it very clear to the 
Architect that it has been the tradition of this Court, and I 
think of the judiciary generally, to be very cautious and very 
prudent and very modest in its expenditures. We wanted the 
estimating process and the work that was to be done to reflect 
that philosophy and that tradition. And the architects were 
very good about that.
    Second, with the approval of the Congress, we retained our 
own outside architects, the dean of the architecture school at 
the University of Virginia, Karen Van Lengen, and an associate 
of hers, to make sure that we were asking the right questions 
so that we could present to you an informed assessment of our 
request.
    And, third, at the suggestion of the Architect of the 
Capitol, there was a peer review committee which happens in 
projects like this. They met for 3 days. There were experts 
from all over the country, and a lot of the things they talked 
about were how to estimate these costs. Building restoration in 
many instances is more than original construction. We have a 
monumental building, a historic structure, and so you have to 
fish the wires through the wall. You can't tear down the wall. 
You have to take out the air-conditioning ducts. We find, 
almost to our dismay, that perhaps our past economies have not 
served us well because the building is in bad shape. All the 
basic systems have to be taken out and not only replaced but 
redesigned. The existing air-conditioning system is for a 
single core structure. That is inadequate for life safety 
standards and for health standards.

                         BUILDING MODERNIZATION

    I have become an expert on air-conditioning. Air-
conditioning should be vertical for maximum efficiency. And 
that is also required for our building because of the historic 
problem; you can't run new ducts through the wall. This means 
that new vertical air-conditioning systems have to be installed 
in what is now our basement area that we use for our police 
vehicles and for our own vehicles and for facilities and mail. 
So all that will have to go out and we have to expand that 
underground portion.
    The same thing with the electrical systems. We just added 
more and more functions. The building was originally designed 
for 160 people. We now have 400. All of them, of course, need 
the services of the building, plus electricity. We are very 
concerned about an electric failure and our architects tell us 
the only way to do it is to change the panel completely.
    So this is the scope of the project that the Court thinks 
should proceed. The architects, the experts, tell us that it is 
not optional, that it is mandatory if we are going to stay in 
the building, and we think we should stay in the building.
    I can assure you that the committee, despite our lack of 
technical expertise, is very much interested in active 
supervision of the project. The Architect of the Capitol has 
been very good about that. If the project goes forward as we 
request that it should, we want to have the Supreme Court as a 
building which the American people still admire and which 
symbolizes the continuity and the stability and the beauty of 
the law. That concludes my statement. I am sure Justice Thomas 
would like the opportunity to fill in anything that I have 
missed.
    [The information follows:]


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    Mr. Wolf. Justice Thomas?

                            COURT AUTOMATION

    Justice Thomas. Good morning, Mr. Chairman. Thank you. 
Members of the committee, thank you for having us again. I have 
very little to add to Justice Kennedy's statement. I think he 
was thorough and precise in his rendition of the budget request 
this year.
    I would add one small point or emphasize one small point 
with respect to the automation. In our work, the computer has 
replaced law books and has become the central part of our 
research. Also, it has replaced the traditional legal pad. Our 
work is done at the computer. One of the things that I noticed 
when I came into this committee room are the screens you have 
on your computers which not only save your eyesight but make 
your work more comfortable in its execution. Those are the 
kinds of things we have to revisit, because we spend all of our 
time before these screens, as well as our law clerks. It is 
something that is that simple that is included in our request.
    Last year, Congressman, then-Chairman Rogers asked me how 
we were proceeding in our automation efforts, and I indicated 
then that we were being rather cautious and proceeding 
prudently but rather conservatively. It was my estimation, as I 
alluded to in my testimony, that we should be more aggressive 
and catch up before we fall farther behind.
    The effort this year, and I think it is a rather modest 
effort, is to catch up and to make sure that we can bring 
automation to the Court and make it usable, since it is central 
now in our work.

                          FIRE AND LIFE SAFETY

    Mr. Wolf. Thank you. I had an opportunity and I would 
encourage other Members--maybe what we could ask is for an 
opportunity some time in the next couple of weeks for the Court 
to make available to all the Members and/or their staffs to see 
what I happened to see on Monday. I think reading about 
something and hearing about it is different from actually 
seeing it.
    I personally support what you are trying to do and will do 
all that I can. The building is old. I might say the building 
is very well kept. In fact, we could learn a lesson. We might 
want to hire their person. Compared to the Cannon House Office 
Building, the Supreme Court is very well kept. But as you go 
behind the marble, I could see the dry wooden structure, the 
ducts we saw were being patched.
    I did notice, there were no fire exit signs. And the wiring 
that we saw was very old. Are there exit signs?
    Justice Kennedy. There are some, but they are not as 
visible as they ought to be.
    Mr. Wolf. Are there sprinklers in the building?
    Justice Kennedy. Not in the major rooms, no.
    Mr. Wolf. There are not sprinklers. Are there smoke 
detectors throughout the building?
    Justice Kennedy. Not adequate. There is no central smoke 
detection system, other than human, which I will explain later.
    Mr. Wolf. And I notice the overcrowding, you have forced 
some offices out into the hallway, that if there was a fire you 
would actually be blocking people from leaving the building. Is 
the building handicapped-accessible throughout the building?
    Justice Kennedy. No. When I first came, we had a wooden 
ramp for the outside that looked like the ramp on the 
Sacramento River boat line. It was a very ugly thing. We have 
now a very monumental and handsome outer ramp. And we have 
elevator access. But the remodeling should accommodate the 
handicapped to a much greater extent than it does now.

                       SUPREME COURT CONSTRUCTION

    Mr. Wolf. The building was built in 1935?
    Justice Kennedy. The ground was cleared in 1930. 
Construction began in 1932. It was completed in 1935. The 
architect was Cass Gilbert who did the Woolworth Building and I 
think the New York Customs House. He was a great architect. 
That is why the building is in such good shape. It has great 
monumental spaces in it. I think the cost of that building was 
about $10 million. So far we have spent almost that on the 
design and development plans for the modernization of it.
    Mr. Wolf. Has the building been renovated at all during 
that period of time?
    Justice Kennedy. Not for 65 years, no. All the basic 
systems are original and out of date.
    Mr. Wolf. Is it the original air-conditioning system?
    Justice Kennedy. Yes, sir.
    Mr. Wolf. Without drawing any alarm, someone made the 
comment that it was the same system that they had in the 
Bellevue-Stratford when they had Legionnaire's disease. Is it 
the same system?
    Justice Kennedy. It is basically the same system, and it 
involves the necessity for the Architect of the Capitol 
personnel on a daily basis to go to one of four or five 
receptacles, take water out of cans, scrub the cans with 
chemicals, put it back. They rotate this work. The architects 
are very concerned about this.

                           BUILDING LIFE SPAN

    Mr. Wolf. Maybe the Architect can answer this. What is the 
life span of a building like that? How often should it be 
renovated?
    Mr. Hantman. I would tend to think, Mr. Chairman, that we 
are talking about 35 to 40 years as a normally expected life 
span. Some of the base building systems really have a 25- to 
30-year span. So we have really gone 2\1/2\ times the expected 
life span of the base building systems.
    I think as Justice Kennedy pointed out earlier, it took 
quite a while for us to really point out to the justices and, 
Mr. Kennedy, if you ever need a job in architecture, I think 
explained it very well before. And I think this last year 
Chairman Rogers had directed us to go back to the drawing 
boards and double-check everything, make sure all the frills 
are out of this project. We have done that, as Justice Kennedy 
has indicated. We have gone through peer review. I think the 
staff that we have over at the Supreme Court has acquitted 
themselves admirably. The Court basically is unaware of when a 
feeder burns out at night because it is replaced overnight and 
things are taken care of without the Court really being 
impacted, but we have gotten to a critical point at this point 
where we just can't hold it together with any more baling wire 
or Band-Aids, we really need a full replacement of those base 
building systems which have more than outlived their expected 
life.
    [The information follows:]

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                       RENOVATION PROJECT PHASING

    Mr. Wolf. What do you do when some of the equipment goes 
bad? One of the staff people who was with me pointed out that 
the company whose label was on one of the pieces of equipment 
had gone out of business. What do you do when something like 
that takes place?
    Mr. Hantman. We sometimes take a piece of equipment, a 
shaft, an element that is cracked or broken and we will take it 
out and have it go to a machine shop to replicate that piece 
because it is not cast or sold anymore. So we will actually 
make pieces for equipment that those sections are no longer 
available for.
    Mr. Wolf. Okay. I will recognize Mr. Serrano. Again, if we 
can set up a time with the Court, maybe allow Members to come 
over and maybe see what everyone else has been talking about, I 
think it may very well be helpful. We will attempt to do what 
we can, particularly with regard to the danger on human life 
and the fire. Anyone who has remodeled a kitchen in the last 10 
years can understand. My one question is, are you going to do 
it all at once? Will you move out of the building at all? Or 
will you stay in the building during the entire time?
    Justice Kennedy. I first told the Architect that I was 
prepared to urge my colleagues to leave the building while the 
work was being done if this were cost effective and if this 
would save us time. The Architect was very clear that this 
would not be a cost saving, that it would cost more and that we 
can live in the building during the renovation. Most of the 
things that we have described are things you don't see anyway. 
It is going to be a difficult 5 years. We will have jack-
hammers plus attorneys to contend with, I suppose. I actually 
thought about the possibility of where we might move and what 
it would do to the staff. Also, we think that the continuity of 
the Court, the stability of the law, and the symbolism of the 
permanence of the Court, would be somewhat impaired. The 
architects assure us that it is not cost effective to move out 
and that the work can be done in a 5-year period.
    Insofar as phasing, we urge that there be one contract. 
Number one, it is easier to supervise, to hold people 
responsible. When I did my only other courthouse project, which 
was the Pasadena courthouse, Mr. Ed Roybal was very 
instrumental in helping us do that. This was also a 
reconstruction, and we found it was very important to have one 
contractor. Incidentally, that building came in ahead of time 
and under budget.
    Mr. Wolf. Mr. Serrano?
    Mr. Serrano. Thank you, Mr. Chairman. Let me first preface 
my comments by saying that I will join you and the Members of 
the committee in making sure that in every way possible we help 
the Supreme Court get the resources necessary to do the work 
they have to do and to operate under the conditions they have 
to. Let me, however, say that very rarely does a person, a 
Member of Congress, or a representative of the people, have an 
opportunity to speak to Supreme Court justices in a public 
forum, or a private forum for that matter.

                       STATEMENT TO THE JUSTICES

    I just felt it necessary--that there was a statement that I 
had to make, but I do this with the utmost respect at the 
beginning and at the end of the statement, and utmost support 
for you. I always looked at you in a way, and still do, much 
different from the way I look at any other body in our 
government. In fact, I had decided that if I had become 
chairman of this subcommittee this year, I would have treated 
you in a different way by not having you appear before the 
committee and beg for more paper clips, computers, renovations 
and air-conditioners. My approach would have been to have your 
staff and our joint staffs get together and work out numbers 
agreeable to you.
    I thought of doing that because I felt that you should be 
treated with the respect that the Court merits and that you 
should be offered the kind of affection reserved for very few, 
and I still feel that way.
    But then this past year, you went and broke my heart by 
getting involved in a political decision. After all, the issue 
of a Presidency was not an issue of lawyers or plaintiffs or 
doctors and patients or the building of roads. It was an issue 
about electing the leader of the greatest democracy the world 
has ever known. But the pain that I felt from the Court is 
nothing compared to that which has been brought upon millions 
of people throughout this country, who were hoping that the 
Court would stay out of this political mess.
    Here is the problem. I represent a district in the Bronx 
made up of over 95 percent minorities, mostly Puerto Ricans, 
other Hispanics, and African Americans. Our community gave more 
than 90 percent of their vote to the candidate who received the 
most votes across the country and still did not become 
President. The result has troubled them in a most dramatic way. 
They are angry, bitter, and disenchanted with the whole 
process. Some of them say this felt like what they remember 
about the days before the civil rights movement. Others say 
that it reminds them of political systems they left behind in 
other countries where the winner never takes office.
    Add to all of this the fact that the final tallies came 
from a State that had close family ties to the winner, and you 
can see why my community is very upset.
    Here is my question, and, again, I ask it with the utmost 
respect. At what point would the Court consider speaking to the 
American people, especially to minorities, and explaining to us 
the reasons why the Court got involved, explaining perhaps the 
dangers if the Court did not get involved? I believe that you 
could alleviate many of the fears and feelings that people have 
of being disenfranchised. And, most important, could the Court 
play a role in getting people in the legal profession to 
explain, especially to minorities, that the chances are that 
the selection, election of a President in this way may never 
happen again?
    I don't want to beat a horse to death, but I can't tell you 
how difficult it has been for me all morning to decide whether 
to make this statement, because I take seriously the fact that 
you are on the Supreme Court, that you are the law of the land 
in the most dramatic way. But so many of you played a role in 
making sure that people had the right to vote, and some of 
those people now feel that their rights have been totally 
trampled on. And so I am not saying this as a confrontational 
statement but rather speaking as a partner, saying, is there 
any way that we could join together to make sure that people 
don't feel left out ever again?
    I thank you and I ask for your forgiveness if my statement 
has offended you in any way.

                        COURT AS AN INSTITUTION

    Justice Kennedy. Congressman, of course what you say 
expresses views that we knew during this case, before it was 
issued, many people would hold and continue to hold. You have 
to think about the Court as an institution. We have a language, 
an ethic, a discipline, a tradition, a dynamic, a grammar, a 
logic that is different from the political branches. It is not 
better, not worse. Different.
    Justice Thomas and I and our colleagues will be judged not 
by what we say after the fact in order to embellish our opinion 
or detract from what some of our colleagues say. We will be 
judged by what we put in the appellate reports. That is the 
dynamic of the law. We are the only branch of the government 
that must give reasons for what we do. We gave those reasons. 
Because of time constraints, they were perhaps in somewhat more 
truncated form than they might otherwise have been.
    I have taught constitutional law for many years now, 
Congressman. I have always maintained in my classroom that 
voting is a fundamental right. I teach fundamental rights in 
Europe and in the United States and make that point. That was 
the holding of this Court. That was the holding the Court made 
for the first time. Seven members of the Court thought there 
was a violation of the equal protection clause. We disagreed as 
to what the remedy ought to be. The legal profession, the legal 
culture, other branches of the government, society at large 
over the next 2 or 3 years will debate and judge and assess the 
merits of that opinion. I am sure there will be disagreement. 
We hear close questions on which there is and ought to be 
disagreement.
    In the European Court of Justice, there are no dissents. 
The European justices say, how can you do this? How can you 
have a system where you criticize each other? Isn't this bad 
for the institution? We say, ``No, it's good for the 
institution.'' We want to make it clear that by our dynamic and 
our discipline and our tradition and by our dissenting opinions 
and by our reasons, that the issues we decide are very 
difficult ones.
    Ultimately, the power and the prestige and the respect of 
the Court depends on trust. My colleagues and I want to be the 
most trusted people in American life. How do you instill that 
trust? Over time you build up a deposit, a reservoir, a 
storehouse of trust. And when we make a difficult decision in 
many areas--and this was not the most difficult decision that 
the Court has made, for many of us--you draw down on that 
capital of trust. You must make sure you are listening to the 
right voice, not the wrong voice.
    I have been a judge for over 25 years. I know how hard it 
is to search for that voice and to make sure you are doing what 
is neutral. Each one of my colleagues in that process 
distinguished him or herself in the eyes of the others by the 
care and the sincerity, sometimes even the passion, that they 
brought to the issue.
    I think, I hope, I trust, I am confident, that over the 
next few years as the legal community, the academic profession, 
the people in political life know about this decision, they 
will come to understand that this was in the courts. We did not 
bring it there. It involved a constitutional issue of the 
gravest importance, decided 4-3 by a State Court on a Federal 
issue. It was our responsibility to take the case.
    Now, sometimes it is easy, so it seems, to enhance your 
prestige by not exercising your responsibility; but that has 
not been the tradition of our Court. So I think over the 
years--I will not discuss with you the merits of the case, and 
you can have a seminar about it and maybe there are some very 
fascinating issues there--but as I have indicated, I am 
confident that the people will understand the position that the 
Court was in, and will trust the institution for what it is.
    Mr. Serrano. Justice Kennedy, let me just say, I asked you 
if you could ever speak to the American people. I think you 
just went a long way to doing that and I certainly respect your 
comments.
    Justice Kennedy. Thank you.
    Justice Thomas. Just a couple of additions to Justice 
Kennedy's I think quite eloquent explanation. I think you are 
very much entitled to criticize. I think anyone is. And I think 
accepting that criticism comes with the turf. I think that if 
we are not capable of accepting that as a part of the job, then 
I think we are incapable of being judges ondifficult issues. It 
is on difficult issues that the Court is required to be the Court.
    The questions you asked were implicitly and sometimes 
explicitly asked and discussed among us. Not interests but 
institutions and what we were doing, the institution of the 
country and the Court, the Presidency, et cetera. We did not 
bring a lawsuit. I certainly had no interest in being involved. 
If I wanted to be in politics, I know where to go. I am not 
interested in being in politics. If there was a way, and I only 
speak for myself, to have avoided getting involved in that very 
difficult decision and simultaneously live up to my oath, I 
would have done it. For many of the reasons you expressed, 
perhaps in a different way. But I have the concerns that 
underlie your statement.
    There was every incentive, I think, for the Court as a body 
to avoid that. The capital that Justice Kennedy was talking 
about of trust, you can retain. You can bury it. You can never 
use it. But I think we all individually took an oath to decide 
cases honestly and to make decisions honestly. And I think each 
member of the Court did that. They disagreed, as we often do, 
but I think in the end in our conversations we each lived up to 
our respective oaths.
    With respect to conversation with the country about it, we 
attempted to do that. It was on a very short time frame, or in 
a short time frame that we had to consider that. But I can 
assure you that having been at the Court now for almost a 
decade, I have yet to hear the first political conversation, 
and I heard none during the consideration of that, and I knew 
of no member of the Court who was interested in the outcome as 
they were in discharging their responsibilities. I know for me, 
I was only interested in discharging my responsibilities as 
opposed to avoiding them and playing it safe.
    Mr. Serrano. Thank you.
    Mr. Wolf. Thank you. We have a vote on. We are down to 2 
minutes. We will recess. There are two votes, back to back. We 
will recess for about 10 minutes and be back.
    [Recess.]
    Mr. Wolf. The committee will reconvene. I recognize 
Chairman Rogers.

                        JUDICIARY APPROPRIATIONS

    Mr. Rogers. Chairman Wolf, Mr. Justices, members of the 
panel. It is good to see you here again. This is one of the 
highlights of the year for this subcommittee. Although it is 
frankly a minuscule part of our budget, it is a very important 
part of what we do, because this is one-third of the whole 
government. Some say the second most important. The Court from 
its earliest days in this building has climbed from the 
basement--to first the main floor of this building and then to 
your own building. Early on, the Court was not recognized to be 
a very important part of the government, frankly. When you 
began to declare acts of the Congress unconstitutional and to 
tell the President what to do, we gave you a second floor 
office. Eventually we even found the money to build you a 
separate building. So the Court has climbed in importance to 
its pinnacle at this time.
    Still yet, this interesting arrangement that we have in our 
Constitution where this branch of the government funds the 
independent branch, the courts, is unique. It puts us on a spot 
of trying to be absolutely fair and equitable in treating the 
Court without asking anything in return. That is really tough 
for a Congressman to do. But I think we have treated the Court 
fairly over the years, as you have said, Mr. Justice Kennedy, 
and we will strive to continue to do that.
    I was pleased in your justifications where you plan to 
spend $1.55 million for various technology upgrades and another 
$261,000 for five additional employees to command those new 
systems. As Mr. Justice Thomas has said, the automation age is 
upon all of us, and I am thrilled that it is finally reaching 
its pinnacle in the highest Court and that you are plugged into 
the latest technology that is available. It is amazing that we 
have come this far where that screen in front of you has 
replaced the quill and ink of earlier eras. So I am very 
pleased with the way the Court has been able to move from the 
legal pad to the computer age as rapidly as you have. We want 
to continue to help you do that. I don't think we have reached 
the end of the line quite yet, do you, Mr. Justice Thomas?

                          COMPUTER TECHNOLOGY

    Justice Thomas. I agree with you. I think that we are not 
close to the end of the line. My concern has been that unless 
we caught up now, we would be left behind because it is moving 
so fast, the technology is moving so fast.
    When you were talking, I was thinking about my wife at home 
in the evenings who receives her e-mails remotely with 
something about the size of a Palm Pilot, I guess they call it, 
a BlackBerry or something like that. I find that absolutely 
astounding. And I am trying to figure out how you can do that. 
I think that is amazing.
    Mr. Serrano. We can get you one today.
    Justice Thomas. Oh, no, thank you.
    We have gotten to the Palm Pilots but not to that. The 
other thing is to come in here and to watch. When I was in the 
Senate, we listened to the proceedings, as staffers, with a 
squawk box that was piped into the floor proceedings. Now you 
have a computer screen where you can actually watch the floor 
and switch back to your work or minimize the TV and continue 
with your work or watch some other event. I thinkthat is 
astounding. We are not where you are. That always concerns me. And we 
are not where many of the other Federal courts are, and that concerns 
me. We would like to be there and I think we indeed need to be there.
    Mr. Rogers. If you are not where we are, that concerns me, 
too.
    Justice Thomas. Well, we are obviously not.

                          BUILDING RENOVATION

    Mr. Rogers. I sometimes wonder where we are.
    Let me switch quickly to the building because that is a 
huge part of your budget request, as you have said. You are 
asking $117,340,000 for the building renovation. That is a huge 
increase, of course, over last year's level of $7.51 million 
for the maintenance of the building, in three different 
categories, as I understand. For the life safety part of the 
repair, $20.17 million which includes sprinklers, smoke 
detectors, a fire alarm system, and modifications to the egress 
patterns to ensure employees and visitors may be safely and 
easily evacuated in an emergency.
    A second aspect, security, is $27.86 million. This includes 
construction and consolidation of police facilities into a more 
secure location of the building, and new visitor screening 
processes and window enhancements.
    And the third part, the largest part, $65.47 million for 
complete replacement of the heating, ventilation and air-
conditioning systems as well as the electrical wiring and 
plumbing replacement.
    As you have described, Mr. Justice Kennedy, when you called 
me that day down home in Kentucky, I was flabbergasted. There 
was sticker shock, so to speak. I had expected something, as 
you did I am sure, a good deal more modest number than the $170 
million tops that was estimated at that time. We asked you to 
go back and scrub those numbers and the Architect and you and 
your staff have done just that. And I think you have done a 
good job with it. You have scrubbed it well. I think you have 
taken out the bells and whistles to a large degree, and I think 
you are down to a sustainable and defensible project here.
    It is very expensive but we are dealing with a very old 
building with archaic equipment of an era which has not been 
touched since that time, by and large. We are also dealing with 
a very historic building that we want to preserve in as 
original a condition as we can, consistent with security and 
safety. So I think you have done a good job in paring down the 
number.
    Mr. Chairman, I join you in supporting this project, now 
that the hard work has been done in making it clean as a 
whistle, I think.
    There is one question I have though, and that is, this is a 
5-year project. Do we need to put the full amount of the 
request up front? If so, why do we need to do that? Why can't 
we do this over a 5-year period, as we do most everything else, 
rather than plop down the entire cost up front? A good part of 
it will not be spent until 5 years from now.
    Justice Kennedy. I simply don't have the expertise or the 
knowledge of your budgeting process to answer that. We would 
rely on the committee to suggest the most appropriate way to 
complete the project. I would hope that whatever solution you 
come to, you do allow us to bid with one contractor for one 
project at one time. I am not sure if that condition and that 
request relate to your suggestion or not. I just don't know the 
contracting authority rules under which you operate.
    Mr. Rogers. Maybe the Architect can help us with that.
    Mr. Hantman. Thank you, Mr. Chairman. We have a very 
complex project here. We are going to be working in an occupied 
building for a period of years and going into, on a sequential 
basis, each of the spaces in that building.
    We have a very similar problem right now in the Capitol 
itself. The Chief Administrative Officer of the House as well 
as our office will plan to get into a single room at a single 
time to accomplish the telecommunications work, the detection 
work, the alarm work, the sprinkler work, at the same time, so 
that we don't inconvenience the occupants of those offices more 
than once.
    So when we are talking here about a single point of contact 
being responsible for everything that happens in each segment 
of the building, it is critically important from our 
perspective, Mr. Chairman, to deal with the issue of 
responsibility and liability. If we are coming into a space at 
one time trying to get everything done at one time, we need all 
systems to be impacted.
    Justice Kennedy and I were just talking during our little 
break about the fact that our mechanical systems won't need 
total replacement. The existing mechanical systems will have to 
be up and functioning while the new system is built in stages 
throughout the rest of the building.
    Mr. Rogers. I think what I am driving at is this is a 5-
year project, is it not?
    Mr. Hantman. Yes.

                            OUTLAY SCHEDULE

    Mr. Rogers. What is your payout schedule with the 
contractor? Can we pay you in five installments? Can we pay you 
in five different years for parts of the work? That is all I am 
getting at. I am trying to figure out how we budget for this.
    Mr. Hantman. The concept of having a single contract and a 
single responsibility for the entire project, I think, is 
critical to the process. If we bid up to 20 percent of the work 
on a 1-year basis and then the same systems are dealt with by 
another contractor potentially through another bid situation--
--
    Mr. Rogers. You misunderstand. You contract with one 
contractor. I understand that. You don't pay him everything up 
front, though, do you? You don't pay him the entire cost at the 
beginning of the project?
    Mr. Hantman. But we need the obligational authority to 
commit to the volume----
    Mr. Rogers. I understand that. But what are you going to 
ask of us the first year? We are only looking at one year's 
budget here. We want to know how much it is going to cost us 
just this year. Next year.
    Mr. Hantman. We are talking about the full value of the 
project, Mr. Chairman, so that we cannot have an antideficiency 
situation and we can commit to a single contractor for the full 
length of the project.
    Mr. Rogers. Then we have got to talk. I will leave that to 
the Chairman.
    Justice Kennedy. Mr. Chairman, I have lived in blissful 
unawareness of appropriations and contracting methodology with 
the Federal Government. If the full amount can be obligated 
consistently with your guidelines, then how it is reflected in 
the budget is, it seems to me, your judgment. I should think 
that if you obligate the amount, as I understand your budgeting 
process, the public has to know that amount and the committee 
has to approve it. But I may be wrong and,of course, the staff 
can discuss this.
    Mr. Rogers. I think what will happen is that you enter the 
contract over a 5-year period. As far as our budgeting is 
concerned, I think it probably will be scored, all of it, in 
the first year. What we outlay is a different question. That is 
what I am asking for. What is the outlay for 2002?
    Mr. Hantman. We certainly could work out numbers in terms 
of real dollar outlays for each of those years.
    Mr. Rogers. Fine. Because the Chairman, when he writes the 
budget, has to total up how much money he is actually laying 
out on the table.
    Mr. Hantman. My concern was the scoring as you bring it up.
    Mr. Rogers. It will be scored, no doubt, as a total figure 
in 1 year. But what he has to figure out----
    Mr. Hantman. We can get you a cash flow of how we project 
these dollars to be----
    Mr. Rogers. Could you get the Chairman an outlay schedule 
of the 5 years? How much roughly would it be the first year, 
guessing at it? How much is it?
    Mr. Hantman. The first year would be the foundation work 
and the work on the north side, so the first year would not be 
as significant as the successive years, getting the work 
started on the Maryland Avenue side and getting systems up and 
running. We can certainly get you that information.
    Mr. Wolf. I think what Mr. Rogers is saying, when you 
remodel a house, you sign a contract with a subcontractor to do 
the house, let's say, for $50,000. And then there is a draw-
down as you go through the process. The first month maybe he 
wants $10,000, the next month--I think that is what Mr. Rogers 
is trying to do here.
    Mr. Hantman. My only concern was again being able to commit 
to a contract for the total scope. We can get you that 
information.
    [The information follows:]


              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    
    Mr. Rogers. Mr. Chairman, thank you very much for allowing 
me to ask these questions. It is good to see the justices. We 
wish you well, Mr. Architect. Congratulations to you on a good 
project here. We look forward to seeing the dust flying across 
the street.
    Mr. Hantman. Thank you very much, sir.
    Justice Thomas. Thank you.

                           JUDICIAL SALARIES

    Mr. Wolf. Mr. Obey?
    Mr. Obey. Thank you, Mr. Chairman.
    Mr. Justice, I don't really intend to comment on the case 
that was raised by my friend, Mr. Serrano. In the 32 years I 
have been in this institution, I have defended vociferously the 
right of both the Court and the Congress under the Constitution 
to make wrong decisions, and we have done both fully over that 
period in my view.
    Being from Wisconsin, I have followed the Chief Justice's 
record for a number of years, and remembering some of the early 
cases for which he was an advocate with respect to elections, I 
didn't think that he looked a lot like St. Paul, but perhaps he 
is when it comes to the question of equal protection under the 
law, and I welcome the conversion.
    But let me get to a question that I think goes to the 
integrity of the institution, yours and ours. There was an 
effort made last year to--first of all, let me ask the 
question, what is the Chief Justice paid these days?
    Justice Kennedy. Oh, don't do this to me, Congressman. He 
receives $5,000 more than we do. About 186.
    Mr. Obey. 186. And associate justices are 181?
    Justice Kennedy. Yes, sir.

                               HONORARIA

    Mr. Obey. I know that last year an effort was made to 
loosen the limitations on outside income for members of the 
Court in order to allow them to accept honoraria so that they 
could give a speech and be paid for it. I chaired the 
commission in the House years ago that first limited the 
ability of Members of the Congress to accept honoraria and then 
finally abolished it.
    Frankly, in the early days I accepted honoraria myself, 
because I don't think I was sufficiently aware of the 
appearance of a conflict of interest that could appear when 
that happened. And frankly, I also think that the attitude of 
the group providing the honoraria changed over time and I came 
to be very uneasy about the way I felt that changed. And so 
when Tip O'Neill asked me to write an ethics code, I asked him 
whether he wanted a hard one or a soft one, and he said hard. 
And I asked him--because we had this issue of outside income 
and largely the problem at that point within the House was 
because of the problem with lawyers, and their outside income--
and I said, do you want us to just impose outside income limits 
on the lawyer Members of this place or do you want us to apply 
it to everybody? He said, everybody. Even though that meant 
that he himself took a significant effective pay cut.
    I will tell you one story. When we imposed that limitation 
on outside income, one of the lawyer Members came to me and 
said, ``Obey, you don't understand the situation. It doesn't 
take any of our time away from our job. You just don't 
understand it. It is just that if you are a lawyer, as you rise 
in seniority, the lobbyists toss more business your way and you 
just get a piece of the action.'' I said, ``I know. That's why 
we're imposing the limit.'' and that is why we eventually 
banned it, because we felt that you did have a potentially 
corrupting spigot in the system.
    I just want to say that if the Court feels or if any 
individual members of the Court feel that their compensation 
isn't adequate, then that issue needs to be directed frontally. 
But I think it would be a fundamental corruption of the process 
if either your institution or mine were to wind up loosening 
the rules so that either one of us can accept outside income 
from other sources which might be brought into question.
    I am personally amazed at a number of reporters who think 
nothing of giving five or six speeches a year to the same kind 
of interest groups and then routinely reporting their issues on 
the national airwaves. I think that that creates a significant 
appearance of bias. And I don't think, frankly, that your 
institution, our institution, or their institution can afford 
that perception.
    Just in light of the Chief Justice's, as I understand, 
temporary support for the effort that was made in the Senate 
last year to lift the honoraria cap, I would hope that the 
Court would not support any such effort in the future, because 
I think it would be tremendously damaging to public trust were 
that to happen.
    Which brings me to my real concern. I don't want to discuss 
any specific case with you and I certainly don't want you to 
comment on any case, either in the past or any that might be 
before you, but as a practicing politician who has been in 
politics since 1962, I beg the individual members of the Court 
to recognize the corrupting result of a series of decisions 
which have in essence equated money with speech under the first 
amendment. I respect the intellectual exercise that got the 
Court there. But the fact is, I met a woman last Friday who is 
on Medicaid. I was up in a small city in my district to open a 
mobile dental clinic. This woman had had a very sick husband 
for a number of years. She had a son who desperately needed to 
have the braces taken off his teeth. She called 31 dentists and 
couldn't get one to take the braces off the kid's teeth. So 
finally her husband held the kid down; rather, she held the kid 
down and her husband took the braces off with a pair of pliers.
    We have a political system today that produces that kind of 
living condition for souls like that. Yet we have people coming 
into my office demanding that I totally remove the estate tax 
for people who will make 50, 60 or $70 million. I submit to 
you, sir, that that kind of a result would not happen if we 
were able to directly limit what people can spend to influence 
the political process and the campaigns.
    The Congress is about to pass Feingold-McCain, I assume. I 
will vote for it. Or I will vote for the House version of it. 
But in the end I submit that if it passes, it will be because a 
hard-nosed political judgment has been made in this place, a 
cynical judgment, that it probably won't make that much 
difference and so they will let it go.
    I would urge you to recognize that if you cannot--I want 
equal justice under the law, but I also want equal justice in 
the Congress when it comes to determining economic assistance 
and living conditions for people. And we determine that every 
day. To me when the Court equates money with speech under the 
first amendment, it has the effect of allowing people with a 
lot of money to drown out the speech of average people in this 
country who desperately need attention but get very little of 
it because of the nature of our campaign system.
    When Mo Udall was alive, he used to hope that if the 
Congress contained or put into a campaign finance bill, if we 
put in a congressional finding that the existing system had 
become so corrupting of public confidence in the system that it 
required limits, that the Court might change its position in 
Buckley v. Valeo and other related cases. I have always doubted 
that would be the case. I had always hoped it would be.
    But I simply want to say, if there is anything I have 
learned in 40 years in politics, and I love this country and I 
respect your institution and ours, but I am mortally concerned 
about what big money is doing to our political system. And so 
long as Congress can only address it under these kinds of 
conditions, we can't produce anything that will be truly 
effective in creating equal justice under the law.
    I beg the Court to recognize not just the theory but the 
realities of politics, because if they don't, our democracy in 
my view cannot survive in a way that will deliver the goods for 
average people who ought to be at the top of our priority list.
    Thank you, Mr. Chairman.
    Justice Kennedy. Congressman, as you know this is an issue 
that I simply cannot comment on.
    Mr. Obey. I don't expect you to comment.
    Justice Kennedy. I feel rather uncomfortable in discussing 
the subject.
    Mr. Obey. I don't expect you to comment.
    Justice Kennedy. We are, as you know, writing about it in a 
number of cases.
    Mr. Obey. As I say, I don't expect you to. But I just think 
the public needs to understand if indeed, as one observer noted 
once, that the Court did eventually respond to public opinion, 
I would hope that public opinion would help all of the 
institutions to recognize what the practical realities are.
    Mr. Wolf. Mr. Miller?

                      ARCHITECT PROJECT MANAGEMENT

    Mr. Miller. Getting back to the appropriations issue, the 
Architect of the Capitol, you are working with them. Would you 
comment why you are using the Architect of the Capitol because 
of the separations, and do we share other agencies of the 
government? It is not a question of capability. It is a 
question of separation. You all are extremely independent from 
Congress even though we are right across the street from each 
other. We are, I guess, sharing the Architect of the Capitol. 
Is there any other agency or such? I know you have your own 
security and things like that.
    Justice Kennedy. As you know, Congressman, the rest of the 
Federal Court system works with GSA and, by tradition, in order 
to respect our independence, we do not; but we need the 
technical expertise of the Architect. We, of course, work with 
the Office of Management and Budget for the technical support, 
analysis, et cetera. I am not sure we share other agencies.
    The physician of the Capitol. Of course, the United States 
Marshals are our security outside of Washington, D.C.
    Mr. Miller. It was a voluntary thing to use the Architect 
of the Capitol in this situation because of the expertise, 
knowledge of historical preservations, such as that?
    Mr. Hantman. The act of May 7, 1934, 48 Statutes 668, 
specifically makes the Architect responsible for the Court 
building. It may well go back to the time when, as the Chairman 
indicated, that the Court actually occupied the same first 
increment of the Capitol, as did the Library of Congress, along 
with both houses of Congress.

                            SECURITY DESIGN

    Justice Kennedy. I will answer the architecture questions 
and Mr. Hantman can answer the legal questions.
    Mr. Miller. Let me go back to the issue of the building and 
such. I look forward to seeing the condition up close. You 
mentioned the air-conditioning, and I have one bit of trivia. 
The Chairman spoke about Justice Marshall being from your 
district. In Statuary Hall, there is a statue from the State of 
Florida, Dr. John Gorrie. It says underneath his name, ``from 
the State of Florida, inventor of mechanical refrigeration and 
the ice machine.''.
    We have some historical significance. You told me about 
your air-conditioning equipment. In Florida, it is very 
critical to our growth and success.
    The security issue. I know you can't talk a lot about 
security in a public forum, but almost 3 years ago we had the 
death of two police officers here and so we are going to a 
visitors center. I see the lines in front of your Supreme Court 
occasionally. Is that part of it, the security design? Is that 
a major component of the new design? Built back in the 1930s, 
security obviously was not as much of a concern as it is today.
    Justice Kennedy. That is a major concern of ours. We just 
can't treat our visitors very well. We have, Congressman, over 
a million people a year visit our building. They, of course, 
all have to be screened. It is now done in the vestibule just 
above the main stairs, which has no air-conditioning system at 
all. It is very unpleasant in the summer. That really is not an 
adequate place to do it in any event, and so a major part of 
our concern under the Architect's work with us has been to 
develop a new security screening procedure.
    Basically at this point we have two options. One is to 
build a separate, freestanding structure. We have aesthetic and 
architectural concerns about this. The other is to have the 
entryway in what is now entry to the lower Great Hall. Both of 
these would probably mean that you could not enter the building 
up the front steps, and we are very unhappy about that. It is a 
symbolic and memorable experience to walk up the steps of the 
Supreme Court. These two options would require that the steps 
would be for exit only, but we think we may have to adopt this 
plan.
    Mr. Miller. We are going underground with our visitors 
center. They are not going to be using the steps. They are 
going to go, I assume, down an escalator.
    Justice Kennedy. We have looked at your plans. We thought 
about stubbing an underground entrance into our building but we 
simply couldn't handle your number of visitors.

                          TECHNOLOGY SECURITY

    Mr. Miller. How about security on the technology side? We 
are not allowed--we have limitations of what we can do for e-
mail to our constituents. I have a BlackBerry, but there is a 
security concern there. I assume that is part of the whole 
technology area is how do you handle security and getting 
information; like the case they were having last year, you were 
having to access it.
    Justice Thomas. That is one of the reasons we were 
reluctant to have the universal access to the Internet at the 
Court, which we don't have. We have been very parsimonious in 
the use of the Internet at the Court. Our system that we use is 
our own internal server that is encrypted. A number of the 
things, I think $450,000 of the request is for security 
purposes, to hire individuals who are more familiar with 
security; consultants to get into biometrics, so that we don't 
have to go through quite as elaborate an encoding system to 
even get in my laptop, so if there is a power surge or 
something, start all over again--or if I forget my security 
card. One day I left for a trip and left my security card 
there. Well, the computer was useless to me because I couldn't 
get into it. We are trying to make it more user friendly but 
equally secure.
    We also have grave concerns about allowing a system that is 
connected to the outside world to somehow compromise our 
internal security and the confidentiality of our opinion 
process, or to get a virus in our system which would debilitate 
us.
    The security is a major concern of ours and it has been a 
major impediment to our use of an external e-mailing system. In 
fact, that was a consideration in not allowing our Website to 
be housed at the Court. It is at GPO. We simply did not want to 
run the risk of that system infecting our internal processes.
    I might add that that system--this is unrelated to the 
security question--last year when we testified about this time, 
we told you that it was imminent, that we would have our 
Website up and running. In the meantime, that system has 
generated about 15 million hits, 6\1/2\ million during the 
consideration of the Bush v. Gore case. So that has worked well 
offsite, and we don't have the security concerns. But security 
is a major issue and it has been a major hurdle for us.
    Mr. Miller. Thank you, Mr. Chairman.

                         HOUSE REPORT DIRECTIVE

    Mr. Wolf. Mr. Kennedy.
    Mr. Kennedy. Thank you, Mr. Chairman. I want to begin by 
welcoming the justices. It is an honor to be on this committee 
and to have an opportunity to sit with the Supreme Court. I 
want to identify myself with my colleagues, Mr. Serrano and Mr. 
Obey, both of whom made excellent statements that I entirely 
concur with and appreciate their courage in making those 
statements, especially Mr. Serrano. I am a new member of the 
committee, and so it wouldn't likely be left to me to make 
something--a statement as controversial, so to speak, as that, 
because I wouldn't know the protocol. But judging from his 
district, maybe he doesn't know, because they don't know the 
protocol.
    I want to thank him because he also honored me by saying 
his inspiration for making that statement was in part due to 
his memory of my uncle, Robert Kennedy, former late Attorney 
General of the United States. I think that is a great tribute 
to my Uncle Robert.
    I want to make a couple of comments and ask for 
yourconsideration about a few items, the first of which I want to get 
out of the way, and that is to ask a question that one of my 
colleagues, Congressman Jesse Jackson, Jr., who is a member of the full 
committee and therefore couldn't be here on the subcommittee to ask the 
question, but he is following up on the pursuit of our late friend 
Julian Dixon, and so I feel very privileged to ask this question on 
behalf of Mr. Jackson and our late friend Julian Dixon.
    A year ago, the NAACP documented that the Supreme Court has 
a long and current history of noninclusiveness to people of 
color and women. As of only a year ago, the NAACP documented 
that of the 462 clerks hired by the nine justices at the time, 
the NAACP reports only 1.9 percent were African American, 9 out 
of 462. Only 1.1 percent have been Hispanic Americans, 5 out of 
462. None, zero, have been Native Americans. And you think 
about the disposition of Federal justice and the fact that 
Native American reservations come under the jurisdiction of the 
Federal judiciary, and you think about the implications of the 
Federal code on Native Americans, when they are subject to the 
Federal code, not the State Code. And the fact that only a 
quarter of the clerks were women, when over half of the current 
law school graduates today are women and only a quarter were 
clerks.
    So, given these statistics last year, I would like to ask 
you what you have done to respond to the report language, House 
Report 106-680, report language said that, quote: Justices who 
testified at the hearing responded by stating that there is a 
heightened awareness about this issue. The justices have had a 
number of discussions with circuit court judges and law 
professors and intend to expand the pool of applicants from 
which clerks are chosen.
    Given that being your or your counterpart's testimony in 
the previous year, I would like to ask you, what have you done 
to address this report language in the last year so that we can 
help mitigate these enormous disparities?
    Justice Kennedy. Since I became a judge in 1975, I have 
made it very clear to the people that help me to look for 
clerks throughout law schools around the United States. I take 
many from regional law schools as well as the major law schools 
such as Harvard, Chicago, Stanford, Yale and others. I have 
always made it a very important point to say that I search 
after qualified minorities and women, and have done a fair job 
in that regard.
    The hearings last year, prompted by the late Julian Dixon's 
question, and I believe even the year before, did cause the 
Court to take a second look at this. We are renewing our 
effort. Law school enrollment of women, it was reported in the 
press last week, is now close to or just about 50 percent or 
maybe even more in some law schools. Of black law students, I 
think 11, 12 percent. Hispanic is very low for some reason. I 
just don't know the reason for that.
    So what we have to do is make sure that at all elements of 
the system--law school admissions, circuit court clerkships 
which are the feeders, or State supreme courts which are the 
feeders for our clerks (because we need clerks with 1 year of 
previous experience)--are sensitive to this issue. I think it 
having been raised in the committee has been very helpful. We 
have again a renewed and conscious awareness to do better.

                               LAW CLERKS

    Justice Thomas. I think I will reiterate what I said last 
year, and that is, that we recruit law clerks from a well-known 
pool. There is no secret to it. I happen to agree with Justice 
Kennedy, that I don't think that the repository of all 
knowledge and intellect is east of the Mississippi or in the 
Ivy League law schools, so I don't take as many clerks from the 
Ivies as perhaps some others might.
    At the same time, I think that we recruit from the top of 
the class, and I think the question should be asked of law 
schools, why aren't the minorities at the top of the class? 
That is a well-known ticket to Federal clerkships and that is 
where we recruit. We don't take clerks from law school. We 
recruit from other Federal judges.
    I think, though, that if you look at the numbers, and I 
assume that is part of your question, there has been a change 
in the makeup of the law clerks. Again, I would also say that 
Mr. Dixon, whom I always enjoyed discussing this with, and just 
a tremendous gentleman, very passionate about this and very 
concerned about it, but my point to him was that it would 
change; that some times it is difficult to wait, but that it 
would change, and indeed it is changing. This year, we have of 
the law clerks, 25 males, 10 females, 2 African Americans--
Justice Breyer and Justice O'Connor have those--4 Asians and 1 
Hispanic.
    I think that as the awareness that this is a problem 
continues, as the law schools see that they are not doing a 
particularly good job in making these kids aware of the 
opportunities and in seeing to it that they are at the top of 
their class, that you will see even more. I do not think, as I 
said last year, that it is as big a problem with women as it is 
with minorities. And I don't think it is as big a problem with 
Asians as it is, say, with blacks or Hispanics. I think that we 
are aggregating concerns that are quite different.
    I, for example, have two women law clerks. I have three 
coming next year out of the four law clerks. That is not 
because I planned it. Because they are there, they are 
available in the pool, it is not very difficult to hire them. 
But to find blacks or Hispanics is very, very difficult.
    Mr. Kennedy. I appreciate your not only admonishment to the 
law schools and maybe other circuit courts but also 
youradmonition to them to encourage and work on trying to advance this 
cause, because it reflects poorly on all of us as a society.

                                  ADA

    I would like to ask another question that dovetails with 
that in some respect. I know that the Court has found that in 
the University of Alabama v. Garrett that the ADA Act imposed 
obligations that went further than the Constitution itself, and 
that this cannot be done because discrimination based upon 
disability has not been raised to the same level as the 
constitutional scrutiny of race, the 14th amendment.
    Given all the new funds that you are requesting, what is 
the Supreme Court doing to conform with the ADA? Are you 
planning to conform with the ADA? And as the Congress is now 
starting to try to adhere to its own laws as well, will you do 
anything in that regard?
    Justice Kennedy. The Architect, without our instruction, 
just from his knowing the law, has told us that he will comply 
with the ADA in all respects. There are some monumental areas 
where I am not quite sure these will work, but we are satisfied 
that it is accessed, and disabled-friendly systems throughout 
all the public areas of the building and in most of the private 
areas.
    Mr. Kennedy. Would you see it as the Court's requirement to 
comply with it, or, as you said, it would be to follow the 
contractor's intuition that this is something they should do?
    Justice Kennedy. I am not sure it is an intuition. I would 
defer to the Architect, but I think he has a standard that he 
is going to comply with it to the extent that the building 
permits it.
    Mr. Hantman. Our architect and engineering team have been 
directed to make sure that the building is fully accessible.
    Justice Thomas. Let me, if you may indulge me, two points. 
One, when I was in the Attorney General's office in Missouri, 
one of my best friends, and still one of my best friends, is a 
quadriplegic. We had to lift him into the Supreme Court. This 
was in the days when accessibility wasn't as big an issue. We 
would lift him over curbs, things like that. That had an impact 
on my years at EEOC. If you have ever been to EEOC's 
headquarters, it is 100 percent accessible.
    There was some quibbling when I moved them to that 
building, that we could take a building where people who 
weren't mobility-impaired would have to come in the rear of the 
building. My response was, everybody comes in the rear of the 
building.
    We are dealing here with a historic building and a building 
that has certain portions that can't be made accessible; for 
example, the curved staircase. But you are talking about, I 
assume, the accessibility of the public to come to see the 
Court and discharging its responsibilities.
    Mr. Kennedy. Absolutely.
    Justice Thomas. Justice Kennedy was instrumental in making 
sure that a ramp was installed consistent with the architecture 
of the building. So the commitment I think that you are looking 
for is there. If I enjoy good health during my tenure, I don't 
have any responsibility for that, but I do believe that the 
conference is very sensitive to that. The Architect has been 
very sensitive and, of course, we are.
    Mr. Kennedy. I agree with you. There is nothing for us to 
be patronizing about. There but for the grace of God go each 
and every one of us. The fact of the matter is that they are 
all American citizens. They deserve the same opportunities that 
every able-bodied American citizen is entitled to, and the 
notion they can't even get into their government buildings is a 
travesty.
    We had to reconstruct the floor of the House of 
Representatives so that my colleague, Congressman Jim Langevin, 
could even serve in the United States Congress.
    So we are in the year 2001, and I know it takes us some 
time to get through to things, but I appreciate your comments 
with regard to that and am excited to see the renovations.

                             MENTAL HEALTH

    The final series of questions that I wanted to ask were in 
relation to some things that I had spoken to Justice Kennedy 
about prior to the hearing, and that includes the judiciary's 
estimated increase of mental health cases by 14.3 percent in 
the 2000 levels.
    My question in short: It seems to be evident to me, as 
Justice Kennedy remarked in the reports that he had pointed out 
he will send to me, that our Federal judicial system is not 
adequately responding to mental health problems, given the fact 
that according to our Surgeon General's report, mental health 
affects roughly 20 percent of the adult population who contend 
with mental illness in any given year.
    I would like you, for the record, if you could just talk to 
me about both of your own experiences in dealing with the need 
for mental health treatment services within not only our 
Federal court system but also our State court system as well. 
If you could comment on that, I would be very appreciative.
    Justice Kennedy. As you know, Congressman, we are 
essentially a reactive institution where we cannot institute 
policy. We do have cases come before us, more frequently now 
because of the Americans with Disabilities Act, involving 
people with mental illness. Society as a whole is way, way 
behind on recognizing the extent of this problem. The best ways 
to alleviate it are not well explored. In the penal system, 
there are, I think, inadequate funds in the correctional 
facilities to diagnose and treat these people. Years ago--you 
probably can't remember them--we had what they called insane 
asylums. People were locked up there. Theinvention of the 
tranquilizer was about as important as the invention of penicillin. It 
allowed these people to function, or so we thought. But the severely 
mentally disabled person can function all right in a normal society if 
he or she has the discipline to take the medicine. But they don't have 
the discipline to take the medicine, because they don't have a 
caregiver. We have addressed some of those cases in the ADA context.
    Justice Thomas. I really have nothing to add, Congressman 
Kennedy. I think that as the ADA cycles through our system, you 
see all sorts of disabilities being litigated. Of course when I 
was in the executive branch, we had any number, but they came 
in different levels. There were some in the context of 
education or workplace; what do you do with a kid who has been 
found retarded, for example, in the educational context. You 
have employees, as an employer, who have difficulties that you 
work through, et cetera.
    I think people are becoming more aware, as Justice Kennedy 
indicated, that these things now are not instances to ignore 
people but rather to treat them. As far as we are concerned, 
however, I just simply haven't seen that many of the mental 
health type cases coming to the Court. I would submit, though, 
under the ADA we will get a plethora of all sorts of cases, not 
necessarily mental health, but all sorts of disabilities.

                     FUNDING FOR TREATMENT SERVICES

    Mr. Kennedy. As we talked about earlier, it is clear in our 
society today, with 2 million plus people in the judicial 
system, that our country is gravely ill and--that is, we can't 
think of this as just a phenomenon that can be unrecognized. I 
know that many people in the jails are people that were 
formerly in those insane asylums, as you said, Justice Kennedy. 
For us to be treating them in a corrections atmosphere to me 
seems like cruel and unusual punishment for people who don't 
know the difference between reality and unreality in many of 
these cases.
    I appreciate, Justice Kennedy, your remarks regarding the 
need for additional funding for these treatment services. I 
look forward to working not only on this committee but on the 
Labor, Health Committee to try to see that we can do more to 
offer meaningful treatments that will mitigate the recidivism 
rate, which I know is one of the leading causes of people being 
incarcerated, is the constant recidivism, which could be really 
addressed if we had adequate treatment in our correctional 
systems. Following on your comment earlier, Mr. Chairman, about 
what we can do to have grace within our corrections system, I 
wanted to make that point.
    Thank you. I appreciate your comments.
    Justice Kennedy. Thank you.
    Mr. Wolf. Mr. Vitter.

                          IMPACT OF TECHNOLOGY

    Mr. Vitter. Thank you, Mr. Chairman. First let me say it is 
a real honor to be here as a new member of the subcommittee and 
the committee. I know the comments and views of Mr. Serrano, 
Mr. Obey, and Mr. Kennedy are very sincere. I just want to say 
the obvious which is on all of those things, there is a wide 
spectrum of opinion on this subcommittee, in the Congress, in 
the Nation. I really don't want to say more than that, because 
I appreciate Mr. Serrano's first comment.
    I am a little uncomfortable about having you here and 
bringing all of these things up. I had never heard the 
suggestion that we maybe follow a different procedure, but I 
think it is quite frankly a very interesting one.
    Also, Mr. Rogers said it is difficult for him as a 
Congressman to treat the Court fairly and ask for nothing in 
return. I am not sure after this hearing we are really doing 
that, because it is a big lobbying session, and we all have our 
personal passions.
    I wanted to ask Justice Thomas, on the technology side, if 
he could tell us a little bit about how over time that might 
change or impact public access and interaction with the Court. 
I guess I am thinking of two groups. First, lawyers and things 
like electronic filing and that sort of thing; and then the 
public at large, and your thoughts or the Court's thoughts 
about evolving issues like audiotapes that we saw last fall.
    Justice Thomas. With the audiotapes, that is a separate 
issue. That has more to do with how close to real-time our 
proceedings will be made public in electronic form.
    With respect to the role of technology in what we do, let 
me make that--let me do it in a couple of ways. One, let's just 
take the very intense period of the Florida election cases, the 
enormous number of filings that occurred then; the amicus 
briefs, the party briefs, the distribution. How do you 
accommodate 12, 13 separate filings over a weekend? How do you 
receive it and distribute it, and yet have no line before the 
Court, no one waiting on opinions, no one lined up to bring 
briefs to the Court? Because it was done electronically. The 
only way that could have been done was electronically. It would 
have been a logistical nightmare if we could not receive the 
briefs electronically, clean them up, distribute them and have 
them on our Website almost instantaneously.
    So that has changed dramatically. People are able to learn 
about the Court in a different way simply by going to our 
Website. The schedule of the Court, the arguments, the briefs, 
the decisions all appear on the Website almost instantaneously. 
Years ago, you had to go to a service to see what the Court was 
doing. We can now in the emergency cases, I can sit at home and 
receive emergency petitionsright at my desk. I can print them 
out if they are too long, print them out on my printer, or just read 
them on the screen and communicate instantaneously with my law clerks. 
I can do that anyplace in the world. We couldn't do that before. I can 
do it in a secure manner. I can edit opinions from home. I can edit 
opinions from California, or a hotel room in Nebraska or Iowa.
    So it has changed that. It has changed the way that we are 
able to--I will give you an example: the pro se petitions. One 
of the problems we had in the past with them was they would 
file something very close to the deadline, it would be 
incorrect, we would send it back, and then when it came back, 
it was out of time. That sounds like a simple problem to us and 
a minor problem. Well, it is a big problem for them.
    Now what the clerk's office does is simply go to the site, 
make the correction, let's say it is a cite to their case, and 
file it for them. That takes a couple of minutes, simply 
because we can access their Website or the Court's Website.
    I think as far as research, we can now tap into databases 
that we couldn't in the past, instantaneously, from home, from 
work, on the road, et cetera. Lexis-Nexis, Westlaw, et cetera. 
I think what you are going to see is more of the same in the 
future. We are able to run the Court better, to have data 
necessary for the operations of the Court in real-time. I am 
able to communicate with my colleagues almost instantaneously 
in writing. I think you are going to see more of the paper 
disappear and more of our work done simply in front of a 
computer screen, whether it is cert petitions or other matters.

                           ELECTRONIC FILING

    Mr. Vitter. With regard to filings you were talking about 
last fall. I didn't understand if it is the norm around the 
year or not. Are electronic filings the norm now?
    Justice Thomas. It is not the norm now.
    Mr. Vitter. Are you going to move to that either being 
voluntary or mandatory?
    Justice Thomas. In some instances, in the death cases, for 
example, it is the norm because--that is why I said in the 
emergency cases we are using it. I think it is inexorable that 
we are moving toward that. To give you an example of a case, 
last year we had a case in which the entire case was filed on a 
compact disk. The references to Supreme Court opinions or to 
statutes were hyperlinked to the index and the joint appendix. 
So if there was a reference made to a statement by a party and 
that reference, that cite, was hyperlinked, you clicked on that 
and you were instantly at that quotation in the joint appendix 
or the relevant statute or the relevant case. That is 
immeasurably helpful for the future and it is obviously the way 
we are going. That is why it is imperative that we now get 
caught up, because it is going to move I think even more 
quickly in the future.
    Mr. Vitter. Is there a time frame either that has been set 
or that you think is coming generally, where in every case 
before your Court electronic filing is possible, although not 
mandatory?
    Justice Thomas. We do not have a time frame. It would be, I 
think, imprudent of me to suggest that we do. I think, though 
that it is not too distant. That is why I have been more pushy 
about the Court coming of age.
    Mr. Vitter. And presumably in the general category of 
cases, not death cases, not exceptional cases, but in the 
general category of cases, when that happens it would be 
voluntary and not mandatory?
    Justice Thomas. I don't know. I would like to see it at 
least be an option, because it is a lot easier for me to do my 
work if the briefs and the cases are distributed 
electronically. What I do even now with my law clerks is have 
them give me copies of all the cases electronically, so when I 
open up my laptop, when I go into my laptop, I can read all the 
relevant cases from my computer. It may at some point be 
optional. But I would like to see us have the disk at least, 
together with the hard copy, because some members of the Court 
still like to use a hard copy. So if we had both, it would be a 
lot easier. Right now, some of that is already reduced 
electronically, and we can pull it up.

                         TECHNOLOGY AND POLICY

    Mr. Vitter. The final question in this line: How does all 
of this technology interplay with the separate policy issue of 
audiotapes, video, of Court hearings, et cetera? Is the 
advancing technology in any way impacting that issue of what 
the Court will allow over time?
    Justice Kennedy. They are separate issues. We had audio of 
the Bush v. Gore case, because the case came upon the country 
and us so fast that the legal system had not had the 
opportunity to absorb it, to comment on it. We thought release 
of the audio--the audio was released immediately after the 
Court hearing--was in the public interest.
    I think we will not do that unless--and I hope we don't 
have--have another case where the time compression is so great. 
You could have an Oxford debate, Congressman, as to whether or 
not television should be in the courtroom and you could pick 
either side of that one and make a pretty good case for it. It 
would be wonderful for the attorneys who were going to appear 
before the Court. I have taught law school by video. It is a 
wonderful teaching tool.
    On the other hand, we teach something by not having it. We 
teach that we have this different function, this different 
methodology, this more formal way of proceeding. Many of 
mycolleagues, I don't have many colleagues, but some of my colleagues 
say that it would affect the way they ask counsel questions, and they 
think it would alter oral argument for the worse. I am prepared to 
accept their judgment on that point.
    Mr. Vitter. Thank you.
    Mr. Wolf. Ms. Roybal-Allard.

                           HIRING LAW CLERKS

    Ms. Roybal-Allard. Thank you, Mr. Chairman. I would like to 
join my colleagues in welcoming you this morning. I would like 
to follow up on some of the questions that have already been 
asked. One has to do with the hiring of women and minorities, 
specifically as law clerks. I understand that you hire, as you 
said, from the top of the class.
    There is a great deal of concern in that as long as we have 
an educational system in this country which is not equal, that 
if you go into districts such as the one that I represent and 
you see the conditions under which children have to go to 
school, assuming they are even in a building, often they are in 
these makeshift places where there are leaky roofs, if it rains 
they have to put trash cans out there to collect the water, 
children can't be in the classroom, they have no places 
sometimes to have lunch.
    In other words, the point I am making is their conditions 
are not conducive to learning. As a result, they are hindered 
in being able to excel in their education. Nevertheless, there 
are many students, in spite of these conditions, who still 
manage to get through the system, go to college, excel, and go 
to law school. But because of the fact that they have to work 
sometimes two and three jobs and have other responsibilities, 
they are not going to the Ivy League schools and they are not 
going to be at the top of the class.
    Given that, there have been studies that have shown that 
being at the top of your class does not necessarily make you 
the best doctor, the best teacher, and I assume probably not 
the best lawyer.
    Has there been any thought at all in revisiting the 
criteria that you use? I know at one time if you went to an Ivy 
League school, that was the best chance you had. Now, as has 
been stated, there is a recognition that there is part of the 
United States that is west of the Mississippi, and so now you 
are looking at other schools on the West Coast and in other 
parts of the country.
    Has there been any thought at all, even in terms--and I 
don't know how your system works--a pilot or something where 
there would be some opportunity, based on other criteria as 
well, to give opportunities to some of these students who may 
not, for reasons that I have already described, be at the top 
of the class but nevertheless still have the talent and the 
ability and the intellect, all the things that are necessary in 
order to be a law clerk?
    Justice Kennedy. The demands of the hiring process and the 
demands of the position where they have to come to our Court 
and be off to a fast, running start are such that I have to say 
great weight is given to scholastic performance. It is a 
measuring criteria that we rely on. We have professors from 
time to time who say, I've got a really great young person, he 
or she is not at the top of his class, and then we will hear 
the story.
    I have had a high school dropout with me. I have had a 
couple of clerks whom I thought weren't quite ready but they 
looked so good, I asked them to practice for a year so they 
could come back. We can make small adjustments in this way. 
Ultimately, Congresswoman, it is a society-wide problem. It is 
a problem for our education system. It is a problem for law 
schools. Law schools are good about this. Law school professors 
have written about this. When they see it in front of them, 
they have good instincts and the mechanics to make some 
adjustments. I think that will continue.
    Ms. Roybal-Allard. So you aren't completely closed to any 
outside recommendations of students that aren't necessarily at 
the top of their class?
    Justice Kennedy. No.

                        BUILDING RENOVATION COST

    Ms. Roybal-Allard. The other question that I had was a 
follow-up with regards to the renovation project of which 
Iwould be very, very supportive. I understand very well the conditions 
that exist today. I look forward to actually touring it so that I can 
see firsthand, other than just having read about it.
    Justice Kennedy. We will let you see it before and after, 
Congresswoman.
    Ms. Roybal-Allard. The statement, I guess it was due to 
prompting of then-Chairman Rogers, that the cost went from 
about $140 million down to, I understand it is currently now to 
$122 million. My question is, in terms of the difference in the 
cost, what parts of the project were actually abandoned to 
bring down that cost? And is it something that just in 5 years 
from now you will be coming back and saying we need X, Y, and Z 
because we were unable to make it as part of the original 
project?
    The reason I am asking that is originally, as was 
mentioned, the estimate was somewhere between 7 to $20 million. 
This was a few years back. And so as time goes by, the cost 
keeps getting more and more expensive. That is why my question 
is what have you abandoned, and is it something that you will 
come back in 5 years to ask for? And will it be that much more 
expensive than it would be if we were to fund it today?
    Justice Kennedy. On the 7 to 20 and then the giant leap to 
over 100, it was simply because we had no knowledge at all that 
the basic systems had to be replaced. As to the 140 and what 
have we trimmed out, really no necessary improvement has been 
deferred or eliminated. There was some talk about refurbishing 
historic paint colors, which is tremendously expensive. You 
have to chip off layer by layer to see what the original was. 
We told them that we wanted to not make that a high priority. 
That was the kind of suggestion we made in order to get the 
numbers down. They just took a good hard look at the numbers.
    Ms. Roybal-Allard. So this funding basically is for all 
that is absolutely necessary.
    Justice Kennedy. It is not only what is absolutely 
necessary, it will be an absolutely first-class building 
insofar as we understand it. We have no idea of having some 
second-tier projects that would come----
    Ms. Roybal-Allard. But no corners have really been cut. I 
guess you would consider it ``frills'' in terms of what you 
were talking about, I heard that term used, in terms of the 
renovation of the paint and that type of thing.
    Justice Kennedy. A few of those frills, but other than 
that, I think this will be an absolutely first-class building.
    Ms. Roybal-Allard. Thank you.

                    BUILDING RENOVATION DISRUPTIONS

    Mr. Wolf. Mr. Latham.
    Mr. Latham. Thank you, Mr. Chairman. I want to welcome both 
of you here. I always wondered how you select who has the 
opportunity to come up here. You draw the short straw or 
something. Maybe there is a procedure in place.
    Justice Kennedy. It is our pleasure to be here, 
Congressman.
    Mr. Latham. Thank you. That is very kind.
    Mr. Vitter. They choose the most diplomatic justice.
    Mr. Latham. I think I mentioned last year, I want to 
especially thank Justice Thomas for all the courtesies that you 
have given my folks when they are in town here, being admitted 
to the Court. It is really extraordinary, which you do, the 
reception and the courtesy you extend. It is very much 
appreciated.
    I think this hearing today really shows how much we miss 
Julian Dixon on this subcommittee. His voice is very much 
missed today, I will say that.
    And I do want to associate myself with what Mr. Obey said 
about outside income or honoraria. I just think there is an 
inherent conflict there.
    As far as a question, I guess it is going to the 
infrastructure situation. A couple of things. Why has this 
request now come, and should we not have been doing some of 
these things over a period of time? And if all of this is 
approved, what type of disruption will there be for the Court 
itself? Do you expect any disruption or problems in that 
regard?
    Justice Kennedy. We have been assured that our operations 
can continue. We have also been told that we are not going to 
like it and it is going to be inconvenient. I have heard the 
good news and the bad news.
    Mr. Latham. It is kind of like this hearing room.
    Justice Kennedy. We do think it is very important that we 
continue in operation in the building.
    Mr. Latham. Is there a reason----
    Justice Kennedy. So far as the reason why this came on us 
all of a sudden, I guess we have just been reading our law 
books. We haven't been in the basement.
    Mr. Latham. And no one else has been down there. The 
Architect hasn't been around there.

                           COURT ROOM CAMERAS

    Going a little bit with, I guess what Mr. Vitter was 
talking about with the oral broadcast, the broadcast of the 
audio last year, has there been any renewed discussion as far 
as videotape between justices? I know Justice Souter last year 
said that they would have to probably carry his warm dead body 
or cold dead body out of the place before that would happen. 
Has there been any additional discussion?
    Justice Kennedy. As I have indicated, I think you could 
make a reasonable case on either side, but so long as my 
colleagues, or some of them, feel very strongly about it, I 
think there is a very good case for keeping the cameras outof 
the courtroom and they will remain out of the courtroom.
    Mr. Latham. Would you reiterate the case for that?
    Justice Kennedy. We are in a culture that is obsessed by 
celebrities. We don't think we should become people that are 
regularly on the television, because it distorts the meaning of 
our work. Our work is not our personality. It is the language 
and the knowledge of the law. We are a collegial body. We think 
and argue and reason about cases over a long period of time 
before we issue them. We think that that process would not be 
reflected adequately by television cameras. We also think it 
would affect the way in which justices interact with the 
attorneys asking the questions and the dynamics of the oral 
argument.
    We love the dynamic of our oral argument. Most people that 
are visiting the Court for the first time think it is a series 
of dialogues, a conversation between the two of us and then the 
other justice who has questions. It is really the justices who 
are talking among themselves and the attorney enters into the 
conversation. It is a thrilling dynamic if it works right. 
Sometimes it works right, sometimes it doesn't. We think 
television would just intrude on that dialogue.
    Justice Thomas. I happen to be one of those who is on the 
other side, who feels pretty strongly we shouldn't do it. I 
think it would compromise, it will not enhance, our process for 
us. And ultimately we have to decide these cases. I think that 
even with the public display, exposure, that we have now in the 
oral argument, it has some effect on our processes.
    The other thing that is of concern to me that wouldn't 
affect me, would affect me only marginally but would have an 
effect on some of my more private colleagues, is security. I 
think we underestimate the security implications, the total 
loss of anonymity.
    I thought I had anonymity in England when I went some years 
ago, and as my wife and I are joyfully walking down the street 
saying, finally I'm free from the burden, the loss of 
anonymity, and two individuals walked up to me and yelled, 
first of all yelled out my name to everybody and announced who 
I was. And there I was. I think that that is a concern.
    I also don't think that it will significantly enhance the 
public's view of the case. These cases usually involve very 
arcane issues, or many of them, not all of them, statutory 
construction; and they require that you read the briefs and the 
supporting cases. Without that, then it is just simply 
personalities. I think that there is a cost. I think eventually 
there may be pressure to do it, but I think there is a real 
significant cost.

                             HONORARIA BAN

    I would like, though, just a minute to comment on your 
point about the honoraria. I am not here to debate that issue, 
but I think you are talking about two separate things. I don't 
mean to comment on it in Mr. Obey's absence, but you raised it 
again. The argument was that currently members of the judiciary 
are allowed to speak to certain organizations, or to teach. 
There are certain acceptable groups. Certainly you couldn't 
speak to General Motors. We don't do that, because then we 
would be in a position where we are compromising ourselves. But 
the issue was whether or not--right now you are limited. There 
is a cap on your outside income from that. The underlying issue 
was to raise that cap, not to now say that we will change the 
audience. You see what I am saying?
    For example, if you teach at the University of Iowa, then 
you would not say that the University of Iowa were compromised 
if that were judged. Or the individual taught at Drake, it 
wouldn't compromise. There is a difference between the 
audiences we are talking about. There are some audiences that 
are, by their very nature, objectionable from ethical 
standpoints. I think there can still be an objection to the 
honoraria ban, to raising it or eliminating it, but I think we 
have to talk about the same things.
    Justice Kennedy. I make a sharp distinction between 
honoraria, which I never take and do not think judges should 
ever take, and outside teaching. Those are two different 
things.
    I will refrain from commenting about judicial salaries only 
because I am not sure it is within the scope of your hearing, 
or if you are interested in our views on that subject. We think 
it is urgent, absolutely urgent, that Congress address this 
issue. There are two parts to the issue. One is failure to give 
cost-of-living increases, which results in salary erosion. The 
Congress, in our view, should take immediate action to restore 
our lost COLAs, but that just stops the erosion.
    Then you have the base salary problem, and you are well 
aware of what that problem is because you face it yourself. It 
is a matter of routine. It is almost a ritual now in the 
justice's dining room, we know each other's former personnel; 
oh, our clerk has just left, he has gone with so-and-so firm, 
and he is making significantly more than we are. He or she was 
our clerk last year.
    This is not fair to the justices. Ultimately it will cause 
the deterioration of the judiciary. We just cannot attract 
qualified people when we have this disparity with lawyers.
    Congressman, there are people who are always going to think 
that you and I are overpaid, no matter what you are paid. There 
is no really clear standard, I think, for what it ought to be. 
In the judge's case, we can make the comparison with outside 
legal practitioners. We had a quadrennial commission some years 
ago. If there arepolitical problems with doing this, I think it 
ought to be done through the commission route. But I simply would be 
remiss, since the subject has come up, in not saying that this is a 
serious matter of serious concern to the judiciary not only for what it 
does to their own dignity and their own concept of their worth, but for 
what it does long term to keeping the judiciary of the United States as 
a preeminent professional organization. It is wrong, it is inadequate, 
and Congress has to address it in the way it best thinks will be 
appropriate.
    Mr. Latham. I share your concerns very much. We often sit 
and visit about former colleagues here who go out and make five 
times more than what we do, also. There is a question about the 
two branches being separate but equal. There are many of us 
that come here and make far less than what we did in the 
private sector, too. It is not just the judicial branch that 
has the problem.
    The politics was supposed to come out of this back with the 
reform, the automatic cost-of-living, all of this. A lot of us 
are frustrated with that, in bringing that up every election 
year, it seems like, and having to put people in difficult 
positions. That was supposed to be out of it. I would just have 
to say, I don't think it is unique in your situation compared 
to Congress either.
    Justice Kennedy. We routinely meet with our counterparts 
from abroad, and in the case of England and the European Court 
of Justice, we are the objects of patronizing sympathy because 
the disparity is so great. Really, you shouldn't put us in that 
position.
    Mr. Latham. Thank you, Mr. Chairman.

                             PUBLIC SERVICE

    Mr. Wolf. I was not going to comment on the issue, but I 
will. I will give you some of my own personal views. One, I 
think it is a valid issue that ought to be addressed. The Bush 
administration ought to address it forthrightly by appointing a 
Hoover commission, if you will, of individuals of such 
character and integrity so that no one questions it. So the 
message ought to go to this administration, if they do want to 
attract good, qualified people. I do think there is an 
opportunity to bring people together with a commission. I would 
urge the Bush administration, and you may urge them to do it. I 
would be very careful. I have thoughts that I wasn't going to 
get into, because of my respect for the institution.
    There is another side to it, though. I don't want to take 
issue with anybody, but I want to make sure that my conscience 
and my feelings are clear. We are servants, public servants. I 
could go downtown and make a lot of money. I don't want to go 
downtown and make a lot of money. I will never, ever leave this 
institution to go lobby downtown with one of the good law 
firms. When I leave, I will go with a church group or go with a 
human rights group. It is service.
    Those of us who have been given this opportunity--I ran for 
Congress in 1976 and lost. I ran in 1978 and I lost again. I 
ran in 1980. I took every penny that I had out of my 
retirement. I still haven't put it back in. I cashed in every 
insurance policy that I had to have this opportunity to serve. 
It is an unbelievable opportunity.
    I can watch a show on 60 Minutes and see something about 
the persecution of Christians in China that drives me crazy, 
and come in here the next day and do something about it. In 
this room tomorrow morning, we will swear in a young Chinese 
American. The Chinese have his wife in prison in Beijing.
    So I appreciate the opportunity to be involved in things 
that make a difference, that live on beyond this, the service. 
I wouldn't go with a law firm downtown for a million dollars a 
year.
    I know you have a good point. I spoke to a Member of 
Congress the other day who said his daughter had clerked for a 
judge and has just accepted an opportunity with a law firm for 
$180,000. I think there ought to be a mechanism to pay fair and 
decent salaries. I would clearly support that. We supported it 
in this Congress last year with regard to increasing the 
President's salary; the thought of a CEO who is making so much, 
and then the President of the United States making so little.
    I think the answer is to take it out of the political 
process, have a Hoover commission, someone of such integrity, 
so people say those people are good, and I believe them. I 
think that you could lead this issue and convince the American 
people both with regard to the judiciary, with regard to the 
executive branch, and with regard to the congressional branch.
    I also go with Mr. Latham and Mr. Obey, though, on the 
honorarium. That is, I don't think there ought to be any 
honorarium, because we should work for the American people. We 
are public servants. We serve. So earnings ought to be paid for 
by the people we work for and not an outside group.
    We are blessed. When I think of the times I used to hang 
outside the subway stops in Rosslyn, shaking hands to get this 
opportunity, I am just not going to complain about it. I think, 
let's get a commission, let's let the President put a good 
person in, let's make the recommendations and let's go out and 
us articulate here is why I think we ought to do that. We 
should do it in a way where one party doesn't lie in wait for 
the other party.And I think we have gotten ourselves into that. 
We have almost become our own worst enemy.
    The last comment is I thank both of you for your testimony. 
I think it has been excellent. I will do everything I can to 
help you, and I know--I am going to recognize Mr. Serrano when 
I finish, we must do the rehabilitation, and reconstruction of 
the Court. I think you have made a case and I think Mr. Rogers 
has done an excellent job in bringing the numbers down. We will 
do everything we can to help you so that 5 years from now, 6 
years from now, it is something not only that we are proud of, 
and you are proud of, but when our constituents come, the high 
school classes come, for the first time come to this city to 
walk into the Supreme Court and walk into the Nation's Capitol, 
they are protected with fire safety, and security, and that you 
have the most up-to-date, high-tech ability to do what you do. 
We are going to do what we can.
    I will have the subcommittee staff work with maybe the 
Architect to set up a time in the next couple of weeks for 
Members and/or staff to go over and show them the ducts and 
show them the machinery and take them behind and let them see 
how dry the wood is and let them see the potential problems. I 
think that hopefully we can do something that you will be proud 
of and the American people will be proud of. I want to thank 
you both. I think your testimony was very good. We appreciate 
it.
    Justice Kennedy. Thank you, Mr. Chairman.
    Justice Thomas. Thank you.

                            CLOSING REMARKS

    Mr. Serrano. Just one final comment and a pledge. I will 
join the Chairman in making sure that your needs are taken care 
of. It is so important to make sure, as the Chairman has said, 
that the American people, along with the respect we have for 
the Court, also treat you properly physically, in your 
surroundings, and also those who go visit.
    Let me just end by joining the many people today who paid 
tribute to my late colleague, Julian Dixon, by suggesting that 
you pay attention to the issue that we brought up. I have to 
tell you that I think it is going to continue to be a problem 
if you continue to say that the only way you can identify 
clerks is by working with local judges who pick the best 
students in the class. I refer to you the history of the Court 
itself. When a nominee comes up, you will always find people on 
the other side who feel that the nominee is not up to the job. 
Traditionally, such nominees have then been appointed to the 
Court, and gone on to do a very good job, served their country 
well.
    So if that can happen to Supreme Court nominees who are 
seen by a segment of the population as not being up to the job, 
then certainly we can find people other than the one who was a 
master at tests somewhere, and in the process take care of a 
problem that still exists.
    I thank you for coming before us today.
    Mr. Wolf. We are adjourned.

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                                         Wednesday, March 21, 2001.

                         THE FEDERAL JUDICIARY

                               WITNESSES

JUDGE JOHN G. HEYBURN, II, CHAIRMAN, COMMITTEE ON THE BUDGET OF THE 
    JUDICIAL CONFERENCE OF THE UNITED STATES, UNITED STATES DISTRICT 
    COURT, WESTERN DISTRICT OF KENTUCKY
LAWRENCE L. PIERSOL, MEMBER, COMMITTEE ON THE BUDGET OF THE JUDICIAL 
    CONFERENCE OF THE UNITED STATES
LEONIDAS RALPH MECHAM, DIRECTOR, ADMINISTRATIVE OFFICE OF THE UNITED 
    STATES COURTS MEMBER, EXECUTIVE COMMITTEE OF THE JUDICIAL 
    CONFERENCE OF THE UNITED STATES
JUDGE FERN M. SMITH, DIRECTOR, FEDERAL JUDICIAL CENTER, UNITED STATES 
    DISTRICT COURT, NORTHERN DISTRICT OF CALIFORNIA
    Mr. Wolf. Good morning, ladies and gentlemen. Welcome.
    This morning we begin our hearing for fiscal year 2002 
appropriations and I want to welcome the new members of the 
Committee.
    Mr. Serrano is on his way. The traffic in Northern Virginia 
was unbelievable. I was in the car for a long period of time 
and I know he lives south on 95 and they said there was 
basically an hour's delay, so he is on his way.
    Also, Mr. Rogers wanted to be here, and I wanted to pay 
respect to Mr. Rogers. There is also a hearing before the 
Transportation Appropriations. He is there with regard to 
Amtrak.
    Also, I am excited about the prospects for this year. We 
have a number of new members that have joined the Committee. 
This is the first time for me. It will be a learning 
experience, having been on the Transportation Appropriations 
Committee Chairman for six years.
    But I am excited about the prospects and just learning and 
being part of this.
    I would also say at the outset, before we hear your 
testimony, I have read all the testimony last night, underlined 
it, went through different parts of it, and I am sympathetic to 
what you are trying to do.
    The problem that we are going to have this year is really 
going to be the size of the dollar allocations we are given. 
And while there is a four percent increase for most of the 
government, the courts are asking for more than that, as you 
know, I think it is 14 to 15 percent, if I read appropriately, 
but somewhere in that range.
    Some other categories are actually getting more. And health 
care, cancer research, Alzheimer research, Parkinson's disease, 
diabetes, which I know we all support, and so therefore if you 
look at the four percent figure, someone else is going to get 
less.
    And the numbers that I have seen with regard to this 
Subcommittee coming out of OMB are very difficult. We should 
probably get the OMB examiner you have to deal with, if you 
deal with one, and put his or her name at the beginning of the 
mark-up, so that if anyone wants to call, or maybe we could 
even send it out to all the judges around that issue. 
[Laughter.]
    But if you would just perhaps during your testimony also 
cover how do you deal with OMB and how do you make the case. I 
think you all do an outstanding job. We have the most honest 
and ethical judiciary in the world.
    But how do you deal with OMB? How do you work your numbers. 
And I know you do not have a cabinet secretary who goes before 
OMB. I used to work for Secretary Rogers, C.V. Morton, who 
would go over to OMB and argue these cases, sometimes 
successful, and many times not but would be there as an 
advocate.
    How do you work it? Do you just submit them numbers? I 
would like to know, maybe if you want to do it on the record, 
or if you want to educate me some time, but we will try to do 
the best we can.
    But I would ask you to understand, as we get into this 
process, with the numbers that I am seeing, it does look very, 
very bleak. And so but things change.
    With that, perhaps since Mr. Serrano is not here, if you 
would like to, Ms. Roybal-Allard, if you would like to say 
anything since.
    Ms. Roybal-Allard. I would just like to welcome you as 
Chair, and I look forward to working with you, as I know the 
rest of us do.
    And I agree with your comments that it does look very, very 
bleak in terms of the budget and some of the monies that you 
are all going to need in order to do your work.
    And I am sure, knowing the Chair, that in fact everything 
will be done to try and do the best that can be done, given the 
circumstances, to address your particular needs.
    Mr. Wolf. Mr. Kennedy, I want to welcome Mr. Kennedy who is 
in fact a new member, and Patrick, if you would like to make a 
comment or say anything?
    Mr. Kennedy. No. I welcome you, Mr. Chairman, and I look 
forward to your serving.
    Mr. Wolf. Thank you.
    One last comment I would say. When, on the Transportation 
Committee, we had a very truly bipartisan, Mr. Sabo and I got 
along very well together. I know it will be the same this year.
    Most of these issues are really not partisan issues. They 
are just good, common sense issues.
    But with that, I welcome you. All your statements have been 
put into the record. I understand that you had a video that you 
want to show at one time whenever you think that is 
appropriate, but I will begin, Judge Heyburn, with you. 
Welcome.
    Judge Heyburn. Chairman Wolf, Congresswoman Roybal-Allard 
and Congressman Kennedy, it is a real pleasure for me to be 
here to represent, for the fifth time now, all of the 
judiciary, except for the Supreme Court and they, as in all 
matters, speak for themselves, and I gather they are going to 
be here next week before you to do just that.
    These sessions really never cease to amaze me and remind me 
about great majesty and delicacy of our Federal Constitution. 
When one independent branch of government comes before another 
to give testimony and to ask for the resources to do what in 
fact the Constitution and the statutes which you have passed 
require us to do.
    And it also never ceases to remind me about how important 
an independent judiciary is. It is what in many ways separates 
the United States of America from almost every other country. 
And what I am here today is to simply ask for the resources to 
do the job that you have asked us to do and which the 
Constitution requires us to do.
    And that is to protect the rights of----
    Congressman Serrano, welcome.
    And that is to ask for the resources to do the job that we 
must do and that is to protect the rights of all our citizens 
to enforce the laws, whether they are good or bad, enforce the 
laws for the rich and the poor, to mediate disputes among our 
citizens, among our states, and our national government.
    Before I go any further, I am going to recognize two 
important people that are here with me that represent important 
institutions within the judiciary and ask them to say a few 
brief words about----
    Mr. Wolf. If I can just interrupt for a second. If I could 
just recognize Mr. Serrano. I was in the same traffic, and I 
understand. [Laughter.]
    If you would like to make any comments or anything?
    Mr. Serrano. I certainly will, Mr. Chairman.
    Let me first apologize. I am a man of extremes. I am a 
member of Congress who lives the closest to his district office 
and it could be argued that I live the longest distance way 
from the Capitol office. But even if I lived down the block on 
95, it is always crowded.
    I apologize for that.
    I want to take this opportunity, Mr. Chairman, to tell you 
how pleased I am to see you as Chairman of this Committee.
    Mr. Wolf. Thank you.
    Mr. Serrano. I offer you my support. I offer you my full 
understanding in trying to craft a proper bill together.
    I want to take this opportunity to welcome Mr. Kennedy to 
our Committee, as well as Mr. Cramer, who will be serving with 
us. And we must not miss this opportunity, Mr. Chairman, to pay 
tribute to the memory of Julian Dixon who was a member of this 
Committee, a senior member of this Committee, who advised me 
quite a bit.
    As you know, I said it on the floor, and I will repeat it 
one more time. I became Ranking Member of this Subcommittee 
without having served on it before. I came to it the first time 
as ranking member last time, so I had to turn to Mr. Mollohan, 
who had been Chairman, and Mr. Dixon for a lot of help.
    And I established a great relationship with Harold Rogers, 
and I am looking forward to the same kind of relationship with 
you.
    I assure you that I am usually here on time. [Laughter.]
    This is unique, and I wanted to congratulate and to welcome 
our guests, and to tell you that we worked very closely last 
year, and we intend to try to help you in any way that we can.
    Thank you.
    Mr. Wolf. Thank you.
    Judge Heyburn. As I said, I want to recognize two 
individuals who represent important parts of the judiciary 
family. The first is Ralph Mecham, who is the Director of the 
Administrative Office.
    Mr. Mecham. Thank you, Chairman Wolf and members of the 
Committee. It is an honor for me to be here for the 17th time 
before the Subcommittee and twice before the legendary John 
Runey, and then starting in 1986 with Mr. Smith, and each 
Chairman thereafter.
    Along with being director of the Administrative Office, I 
am also a member of the Executive Committee of the Judicial 
Conference of the United States, which is the policymaking 
entity for the judiciary, and I will be honored to serve on 
Judge Smith's board at the Federal Judicial Center.
    It is a pleasure to be with you.
    And Mrs. Roybal-Allard, I look forward to working with you. 
I tried in a feeble way to help your father get the building 
built in Los Angeles for the courts and others, and was happy 
to work with him, he was very effective.
    I will stop at that point, Mr. Chairman.
    Judge Heyburn. And next I would like to recognize Judge 
Fern Smith, who is the Director of the Federal Judicial Center.
    Judge Smith. Mr. Wolf, members of the Committee, good 
morning. I do not have Director Mecham's long history. This is 
my second appearance, so Mr. Kennedy, I am not far ahead of the 
curve of you as far as this particular duty is concerned, but I 
consider it a privilege, both as the Director of the Federal 
Judicial Center, and also as an active District Court Judge for 
San Francisco.
    I know that when I say to counsel who appear before me, 
counsel, I have read your papers, I hope they understand that 
it means there are certain things I do not want to hear again.
    I heard you say----
    Mr. Wolf. No, you are right.
    Judge Smith [continuing]. I read your reports, so if I 
could then, with your permission, just take two minutes to give 
a brief survey, maybe call it Federal Judicial Center 101, just 
to highlight the general things that we do before we get into 
the detail.
    As I think you all know, the Center is the Federal Court's 
agency for education of judges and supporting personnel, and 
the bulk of our appropriation is spent for that purpose.
    We also do a great deal of research analysis, primarily for 
Committees of the Judicial Conference, case management, 
judicial procedures, various issues like that.
    We are probably best known for our orientation of new 
judges, but we do a lot of other things that are becoming 
increasingly as important. And I would hope that the record 
would reflect that. And I know that the questions and answers 
will do that.
    But just as a couple of brief illustrations, in the last 
few weeks, we have presented an orientation seminar for 
magistrate judges, we have broadcast on the Federal Judicial 
Television Network, an interactive program for United States 
probation officers on the special problems of white collar 
offenders.
    We have put the last touches on a manual for judges on new 
technologies in the courts.
    We have conducted a video conference orientation seminar 
for training specialists in the courts, and we have begun to 
activate a contingency plan for educating judges and support 
staff about the new bankruptcy law which is still in the works 
we understand, but we want to be ready so that judges will be 
ahead of the curve when that happens.
    We have emphasized, in the last few years, our shift from 
traditional educational methods to distance learning, 
technology-oriented learning, and we are going to continue to 
do that without losing sight of how incredibly important face-
to-face learning and idea exchange is for federal judges.
    And finally, an area that consumes virtually almost none of 
our appropriation but is taking an increasingly important place 
in our agenda is providing assistance to emerging democracies 
who are interested in stabilizing the rule of law in their own 
countries and in trying to train their judges so that they too 
will have independent judiciaries and can take their place in a 
way in which they are anxious to do.
    One example is the center we provided to the Puerto Ricans, 
the Center for Administration of Latin-American Justice, and 
that center is building on Puerto Rico's tradition of training 
Latin-American judges, prosecutors and defenders about the 
adversary system.
    As countries throughout the Latin-American hemisphere try 
to adapt and do adapt to these new ways of doing things to have 
stronger judicial systems and a more stable rule of law, and so 
we think that is important.
    As I say, we spend virtually none of our appropriation but 
put a great deal of heart and soul into it, and will continue 
to work in those areas.
    We have also worked with many countries in Africa, Asia, et 
cetera.
    I will stop then. I know that our full statement goes into 
this in detail. Thank you for your courtesy in giving me these 
few minutes.
    [Written statement of Judge Smith follows:]

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    Mr. Wolf. Thank you.
    Judge Heyburn. Congressman, I just want to make a few 
bullet point comments, if you will, about our requests and 
about some of the commitments that we think are important and a 
couple of our needs, which we want to highlight.
    First of all, I want to thank the Committee for the 
appropriation for 2001. We were facing a very difficult 
situation, particularly along the southwest border, and this 
Committee and the Congress as a whole responded with the 
resources that we needed to do the job, and for that I want to 
thank you.
    For the most part, the request this year is really a 
continuation request, a status quo request, except for a few 
outstanding examples.
    But 75 or 80 percent of our request is really inflation in 
terms of people, buildings, work load, expenses that we really 
cannot control, as is so much of our budget. And that is what 
we are asking for.
    Whether it is the need of new probation officers to 
supervise the thousands of new persons who are on supervised 
release, or whether it is new federal defenders to represent 
the thousands of new indigent defendants that are being 
indicted each year, those are the kind of things we are talking 
about.
    Another thing I want to highlight is our commitment to 
spending the funds which you give us, spending those funds 
wisely. We spend a lot of time and effort to make sure that the 
money we receive is spent wisely, that the money we ask for is 
needed.
    We have developed staffing formulas over the years that 
help us determine where the resources go. As a matter of fact, 
I am sure you noticed that although we are requesting about 220 
new judicial employees--this is over the entire judiciary in 
this budget only 220--260 of those are probation and pretrial 
officers. We are actually reducing the number of employees in 
bankruptcy courts and courts of appeal.
    So our formulas that we use do not always just increase the 
number, they also decrease the number when the work load or 
other factors require it.
    Three main issues that we think are on the table which I 
believe should be of interest to you, some of which you have 
some direct control over, and others just indirectly affect the 
work judiciary and your appropriation.
    First of all, we are asking for, and this is a significant 
increase although in dollar amounts, it is not a large amount, 
about $35 million, but we believe that the panel attorney rates 
for defenders needs to be increased.
    Fifteen years ago, in 1986, the Congress authorized the $75 
in court and out of court for panel attorneys. These are 
private attorneys who defend indigent defendants.
    And at the same time, Congress authorized a yearly cost of 
living increase for those attorneys. The problem is that since 
that time, Congress has never funded those COLAs and, as a 
matter of fact, has not funded even sufficient funds to allow 
every district to pay those panel attorneys $75 an hour.
    A lot has changed in 15 years. For one thing that has 
changed is that many, many more of the people who are indicted 
are indigent and requiring some sort of federal defense, 
whether it is a federal defender, someone who is on the actual 
payroll, or a panel attorney.
    We are always going to need panel attorneys because in a 
multi-defendant case, a federal defender cannot defend 
everybody. There would be a conflict of interest.
    And we are getting to a situation and it really, it is a 
fascinating dynamic, and it varies from state to state. But we 
are getting to a situation where the $75 an hour is just not 
sufficient in many, many areas to get the kind of competent 
counsel that we need to represent these defendants.
    And the results of less than adequate counsel can be felt 
throughout the system. Cases that take longer, mistakes during 
trial that have to be dealt with by courts of appeals, all 
kinds of problems. And we think that this, a dramatic step can 
be taken by increasing the amount which we can pay these panel 
attorneys.
    Now we are asking for $113 an hour. That is not even close 
to what these people get in, you know, the private sector. But 
we think it is enough, and our judgment is in the 113 is just 
the extrapolation of the cost of living from 1986 to the 
present.
    We think that is enough to get the kind of quality 
representation that we think a justice system that is the best 
in the world deserves to provide.
    And again the cost of it this year is $35 million on an 
annualized basis. It is probably $60 million, something like 
that, which is a significant amount in the defender budget, I 
must admit. In the overall budget, of course it is not a large 
amount.
    Number two. Catch up COLA for judges. We are asking for 9.6 
percent. There has been a lot of discussion about this and the 
chief justice has been in the forefront of explaining that if 
we are going to maintain over the years the quality, the high 
quality of the judiciary that we now have, we need to have not 
just the prestige of the job, but also a salary that is 
commensurate to it.
    I know there are lots of issued involved, obviously the 
linkage between congressional and judicial pay, but as you 
know, Chairman Wolf, there is also a linkage with the Senior 
Executive Service and how we are in the process of creating a 
very difficult situation in attracting the kind of 
qualitypeople we need in the Executive Branch, and perhaps your own 
staffs, because judicial salaries, congressional salaries effectively 
put a lid on what we can pay these highly qualified people.
    Finally, the issue of judges. I know that usually and 
traditionally, this Committee is not responsible for 
authorizing judges. Somehow, one way or another, over the last 
couple of years, it seems to have been through the repository 
for that kind of action.
    And I wanted to mention it because the need for additional 
judges is significant. Of course it affects, to a small degree, 
the appropriation that we ultimately would receive, but 
particularly with regard to the Southwest Border, though you 
were terrific last year in giving us all the resources we could 
possibly ask for for the Southwest Border, except for one 
resource, and that is a resource that you could not control and 
which really creates a bottleneck, and that is all the 
probation officers in the world will not help the fact that 
there are just not enough judicial resources along the 
Southwest Border.
    In California, Southern California, that district, there 
are I believe there are eight vacancies in Southern California. 
There are overall in Southwest along the Southwest Border 
States, there have been requests for authorization of, last 
year, of 22 new judgeships. Only four were authorized, so we 
have 18 unauthorized judgeships that our formula show we need 
along the Southwest Border, and we will show this video in a 
second.
    And I think you will see why the judgeships are so 
important.
    And then eight unfilled positions in California. So it 
creates a crisis situation that no amount of money that you 
could appropriate could really solve.
    And another part of the whole puzzle, it is unusual for one 
branch of government to come in and ask for additional 
resources for another branch.
    But that is exactly what we have done with regard to the 
Marshal Service and the Bureau of Prisons, because again you 
could appoint the new judges.
    But if there are not enough marshals to make sure the whole 
situation is safe, if there are not enough facilities to house 
1.6 million folks were arrested along the border; only a small 
portion of those of course were dealt with by the federal 
system, but it is a logistical and administrative nightmare 
there, and we are trying to do our part.
    But we can not do it without the resources and also without 
the help of others.
    So that is really the three or four main things that I 
wanted to tell you. I hope in the course of our testimony, you 
know, we do not want--sometimes these budget hearings get down 
to talking about a million dollars here and a million dollars 
here, and budget gimmicks, and auditing techniques, but I hope 
you will come to learn the real face of the Judiciary, which is 
so important; how all the judges out there are working so hard 
to enforce the laws; the probation officers who use all their 
expertise to try to help people not go back to prison, to get 
off drugs, to make a better life not just for themselves but 
for their families.
    You know, the worst thing is a Federal Judge that I think 
we have to do is to sentence someone to prison who has a 
family. You know if someone makes an individual mistake and 
they know it is a mistake, they have to pay for it themselves. 
But when you have to send someone to prison because you have no 
alternative and you know how it is going to affect a family, it 
is just a terrible feeling.
    You hope, sometimes you wish there was an alternative. We 
have these probation officers and others who work with these 
folks to try to help them resurrect their life and we are 
asking for the resources to help them continue to do their job.
    I look forward to working with you. Our philosophy is also 
one of bipartisanship. We know we have to deal with everybody. 
We have had a very good relationship with Mr. Serrano. I view 
it as my job to answer your questions directly and to the point 
and give you the information that you need to make the 
decisions that you have to make.
    I did want to say, you asked a question at the outset about 
how we deal with OMB. By the statutes which Congress has 
passed--and this makes sense when you think about it--we are 
required to submit our budget request to the Office of 
Management and Budget for inclusion in the Executive budget.
    The statute which Congress passed says that OMB must pass 
along our budget request without change--which makes sense. We 
are an independent Branch. We are not the Agriculture 
Department.
    In fact, we do not have an opportunity to go in with the 
Director of Management and Budget and discuss our budget 
request.
    We are not part of the Executive Branch. We are an 
independent Branch. So they do not analyze our budget and then 
pass along their judgment to you.
    Of course if they did have a judgment about it, I assume 
they are perfectly free to come here and give you their 
opinion. But our belief is that as an independent Branch, and 
according to the statute, they are required to pass along our 
budget unchanged.
    Now occasionally over the past few years we have had some, 
I would say, pretty vociferous disagreements with OMB because 
they have used some what we believe to be perhaps unlawful 
budgetary gimmicks imposing what they call a negative 
allowance, sort of an asterisk in the budget, which suggests 
that our requests, or perhaps the Legislative requests, should 
be reduced somehow.
    But they do that as an arbitrary matter without analyzing 
it the way they do the Justice Department request, or the 
Agriculture or Commerce request.
    So that is our relationship with OMB. I would be glad to 
explain it further if you would like.
    But having said all that, we do have a video which explains 
some of what----
    [The written statement of Judge Heyburn follows:]

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    Judge Mecham. Chairman Wolf, could I just underline two 
things that the chairman, Judge Heyburn, said?
    First with respect to OMB, we met with Mr. Daniels because 
they control our building budget. And we wanted to get a little 
support from them on buildings. And because the money for the 
buildings goes through the GSA. It was important for us 
therefore to meet with him, as we had met with his 
predecessors, to talk about buildings.
    We do not have an opportunity to justify our budget, nor 
should we seek one, with OMB because GSA is responsible for 
that. But it does put us in a very awkward position.
    By statute I am supposed to provide the physical needs for 
the Judiciary but I cannot do it without going through GSA. It 
is not a very good situation.
    The second thing is with respect to the Southwest Border. 
Twenty-seven percent of the criminal cases in the United States 
now are handled by the five courts on the border with Mexico.
    The conditions along there are truly deplorable, as Judge 
Heyburn said. With respect to San Diego, they have eight judges 
in the Southern District of California. They need eight more 
because of their tremendous workload.
    Now through your good auspices here in this Committee we 
got some relief in Texas Western, Texas Southern, New Mexico, 
and Arizona--not enough, but some. There was no relief given in 
the Southern District of California. They need judgeships and 
they need them desperately.
    [The written statements of Judge Mecham and Piersol 
follow:]

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Mr. Wolf. Before we get to the film, and it is a good 
film--I saw it; I looked at it to make sure there was nothing--
--
    [Laughter.]
    Mr. Wolf [continuing]. Obviously you would not, but I just 
wanted to see it first before it was shown. So we will look at 
it.
    But before we do, does not the Attorney General have some 
sort of moral obligation to advocate for you? Because so much 
of what takes place in your courtroom results or comes about as 
a result of the Justice Department, the Congress, and others?
    It would seem to me that if you are not at the table, 
either through an official way but an unofficial way, because 
the Attorney General is involved in the selection of the 
judges; they obviously do the vetting of the judges as the time 
comes through, so it would seem to me that you would also want 
to meet with the Attorney General to urge him and the Justice 
Department--who I know you are independent of but there is a 
meshing there--to be somewhat of an advocate.
    Because you are at a disadvantage. There will be other 
forces up here. You mentioned Agriculture. The wool growers 
will be here, and the cotton people will be here, and the dairy 
people will be here. The Secretary of Agriculture will be 
meeting with them.
    There really will not be an advocate in the sense with 
regard to your situation. My sense is that the Justice 
Department, while not formally--and some of the tone of the 
questions are not, I mean I would perhaps be more adversarial 
in the sense of eliciting from the Executive Branch, and I 
respect the separations--but it does seem to me that the 
Justice Department and the Attorney General does have some 
involvement in the efficiency of the courts and therefore would 
be certainly an advocate or a champion, or at least someone who 
would speak up at that time.
    That is just a feeling I have; perhaps it is a question for 
when the Attorney General comes before the Committee which we 
will ask. But do you have any thoughts on that?
    Judge Heyburn. Yes. Of course I think it is generally true 
that the Attorney General and Attorneys General over the years 
have been advocates for and supporters of the Judiciary. After 
all, they are our biggest ``customer'' if you will, and vice 
versa.
    But on the other hand, they are focused on presenting their 
case for so many additional crime programs, and so many 
additional United States Attorneys to you, and that is the 
unique nature of our Federal system, that indeed, as Alexander 
Hamilton said so many years ago, the Judiciary is a powerful 
Branch but it is the least dangerous Branch.
    We do not have the ability to lobby. You know, we come to 
you with a request that we believe is reasonable. And we come 
as a strong and independent Branch, but weak.
    As to you, we rely upon you for the resources. We rely upon 
the Executive Branch to carry out the lawful orders that we 
enter.
    So without the cooperation of both the Executive and 
Legislative Branches, then our power is weakened. And it is a 
mutual relationship and understanding that we have.
    But, no, the Justice Department will not come here and 
lobby for our request. If you ask them, I think they would 
acknowledge that without the Judicial resources on the 
Southwest Border they could have 10,000 more United States 
Attorneys and 10,000 INS Agents, and there is going to be a 
bottleneck.
    Because at some point in time, Judicial officers need to 
make decisions that uphold the rights. I mean everybody has 
rights, and those people that are arrested on the border have 
rights. It is our job to make sure that whatever happens is 
done in accordance with the law.
    And so we do come to you. Here we are. We are presenting 
our case, and no one else is going to present it for us. We do 
not have a lobbying group that has an interest, except I 
believe that every citizen in our country has an interest in a 
strong and independent Judiciary.
    Judge Mecham. Chairman Wolf?
    Mr. Wolf. Yes.
    Judge Mecham. I certainly concur with what Judge Heyburn 
has said. Basically there is also sort of a conflict. They are 
competing for the same funds out of the same budget, too.
    So they come up here and we would probably be urging at 
times--you might divert a little money from them to us, and the 
other way around. It is conceivable, at least.
    But more to the point, we meet periodically with the 
Attorney General. When I say ``we,'' I mean the executive 
committee of the Judicial Conference of the United States.
    Last week we met with Mr. Ashcroft for the first time. We 
had a cordial meeting. We talked about various issues in which 
we were interested. He brought some in which he is interested.
    We met with his predecessor, Attorney General Reno, and 
those before.
    Although relationships are cordial, I have yet to see an 
Attorney General take a strong stand in favor of any particular 
segment of the Judiciary's budget. Although his charging 
policies affect what we do, if he decides he is going to follow 
certain charging policies say as he is now talking about where 
any crime dealing with a gun you can go into a Federal court, 
that is going to substantially increase the work of Judge 
Heyburn and the other judges of this country.
    We are not faulting him for that, but that is going to be a 
big cost. We are going to have to come in and seek more money 
because of that charging policy.
    He also stressed this with us. He is going to go very hard 
on Project EXILE, which you have down in Richmond south of you. 
He is also going to be very tough on drugs.
    I do not fault that. The thing of it is, it is going to add 
work to the Federal courts. I can guarantee that.
    The other thing is that Judge Heyburn is more of a 
statesman than probably most Attorneys General. His statement 
today calls for more help for U.S. Marshals. The reason is very 
simple. They are not giving us enough help to protect courts 
and judges.
    They have a study saying they need 2000 more marshals than 
they have. We see it all over this country. They froze 600 
positions and never filled them.
    So we do support some parts of the Justice Department's 
budget. We hope you will be more generous than OMB is or the 
Justice Department is with the Marshals Program.
    Then lastly, back in 1983 a treaty was struck between Chief 
Justice Burger and the Attorney General William French Smith 
because OMB and GSA were not providing security for the courts.
    They would not give the Federal Protective Service enough 
money. So the deal was struck and we went after money in our 
budget for a Court Security Officer Program.
    That Security Officer Program has grown since I have been 
Director in '85 to now from about $25 million to $206 million. 
We have 3,347 court security officers, and we turn the money 
over to the Justice Department for the Marshals Service who 
then run the Court Security Officer Program.
    So we have a clear community of interest there. But I do 
not see a tremendous amount of support from the Justice 
Department over the years for the things we do in that area.
    Mr. Wolf. Well the committee will do everything it possibly 
can. There was a man named Dietrich Von Hofer who 51 years ago 
was killed by the Nazis in a prison camp in Flosenberg Prison 
in Nazi Germany. He had the comment called ``Cheap Grace.''
    It is really somewhat Cheap Grace to be asking for 
increased law enforcement and increased arrests here and there 
and then not have the ability to deal with it at the other end. 
It is like a large truck with a very large trailer pulling 
equipment and then having a little Briggs & Stratton lawn mower 
motor inside. It just does not work.
    I was a probation officer after I got out of college for a 
period of time in the courts of the City of Philadelphia. We 
dealt directly with the jails, if you will, the prisons, if you 
will. So they go together and my sense is that if the Attorney 
General and the Justice Department is actively asking for 
increased enforcement and punishment and all those things, 
which in most cases I would probably agree with--some I would, 
some maybe not; it depends on how they come out with it--but it 
does seem to me that you really do need to take care of the 
Judiciary because you will then have cases thrown out. You will 
then have people who can appeal because of the denial and 
therefore they will be back out on the streets and doing the 
crime that those very people are trying to stop.
    So we have two gloves. If we are out in the winter, just 
one glove is not enough. It does seem that it does go together. 
And I will ask the Attorney General at that time if he does not 
feel somewhat of a burden and an obligation, although he does 
not have the Constitutional responsibility, to at least make 
sure that we can have the efficient courts so that we can do 
this. That we do not lose a case where somebody who is a felon 
gets out and commits that crime again simply because the courts 
did not have the ability to do what they had to do, and 
therefore there is more crime.
    So we could talk about this forever, but I do think there 
is somewhat of a moral responsibility on the part of the 
Attorney General on this. But let's show your video.
    Judge Heyburn. Before we do that, I know it is in my 
statement but I just want to make sure I personally introduce 
you to Judge Larry Piersol who is on our budget committee and 
is a District Judge from South Dakota who is with me.
    Mr. Wolf. No relation to the pitcher, right?
    Judge Piersol. None. [Laughter.]
    Judge Heyburn. Okay, let's see if we can cue-up that video. 
This runs 15 minutes.
    [A video is shown and much of the dialogue is as follows:]
    Video. Our courthouses are not just a matter of the safety 
of judges or the safety of staff, but it is also a matter of 
the public.
    Beginning in 1994 Congress created the Southwest Border 
Initiative pouring millions' worth of enhanced Federal law 
enforcement resources into the states along the U.S.-Mexico 
Border.
    The initiative was designed to stem the flood of drugs and 
illegal immigration streaming into the United States. Now more 
than six years later the army of new Federal agents has indeed 
set arrest rates soaring. However, the court system in which 
those defendants must be tried and sentenced is in serious 
jeopardy.
    To understand the magnitude of the problem, you have to 
understand that it is a challenge of big numbers and impossible 
geography. While most of the trafficking in drugs and illegal 
aliens along the U.S.-Mexico Border come through major ports of 
entry such as this one in El Paso, Texas, most of the border 
looks like this. Hundreds of miles of sagebrush and dust, 
perfect terrain to let drug smugglers and illegal aliens slip 
undetected into the United States.
    We apprehend at the Las Cruces Station approximately 600 to 
800 a month, with a majority--I would say between 70 and 80 
percent--happening right here at this particular checkpoint.
    We see a wide range of smuggling methods or techniques. The 
smugglers get very creative. They have connections with auto 
body shops, upholstering shops, different industries where they 
can use that technical expertise to try to bring things in. We 
will see very sophisticated compartments. We will see gas tanks 
that have been partitioned off. We will see gas tanks where the 
fuel gauge works but it has actually been partitioned off and 
there is dope in that.
    You got something there? Show it to me! Go on, get it out 
of there. Show it to me! You think you got something there? 
Show it to me. Oh, good boy. Good boy.
    What had just happened is as we were coming down to the 
lanes, going through a primary, Barry got an odor of possibly a 
narcotic and started going over a couple of lanes, along with 
the wind current, got to the vehicle and then he alerted from 
there the gas tank and rear tire area.
    Now we take him out of the vehicle and bring him to a 
security office where we can take a closer look at the vehicle 
to find where it is located.
    These packages here came out of the gas tank, all of these 
here. The bumper had four packages, which are these four 
packages. Secondarily, we climbed under the vehicle and looked 
under the bumper and you could actually see the wrappings of 
the material, the plastic sticking out under the bumper.
    Every day seems to be a little different on the quantity. 
Some days we have more and some days we have less, but it 
always seems to be basically the flow of drugs doesn't stop 
around here. That's all we see. It is continuous.
    In sleepy courthouses from Southern California to South 
Texas, like this one in Las Cruces, New Mexico, has been 
transformed into assembly lines of justice where criminal 
defendants are brought in by the busload and packed into 
crowded courtrooms, while overwhelmed judges and court staff 
process them through a system that has been stretched to the 
breaking point.
    We see criminal aliens, and have been seeing them for 
awhile, criminal aliens that have serious criminal records that 
we have been prosecuting for the past few years, that we 
continue to prosecute. I think every indication is that one of 
the reasons why there has been such a dramatic drop in the 
crime in this county and this district has been that a lot of 
the people who are committing those crimes are locked up for 
longer and longer periods of time. That is true also of the 
criminal aliens as it is with other specifics, but I think the 
greater issue is just the sheer number of cases, period, that 
have to be handled.
    They are entitled to have their lawyers. They are entitled 
to go to trial. There are plea negotiations. There are motions. 
There are just court appearances. All that depends primarily on 
the court. I think our judges have done a wonderful job of 
being able to continue to handle the caseload, but they are 
doing it--you know, you can cut the fat at a certain point, but 
there comes a point in time where you have cut all the fat that 
you can cut, and then you start to cut into the muscles, and 
then you cut into the bone.
    I hope that those that are watching this program realize 
that we have been operating under these increases since 1994. 
What is so frustrating to us is that there does not seem to be 
any long-term solution for our court where we really, because 
of our position next to the border, the cases are not going to 
go down. The cases are going to be there.
    If there is a commitment to make the border safe and secure 
and not have drugs coming into our country, that is a long-term 
problem. We do not have the solutions to that. But since we are 
here, since we are on the border, I think we have an obligation 
to handle the cases that are brought to us.
    And part of the problem has been there has been an increase 
in law enforcement personnel on the border in the last five 
years, over a thousand positions, new positions created. There 
has been no increase in District Judgeships. And in fact a 
decrease.
    Many of the Federal agencies in El Paso have built up their 
resources. When I came here in 1993 there were 30 DEA agents. 
Now there are approximately 100. When I came here, there were 
approximately 50 FBI agents. Now there are 150 FBI agents.
    Most of the agencies in El Paso have doubled or tripled in 
size, including the United States Border Patrol. We have 2000 
Border Patrol Agents in the El Paso Sector. They produce a 
large number of cases with prisoners and bodies, and that is 
what the United States Marshals Service ends up with. We end up 
with the actual bodies.
    When I came here in 1993 we had 300 prisoners on an average 
day's count. Now we have 1300 prisoners on the average day's 
count, and we have roughly the same number of Deputy United 
States Marshals that I had in 1993. We have the same number of 
vehicles. As a matter of fact, I have some of the same vehicles 
that I had when I came here in 1993.
    It is normal. The first day I come, I pick juries. This 
week I picked three juries. There have been weeks when I have 
picked seven juries in a day. Then, we start trying the cases. 
Then I have to do the pleas and sentences after hours because I 
don't want to take the jury's time.
    So it is normal that we normally start court before 8:00 
o'clock and we normally go in the evenings until 7:30, 8:30, 
9:30. Tuesday we went until 10:00, and Wednesday we went till 
9:30.
    You work people that hard--and I do not know any other 
option--but you work people that hard, you work the defense 
lawyers, the prosecutors, you see it in their faces. You see it 
in the way they carry themselves. They are exhausted.
    The Marshals, I really--watching them last night, I really 
wondered where they were going to find the energy to make 
another late night run last night, and an early-morning pickup 
this morning.
    A lot of times this means we go to work at four o'clock in 
the morning and get home close to midnight. That happens on a 
fairly regular basis.
    It takes its toll on people, the pace. I see people cutting 
lunch short, skipping lunch, coming in very early, staying very 
late at night. You know, these are people who have families. 
They need to be with their family. They have other activities 
with children, and yet their devotion to their duty takes its 
toll on other aspects of their life.
    Five out of our ninety-four districts are handling more 
than a quarter of our criminal load. And when you have 
thosekinds of numbers where roughly 7 percent of our districts are 
handling a quarter of the load, there is definitely a problem.
    As far as space components, resources, I am afraid that 
unless they get the resources to us now, that any efforts will 
be too late.
    The bottom line is that our need for additional district 
court judges is our most crucial need. Because the way the 
system operates, the funding, the courthouse needs, all of 
that, are driven by the number of authorized district 
judgeships.
    So the first and the most important thing you have to 
address is how many authorized district judgeships you have. If 
we can get our number of authorized judgeships to the level 
where we need it, then the rest of what we need by way of 
additional staffing and space will follow.
    All of the courts have been trying to solve the problem, 
and it really isn't our problem.
    It really is a problem that we do not have the resources to 
handle, but we are so terrified about dismissing a case for 
Speedy Trial Act, because once we do that, it is Johnny bar the 
door.
    I mean, there will not be one defendant. Why would a 
defendant willingly take five, six, three years, two-and-a-half 
years, if he or she can earn a dismissal? I mean, if they had 
the chance, a one-out-of-ten percent chance, they are going to 
go for that.
    And so that has been our problem, and I know that is what 
all of my colleagues on the other Border courts have dealt 
with, is thinking we have got to get these numbers through.
    Unfortunately, I think we have to come up with new ideas 
and ways of trying to move these cases along. I think justice 
suffers because we are not able to give each case the attention 
it deserves.
    We look to cut corners and ways to make things more 
efficient. And I just feel uncomfortable about how we are 
forced to do things. And then you have Congress and others 
looking at us and saying, well, why are things being done this 
way? That is not the way we intended for things to be done.
    Unfortunately, if we are going to be able to keep up with 
all the cases that we have, we have to find ways of cutting 
corners and taking care of these cases.
    And I think all of us feel uncomfortable with doing that. 
Because once you start cutting corners and finding ways to move 
cases along, it is real difficult to go back to the way it used 
to be and the way it should be. But that is the only way we are 
able to keep up with the tremendous amount of cases that are 
being filed on a weekly basis, on a monthly basis, in each of 
our courts.
    If we take shortcuts along the Southwest Border, the 
appeals from those shortcuts, the defendant who feels that his 
rights have been impaired, appeals that case to the Court of 
Appeals for the Fifth Circuit, for example, and if we accept 
some shortcut that impairs the Constitutional Principles that 
are involved, that then becomes the law not just for the 
Southwest Border, but it becomes the law throughout the 
Circuit. It is the law in Dallas. It is the law in Shreveport. 
And it is the law in Jackson, Mississippi.
    So I think the greatest challenge that this entire problem 
presents is the challenge of maintaining the Constitutional 
principles that are involved in the face of this enormous 
volume and the enormous demands on our personnel and our 
resources that this volume presents.
    So you cannot have a rule of law for the Southwest border 
than is different from the rule of law that obtains elsewhere 
in the country. Ultimately, it will be the same. So that every 
citizen of this country has a stake in what is happening along 
the Southwest border. They have a stake not only because the 
drugs that are coming across that border are destined for their 
city and for their children, but they have a stake also because 
the rule of law that emerges from this is going to be the rule 
of law for them as well as for the border. So every citizen in 
this country has a stake in what is happening on the Southwest 
border, a vital stake.
    Video. With arrest rates reaching ever higher levels, the 
crisis in the Southwest border deepens with each passing day. 
Outmanned and underfunded, the judges are in a desperate race 
against time to keep up with overflowing dockets and hold 
together a system that is fraying at the edges.
    With one eye on Washington, their only hope for desperately 
needed additional resources, and one eye on the clock, they are 
keenly aware that time is running out.
    For the Federal Judiciary, this is Dana Cunningham in 
Washington.
    Judge Heyburn. I think it speaks for itself. I do want to 
correct one slight misstatement I made, and that is that there 
are 18 requests for new judgeships along the Southwest border 
that have not been acted upon. There are 8 vacancies that have 
not been filled, not in California, but along the Southwest 
border.
    So it is a total of 26 judgeships that one way or another 
are either not authorized or not filled, and that is really the 
essence of the problem as we see it right now.
    So thank you for taking the time to look at that. I hope it 
was informative for you. Myself and everyone else here would be 
glad to respond to any questions that you might have. 
Congressman Latham, welcome, and others.
    Mr. Latham. Good to see you.
    Mr. Wolf. I thank you very much. I am going to recognize 
Mr. Serrano.
    And just the way that we have tried to do this on the 
Transportation Committee was as follows. We treat everyone 
fairly.
    One, generally recognize members as they come in with some 
obvious exceptions. Secondly, I will go from majority and 
minority back and back and forth.
    And thirdly, I have never in the last six years, we have 
never limited anyone to five minutes. If somebody feels 
passionately about an issue and wants to talk for, you know, we 
were just asked obviously if it goes on beyond maybe take a 
break and give it to somebody else. But nobody will be cut off 
in the line of questioning, because I know people feel 
passionate about issues that I sometimes and Mr. Cramer welcome 
that here. So with that, I will recognize Mr. Serrano first.
    Mr. Serrano. Thank you, Mr. Chairman. Let me first say that 
I will be submitting some questions since I have quite a few 
and I do not want to take that much time up.
    Just a clarification. You said that 27 percent of all the 
cases----
    Judge Heyburn. Criminal cases.
    Mr. Serrano. Okay. Are handled by?
    Judge Mecham. Are filed in those five courts. It was 
restated----
    Mr. Serrano. Now does criminal include crossing the border?
    Judge Mecham. If they committed a crime.
    Mr. Serrano. If they commit a crime. So that is not, 27 
percent is not people who are coming into----
    Judge Heyburn. Who are actually tried.
    Mr. Serrano. I am asking is quote/unquote ``illegal 
immigration'' part of the 27 percent?
    Judge Heyburn. Well this is 27 percent of the federal 
felony cases filed across the United States are filed in those 
five districts.
    Now there may be many people who are arrested who are not 
charged with a federal crime for one reason or another just 
because of the numbers, they are dealt with through 
Immigration. There could be lots of ways that they could be----
    Mr. Serrano. But my question is obviously if a person is 
caught with drugs, that is a federal crime and that is part of 
the 27 percent.
    Judge Heyburn. Yes.
    Mr. Serrano. But is crossing the border itself a criminal 
issue being handled here? Or is it Immigration just takes you 
and sends you back?
    Judge Heyburn. I think the answer to that is that yes, it 
is a criminal offense. But I think the other answer is that 
typically simply crossing the border does not result in federal 
charges that are handled in federal court.
    Mr. Serrano. So my question is if that 27 percent includes 
just crossing the border?
    Judge Heyburn. No. There are approximately 1.6 million 
individuals who are arrested on the border for all kinds of 
violations, a lot of which is illegal entry. Approximately 1 
percent of those are charged with federal crimes.
    So I think that gives you some idea of how the system is 
triaging, if you will, this massive influx of, some of it low-
level crime, some of it very high-level crime. But that is how 
we are dealing with it.
    Mr. Serrano. And I would just like to know from all of you, 
obviously we see the problem here and the problems that exist 
throughout the nation. But what is the process that you use to 
determine that you need additional judgeships?
    And secondly, throughout the testimony I have seen the 
phrases ``weighted caseload'' and ``judicial emergency''. Could 
you tell us what they are?
    Judge Heyburn. Yes, I would be glad to. We have a formula 
that we use to determine what the caseload is of any given 
district. And we start out with the number of cases. But as you 
I hope can appreciate, a simple Immigration case takes up a lot 
less time than a massive securities case or a 20-person drug 
conspiracy.
    So we have developed formulas based on interviews with 
judges and probation officers and others in the system that we 
give a statistical weight to each case. We apply that to the 
particular caseload in a given district and we come out with a 
number.
    And, for instance, in a given district, the average for a 
judge may be 400 cases. But in one district, the weighted 
caseload might be 500 in another district because it is a 
totally different kind of case, the weighted caseload might be 
300. And it is our attempt statistically, and this is updated 
periodically. As a matter of fact, right now we are in the 
process of updating it again. It is an attempt to quantify the 
actual workload.
    Then the Judicial Conference has made a judgment as to what 
should be the average caseload of an individual judge and a 
weighted caseload limit above which we will ask for additional 
resources. That number happens to be I think 470.
    Judge Mecham. 430.
    Judge Heyburn. 430 for district judges. So once the average 
caseload of a district gets above 430, the responsible Judicial 
Conference Committees will look at that situation--that is an 
alert. And they will look at other factors to see whether there 
are any other factors which would suggest that they do not need 
additional resources for some reason or another--this is an 
aberration, a temporary situation.
    And then they will make the recommendation to the Judicial 
Conference either that we should request or not request 
additional judgeships.
    It is a process that probably takes nine months to a year 
to get to fruition and goes through probably two committees and 
plus a final vote of the Judicial Conference. And then of 
course we convey that recommendation to Congress, and usually 
there is a bill posted that will request the judgeships that 
the Judicial Conference has approved.
    I would be glad to go further. But it is quite an extensive 
process. It is primarily based on statistics and workload, but 
also there is some intuitive judgment there as to what is 
actually going on in a given district.
    Judge Mecham. Mr. Serrano, just to give you an idea, the 
Southern District of California we have been talking a lot 
about here, the average caseload of each of those 8 judges is 
over 1,000. And the typical caseload for a full-time judge is 
430 before you can justify getting a new judge. That is one of 
the reasons they need 8 judgeships to get them up to an ability 
to deal with the workload.
    Judge Heyburn. They have 8 judges now, and we have 
requested an additional 8.
    Mr. Serrano. Now let me ask you. We all know and we have 
mentioned that since 1990 the Judiciary Committee has not 
passed a bill adding judgeships. And so we added some in the 
Appropriations Committee. Did that meet the needs at that time 
that you were asking for?
    Judge Heyburn. Well, as I said, it did not meet----
    Mr. Serrano. Did it fall short?
    Judge Heyburn. It did not meet--it addressed some of the 
needs. Just looking at the Southwest border, we had requested 
22 new judgeships on the Southwest border, and 4 of those were 
filled by the latest bill.
    Over the entire country, I think the request was on the 
order of 54--61, excuse me, 61. And the latest bill approved 10 
I believe.
    Judge Mecham. We need 54 new nationally.
    Mr. Serrano. All right. Let me just clear something up. You 
keep talking about a number that has not been filled. I think 8 
was the number you mentioned.
    Judge Heyburn. There are two numbers that we need to look 
at. One is a request for a new judgeship which has notbeen 
authorized by Congress.
    Mr. Serrano. Right.
    Judge Heyburn. And that is what I was referring to on the 
Southwest border. We have requested 22 new judgeships last 
year. Four were authorized. So there are 18 that have not been 
authorized.
    And then there is what we call a vacancy where Congress has 
authorized the judgeship but it has not been filled. And along 
the Southwest border, there are 8 of those.
    Mr. Serrano. Well, what is the problem there?
    Judge Heyburn. Well, sometimes the Senate and the Executive 
branch cannot agree on who should be the next judge. It is not 
a process that we are involved in, although our position is of 
course that vacancies should be filled. And in fact, the 
Judicial Conference, that is our position.
    It is also now our position that where in fact the Judicial 
Conference believes that a vacancy exists and the caseload does 
not justify filling that position, then we have notified 
Congress or the Senate of that.
    So we are not just always in favor of more. We also advise 
the Senate when we believe the caseload, you know, the 
demographics of our country are changing. The Southwest is 
growing. There are other areas that are not growing, and we 
have I think the latest there are four districts where we have 
advised the Senate that they do not meet our numbers for the 
necessity of a new judgeship.
    Judge Mecham. Currently there are 94 vacancies in 
authorized judgeships that need to be filled. And I would guess 
there is at least one in the district of every one of you here 
that ought to be filled.
    Judge Heyburn. And that is on the high end of what would be 
an average vacancy. There are always vacancies, of course. But 
94 vacancies is on the very high end if you look over the last 
6 or 7 years.
    Mr. Serrano. I have one last question, Mr. Chairman, for 
this round. While I realize that honoraria in no way deals 
directly with the pay issue, it was discussed and included in 
the Senate bill last year. Has the Judicial Conference taken a 
position on honoraria?
    Judge Mecham. The Conference is against honoraria. You 
could have honorarias prior to 1989, but when the Congress 
determined that the judiciary should get a pay raise along with 
the members of Congress in the Ethics in Pay Act, they sort of 
took a pound of flesh from the judges. And you said you cannot 
get honoraria. You can augment your income by no more than 15 
percent. And senior judges have to work a certain amount of 
time before they can be eligible for a COLA.
    The only trouble is, during 4 of the years since then, 
during the '90s, Congress did not provide the COLAs that they 
were promised. The judges' pay went down the equivalent of 13 
percent net during that period of time. So they were 13 percent 
worse off now, as you are, too, by the way, because you are 
affected by the same thing.
    And so the promise has not been----
    Mr. Serrano. A great lobbying effort. [Laughter.]
    Judge Heyburn. We also advocate on behalf of the 
Legislative branch as well. [Laughter.]
    Mr. Serrano. So you still just want to deal with the issue 
through a COLA and pay increases and not any other way.
    Judge Heyburn. Yes.
    Mr. Serrano. Thank you, Mr. Chairman.
    Mr. Wolf. Thank you. Mr. Latham.
    Mr. Latham. Thank you, Mr. Chairman. And just as our first 
hearing of attendance, I want to tell you, I look forward to 
working with you and the Ranking Member and everybody on the 
Subcommittee. This is a great Subcommittee if you have not 
served on this before. It has such broad jurisdiction, and I 
look forward to working with you.
    I guess I have one question about the defender services 
appropriation for fiscal year 2002. And welcome. I appreciate 
seeing all of you again.
    It totals $521.5 million, or 22 percent increase over 
fiscal year 2001.
    Judge Heyburn. Right.
    Mr. Latham. Yet the workload or the increase in filings is 
only up 5.2 percent. You have over 20 percent. I know you want 
a pay increase for people you hire outside to come in up to $75 
up to $113, but that only amounts to about $35 million. Where 
is the rest of it?
    Judge Heyburn. The total request, about $35 million would 
be for the increase.
    Mr. Latham. Right.
    Judge Heyburn. About $23 million is for workload increases. 
That is, the additional representations. And last year we had a 
carryover balance in the defenders of about $11.8 million, 
which we are applying to 2001. So that is really part of our 
base.
    And in order to maintain the base, then it is sort of an 
artificial accounting matter. We need another $11.8 million. So 
in terms of the actual increases, there is really about--it is 
really about $75 million, about $35 million of which is the--
well, about $40 million of which is increase, pay increase, 
panel attorney increase or defender services, and roughly half 
again, about $35 million, is workload increases of various 
different kinds. So it is sort of split.
    Then the other, the $11 million is to restore what was 
carried over from the previous year that Congress did not need 
to appropriate. We had money left over.
    Mr. Latham. But it needs to be reappropriated?
    Judge Heyburn. Yes. And of course if for some reason our 
estimates would not turn out to be accurate and there was money 
remaining in that particular fund, a carryover as we call it, 
of course that reduces the appropriation. And we keep the staff 
pretty well advised in all our accounts.
    That happened last year, for instance, with juris fees that 
were about $9 million, $10 million less than we expected, and 
we applied some of that to various different accounts as 
authorized.
    Does that answer your question?
    Mr. Latham. Yes. Thank you.
    In previous cycles I have been supportive of the Judicial 
Conference's efforts to maximize the use of the most current 
technologies and the Judiciary Information and Technology Fund 
was established to manage the information technology program. I 
just wondered, can you give us any kind of an update or 
estimate, any kind of savings that you have realized by 
employing this fund, what the new technologies and as far as 
the efficiencies or whether it has been successful?
    Judge Heyburn. Yes. We think it has been 
tremendouslysuccessful. We have detailed a lot of it in the report, The 
Optimal Utilization of Judicial Resources.
    But whether you are talking about videoconferencing with 
prisoners' cases. We used videoconferencing on the Southwest 
border, electronic management of case files so you can have 
electronic filing of pleadings, and electronic access of cases 
cuts down the work of clerks.
    Bankruptcy noticing, electronic noticing in bankruptcy 
cases, which has saved probably millions and millions of 
dollars in these high volume type cases where you have hundreds 
of defendants or parties sometimes.
    The FJC Judicial Television Network where we have long-
distance learning and we have programming every week for 
judicial employees where they are able to improve theirselves 
and they do not have to travel long distances to obtain 
education on new computer programs or new financial issues or 
new benefit issues.
    We have got a law clerk information system set up on the 
Internet now so it reduced the time that the staff has to deal 
with the hundreds of applications we get every year for law 
clerk positions.
    Probation is using remote supervision technologies. And 
with the huge increase in the number of folks that are 
supervised by federal probation officers. More people--there 
are 129,000 persons who are now supervised by federal probation 
officers. That is more individuals than are in the federal 
prisons.
    Mr. Latham. How many are electronically monitored?
    Judge Heyburn. Personally, we use it all the time. It is a 
very, very valuable tool, you know, particular in a situation I 
mentioned before, where you have someone, you know, you maybe 
have a question about them, but they do not seem to have a 
dangerous past.
    They have a job. They have a family to support. The trial 
may be six months away, and, you know, you want them to be able 
to support their family. You do not want to let a dangerous 
person loose on society.
    And sometimes electronic monitoring is a good way of giving 
us that extra assurance we need that they can be out there and 
help their families and society will be safe, and it saves.
    You know, otherwise, they would be in a federal 
penitentiary, and it costs $7 a day for federal supervision and 
I think $60 or $70 a day to have them in a federal penitentiary 
or a state facility that we lease. So the cost savings are 
absolutely huge.
    Judge Piersol. If I could interject for a minute. In the 
Northern District of Iowa I think that they are using the next 
generation in their post-trial supervision where you can call 
up on a phone and there is a setup where they can monitor 
whether somebody, for instance, has been drinking or not, over 
the telephone.
    Now we do not have it yet in South Dakota, because it is 
expensive. But that is just the next level beyond the current 
monitoring which we are all using in pre- and post-trial 
supervision.
    Judge Mecham. Chairman Rogers shared your great interest in 
technology and he asked us to provide a term paper on the 
technology, which we were happy to provide him.
    Mr. Latham. Did he grade it for you too? [Laughter.]
    Judge Mecham. We hope we got an A. Well, if we are 
successful he will grade us. Hopefully it will be the final 
mark.
    Mr. Latham. Okay. And I will look at that. I appreciate it. 
I think you bring up a good point. Is there a big difference 
regionally in technology and the ability when you talk about 
videoconferencing and things that you are using, are there some 
parts of the country that do not have access to it, some do? Is 
that a problem?
    Judge Heyburn. I think the fair answer to that is that some 
parts of the country need it more than others. The caseload is 
such and the volume of the caseload and the repetitive nature 
of them is such that video and long-range technologies are more 
conducive to use in certain areas.
    Certainly in the larger cities where you have large prison 
populations, along the Southwest border. In Kentucky we use it 
some for videoconferencing involving prisoner cases from state 
prison so you do not have to bring a prisoner, use a U.S. 
Marshall all the way from a state facility to the federal 
courthouse.
    I do not know whether you have any in South Dakota. There 
may not be as much of a need for it.
    Judge Piersol. Well, the prison is right where I am. And 
frankly, if I am going to have a prisoner there, I am going to 
have him there in person. That is a personal choice that I 
make. But it is used in all sorts of other ways.
    I mean, we have not been talking about civil cases. Out 
where I am with all the distances there are, I often have 
lawyers from Chicago or New York City or maybe just from Rapid 
City, which is 350 miles from me but still in South Dakota. And 
I have arguments by telephone because it saves the clients 
money basically.
    That is done commonly. And we have some videoconferencing 
capability, but it is kind of limited with regard to that sort 
of thing. But I really do not need to see the lawyers for that 
kind of argument.
    But with just good telephone systems you can do a lot, and 
we are doing it.
    Judge Smith. Could I take that one step----
    Judge Heyburn. We have had also, because of the problem 
along the Southwest border, we have had a number of judges who 
have volunteered to take cases along the Southwest border. 
Because obviously the criminal cases become the priority. You 
have got to handle them or they are subject to dismissal 
because of speedy trial.
    So the judges there are overwhelmed by the criminal cases, 
and we have visiting judges that come in and do a lot of the 
civil cases.
    Some of the visiting judges, I know a couple of them have 
actually conducted trials by videoconferencing. A couple of 
judges from Boston have conducted trials in Arizona by 
videoconferencing. It is maybe not the preferred method, but 
when everybody agrees, it is certainly a cheaper method and it 
works.
    Mr. Latham. Were they court or jury trials?
    Judge Heyburn. They were court trials.
    Mr. Latham. I think Judge Smith had something.
    Judge Smith. I was actually going to talk about the video 
trials, the same thing that you just talked about.
    But I would just issue one caution. I think all of this is 
wonderful, but I think we all as judges and members of the 
legislative body do need to keep in mind that there are some 
things you simply need to do face to face.
    As Judge Piersol said, sometimes you just need to have that 
person there where you can look each other in the eye, and 
technology should not ever get the point I think where it 
overcomes that, and I know we all recognize that.
    Mr. Latham. It may be a personal preference. You apparently 
like to see lawyers, and Judge Piersol does not like to look at 
lawyers. [Laughter.]
    Judge Smith. I was thinking more of the parties than the 
lawyers. [Laughter.]
    Judge Mecham. Mr. Latham, you are seeing one example of how 
we are using technology today. This is one of our cameras and 
outstanding staffers from the FJC-TV group. We have 285 
downlinks. We cover virtually everyplace in the country now. We 
use it for training and management. This hearing we broadcast 
to every judicial branch employee, including judges, who wishes 
to see it as part of our training program.
    Mr. Latham. Very good. Thank you, Mr. Chairman.
    Mr. Wolf. Ms. Roybal-Allard.
    Ms. Roybal-Allard. Thank you, Mr. Chairman. I know that the 
word crisis has not been used. However, if you look at the fact 
that we have the shortage of judges, that you cannot get panel 
attorneys, the need for courthouses.
    It seems to me that our federal judiciary system is really 
approaching a crisis here that could seriously impact the fair 
administration of justice in this country.
    And I think the example that was used--and I was glad that 
Mr. Serrano raised the issue, because I was going to use the 
example of what is happening in the Southern District of 
California where the acceptable load is 430 and judges have 
over 1,000 cases.
    Also with the concern that you mentioned earlier about 
panel attorneys, you mentioned the $75 per hour in court. And I 
would like some clarification, because my understanding was 
that that is true of California and that Judge Hatter has asked 
for an increase. But in other parts of the country, the pay for 
out-of-court is actually $55 an hour, and for in-court it is 
$75.
    Judge Heyburn. That is correct. After the legislation was 
passed authorizing $75/$75 in 1986, for a few years the 
legislation gave the Judicial Conference the authority to, if 
the districts applied, to allow up to $75/$75. Most districts 
did not apply. So currently, there are only about 16 districts 
out of the 94 that have the $75/$75, and your district is one 
of them.
    Ms. Roybal-Allard. Is one of them.
    Judge Heyburn. Most of the others are limited to $75 in 
court and $55 out of court.
    Ms. Roybal-Allard. Okay. And you mentioned that the $113 
was still below what most attorneys would get paid?
    Judge Heyburn. Oh, yeah. This is still--I mean, I think 
everyone views this as basically a pro bono effort, if you 
will. And the idea is not to pay these panel attorneys what 
they could get in their regular private cases but to pay them 
enough to encourage quality representation.
    And I do not mean that we need to--you know, we would hope 
that as a matter of public service the best criminal defense 
attorneys would participate in the panel attorney program. And 
in many, many districts they do.
    And they recognize that it is a part of public service, and 
we are trying to make sure that they can cover their overhead 
and that sort of thing and pay them enough to encourage them to 
participate.
    To answer your question about the crisis, I think it is 
fair to say that there is problems approaching crisis 
proportions in some districts, but not throughout the entire 
country.
    And also the judiciary, you know, we recognize our 
responsibility. We just don't sit here passively and accept the 
fact that there are burgeoning case loads and problems in 
districts.
    We go to great lengths to address these problems. We have 
visiting judges that come to districts that are in trouble. We 
have visiting probation officers that come to districts that 
are in trouble, and we try to mobilize our resources to address 
these problems.
    At a certain point in certain districts, and I think we've 
certainly focused on the Southwest Border, but there are others 
around the country. It just becomes, you recognize that it's 
not a temporary situation and you really need permanent 
resources to deal with the problem effectively.
    I think that's what we're all saying. My district, we are 
fine. We have a relevantly stable case load that is gradually 
rising. All of our vacancies are filled and, you know, we are 
able to deal with our situation.
    So our judges, we have a judge who goes to Arizona and 
helps out there, for instance, when he can.
    Ms. Roybal-Allard. I would like to also address the whole 
issue of court security. I know that that has been a priority 
and in the past, last year, we were not able to help you in 
that particular area, and I am getting a first hand taste of 
the importance of the security because the trial of Ahmen 
Ressem is being held in the Federal Building where I have my 
office.
    Can you elaborate a little bit on what these funds are 
specifically needed for to address the problems that you are 
concerned with? I know that a lot of these federal cases are 
very high profile events and that security, goodsecurity and 
effective security is really needed.
    Judge Heyburn. Yes. There are a couple of different aspects 
of it. The request that we have is about $228 million. About 
$190 million of that are for the court security officers that 
provide the security to courthouses.
    And the increase we are asking for there is basically 
inflation where there are new courthouses and new CSOs are 
needed, we are asking for that.
    But a lot of providing adequate security involves the 
technology of the video surveillance, the scanners that we need 
in all of the courthouses, and upgrading, after they are ten 
years old or so, hopefully more frequently than that, the kind 
of technology that we need to provide overall security.
    And so we are asking for about $38 million, which is 
roughly what we had last year. It is really a continuation 
budget to continue that program and to provide the kind of 
security around the courthouses.
    Now the other aspect of it is the marshal service. In these 
high profile trials, not only do we need the judicial 
resources, but the marshals' resources, and that is a 
tremendous expense, as you can imagine, as you are seeing.
    Ms. Roybal-Allard. My understanding is also that right now, 
the kind of detectors that you have are metal detectors and 
many of them cannot detect plastic explosives at this time.
    Judge Heyburn. Right. Yes. And part of the request involves 
the replacement of these old detectors that have not kept up 
with the advances of those who might be interested in causing a 
problem. And we are trying to accelerate the replacement of all 
those machines in the federal courthouses.
    Ms. Roybal-Allard. One more question has to do with the 
courthouse construction. It is my understanding that the Bush 
Administration has included $500 million in funding for 
courthouse projects in their 2002 budget blueprint.
    And not only is this less than what the Judicial Conference 
had asked for, which I believe was $664.8 million, but that 
amount also includes the $276 million of advance appropriations 
for projects that were included in the 2001 budget which, in 
reality, then makes the President's request, $224 million.
    First of all, I want to know if that is correct 
information, and if it is, how do you see this low request for 
courthouse construction, how is that going to impact you?
    Mr. Mecham. We are not completely sure yet if that $276 
million that was advanced funded in 2001 is part of or not part 
of the $500 million you referred to.
    We think that your analysis is correct, however, and we 
have gone to the head of OMB and suggested that that would only 
give us a third of what we really need if that is the case.
    So we are hoping that Mr. Daniels and company, when the 
final budget comes up, will have higher figures than that, but 
we are not planning on it.
    But you are quite correct that if $276 million is sort of 
double counted, I guess, that means we will only have $224 
million for all the projects of which we have scheduled for 
this coming fiscal year, and we are going to be very, very 
unable to go very far down the list of the 20 projects we hope 
to build.
    Ms. Roybal-Allard. Okay. That just leads me to my final 
question because I am really not clear now in terms of the 
relationship between the judiciary and OMB. My understanding 
was that you would submit the budget, and it was to be accepted 
as is without any tinkering.
    But what I hear you all saying is that in one way or 
another there is some tinkering going on which is, I do not 
know what the right word is to use, but that should not be 
happening.
    Is my understanding correct?
    Judge Heyburn. Well, first of all you have to separate our 
request for an appropriation, which the law says must be 
submitted without change, and the request which the General 
Services Administration, which is in charge of the Federal 
Building program, they make a request separately for an 
appropriation that goes through TPO for buildings.
    And they ask for our advice about what kind of new federal 
courthouses are needed, and it is a remarkable improvement from 
years ago when it was pretty much of a whoever had the 
political muscle to get a courthouse built.
    We study all the needs based on available space, projected 
new cases and new judges, and we make a recommendation, the 
Judicial Conference makes a recommendation based on an actual 
score--we score each proposal--we make a recommendation to the 
General Services Administration, this is what we need.
    And the Director can comment more fully on what happens 
after that.
    Mr. Mecham. We are basically dependent on GSA and OMB for 
buildings; we are supplicants. And even though you would think 
the tenants would have a little more control over the program 
for buildings of which they are tenants, we have very little.
    And any help you could give us with GSA and OMB would be 
very much appreciated.
    Judge Piersol. Well, I'm in a position where we have a 
little over a hundred-year-old courthouse and we are making an 
addition to it, so South Dakota is down the line. But what 
happened, the net result of course is slippage. When there is 
inadequate funding, even if the scores are maintained, 
everything slips in terms of years, as you know.
    Ms. Roybal-Allard. Yes, I do.
    Thank you, Mr. Chairman.
    Mr. Wolf. Mr. Kennedy, just so you know, there is one 15-
minute vote and three fives. We'll wait, I'll wait until there 
are two minutes left, and we'll just recess and then come back 
in about 15 minutes
    Mr. Kennedy. Thank you, Mr. Chairman.
    I want to follow up on Ms. Roybal-Allard's question about 
the GSA. What is it that we can do to facilitate a better 
working relationship between the GSA and our court system.
    We have a court problem up in my State of Rhode Island that 
Judge Tores was talking to me about. They have been out of 
their courthouse for 28 months. They have gotten little to no 
cooperation from the GSA. It is absolutely a mad house up 
there. You have security problems and the like.
    It seems to me, Mr. Chairman, this is a problem that Ms. 
Roybal-Allard brought up last year. It is an endemic problem to 
the whole system.
    We need to figure out a solution to this GSA issue because 
if we are the tenants and these GSA folks are not complying 
with our needs, then we are going to have real problems that we 
are facing.
    I suppose I have already given an answer to my own 
question----
    [Laughter.]
    Mr. Kennedy [continuing]. But if you can recommend any 
specific things that we might be able to do to send GSA to work 
more closely with you all, that would be very useful, and I 
would appreciate anything that you can give the Committee in 
terms of recommendations.
    Ms. Roybal-Allard basically covered my questions about the 
panel attorney increase and the court security, but in 
following up with that, it just seems to me we have had 
numerous stories over the last couple of years about people 
that have been convicted, and wrongly convicted, and now those 
convictions overturned because of evidence and because of the 
fact that we are seeing real deficiencies in legal defense for 
indigents in this country.
    We have the Attorney General of the United States put a 
report forward about the disparities in race in our federal 
judiciary in terms of those who are on death row. That report I 
have not yet seen, but I am anxious to take a look at it.
    But it all points to the fact that we do not have enough 
competent--it seems to me, maybe more on the state level, but 
certainly I am sure it affects the Federal Judiciary as well--
representation for those without legal defense.
    And the notion that we are going to under-fund these panel 
attorneys as well as Legal Defender Services, to me, seems like 
we are only exacerbating the problem of more and more Americans 
getting wrongly convicted because they have inadequate defense.
    So it seems to me where this Congress is focusing a lot is 
on these issues of the innocence of many Americans who are 
wrongfully convicted and it would just make sense that we do 
not want to exacerbate it by under funding the legal defense of 
our people that our panel attorneys are responsible for.
    I want to make another couple of political statements, Mr. 
Chairman. [Laughter.]
    Mr. Kennedy. When I heard that tape about the Southwest 
Border, I mean it is clear to me that we have a real, real 
crisis on our hands there. I am anxious to join with the 
Chairman in trying to do the best we can in fulfilling your 
needs, along with the Judiciary, to get more judgeships because 
it does seem to me a crisis in the making.
    It seems to me we are creating a permanent prison class of 
people in our Judicial System, both federally and by states.
    This Committee or probably the Judiciary Committee, should 
probably keep some mind's eye towards it, because all of our 
judges that spoke on that video kept talking about a long-term 
problem that has no solution.
    And it seems to me, unless we do more in the way of 
increasing the requests that you have made for probation and 
pretrial services in the areas of mental health, that seems to 
me one long-term solution to the endemic problems of our 
societal issues with people getting caught up in the criminal 
justice system.
    You point out, in your testimony, a couple of anecdotes of 
people who have benefitted from these counseling services that 
you do offer, but I might ask you to comment on the limited 
scope of those counseling and screening and services.
    I mean the stories that are emerging now from our criminal 
justice system about the number of people who are suffering 
from serious mental illnesses or who have yet to be screened 
for problems that are clearly of a nature that we can address 
through our health care system to me seems to be another 
oversight on our part in terms of dealing with long-term 
solutions to these problems of our overcrowded Judicial System.
    So maybe you could comment on the extent of our screening 
and counseling services in pretrial and probation services and 
what your recommendations are when everything else is taken 
care of as well for increasing perhaps those services.
    Judge Heyburn. Well, as you noted, we have recommended 
increased funding for some of those kinds of services and for 
the number of probation officers. You know, in a bankruptcy 
court, for instance, you have 50,000 more filings and, you 
know, there are certain things that clerks can do that are 
rather routine within the judiciary. And electronically you can 
improve efficiency.
    Well, there's a limit to what you can do to make a 
probation officer more efficient, to do the kind of personal 
work that makes a difference in someone's life.
    Mr. Kennedy. Right.
    Judge Heyburn. And, you know, what we are doing is simply 
asking for the additional personal resources so these people 
are not so overworked that they can't be successful in the way 
that we identified in these anecdotes.
    And I think they are more than anecdotes; these are things 
that happen all the time.
    Mr. Kennedy. Well, I appreciate it. I would love to roll 
back a lot of these mandatory sentences that take away your 
judicial power to do what you think is necessary so we don't 
have this overcrowding of cases of non-violent offenders in our 
jails taking up space that should rightfully go to violent 
offenders.
    But one of the tools you need is to be able to have a 
better probation process so that you can follow up and not feel 
as if you are turning someone loose, but you have a way of 
following up with them.
    And I would be interested in a really more detailed--and 
maybe staff could provide it for me--overview of what 
recommendations you have.
    In my State, we have a horrendous system. We are spending 
all this money on the front side of incarcerating people and we 
have very few probation officers for our juvenile system and 
for our adult correction system and what we end up having is a 
recidivism rate which we all know is a major problem in our 
criminal justice system.
    It is going unaddressed because we are not dealing with the 
root of the problem, and that is how to get people reintegrated 
into the community and starting, you know, successful lives.
    So if you could provide any of that.
    Judge Heyburn. I would make one comment. I mean, obviously 
you have talked to many federal judges and you have a variety 
of different opinions about sentencing and that sort of thing 
as a matter of a policy discussion, which I think is 
appropriate for Congress to engage in, and we can give you our 
advice, or different judges can if you want it.
    I do think, though, I do want to say that the federal 
system, as a whole, you know, does a marvelous job, you know, 
given what we have to do in difficult circumstances.
    And this Committee deserves a lot of credit for giving us 
the resources to do that job. In my humble opinion, the federal 
system does, on the whole, really a much better job than many 
of the states.
    Of course, they have a hugely larger number of people in 
which to deal with but, you know, because of the efforts of 
this Subcommittee, you know, you've given us the resources to 
do a very, very difficult job and these folks do it.
    You know, I am just so impressed with how well they do it. 
And I came from a large law firm, and one of the things I 
wondered about when I became a federal judge is well, how hard 
will these people work? Are they just nine-to-fivers? You know, 
we work pretty hard in the private sector.
    And I've just been so impressed, from the secretaries to 
the probation officers, everybody how hard they work.
    Mr. Kennedy. I want to make it very clear, at the very 
least, I am talking about endemic problems in the system 
because you are not given the resources you need.
    And I think the stories of how hard our judicial personnel 
are working because of these incredible caseloads is just 
inexcusable. So I am just making a broader comment and I want 
to assist you in the job that you are doing. And anything that 
you can recommend in terms of probation and pretrial services 
that we can fund, I would like to see us do that.
    Judge Smith. Could I follow up on that, Mr. Kennedy.
    One of the terribly important issues is not having 
probation officers but training them and educating them, and 
that is part of our mission along with training judges.
    Because of budget constraints, we have had to eliminate 
almost entirely any face-to-face training for probation 
officers.
    We have increased the type of distance training we have so 
that we are now using video conferencing or television network 
Web sites where probation officers can get together and 
exchange ideas.
    If you would be interested in some of these video tapes or 
some of these publications that we have to see the types of 
things we are trying to make available, but obviously as they 
add more and more probation officers, there are more and more 
people in need of this training, and our resources are limited, 
so anything that could be done.
    Mr. Kennedy. That would be a useful subject that we could 
maybe get some more information on.
    Judge Smith. Sure. I would be happy to get it to you.
    Mr. Wolf. We are down to about a minute-and-a-half. We are 
going to recess and come back
    Mr. Kennedy. I thank our panel for their great testimony 
today.
    Mr. Wolf. We will recess and be back in about 15 or 20 
minutes.
    [Recess.]
    Mr. Wolf. That's it for the day. So we'll have plenty of 
time. We'll have a number of questions we'll just submit for 
the record. But let me go through a couple that I marked.
    When you talked about the Mexican border problems and U.S. 
border problems, what steps are being made to assure that other 
courts throughout the nation are not being shortchanged if you 
deal with that border problem?
    Judge Heyburn. Well, we have taken such steps, and they're 
not. The way we, within the judiciary, once we get an 
appropriation, we have also a formula based upon workload and a 
variety of other factors that determines how we allocate 
resources within the various districts.
    And so those funds are allocated and positions are 
allocated in accordance with that formula.
    Now last year during FY2000 when we were sort of short on 
our appropriation, we devoted some extra resources--well, a lot 
of extra resources to Southwest Border. And as a result, some 
of the other districts were shorted. But we thought it was 
necessary and everybody coped.
    Mr. Wolf. So there is a shortchanging of some areas, then, 
if you do this?
    Judge Heyburn. Not this year. Because the Committee gave us 
an appropriation that was sufficient to fully fund all the 
positions.
    Mr. Wolf. But with the growth that film indicated, that's a 
temporary. It looks like the caseload will continue to go up.
    Judge Heyburn. And that will require more resources. The 
situation now is we have fully staffed the Southwest Border 
based upon the judicial resources that we have there.
    I think our basic position would be, it really wouldn't do 
any good to put more clerks there or even more probation 
officers there because there are not the judicial resources to 
handle it and they are not the Marshals' resources to handle it 
more smoothly.
    So we believe we have adequately staffed it at this point.
    Mr. Wolf. But Mr. Mecham talked about 94 vacancies country-
wide. And the vacancies that you referred to in there, this 
budget does not address.
    Next week the Judiciary Committee of the Senate, in 
cooperation with the Administration, appointed all these judges 
and they were out. This budget would meet those vacancies if 
they were filled? Or it does meet them?
    Judge Heyburn. Well, the budget----
    Mr. Wolf. The salaries would not be met and their clerks 
would not be met.
    Judge Heyburn. Right. The budget that we have presented 
assumes, for instance, that this year there will be 25 new 
judges nominated and confirmed and next year there will be 63. 
So we don't assume that at a certain point all 94 of those 
vacancies will be filled.
    Mr. Wolf. Okay. So this was assumed on 25. How close are 
the authorizers to moving, or how close is the Administration 
to sending names up? What is the timetable that you were led to 
believe is in effect?
    Judge Mecham. We believe they are ready to move quite 
swiftly, particularly on circuit judge nominations. I think 
they're giving first priority to that.
    We know a lot of people who have been to town, been 
interviewed. And we think that that could be anytime now.
    I think one of the problems is the FBI interviews and FBI 
clearance, which usually takes a protracted period of time.
    Mr. Wolf. How long does that take?
    Judge Mecham. Well, normally, it would take two months, but 
I'm sure they're accelerating them for this purpose. I get the 
sense they're really moving to get nominations up to the Hill.
    And district judges seem to be following along a little 
more slowly. I would guess we will see some circuit nominations 
momentarily. I notice the President did withdraw a number that 
President Clinton has sent forward. And I believe that was a 
precursor to getting some particular circuit nominations up 
there.
    Mr. Wolf. Judge Smith, with regard to the international 
efforts, I agree with what you're trying to do. Maybe you could 
elaborate a little bit more briefly and maybe more for the 
record what countries have you involved in? Sierra Leone, 
Bosnia? Can you just briefly tell us and maybe give us more for 
the record?
    Judge Smith. Sure.
    Mr. Wolf. And where does that funding come out of? AID?
    Judge Smith. Some of it comes from what was AID. I guess 
it's now been brought into the State Department, USIS. The 
World Bank has funded----
    Mr. Wolf. And what is the total amount of money that you 
spent last year for this?
    Judge Smith. We don't spend at all.
    Mr. Wolf. No, not what you spent for this.
    Judge Smith. We don't know, but we try to stay uninvolved 
from the funding. So in other words, we'll get a call, for 
example, from someone at State Department who might say we have 
12 judges from India who are going to be in the States in a 
month, and can you design a program for them on case management 
or on, you know, the independence of the judiciary or judicial 
ethics?
    And then we will do that with our own staff.
    Mr. Wolf. Oh, you don't initiate it then?
    Judge Smith. We don't initiate it, no. Our mandate in the 
statute is basically that we should offer assistance to 
organizations who are in the business essentially of doing this 
type of work. So we don't initiate it. We respond to requests.
    Mr. Wolf. Do you send judges to other countries?
    Judge Smith. We don't. The International Relations 
Committee of the Judicial Conference does. We do not pay to 
have judges go. We have arranged for some judges and for some 
of our staff, for example to go to foreign countries, again, 
when we've been contacted by a group.
    One of our staff just came back from India where she 
discussed case management issues and alternative dispute 
resolution primarily.
    I am actually going over to Slovenia in a couple of weeks 
at the request of the State Department and to Milan. I've been 
to India. We've brought a number of judges from Russia--or had 
a number. I shouldn't say brought. Had a number of visiting 
judges from India, from Russia, from China, from Pakistan, 
Latin America. We had over 300 foreign visitors last year come 
to the Center for various types of programs.
    So we try to be as responsive as we can to any of these 
requests.
    Mr. Wolf. Maybe you can just submit for the record then 
some of the countries or all of the countries that were 
involved--
    Judge Smith. Be happy to.
    Mr. Wolf. And what came here, what judges, numbers came 
here and also the numbers that went abroad.
    Judge Smith. Certainly.
    Mr. Wolf. The State Department comes before this Committee. 
I think it's very important that we share the values. The best 
export that we have is really our values. The Declaration of 
Independence is our charter, if you will, and as we take that 
abroad. And the people abroad seem to know that and an honest 
judiciary, whether it be in Macedonia or Bosnia or in Sierra 
Leone or something like that.
    And I think it's just helpful to have and maybe as cost 
effective to have our people go there as well as it is to bring 
them here. You can do both.
    But I think to go, and that way you can cut down the cost. 
But there may be some places that we would like to encourage 
the State Department to tap in and to use your people and also 
retired judges or senior judges that may have more time.
    Judge Mecham. Chairman Wolf, you mentioned--Judge Smith 
mentioned the International Committee of the Judicial 
Conference. The Committee doesn't actually send judges.Usually 
the State Department or----
    Mr. Wolf. I understand.
    Judge Mecham [continuing]. And so on, who pays their way.
    Mr. Wolf. I understand.
    Judge Mecham. But that Committee particularly is focused on 
Russia and the old Soviet Bloc countries where the State 
Department felt there was a particular need to try and preach 
the gospel of rule of law and independent judiciary. So they 
spent a lot of time.
    Mr. Wolf. Well, but there's Africa. There's Sierra Leone. 
There's the Congo. There's places like that would love to have 
them. Today's paper in Macedonia, there's fighting broken out. 
In Bosnia, Bosnia-Herzegovina.
    I mean, all these places I think could use it as much as 
the fact is probably more than China. You might come here and 
learn a lot and go back to China, and you're going to do pretty 
much what the Chinese government tells you to do. But some of 
those are struggling democracies who really do want to change. 
And if you're 45 or 50, it's really hard. Your mind has been 
pretty much closed. And to have somebody come and open it up 
and give you these ideas.
    So if you can let us see, and maybe we could when the State 
Department comes here encourage them and AID to tap into use 
more, particularly we certainly don't want to send a judge from 
Southern California to be sitting on the Southwest Border. 
[Laughter.]
    Mr. Wolf. But maybe a retired judge or senior judge. And 
there is a program where they send former members of Congress 
to go abroad and teach and do those things. And I think that 
would be helpful.
    Judge Smith. Well, we will do that. Another aspect of that 
I'd like to include that I think is very exciting is a lot of 
these smaller countries are trying to establish judicial 
training schools of their own patterned in part on the Federal 
Judicial Center. And so that's a big interest so that they can 
train independent judges, and we'll include that in the 
information, too, as much as we have.
    Mr. Wolf. Good. Thank you. Mr. Mecham, I read your 
testimony on the issue of recruitment and retention. And I have 
taken the opportunity actually with Ms. Roybal-Allard's father 
and Congressman Hoyer using the Treasury appropriations to put 
in place flex time and job sharing and leave sharing. Do you 
use flex time in the courts?
    Judge Mecham. We do certainly in the administrative 
office----
    Mr. Wolf. Do you use job sharing?
    Judge Mecham. And in the courts as well.
    Mr. Wolf. What about job sharing, whereby two people at an 
appropriate time in their life want to share a job?
    Judge Mecham. Very little of that, but yes, we have had 
some.
    Mr. Wolf. Couldn't that be a good retention and recruitment 
tool to have a job sharing? Two people can do the job as well 
as one. Maybe one wants to take care of a loved one who's 
dying, and another wants to maybe get an advanced degree. 
You're not paying any more monies. Studies show that two people 
who are job sharing are actually more productive than one 
person. How many courts use job sharing? Is it permissible? Can 
you give us for the record?
    Judge Mecham. I would want to yield to the judges on that. 
I know in the AO we have some. We do have extensive use of flex 
time and find that is a great morale booster. We don't think it 
lowers productivity.
    Mr. Wolf. No, it increases.
    Judge Piersol. I can comment.
    Mr. Wolf. How about job sharing?
    Judge Piersol. With regard first of all to flex time, we do 
flex time. But it would be something that would be decided by 
the clerk and the judges in each of the different 94 districts. 
And we've done a limited amount of job sharing, not nearly as 
successfully as flex time. But it's something that we can do.
    Mr. Wolf. Well, I would encourage you to look at it. We're 
finding it is working very well. The problem has been on a lot 
of these flex time, job sharing, on-site child care, telework, 
midlevel manager just sort of thinks, well, this is a new idea. 
But it works very well.
    And actually for telecommuting, the studies show people who 
telecommute, work at home one day a week. The CIA even uses it, 
so there's no security problems and everything else. Really the 
productivity is actually higher. Twenty-five percent of AT&T's 
works, midlevel managers, telework one day a week.
    And for retention and for recruitment to give people more 
choices over their own lives and different things like that, I 
really think you ought to be aggressively looking.
    Do you have leave sharing?
    Judge Mecham. Yes we do.
    Mr. Wolf. Do you know what leave sharing is? It was a bill 
that we put in. How often do you use leave sharing in the 
courts?
    Judge Mecham. With the AO, we use it fairly extensively. 
I'm signing forms all the time.
    Mr. Wolf. I wonder about the different courts. Leave 
sharing is basically if you're dying of cancer, let's say, and 
you've run out of vacation time and sick leave but all the 
other people here, let's say we're all part of a company, we 
could donate a day of our vacation time.
    Or let's say you had a major heart attack and you're not 
going to come back for a while and you've run out of vacation 
time and sick leave, we could donate a time. Ms. Allard's Dad 
was the chairman of the Committee at that time we put that in. 
Do you use that in the courts whereby if one of your people----
    Judge Heyburn. As far as I know, it would be permissible. 
Fortunately, we haven't had in our court an occasion to use 
that.
    We have used actually now that I think of it, job sharing. 
We have a number of pro se law clerks who work on a lot of 
habeas cases and prisoner petitions for us. And there are a lot 
of, and I might say particularly women in the legal market out 
there, who want to be with their families and who are out of 
the traditional track, and we actually at one time we had three 
part-time pro se law clerks or maybe even four as opposed to 
two part-time people. Now we have two half-time people who are 
occupying one position and then a full-time position. So we 
certainly make, you know, use that kind of a, if you will, a 
job sharing.
    Judge Piersol. Because of the flexibility, frankly, the 
judges have with regard to their personal staff, law clerks and 
so on, just to tell you anecdotally, I hired a partner away 
from my former firm almost solely because I could provide 
flexibility for her and her childcare situation.
    She is a pro se clerk and works part-time and is a 
wonderful employee that I couldn't dream of hiring any other 
way. But it's because of the flexibility that we have that I 
can do it.
    Mr. Wolf. Well maybe you could survey and see what courts. 
It is a great retention tool. Flex time, flex place, job 
sharing, leave sharing in the judiciary again. Obviously people 
in the judiciary get sick as well as people in the Executive 
branch get sick. And the on-site childcare.
    Some of those family-friendly policies that enable people 
to sometimes say, okay, as your partner maybe, I will maybe 
take a little bit less because this gives me more control over 
my own life to deal with my family and to deal with those.
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    Judge Piersol. She took a lot less. [Laughter.]
    Mr. Wolf. Well, you know, I understand that. But if every 
Member here who sat around left this place, they could go 
downtown and they could make a lot of money. I was downtown. I 
was a lobbyist before I got elected to Congress. I never want 
to go back downtown. I've been here for 20 years. I would not 
trade this job. The opportunity to make an impact, to make a 
difference, to see something on 60 Minutes on Sunday night and 
come in here and do something about it.
    So all the money that's, quote, ``downtown'', really, you 
know, life is--there's a beginning and there's an ending. But 
public service is important. It has a value beyond. I know we 
have to pay people fairly. I've always been a champion with 
regard to federal employees. But there is a whole sense of 
service that goes beyond just making money.
    And I think sometimes we stress--and again, I take a 
backseat to no one on support for federal employees and judges 
and salaries--no one. Mr. Hoyer and I have always been out in 
front.
    But on the other hand, we sometimes sell it too short. The 
opportunity for a person to serve in the judiciary compared to 
just being a big partner in a big firm downtown, so service is 
very important.
    A young clerk who comes in and works for the Justice 
Department, works on a case that if he were in a law firm 
downtown he would never get to touch. His name would never be 
on it. Now he is the person or she is the person.
    So I think public service has a certain reward.
    Judge Heyburn. And I think to a person, people in the 
federal judiciary would agree with that.
    Mr. Wolf. I'm sure.
    Judge Piersol. Or we wouldn't be here.
    Mr. Wolf. I'm sure. I'm sure. On page 9, Mr. Mecham, of 
your testimony, you said, while the judiciary faces the 
prospect of using 40 percent of its employees to retirement 
over the next five years, in order to address this problem, AO 
has implemented several programs. For example, flexible 
benefits. Recognizing these innovative new programs, the 
Congress is now considering or has approved some of these 
benefits for the Executive Branch. For example, Executive 
Branch employees are authorized to pay for health insurance 
premiums on a pre-tax basis.
    Can you not use that also?
    Judge Mecham. We have done. And we initiated it before the 
Executive Branch got into it. We are doing it. We're in our 
second year. And by the way, I met with the Speaker soon after 
that and told him, among other things, what we were doing, and 
he was quite interested in it, thought maybe it could be 
adapted and used by the House, sort of a pre-tax benefit 
program.
    Mr. Wolf. Well, the Executive Branch has used it. The 
private sector uses it. And so you are using it?
    Judge Mecham. The Executive Branch for a long time did not. 
I think they've just initiated a program starting October 1st 
so they can use pre-tax income.
    Mr. Wolf. Now we're looking at legislation to allow some 
private sector companies are saying that you can take let's say 
$5,000 pre-tax and begin to pay your childcare and other things 
out. We're working on legislation for the Executive Branch with 
regard to that. Would that not help you?
    Judge Mecham. I wish you would add the judiciary to it, 
then, because currently we don't have authority to do that or 
the funding to it for that matter.
    And although if it's pre-tax, perhaps we could if IRS is 
willing to let us do it.
    Mr. Wolf. Maybe you can stay in touch. We're meeting with 
OPM on the issue. We think maybe they have the authority now to 
do it and just aren't doing it. But if they don't we're going 
to put in a piece of legislation. And we will add the Judicial 
Branch in.
    But that would be a great recruitment tool I would think, 
would it not? For retention.
    Judge Mecham. It would. In fact, my staffer ably reminded 
me that we do have--we are doing it now for childcare and 
healthcare. I had forgotten about that.
    Mr. Wolf. Is that the $5,000? You are doing it. So you're 
actually ahead of the Executive Branch.
    Judge Mecham. We were. And that's one of the reasons we 
suggested to the Speaker that you might like to use it in 
Congress, too.
    And we also have a long-term care program, which is 
employee pay all, and as I remember, it's not pre-taxed. But 
you can get a better rate as a group. And so we've initiated 
that in the judiciary, too, again before the Executive Branch 
did.
    Mr. Wolf. Good. Okay, well, stay in touch and we'll make 
sure----
    Judge Mecham. We'd like to work with you on that.
    Mr. Wolf. Okay. A couple other questions. I would hope that 
this Committee, or I'm going to certainly try to convince the 
Executive Branch and the Bureau of Prisons and the Attorney 
General to set up a faith-based prison or a faith-based prison 
wing whereby at the day of sentencing before the judge, there 
is an opportunity, let's say Petersburg prison, you want to go 
to Wing A, which is faith-based, or Wing B or C or D or E or F 
or G or H that are not. You may be of any denomination of any 
religion or whatever.
    But my sense is the faith-based programs the people are 
there and the opportunity to be in a wing whereby whether you 
be Muslim or whether you be Christian or whatever the case may 
be.
    Now I know you're the judiciary and you're not going to get 
involved in setting up a faith-based prison. But are there any 
complications that you see with regard to, at sentencing time, 
if it's purely the will of the prisoner as to where he or she 
is sentenced, whether it be Wing A, which is faith-based, 
versus Wing B, C, D and E which are not?
    Judge Heyburn. Typically, the federal judges, we sentence 
to a period of time. We distinguish between whether we're 
sentencing to a federal penitentiary or whether we're 
sentencing to a period of release or probation.
    But then under the statute actually, we can make 
recommendations as to where and under what circumstances. But 
it's the Bureau of Prisons that determines the prison and the 
wing within the prison and the program, whether it's a drug 
program or some kind of boot camp program based on all kinds of 
criteria that they use. They determine where that particular 
inmate would be best, hopefully, what would be best for that 
inmate. So we don't get involved.
    Now when we're considering how to sentence someone, 
oftentimes we'll have a dialogue with the Probation Office. You 
know, what kind of supervised release is available? What kind 
of work release is available? And that will go into our 
cognitive process when we're determining whether or not we 
should sentence to a time incarceration or whether supervised 
release or probation, whether there's a program available.
    And I think if you surveyed the country, you would find 
that there are, I'm sure, I know in my community there are, 
some faith-based or affiliated organizations that are providing 
various services.
    Mr. Wolf. Well, this is different, though. I was involved 
in a program down at Lorton Reformatory before I was elected. 
It was a faith-based program. But the warden didn't, you know, 
you could come in certain times. I'm talking about faith-based. 
Because you cannot put a man away for 15 years and give him no 
rehabilitation, no training, nothing, and all of a sudden 
expect him not to come out and be involved in another crime.
    And much of this is at the state level, but Lorton was a 
federal prison. The resistance was very great, particularly 
initially. So I know you have chaplains and you have all those 
things. I'm talking about a faith-based wing, and the men or 
women in this wing, is it a faith-based prison?
    Now you know we have a tremendous crime problem. I agreed 
with what Mr. Kennedy said. You just can't put a man away and 
just say okay, we're going to lock him up and throw the key 
away. If there's not rehabilitation, if there isn't--you know, 
they're going to come back. And the recidivism rate.
    I'd like to see some grant programs whereby I'd like to see 
my state, the State of Virginia, to take the lead on a federal 
grant to say, okay, we're going to take one of our prisons and 
turn it into a faith-based prison whether they be--and 
obviously it's not going to be the Presbyterian Church running 
the prison, but it will be the different denominations--
Catholic, Protestant, Jewish, Muslim--can come in and work 
together and so that men are learning together in that prison.
    My sense is too the violence that you don't find as much in 
federal prison, but the violence that you find in state prisons 
and all could be reduced.
    At the time--I'm inferring from your statement, at the time 
of sentencing that could be something that would be considered 
by a judge with regard to sentencing of a person if it was 
purely optional, meaning they had the choice of whether they 
wanted to go to a non-faith-based or a faith-based.
    Judge Heyburn. Let me just comment, and then I'll let Judge 
Piersol. The only cautionary tone I would set is that as it now 
stands, you know, we are not the experts on what is available 
in a particular facility, how crowded a particular facility is.
    So when you put the judge in charge of where someone goes, 
you're really putting us----
    Mr. Wolf. I'm not talking about putting you in charge. I'm 
asking do you see a problem at the time? If the judicial system 
doesn't want to be involved and if the parole officers. But 
there are cases in local courts where the judge makes some of 
those decisions.
    Is there a problem of having something like that in 
existence so that when a man or woman stands before and has to 
make a choice of having an option to go to a faith-based 
institution or a wing versus a non-faith-based?
    Judge Heyburn. I'm sure there are lots of policy and legal 
and other considerations. I guess I don't really feelqualified 
to--I think someone from the Bureau of Prisons would be the best person 
to answer what problems if any. There may not be any problems. I really 
don't know.
    Mr. Kennedy. Mr. Chairman, if I could interject. But what 
kind of assessment is done on these peoples' mental health?
    Mr. Wolf. Quite an extensive. I mean, if you have--Judge 
Piersol and I were just talking. If you have a mental or 
physical problem and you're an indigent and you happen to be 
charged with a crime in the federal system, you may have the 
best situation you could possibly have.
    Because they're typically sent off to a federal medical 
facility and as far as I can tell, you know, when I see the 
product coming back, it's a tremendous workup. And these people 
get better care than they've ever gotten before. And sometimes, 
you know, we can tell, anyway, that somebody's been able to 
identify what their problem is and to deal with it in some way.
    Mr. Kennedy. You would also agree that there's been a major 
problem in our state prison system with a lot of people who 
have mental illness being incarcerated that were released years 
ago through the deinstitutionalization.
    Judge Heyburn. I'm sure that's true. I read newspaper 
reports like you. You know, when I testify here about the 
federal system, I can testify based on some assurance and 
knowledge. And of course we get cases filed by inmates from 
state facilities. And it's my general impression that the 
federal facilities provide a lot better services than the state 
facilities do. But that's an impression based on cases and 
evidence that I've seen.
    Mr. Wolf. Judge Piersol, did you have something you wanted 
to?
    Judge Piersol. No. I was going to make a comment with 
regard to the faith-based. A little bit more detail which you 
might like to know. When you're sentencing, and like last year 
I sentenced maybe 180 people, but when you're sentencing, for 
example, when we have boot camp. Well, if somebody is eligible 
for boot camp or you think they are, at least I commonly if I 
think that they're somebody that would go for it, I'll ask them 
if they want to request boot camp and make it clear that their 
request isn't binding nor is my recommendation binding. But I 
make such a request, and sometimes their lawyer hasn't talked 
to them about it ahead of time, so they whisper to each other 
for a little bit about what's boot camp. But usually they've 
been keyed on that and they know one way or the other.
    If I make a recommendation one way or the other, then I'll 
make the recommendation. And at least in--I'm in the Eighth 
Circuit, which is in the Midwest. Then once I've made a 
recommendation whether it's boot camp or something else, 
always, at least where I am, when there's a recommendation 
made, if the prison under their regulations and so on feels 
they cannot accommodate that recommendation, maybe--there are 
six different levels of security for a prisoner. And maybe this 
prisoner can't get whatever it is I have suggested because of 
their security level or any number of things, they'll always 
write a letter back saying we always consider your 
recommendations. I'm sorry we cannot accommodate it for this 
reason or that reason. Or they write back and say we were able 
to.
    That's as a practical matter how it works, just to give you 
a little more background with regard I think to your question, 
maybe by analogy, as to what might happen.
    Mr. Wolf. Well, that's a good answer. You know, I respect 
the men and women who are judges. I think you develop an 
intuition that you're sitting there on the bench and you see 
some person standing before you.
    And you just--and Judge Heyburn. This guy has a family and 
what are we going to do? And you're going to go home and say to 
your wife, you know what I did today? I sent this guy away who 
I just, you know.
    And some of the state prisons, the raping of men, the 
conditions. I've been in prisons in the State of Pennsylvania 
during this period of time which has certainly influenced my 
feeling and also gone down to Lorton. Lorton is a federal 
prison. Believe me, you would not have wanted to be in Lorton 
Reformatory. The men who were in the dormitories. They were 
telling me, you know, I never go to sleep at night because I'm 
afraid if I fall asleep, someone is liable to put a shiv in me.
    You go into the rec room and there's no strings on the 
instruments. At one time not very long ago I walked down there 
and broke away from the crowd and I walked into a drug rehab 
room. There was a television on. The room was very, very dark 
and there were cartoons on. And the men were sort of just kind 
of laying on their benches like you used to do when you were in 
school. You remember the time you put your head on the bench. I 
mean, that was a federal prison.
    The rehabilitation is zero, zip, none.
    We put a man down there for 12 years. No rehab, no nothing.
    Now they may come up and tell you there was rehabilitation, 
but I saw firsthand. Then, you don't expect that man to get out 
of the prison and to bump into you at 20th & K, and all of a 
sudden you wonder why he is back.
    The recidivism rate at Lorton, which was a federal prison--
maybe we can check and put it in the record at this time--was 
probably, I would say, above 75 percent or maybe even 80 or 85.
    I believe--and I am going to just ask you one more question 
and give some more time to others--I believe in being tough.
    But, I also believe in being fair, and I think, when 
somebody is arrested and goes to jail, there needs to be 
rehabilitation.
    We have another idea that we are working on with regard to 
prisons, which we are going to try, about doing something with 
regard to work in prisons.
    Most men in prison do not work. Most men. In fact, I have 
been in federal prison where they are----
    I mean, they are working, but they are really not working. 
They are in a laundry room, and, you know, they are really not 
working.
    So, there is no practical rehabilitation, and I don't think 
that the Congress or the judiciary can be punched apart and 
say, well, we did our jobs and now they are off to the Bureau 
of Prisons.
    I think we have to do everything we can with--when being 
tough but with dignity.
    I believe very strongly that we at least have to try, for a 
period of time, a faith-based operation and comparing the two, 
so that, at the end of five, six, seven years, we now know does 
it work.
    Yeah, it really does work. There has been a change. Why? 
This man or woman is not coming back.
    So, hopefully, we can do that, and I am going to press the 
Bureau of Prisons. We are going to push it.
    I am going to press my state to do it, because you just 
cannot, and anyone who thinks you can they should go into the 
prisons, not just for an hour walking tour but just go in and 
spend some days.
    The program that I was in, we went down there one day a 
month.
    It is a program called Man to Man, and just go into the 
prisons, go into the visiting rooms, and go and see the 
environment and talk to the people.
    Then, after you talk to them, listen to them. We have got a 
long way to go.
    I think the judiciary needs to develop an intuition that I 
couldn't even understand, and hopefully you can participate or 
help us develop this in a way that has the constitutional 
guidelines and all these things, whereby we can give people an 
opportunity with dignity to change, so there really is, as 
Patrick was talking about, rehabilitation where there would be 
mental health and these different things.
    Mr. Kennedy. Mr Chairman, I ought to follow up with that 
and just say I do think that, in the Bureau of Federal Prisons, 
there is a lot to be desired in terms of the kind of programs 
that these prisoners are in.
    I have been to a couple of federal prisons, and I mean it 
is just make-work all day long.
    This is the system that they are working with--operating 
out of fear.
    It is a punitive approach. There is no such thing as trying 
to communicate.
    I think the training of the correctional officers has a lot 
to do with it, because they have very inadequate training in 
terms of dealing with these prisoners, it seems to me.
    You are pointing to that issue of whether you have got 
programs on paper or programs that are actually working in the 
prisons.
    Right now there are many programs on paper, but I concur 
with you my experience of going to these federal prisons.
    I have been to one in the last couple of months. It is a 
sham. It is absolutely a disgrace.
    I mean, we are creating this whole prison underclass. All 
these folks that are in prison today are going to get out 
someday.
    We are going to be in real tough shape if we don't do a 
better job at the rehabilitation aspect of it, so I concur with 
you.
    Mr. Wolf. Thank you. The last issue, and I will come back, 
is, on the issue of sexual trafficking, how many cases do you 
see?
    Now, there have been 50,000 women a year, we have been led 
to believe, are now coming to the United States for 
prostitution and exploitation.
    The Congress last year passed a Sexual Trafficking Bill.
    How many of these cases are showing up now in the U.S. 
courts? That is now a federal crime.
    If you don't have it at your fingertips and you want to 
just submit it for the record----
    Mr. Heyburn. I am not sure we could. We keep pretty 
accurate statistics, and we could get you that number.
    I have not seen anything in Kentucky yet, but we can get 
you that number.
    Mr. Piersol. I don't have the cases in South Dakota, 
either. Our's are child and sexual abuse that we have.
    Mr. Wolf. Mr. Mecham, do you know?
    Mr. Mecham. I don't have the data, but we will be glad to 
try to get it for you.
    Mr. Wolf. Okay, now, the FBI is cracking down on that, and 
we ought to be seeing a significant----
    These are women who are brought from the Ukraine and Russia 
and Romania, and places like that, who are coming into the 
United States for prostitution and basically are slaves, 
passports taken away from them.
    Since the law enforcement will be cracking down, I think 
the judiciary ought to be prepared.
    In the sentencing guidelines that I went through last 
night, there is a segment dealing with that.
    So, if you could just submit for us the information on a 
human trafficking.
    In response to an emergency directive contained in the 
victims of traffic in the Violence Protection Act 2000, the 
Commission voted to amend the guidelines applicable to P&H and 
voluntary servitude slave-trade offenses and possession, 
transfer and sale of false immigration documents in furtherance 
of such trafficking in the Fair Labor Standards Act and the 
Migrant and Seasonal Agriculture Work Protection to reflect the 
heinous nature of these offenses.
    The amendment accounts for new offenses and increased 
statutory maximum created by the Act.
    So, if you could tell us how many cases and maybe in what 
Districts that you are seeing the trend, because my sense is 
that the FBI does do what it is supposed to do, crack down on 
this, you will begin to see a tremendous----
    [The information follows:]

    Because of the relatively recent enactment of the Victims of 
Trafficking and Violence Protection Act of 2000 (P.L. 106-386), the 
judiciary does not have any record of cases being brought under the 
statutes created by this Act (primarily, 18 U.S.C. Sec. 1589). 
According to the Department of Justice, the first indictments are just 
now being granted against defendants who were arrested and are being 
prosecuted under violations of this Act. The judiciary has, however, 
seen increases in recent years in similar types of cases. For example, 
in cases brought under 18 U.S.C. Sec. Sec. 2421-2427, Transportation 
for Illegal Sexual Activity and Related Crimes, there has been more 
than a three-fold increase since FY 1996 with cases increasing from 40 
in FY 1996 to nearly 150 in FY 2000. Based on the first half of 2001, 
the number of cases brought under these statutes is continuing to rise.

    Mr. Heyburn. I might point out that is one of the----
    Now that the Sentencing Commission is fully funded and 
fully constituted, they can do the work like this that they 
were supposed to do, and that is respond to new statutes and 
new circumstances of crime, unfortunately, that develop.
    Ms. Smith. This is an anecdotal bit of information.
    Shortly before I left San Francisco, I had one of those 
cases.
    It involved three young women whose ages seemed to change 
depending upon the hearing and who was testifying.
    I would get ages placed on them anywhere from 15 to 17 to 
19 to 21.
    It was a terribly difficult case for the U.S. Attorney to 
prosecute, because the young women were not willing to 
cooperate. They were terrified.
    Mr. Wolf. They were fearful.
    Ms. Smith. Their mother was still in Southeast Asia.
    Apparently, there was some concern over her safety. There 
was an offer made to bring the mother to the United States to 
be with the girls.
    You know, it was just very, very difficult. They didn't 
speak English.
    They felt completely lost and alienated. They didn't really 
trust anybody--not our government or Asians or anybody else.
    So, I agree with you. I think this is one of the real 
atrocities going on in the world today.
    I think we will see more of them, but I think we also need 
to be prepared for the fact that there are going to be 
difficult cases because of this fear element and a fear of 
cooperating on the part of the victims themselves.
    Mr. Wolf. You are right, and the reason I referred back to 
the involvement of justices in these, many are coming through 
Albania, coming through the Ukraine coming there.
    I think the more you can have your people talking to the 
judicial system there so they know how this is viewed, also the 
question what do you do when women who are being exploited by 
very wealthy people----
    Now, where did they live when they were--before the court? 
Were they in jail?
    Ms. Smith. Well, that was one of the problems, because one 
of them was reportedly 15, there was an issue.
    We couldn't put her, you know, in any of our facilities, 
because she was too young.
    Mr. Wolf. Where was she put?
    Ms. Smith. She was put in the San Francisco juvenile home 
for awhile.
    Mr. Wolf. Oh, boy.
    Ms. Smith. But that, I mean--You want to talk about Lorton.
    You know, that was not a wonderful place, either, and so 
finally----
    That was why they wanted the mother to come, because we 
said, if the mother would come, we would try to find a place, 
you know, for them to stay while all of this was sorted out.
    Then, I left in the middle of that, and I am really not 
sure.
    All they wanted to do was go home, as they saw home.
    Mr. Piersol. Let me ask, if you are interested in that 
subject, another facet of it.
    I happen to be where Gateway has some of its primary 
offices, so I see quite a little child pornography cases on the 
Internet.
    I think, without exception, of the various defendants I had 
before me, that they don't understand how there is a victim, 
because the people who are being portrayed are usually 
prepubescent or really pubescent girls.
    Of course, they are victims of another sort, because they 
are generally being exploited in a way.
    But, the people that are the end users don't understand 
that they are being exploited.
    So, that is another aspect of the same thing you are asking 
about, but those are handled under different statutes.
    Mr. Wolf. Mr. Serrano?
    Mr. Serrano. Thank you, Mr. Chairman. Let me first just 
make a couple of comments before I ask my final question.
    Let me say that I agree with you, Mr. Kennedy, and I know 
with Ms. Roybal-Allard. I don't think I have ever seen an 
institution that is really in the business of rehabilitation.
    As a state assemblyman for 16 years, I visited many of the 
facilities and some of the things you see on TV in terms of how 
they depict the inside of prisons are actually mildcompared to 
the reality.
    This latest incident we had, which is related to the prison 
issue, obviously, was sentencing a child to life imprisonment 
without parole in Florida. I cannot contradict myself. Those of 
us who are against the death penalty know that the answer, 
perhaps, is life imprisonment.
    But in this particular case I think the message sent is 
that the system is not in the business of rehabilitating 
anyone. It is in the business of sending you away forever 
without a chance of ever coming out, as in this particular 
case.
    Secondly, let me say that, on the issue of faith-based 
prisons, again, I can't contradict myself. If I believe that we 
have to rehab, then we have to use whatever tool is available 
to rehab and, certainly, faith is a very strong tool.
    But when you mentioned my second state, the State of 
Virginia, it brought to my attention, what is to my mind the 
biggest problem, the whole issue of faith and government and 
separation, and that it is not so much faith-based programs 
themselves but sometimes the people involved.
    So when I think of Virginia, as I said, my second State, I 
think of two nationally known religious leaders who have TV 
shows and what involvement they would have in anything we did 
in Virginia.
    And that, I bet you, would cause us more discord with 
people. I bet you if you asked people how many of you really 
believe that this is a bad idea by the President or anyone who 
proposed it before because there is a Constitutional question, 
you would get some people.
    Then, if you really prod, you will find the majority may 
not be worried about the Constitutional question as much as who 
is going to write the prayer for prayer in school, who is going 
to determine what is going to happen in that prison wing, who 
is going to determine what is a real crime and not a crime, and 
who should get help and not, and that is a real issue.
    So I am not out of tune with you on that one. I would just 
like the players to be carefully selected. [Laughter.]
    Mr. Wolf. If the gentleman would yield just for a second?
    Mr. Serrano. Sure.
    Mr. Wolf. The person who I think has done more for the 
issue of prison rehabilitation and dignity has been somebody 
who also is from my State, who has an operation not very far 
from where I live, and that is Chuck Colson.
    Chuck Colson has probably done a better job of educating 
the public with regard to this issue and, I would add, a lot of 
confidence, although I am not speaking for Chuck Colson and I 
am not speaking for Prison Fellowship--and they did not know I 
was going to say this, and I did not know I was going to say it 
until you just raised that issue--I would have the greatest 
confidence in the world if Chuck Colson or somebody like that 
were to say, okay, we are going to go in and we are going to 
deal with this issue, and treat men with dignity.
    I am a conservative Republican. There should be no doubt 
about that.
    I believe in being tough. My father was a Philadelphia 
policeman, and I come from an inner-city neighborhood and 
believe in being tough on crime.
    My faith tells me that when you put somebody in jail, you 
treat them with dignity and we rehabilitate and we bring them 
back, the whole message--and we don't want to get into theology 
here--is Grace. Grace means forgiveness, and you work him back 
out.
    So if I am going to arrest somebody for 20 years, during 
that 20-year period, we want to--you know, that is why Chuck 
Colson does a great job on Angel Tree, because different people 
buy gifts for their kids while they are in prison, and then 
they do these things. So I think you can do it in a way, and I 
think we can do it.
    Mr. Serrano. I must say, Mr. Chairman, that if we had 
rehearsed sort of how to win you back, that would have been the 
name to mention. [Laughter.]
    Because it so happens that my predecessor, Congressman 
Bobby Garcia, who saw some difficult times, is very much 
involved with Chuck Colson. He is the son of a South Bronx 
Pentecostal Minister, the Congressman is, and his sister, Amy, 
is a Chaplain at a couple of women's prisons in New York. So I 
know the kind of work they do when they go into a prison, and 
certain I would be supportive of that.
    Mr. Wolf. Okay, thank you.
    Mr. Serrano. Now as far as my question, let me preface my 
comments by saying that Chairman Rogers and I had an ongoing 
oral relationship about the fact that I never missed an 
opportunity during a hearing, any hearing, to mention my 
opposition to the Cuban Embargo, and to--and I just did----
[Laughter.]
    Mr. Serrano [continuing]. And to the relationship between 
Puerto Rico, my birthplace, and the U.S., I call the 
Territorial Badge, the Colonial relationship.
    But it is not out of place in this committee because many 
of the agencies that come before us deal with the issue of 
promoting our Democracy, and so on.
    And so my question to Ms. Smith is about the program in 
Puerto Rico. And then, I won't pass up the opportunity to say 
how ironic it is that we use Puerto Rico to promote our 
democracy and our judicial system to other people while for 103 
years we still have not decided whether to let them be an 
independent nation or a 51st state of the Union.
    But I just wanted you to tell me basically what goes on, 
and who comes, and how much does it cost us.
    Judge Smith. Okay. I do not think it costs us--certainly it 
does not cost the Center anything. And if I might have 
permission, I would like to ask Russell Wheeler, the Deputy 
Director who has been involved in the project himself because 
he has spent quite a bit of time in Puerto Rico helping them 
set up this training program, to just comment if that is all 
right.
    Mr. Wheeler. Well as you know, Congressman Serrano, the 
Commonwealth and Courts in Puerto Rico function in Spanish, but 
they use Common Law procedures. That makes those courts 
probably the only place in the world where judges in Latin 
America where the codes are being changed from a written to an 
adversary system. They can observe that operate in Spanish.
    So the Law School of the University of Puerto Rico for 
about ten years has been providing opportunities for Latin 
American judges to observe that process and to study adversary 
system.
    More recently, the government there has created this 
InterAmerican Center for the Administration of Justice to 
regularize this process. And the Judicial Center has been 
providing them some technical advice and assistance about how 
to use distance education and structure the curriculum.
    AID has provided a grant now to the center to bring groups 
of judges to Venezuela, which is one of the countries that is 
having its own problems and is right in the middle of this code 
transformation, to Puerto Rico over the next two years in 
classes of about 40 to go through this course.
    And I think there is going to be interests in others. We 
are just getting it going now. Professor Roberto Opante of the 
Law School--maybe you know him--will be in town later today for 
a meeting at AID which we are going to try to get to.
    Mr. Serrano. Now, just very briefly, what is it that we--I 
mean if they had no courts, I know what we would teach them, to 
have a system like ours, but they do have a system that they 
are trying to make like ours.
    What is it specifically, in a very brief moment, that we 
teach them?
    Mr. Wheeler. If you want me to, what's called a Tribunal in 
Venezuela, you will see a room about this size with the judge 
and stenographers taking testimony from witnesses. And then the 
judge issues a ruling, and then the lawyers will come back with 
a response. But it is all written. There is no exposure in open 
court to witnesses, to the offering of testimony, and to the 
whole adversary process.
    It is not just a technical change; it is a whole different 
mindset. So you need to see it happen. It is not enough to read 
about it. You can see it happen in Puerto Rico. But you can see 
it happen in Spanish.
    Now the Code in Venezuela is different than the Criminal 
Procedure Code in Puerto Rico in its details, but it is not 
different in its basic design. It is the common law system that 
makes Puerto Rico, as you know, this unique institution that 
has one foot in the common law and one foot in the civil law 
system.
    So that is what they see there. They see the common law 
procedure operate in a Hispanic sense in Spanish.
    Mr. Serrano. Yes, I can imagine, Mr. Chairman, where they 
would be seeing a system they would respect and want to imitate 
in a language they understand and would be able to apply back 
home.
    Mr. Wheeler. That is the essence of it.
    Mr. Serrano. Thank you.
    Mr. Wolf. Mr. Kennedy.
    Mr. Kennedy. Thank you.
    To continue on the issue of the First Circuit Court of 
Appeals, which actually takes in Rhode Island as well as Puerto 
Rico, I was----
    Mr. Serrano. The Island States.
    Mr. Kennedy. Yes. [Laughter.]
    We are both islands.
    Chief Judge Terrera has talked about the security issue and 
mentioned about how the terrorism trial he had was really a 
major problem in terms of the security.
    Would you comment on judges' security when it comes to many 
of these issues, their own personal security? Is that an issue 
here when you are talking about enhancing security for the 
court? It does not just mean within the court, but also the 
threats towards judges as well?
    Judge Heyburn. Well I think you have got to deal with it on 
several different levels. We are constantly reassessing the 
level of security that is provided to courthouses and to 
judges.
    As a matter of fact, we have an independent consulting firm 
right now looking at the security that we provide, whether it 
is the right kind of security, whether it is enough security.
    So we want to provide a level of security that is 
sufficient to individual judges and courthouses.
    On an individual basis, in districts around the country, 
the United States Marshals look at particular security 
problems. When you have a trial that involves dangerous people, 
or that is getting a lot of notoriety, then I think at this 
point we are confident that on those occasions the Marshals 
Service is providing the kind of individual attention to 
security that is necessary.
    We have federal judges around the country who are being 
guarded on occasion 24 hours a day where the situation warrants 
it. Thank goodness that is a very, very small minority of the 
federal judges.
    But where that becomes necessary--and it does become 
necessary on occasion--then the U.S. Marshals Service is able 
to devote that kind of attention.
    Judge Mecham. You mentioned Chief Judge Terrera of the 
First Circuit, who by the way is one of your fellow Puerto 
Ricans and a great leader in the Judiciary, he with others on 
the executive committee talked with the Attorney General about 
this, as they had Ms. Reno before.
    We really have a major shortage in manpower of the U.S. 
Marshals Service. They have done a study. They need 2000 more 
people. They went the other way. They actually lost 600 jobs. 
So there is not the kind of security that ought to be provided 
for judges and courts around this country because they do not 
have the manpower.
    They are the orphans of the Justice Department. The glamour 
of people like the FBI and the U.S. Attorneys, and DEA, and all 
that stuff, they get the money. But the poor Marshals Service 
who claim that security of the courts is their number one 
objective, they do not get the money, and being number one is 
no honor for the Judiciary.
    Mr. Kennedy. Well I appreciate that, Mr. Director, and I 
thank you for your comments on that because I think we are 
going to look for the Marshals Service to get some more support 
for security for the reasons you have outlined.
    I want to thank you, on an aside, for the work that you did 
with Judge Tores up in my State when it came to the Defenders, 
additional Defenders that we needed in the Defender Service in 
Rhode Island, the two attorneys for that. So I wanted to just 
thank you for your help back home. The feedback has been great 
in terms of their work with you, and I want to thank you for 
that.
    Judge Mecham. Well thank you.
    Mr. Serrano. Well, Mr. Chairman, if I may just for a 
second, you mentioned Judge Terrera. He was faced with an 
incredible situation where the Legislature in Puerto Rico voted 
to have an election this past November to vote for President, 
and then to send the votes over to Congress and say, ``It is 
time for you to decide what to do with our votes. We are 
American citizens.''
    The Justice Department was forced to do something no 
justice department should ever be forced to do. They are 
usually defending our rights to vote. They had to go to court 
to say these people should not be allowed to vote.
    And the court decided they shouldn't, but the Judge wrote 
about the right of people demanding this vote, but that we 
can't give it to them because it is not a popular vote, it is 
an electoral college vote. So that was chapter one of how the 
electoral college was going to do in a lot of people in this 
country, as we later found out. [Laughter.]
    But it was an earlier decision than November he basically 
said they are right. They should vote. How can you deny 4 
million Americans the right to vote for their President? He 
says, but the Constitution says it is the electoral college not 
the popular vote that counts.
    Mr. Kennedy. Well I think Judge Heyburn said something 
about that earlier when he said that, quoting Hamilton, the 
Judiciary was the least threatening. I think in this last 
election we learned that maybe that is otherwise. [Laughter.]
    Judge Heyburn. I will not touch that one. [Laughter.]
    Mr. Kennedy. The Supreme Court is coming in next week. 
[Laughter.]
    Mr. Serrano. Those comments are all that this side has left 
to say.[Laughter.]
    Judge Heyburn. As I said, the Supreme Court speaks for 
itself in all measures.
    Mr. Wolf. And one of the best Justices from my 
Congressional District, Justice Marshall, out in Fauquier 
County. So in Virginia it is amazing the people who have come 
out of Virginia. There was Madison with the Constitution, and 
Marshall obviously with regard to the Supreme Court, and never, 
ever did a group of men at one time make an impact on the world 
from one State.
    There was Washington, whose first elective office was from 
my Congressional District, not in Mt. Vernon but Winchester, 
Virginia, and he lost on the first time. But Marshall, and then 
Madison, and Jefferson, and Monroe. So it was a pretty 
incredible time.
    Mr. Kennedy. You forgot Mr. Wolf, too. [Laughter.]
    Mr. Wolf. No, I am not in that category.
    Mr. Serrano. You can skip me.
    Mr. Wolf. We are going to end. There are just two comments 
I have.
    One, I think your comment on the Presidential Commission is 
a good idea with regard to the whole recruitment effort. When 
we have a new Office of Personnel Management Director we are 
going to ask them to deal with these issues in a very upfront 
way.
    Maybe this is an opportunity for the Bush Administration to 
take the lead on recruitment and retention in the Federal 
Government. We want the Federal Government, whether it be the 
Judiciary or the Executive Branch, to be the very best. I think 
your idea makes a lot of sense of a Presidential Commission, 
almost like a Hoover Commission back in, I guess that was the 
last '40s or early '50s I think did that.
    On the other issue, I think the courts are going to have to 
speak out a little bit, too, on the whole issue of the drug 
problem. We really do not have a war on drugs.
    As Chairman of the Transportation Committee, we have beefed 
up the Coast Guard aggressively. I do not think the Coast Guard 
has ever fired on an airplane or a fast boat coming out of 
South America.
    It is one o'clock in the morning. That fast boat is moving. 
They know what is on there. And they have never done it.
    I think we have to be very much more aggressive with regard 
to enforcement. But on the other hand, we have to be much more 
compassionate with regard to rehabilitation.
    I am sure most of you saw that movie Traffic, which I 
thought was a very good movie to sort of force us to focus. My 
sense is, speaking for myself, there ought to be much more 
aggressive enforcement at the border, and beyond the border, 
meaning going down into Columbia and places like that.
    But on the other hand, we need great education, which we do 
not have. And Mrs. Roybal-Allard, who is not here, offered an 
amendment last year, which I supported, which failed in the 
Full Committee, that said that the Drug Czar, General 
McCaffery, could have taken some of that money and applied it 
to education on the ads for 13-year-olders for drinking. The 
alcohol industry and the lobbyists were all into this place, 
and we were not even able to get enough votes to say that we 
should educate 13-year-olders not to drink.
    Drinking at 13 is the gateway to drugs at 15. So education 
to keep people from moving in, and then rehabilitation, that if 
a person does get caught into the culture, to rehabilitate them 
to do everything we can so that we are not just warehousing 
people for 20 years, and different things like that.
    So it is a three-legged stool. It is rough, tough 
enforcement, which the Coast Guard does not do. They do a great 
job of rescuing people, but they do not do it. They actually 
have a night goggle vision. They know who is coming in. They 
know where it is coming in from Mexico. They know all that, but 
nothing is done.
    But more education and more rehabilitation for those who 
are caught in it. I think the Judiciary has to kind of speak 
out and be a voice on this issue, because you certainly have an 
understanding far better than maybe somebody that is in my job 
or somebody else.
    And lastly, we will attempt to do what we can with regard 
to the budget, knowing that you stay in touch with the staff 
and us, but the numbers that we now are looking at look really 
bleak.
    So we are going to try to do what we can to help you, but 
you have got to look at it based on the allocations that we are 
going to be getting. And the State Department has been 
increased dramatically, which I support.
    And so as we put some of these up, others, there are 
winners and there are losers in this process. And so as we go 
through the process, it will be tough but we will try to do the 
best we can. And I appreciate your testimony.
    And unless Mr. Serrano has a question, we will end.
    Mr. Serrano. No, just to once again agree with you. This is 
becoming a love fest, and I like it----
    [Laughter.]
    Mr. Serrano [continuing]. But people watching this later on 
TV, or whatever, may say why were they getting that speech 
about what needs to be done.
    Well, you are the ones. It is the Judiciary that is charged 
with the responsibility of sending someone away. And I can tell 
you, as one who grew up in the South Bronx, the line between 
being a quote/unquote ``upstanding citizen'' of the community, 
who can become a school teacher, a professional, get elected to 
Congress, and the line between being an inmate somewhere is a 
very, very, very thin line.
    And some people will say, oh, no, that is not true. You are 
putting yourself down. No. It is true. It is a very thin line. 
And so many of my friends could have turned out another way if 
their first mistake had been treated differently, not as 
harshly as it was, number one.
    And secondly, that they were bombarded by everything, 
everywhere they went, about how good it is to do drugs and 
drink and smoke and everything.
    And, you know, a minister, talking about faith-based 
programs, goes out and says take billboards down that advertise 
to children, he was the monster in the community because he was 
taking on these giants.
    So maybe it is time to more and more focus in your 
profession and begin to say, you know, we do not like sending 
these folks in there. And there is a disproportionate number of 
people from certain communities going in, and there has to be a 
problem somewhere.
    If we talk about it, maybe if we start hearing it from 
those who are charged with the responsibility, and who are 
respected, maybe you will have an impact.
    Judge Heyburn. Well as you know, there have been Federal 
judges who have spoken out quite strongly, as they believe it 
is appropriate, in newspaper articles, law journal articles. 
There have been senior Federal judges who have refused to hear 
drug cases for precisely that reason.
    I think Federal judges as a whole believe in the potential 
of human individuals and the ability of people to change. And I 
think by a huge, overwhelming majority Federal judges would 
like to have as many options available in sentencing as they 
possibly can to use what you have referred to as hopefully some 
intuition that we have that we gain by experience to do what is 
best.
    And sometimes that involves long sentences, and sometimes 
it does not. We are all trying to do the very best we can, and 
this has been a fascinating discussion, and we are asking for 
the resources to continue to do our job.
    We look forward to working with you and accomplishing what 
I think we are all striving in many ways for in a single 
objective here.
    Mr. Wolf. The hearing will be adjourned.
    Thank you, very much.
    Judge Heyburn. Thank you.
    Judge Mecham. Thank you.
    Judge Piersol. Thank you.
    Judge Smith. Thank you.

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                                             Tuesday, May 22, 2001.

                   FEDERAL COMMUNICATIONS COMMISSION

                                WITNESS

MICHAEL K. POWELL, CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION

                           OPENING STATEMENT

    Mr. Wolf. The Committee will come to order, and good 
morning. We are here today to review the fiscal year 2002 
appropriation request for the FCC.
    We are pleased to welcome the new Chairman, Michael Powell.
    I will not have a formal statement. At this time, we will 
just recognize Mr. Serrano for any comments.
    And then you can proceed. Your full statement will appear 
in the record, and you can proceed whatever way you see fit.
    Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman.
    I also would like to welcome Chairman Powell and look 
forward to his testimony. We have a series of questions, and I 
know that to certain communities throughout this country, the 
FCC has become an item of very serious discussion.
    I look forward not only to this hearing but certainly to 
working with you on dealing with some of those issues.
    Chairman Powell. Thank you, Mr. Chairman. It is a pleasure 
to be here. I am honored for this first opportunity for me to 
appear before this subcommittee as the new Chairman of the 
Federal Communications Commission and I feel particularly 
privileged to do so, seeing as this is the beginning of your 
tenure as well as the beginning of mine. It is an opportunity 
for a real fresh start to deal with some of the most 
extraordinary challenges facing the country in the area of 
communications.
    I have taken the liberty of providing for the record a 
fairly comprehensive statement about current circumstances in 
the communications industry by way of background, and to give 
you a strong and sincere sense of the direction that I hope to 
take the Agency as we continue to work in partnership for the 
betterment of our citizens.
    I thought, though, I would provide some context before 
jumping to the numbers, to give you some sense of what we are 
facing in the communications sector.
    In essence, the communications marketplace is marked by 
four things: change, uncertainty, hopeful promise, and 
potential danger. This situation is being brought about by one 
of the most extraordinary revolutions in technology in the 
history of the world.
    In the area of change, we see that beginning with the 
Telecommunications Act of 1996, we had a decision by the 
government to move our industries out of the historical 
regulatory monopoly environment that has existed for over a 
century. And that has led to growing pains and challenges for 
the Commission as it unwinds the legacy of a hundred years of 
monopoly.
    Perhaps the most important change is the confluence of two 
phenomenal revolutions, the communications revolution and the 
computer revolution, which is embodied in what we know as the 
Internet.
    When communications begins to be intermingled with 
computing processing power, you have new possibilities of 
services that have never been imagined before.
    Think simply about the idea of speaking into a telephone in 
English and having it come out French, or the increased ability 
to use information processing to bring all kinds of new 
communications services to the consumer.
    And we see them entering the marketplace, not only simple 
Internet functionality but email, instant messaging, IP 
telephony, all new advances that have heretofore not been known 
or understood.
    This will create greater choice for consumers but it is 
also going to create a great deal of anxiety and confusion on 
their part as well.
    Secondly, uncertainty. It is quite clear, to be ironic, 
that our crystal ball has gotten very cloudy. With advanced 
digital technology, it is very difficult to predict what the 
communications space looks like a year from now, let alone five 
years from now, and it is difficult to appreciate what that 
means for regulations.
    It is very difficult to write rules that have a sound basis 
on assumptions that will maintain their validity for any length 
of time.
    So we are increasingly being challenged to understand how 
to make sound, clear judgments and decisions in light of an 
environment in which we cannot predict with much certainty how 
the technologies and services will unfold as they go forward.
    This is very different than the past that we have 
experienced--when we dealt with the mature network in which we 
understood the technologies, and we understood the services 
being provided.
    I also think it is a period of hopeful promise, and this is 
the rhetoric we hear and the hyperbole we hear, not all of 
which is incorrect about the new possibilities for our society.
    I think that the communication revolution brings new 
strength and robustness to the economy. The increases in 
productivity, the ability to drive a healthier economic 
environment all certainly have been attributed to many of the 
changes in communications and technology, even despite the 
current business cycle downturn that many industries in our 
country are experiencing.
    The FCC's portfolio covers somewhere in the neighborhood of 
14 to 17 percent of the nation's GNP. That gives you some sense 
of the magnitude and the importance of our activities.
    And it will be new opportunities for our citizens and 
particularly for our children. The new advanced ways of 
communicating and providing information provide great 
educational opportunities--opportunities for inclusion where 
there has been none before, and great opportunities for 
bridging differences that have existed and persisted in our 
society.
    And so these promises are hopeful in the new technologies.
    I also think, though, that we will face new dangers. The 
Internet is all things at once. While it may be a library, it 
may be a bank, it may be a place for commerce, it will also be 
a crime scene. And it will also be a place where people are 
defrauded. It will be a place where pornography is carried. The 
problems and ills that face our society and to which citizens 
have demanded a governmental response will continue and in a 
more elusive form than they have ever been before.
    So there will be both a curse with a blessing of 
advancement in communications, as there always has been with 
new innovations, and those will be challenges to the government 
as well.
    And increasingly, we may see anticompetitive harm. As new 
technology provides opportunities for new companies to come 
together in new ways and provide new services, they will 
present new challenges to anti-competitive concerns and harms 
in the middle of which we will be stuck.
    So, in a nutshell, the FCC is faced with an unprecedented 
period in which every single area that we regulate is in the 
midst of probably its most profound revolution.
    If you choose television, you will talk about the 
transition to high definition television, perhaps the most 
significant change in television in its history.
    The rise of wireless mobility and Internet mobility, the 
rise of competitive environments in the telephone system, and 
satellites. Space is becoming more cluttered than ever as more 
and more services are deployed into the orbit.
    So this is a challenging time for the Commission as well as 
the industries we face and it is clear, just as industry and 
citizens grope with the new realities and the proper business 
models for this environment, so must the government and so must 
the FCC.
    In the first few months after I became Chairman it became 
very clear to me that the Commission needed a very sound 
business plan, if you will, so that it will maintain its 
relevancy and currency in light of this dynamic environment.
    And I hope to make the agency a model of effectiveness, 
efficiency, and responsiveness. Much of that will involve four 
basic programs.
    We will continually work to develop a clear substantive 
policy vision to guide our deliberations with greater 
predictability, so industries and consumers will have a better 
sense of the direction we are headed.
    I think we will have a very strong and pointed emphasis on 
management and operations to a degree not previously seen at 
the Commission. I consider that part of my sacred 
responsibility--to leave an agency that is a model in terms of 
its operations, its efficiencies and its ability to make quick 
and meaningful decisions in Internet time.
    I think to do that, the Commission will have to have an 
extensive training and development program that allows our 
employees and our engineers and our economists and even our 
administrative staff to increasingly be schooled and educated 
in the changes that go on in technology and in the market, so 
that they can maintain their currency and their relevancy.
    We have committed to a very serious program, which we refer 
to as the ``FCC University'' to provide our employees with 
life-long learning in the pursuit of their objectives.
    We also have an increased recognition that the agency needs 
an independent, technical expertise. I have been there for 
three-and-a-half years. I have seen the challenges of trying to 
review a merger involving the likes of Bill Gates or Steve 
Case. And at the same time, you are trying to make judgments of 
the value to the public interest of their combination, you are 
having them teach you about their technology.
    That ultimately is an intolerable situation. The Commission 
has to be able to scrutinize and make those judgments 
independently, and so it will endeavor to improve its technical 
and engineering resources.
    And finally, as any agency must to be contemporary, we will 
look at organizational restructuring and reform so that we are 
organized in a way that is more fitting of a converged 
marketplace.
    Increasingly our bureaus mimic the kinds of services and 
products that are available in the economy. That is, they 
reflect the way that consumers see and hear the new economy. 
Our new divisions will not be balkanized by technology 
assumptions of the past.
    And that is going to be a big challenge for us.
    In short, all of these things are things that we are 
committed to doing. Many of them will not require more 
resources, and we understand, as a sacred trustee of the 
taxpayers' dollars, that we should endeavor to do as many of 
these things as cost-effectively as we can.
    But we do ask the taxpayer to make an investment in their 
future in this regard, and for fiscal year 2002, we will ask 
for a total appropriation of $248.5 million. That represents no 
increase in direct appropriations which will remain at $29.8 
million. It will represent a 9.3 percent increase in the use of 
our regulatory fees which has been a very effective way of 
funding our operations.
    And so with that, I am pleased to be here, happy to have 
the opportunity to work with all of you, and I look forward to 
your questions.
    [Written statement of Mr. Michael Powell follows:]

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                        BUDGET INCREASE REQUEST

    Mr. Wolf. Thank you.
    When you talk about your resources, your request represents 
about an eight percent increase in spending in a year when 
President Bush has requested that non-defense programs across 
the board receive closer to a four percent.
    What circumstances do you think exist at the FCC which 
would put you in a situation that the FCC should have a larger 
increase than most other agencies?
    Chairman Powell. Well, I certainly cannot make complete 
comparisons with the value of the request of other agencies, 
but I will say the Commission is faced with a relatively dire 
situation on the IT and technical capability front, which I 
mentioned.
    As I said in my opening statement, we represent a 
substantial part of the regulatory oversight of the economy, 
somewhere in the neighborhood of 14 to 17 percent of the GNP, 
and I think out of years of laxity, we face what is almost 
critical problems in our technical environment.
    For example, just in the area of engineers, which we 
compete for in the same labor markets as do advanced companies, 
we have 30 percent who are eligible for retirement. That number 
will move to 40 percent relatively rapidly, and the attrition 
is phenomenal.
    We are unable to replace them at the same speed as we are 
losing them, and I think that the public interest is going to 
be sorely underserved if that is not stemmed the tide of that 
is not stemmed.
    I also would emphasize that, as an agency that is 
substantially dependent on fees, we have carefully ensured that 
this could be done without a net increase of the burden the 
taxpayer directly through appropriations and only through an 
increase in our offsetting collections of fees.

                        BROADBAND INFRASTRUCTURE

    Mr. Wolf. Of course there are a number of other agencies 
that could basically say the same thing. The IRS could say the 
same thing. Customs could say the same thing.
    In reading your statement, with your plans to move the FCC 
forward, you suggest a four-point approach to the plan, 
beginning with a need for a clear policy.
    The overarching theme appears to be to move the industry 
towards digital broadband future.
    What does it take to facilitate the deployment of a 
broadband infrastructure, and how do you propose to accomplish 
this policy?
    What are you going to do?
    Chairman Powell. Under section 706 of the Communications 
Act, the Commission has an obligation to continue to evaluate 
the pace of advance service deployment, and we do that in a 
number of ways.
    The first thing we do is remain very vigilant about what 
the conditions of deployment are. The Commission annually 
evaluates and studies the deployment of advanced services and 
accumulates that knowledge in the form of a report that it 
submits to Congress at the end of the year. That helps us 
identify what the pace of deployment is, and what the obstacles 
to that deployment are.
    And that allows us to soberly evaluate whether there are 
places in which the government can make a meaningful 
contribution to the increased timeliness of that deployment.
    So I would not minimize the importance of continued 
observation, study, and information collection. It is also 
material that is used by any number of agencies, as well as the 
private sector, to consider what their alternatives are.
    Secondly, we are very committed to the universal service 
programs which are embedded in the telephone fee collection 
system in a way that we are able to provide subsidization for a 
lot of infrastructure so that many of the services, or at least 
the telecommunication infrastructure on which these services 
depend remain ubiquitous and affordable to all Americans.
    The universal service fund is a significant component to 
making sure that rural parts of the country or parts of the 
country that have very high cost dynamics nonetheless have the 
right amount of subsidization to afford those services.
    We also have a series of proceedings that are about 
reforming and continuing to assure that the universal service 
component remains strong, and the goals of ubiquity and 
affordability are maintained.
    And then finally I would say there are a bevy of areas 
where we are considering what is the right regulatory 
environment that actually encourages investment in advanced 
architecture. The advanced architecture will be an 
extraordinarily expensive undertaking to roll out the kinds of 
fiberoptics and advance systems that are necessary to provide 
these services.
    I think the government, more than ever, has to learn about 
what are the regulatory environments that cause money to flow 
into those endeavors. I think there are any number of things 
that we do, for example, eliminating regulatory arbitrage 
opportunities where because of the quirks of legacy regulation, 
companies enter markets not for the efficient deployment of new 
services, but often to take advantage of loopholes in the 
legacy regulation that allow them to gain super economic 
profits in a short term, and I think ultimately not to the 
benefit of consumers.
    And so we have a whole series of proceedings trying to 
rationalize rules that were essentially written in the 
telephone era world, so that new entrants will have an 
incentive to deploy the new, modern, advanced architecture, as 
opposed to take advantage of short-term opportunities in the 
old.
    Mr. Wolf. This is a budget hearing, but there will be a lot 
of questions that are non-budget questions.
    I think it is fair to say, then, that most of what you are 
talking about will probably cost more money. The Committee 
should not look for any savings with regard to that. It is more 
of an aggressive approach, and with the costs justifying the 
eight percent or nine percent as the out years go out, perhaps 
more and more as we go out.
    Is that correct?
    Chairman Powell. I think so, Congressman. I think that one 
of the things that we have committed to as a nation, 
particularly embodied in the 1996 Act, was to undertake an 
extraordinary effort, to reverse a regulatory environment for 
the good of the economy that has existed for a century.
    I think that is cost intensive. It gives the FCC a central 
role in this economic revolution in transitioning that 
environment. And I think that we can be very cost effective 
about it.
    I think that we can maintain only steady increases, as 
opposed to dramatic ones, but I think where we do identify 
shortcomings that really are going to reflect on the public 
interest, we have to be candid about those and be willing to 
invest in them.

                       RECRUITMENT AND RETENTION

    Mr. Wolf. Tell us a little bit about the recruitment and 
the retention. You mentioned it briefly.
    Where are most of your people going that are leaving? Those 
that are not retiring, those who are leaving, where do they go?
    Chairman Powell. It is a great question. The FCC is 
challenged because the subject matter we deal in is quite 
lucrative.
    Mr. Wolf. Yes.
    Chairman Powell. It is amazing we keep anyone at the FCC. 
And sometimes I wonder how we do. But a good number of them 
have an extraordinary number of options available.
    We are regularly raided by corporate America, someone who 
develops expertise in the telephone area very easily finds 
himself leaving the Commission to work for one of the major 
telephone companies.
    A lot of them have been attracted by many of the new 
entrants, start-ups, dot.com type companies. It is a little 
less so right now but we have often had people lured away for 
that reason.
    And, you know, ironically, with respect to attorneys and 
certain other professional disciplines, we seem to be able to 
do all right. We are able to attract talented people and 
replace them because they see the value of public service, 
which I think is enormous.
    The greater challenge comes with the kind of specialties or 
technical expertise that the AOLs of the world want just as 
much as we do.
    Mr. Wolf. Such as what? What jobs?
    Chairman Powell. A perfect example would be an entry level 
engineer who is critical to understanding issues of technical 
interference and spectrum management. We talk about things like 
lower power FM radio services and new advanced satellite 
services.
    One of the big sets of questions increasingly is, can that 
service exist without interfering or causing technical problems 
with existing services.
    This is something that very few lawyers at the agency are 
going to be capable of resolving.
    Also, because technology can be advocated to us, various 
sides will say that it cannot exist without causing 
interference; other sides will say that it can, and having the 
kind of entry level and junior engineer who is able to do that 
sort of work and resolve that is a difficult person to attract 
at GS-5, GS-7 levels.
    Mr. Wolf. How many vacancies do you have now?
    Chairman Powell. I do not know what our total vacancies are 
against what we are authorized. Sixty vacancies? About 60 
vacancies.
    Chairman Wolf. Is that higher than normal or is that about 
what it would be for this time of the year?
    Chairman Powell. I think it is higher than normal, we are 
being told.
    Mr. Wolf. We had a job fair in my district at the CIT 
center. Did the FCC come? Did you find anybody there that you 
felt was good, because there are opportunities out there.
    We have urged other agencies that are going through hiring 
problems, particularly with what is taking place in the economy 
here and other places--this is an opportunity.
    I found a lot of people were excited about moving into 
government service, and I think government service is more than 
just being paid a lot of money. But the opportunity--as a young 
person to be involved in an issue that, if you were out at a 
high tech company, you may not get involved in, to make an 
impact and a difference--is very exciting.
    That is the same with regard to lawyers. A young lawyer at 
the Justice Department works on cases that, if he were at Akin, 
Gump, his name would never surface. And so here is an 
opportunity I think for public service. So I think you should 
be aggressive.
    That was a short-term job fair. There are many more. We 
also have a list of all the companies in my area and also Mr. 
Davis' and Mr. Moran's, who are laying off and have laid off 
workers. You might want to contact my office to get that list 
and go out because I think most of the companies would 
certainly want to help their employees who were faithful and 
had worked there.
    Are you asking for any type of legislation with regard to 
payment, like the SEC has?
    Chairman Powell. Payment flexibility? We have considered 
legislative proposals and I think that we have even drafted a 
potential proposal that allows some personnel flexibility.
    I do not know that I would characterize that we have 
formally requested it. But in discussions with people who have 
been interested in the engineering deficiencies, we have been 
asked about what legislative changes would be permissible.
    I am not that familiar with the specifics of what the SEC 
has, but as we have discussed in your office, I think there 
really are opportunities in working with the Committee to try 
to find personnel flexibility to help with that.
    Mr. Wolf. How long does it take to bring somebody on from 
when you begin? You do not have to go to OPM? Is that correct?
    Chairman Powell. We do. We have our own hiring authority 
but I think at certain levels, we do get, depending on the 
personnel category that they are being appointed to, we do have 
some OPM approval, don't we?
    Mr. Fishel. We have delegated authority from OPM to do most 
of the hiring that we need to do.
    Mr. Wolf. Do you have the authority to offer a higher 
salary, to break out of the GS-5s or GS-6s, whatever the case 
may be?
    Mr. Fishel. On a limited basis within the grade, we can do 
advanced steps but not to disregard the pay schedule, no. To 
get advanced hire for background and experience.
    Mr. Wolf. Do you have that for senior positions too?
    Mr. Fishel. On a very limited basis.
    Mr. Wolf. Several years ago, when I was with the 
Transportation Appropriations Committee, we gave the FAA that 
ability, in procurement, but particularly with regard to hiring 
to go out, because of the technical nature of the work. And you 
are in a similar situation. Obviously, skills you have at the 
FCC would be different than maybe if you were working on 
marketing orders at the Department of Agriculture.
    So I think the Committee would be willing to help you, 
certainly on a one-time basis, if you needed that, to go 
outside the normal hiring process, if we had the approval of 
the authorizers.
    I have a lot of other questions, but I will recognize Mr. 
Serrano.

                 SPANISH LANGUAGE RADIO AND TELEVISION

    Mr. Serrano. Thank you, Mr. Chairman.
    Chairman Powell, to use a radio and TV term, before we get 
to our regularly scheduled set of questions, coming in this 
morning I heard on the radio two items that caught my 
attention. They both have to do with Spanish radio and TV.
    One of them is that Univision has been okayed to purchase I 
believe it is 13 TV stations from one of the quote unquote 
lesser networks. I do not know which one it was, UPN or WB.
    Could you tell me something about that? Will these be 
Spanish language TV stations or is it just that they are 
purchasing stations? Not just. That is a pretty big deal.
    Chairman Powell. Yes, Congressman. I am sorry I am not 
particularly familiar with the specifics of that transaction. I 
would be happy to find out for you, and I do not know whether 
there is anything in the Commission precedent that would 
mandate the continuance of Spanish language programming, 
although I will say that the growth of Spanish language 
broadcasting stations has been extraordinary. We have seen 
really phenomenal growth in Spanish-oriented programming 
throughout the country.
    And indeed, when you factor that into the level of diverse 
programming that is going on in the country, it has contributed 
a substantial amount.
    Univision is just one of the many who have proved to be 
very, very successful and commercially viable in providing 
those opportunities.
    But we will be happy to find out the specifics.
    Mr. Serrano. Please. I would appreciate that because that 
was a big item this morning, both on Spanish radio coming in 
from New York and on local radio.
    The other thing is that I sometimes wonder--and I am not 
trying to suggest that you do, but I do not know--what advocacy 
role the FCC can at times play.
    The good news about Spanish TV is that it is growing and it 
serves the community well. The complaint, in many cases, is 
that the programming, most of it, comes from out of the 
country, and that there is no opportunity for local producers 
and local artists--local meaning the 50 states and the 
territories--to be seen or to have their products seen, their 
artistic products seen.
    Does the FCC take that into consideration when granting 
licenses and allowing sales and so on?
    Chairman Powell. Probably not to the degree they are 
suggesting. There are few, if any, regulatory rules with regard 
to the content selection of a broadcaster.
    Interestingly enough, there are some in the context of 
cable television and multi-channel, at least not as to what the 
nature of the content is, but an opportunity for alternative 
sources of content.
    We do have policies under the Public Interest Standard that 
are designed to emphasize localism in terms of the community of 
license. But we also have a pretty significant upper limit with 
respect to the degree to which we can dictate editorial or 
content choices under First Amendment jurisprudence.
    Often at times when we have moved in that direction, we 
have been quickly rebuffed by the courts. So we walk a fine 
line with broadcasting between trying to make sure that 
broadcasters serve their local communities and they have 
locally-oriented programming. But there is very little that 
could specifically dictate the source of that programming or 
the nature of it.
    It is important to recognize our regulatory authority runs 
to the distributor--the licensee--not to the program providers 
themselves, so it also sort of cuts us off to some degree on 
our ability to influence the kind of programming that is 
actually produced or where they come from.
    Mr. Serrano. Right. I suspect that with these questions and 
my next question, a lot of it may require our ability to talk 
to your folks later, just to get a clearer picture.
    I am not suggesting at all that we tell people before we 
issue a license what they have to put on the air, but you know, 
the good news is that this Hispanic market, which is fueling 
all these purchases and sales, has a lot of local talent 
amongst its ranks.
    And yet, if you happen not to be from one of those 
communities or living out of the country, you may not end up on 
one of the soap operas or one of their shows. And it is kind of 
ironic because these folks come here from these countries. They 
then create the market which allows for the sale and purchase 
of these stations.
    And then, unless they go back home, they probably will not 
get on one of the programs to show their talent.
    Chairman Powell. That is right. I am somewhat familiar with 
the situation, having read about these controversies, 
particularly the soap operas and the selection of artistic 
talent, and I think that is probably a very real problem. I 
think it is probably one outside of what we reach but I do 
think that we could give you a pretty solid understanding of 
what the parameters are of the licensee's obligation.
    Mr. Serrano. Right. And I would like to do that because I 
am sure that there are ways within the law that you could make 
friendly suggestions to people as they come on board.
    The second item I heard was an interesting one. In LA and 
in New York, to mention two, and I think Philadelphia, also, 
for the last few months or years, Spanish language radio 
stations are now number one. In LA, number one, number two, and 
number three, the top three stations in listening audience.
    And yet when it comes to billings and ads placed by 
corporate America, they are number 20, 22 in those markets. And 
enough studies have been made by advocacy groups to indicate 
that a lot of those folks in corporate America have made 
conscious decisions not to advertise on some of these stations.
    My staff calls that foolish investment practices that 
eventually will catch up to them. But again, within the scope 
of what you can do legally, is there anything folks can look at 
as to why this disparity?
    If these stations had no audience, you could understand why 
they may not be making the money other folks are making, but 
they now have the audiences, and yet they cannot get those 
folks to advertise.
    Chairman Powell. The long and short of it is, we have seen 
that problem before. We have seen that with the black community 
as well. There have been efforts in the last couple years to 
study those practices and at least put a spotlight on them.
    There are two dimensions to it really, the actual 
advertising practices component is probably vested at the 
Federal Trade Commission and they have been partners of the 
Federal Communications Commission in working through the 
studies and development partly out of the recognition that the 
statute specifically excludes the FCC from advertising and 
advertising practices and the FTC has that squarely within its 
jurisdiction.
    And so we have worked with the FTC in a partnership. As you 
mentioned, your advocacy component spotlights that to the 
extent that someone has actual authority to take action. In 
furtherance of that, I suspect that rests there at the FCC.
    Unless it rises to the level of actual civil rights 
discrimination, which I think is an entirely different set of 
questions that could be raised in some context. Then you are 
talking about the civil rights authority of either private 
action lawsuits that are available or the Department of 
Justice's authority under Civil Rights statutes.
    But there certainly are places in the government at large 
that have some components of this issue. I suspect that the 
most central one is the Federal Trade Commission.
    Mr. Serrano. Right. Just before I close on this issue, I 
remember that when I was much younger, whenever we in the 
Hispanic community complained about equal and fair treatment, 
the comment was always, well you guys do not have the numbers. 
You happen to be in one of the few agencies where the numbers 
are there. TV stations, radio stations, the ratings indicate 
that.
    And so I would like to meet with some of your folks to see 
what, within the law, can be done just to, if nothing else, 
spotlight this, really highlight it and show people that there 
is a disparity here. You can see maybe why Rolls Royce does not 
want to advertise in the South Bronx or in East LA maybe, but 
certainly Coca Cola and Pampers and other products.
    I mean, Goya knows it well and Goya advertises 24 hours a 
day. So what is wrong with the other folks?
    But I thank you for that, Chairman Powell, and I hope we 
can get together and talk about that.
    Chairman Powell. You are welcome Congressman. We will do 
that.

                             DIGITAL DIVIDE

    Mr. Serrano. Chairman Powell, as you know, I am keenly 
interested in the issue of addressing the digital divide, 
making sure that technological breakthroughs provide as much 
promise to the under-served communities as they do to wealthy 
communities.
    What do you see as the role of the FCC in addressing the 
issue of the digital divide? How do you plan to use your 
position as Chairman to ensure that we are doing everything we 
can to narrow the divide and make sure all people have the same 
access to technological advances?
    Chairman Powell. Well, I would begin by saying that the 
Agency has a long-standing commitment to ubiquity, 
affordability, that is for all Americans, affordable prices, 
and it continues to be guided by that policy.
    And it is embodied in the statute which we steward.
    I also think that we have a lot of reasons to be very 
optimistic about the deployment of advanced technologies to all 
Americans, and I would submit at a much faster rate than we 
have ever been able to deploy similar innovations, whether that 
be electricity, the telephone system itself, television, cable, 
water, plumbing. None of them have progressed at the rates that 
we are beginning to see in the area of advanced technologies.
    I will give you an example: Internet functionality, which 
really became commercially available around 1995. As of 1999, 
90 percent of all Americans had access to the Internet from at 
least ten ISPs or more.
    That is an extraordinary achievement in a short period of 
time in the regard to narrow band infrastructure.
    With regard to broadband infrastructure, currently about 
seven percent of all Americans have access to high speed 
broadband functionality, and it continues to grow at almost 
triple digit percentages.
    So we have a lot of reasons to suspect that these 
technologies will get to communities.
    Last time I looked at the statistics, there was some form 
of broadband being offered in every State of the Union.
    The other reason I am fairly optimistic about this is that 
there is something very different about broadband deployment 
than there has been about the other kinds of systems we have 
deployed in the country.
    The telephone system reaches virtually all Americans--94 to 
95 percent. There is some confusion about subscribership versus 
access.
    The cable system, for example, reaches 98 percent of all 
homes in America, and that is regardless of location, or social 
demographic class.
    What is happening with broadband is it is being layered on 
top of these existing infrastructures, so some of the most 
thorny problems have presented themselves in telephone and in 
electrification. We are going to be able to limit those burdens 
in the context of broadband because we are going to upgrade on 
top of systems that already reach people, which is usually the 
toughest part of making sure that everybody gets access.
    I also think the E-rate program has been extraordinarily 
successful in making sure our children have access and rural 
health care providers have access.
    I just had the school numbers on the top of my head but 
something like 95 percent of all public schools are now wired 
to the Internet. Sixty-three percent of every public classroom 
in America is wired to the Internet and that program continues. 
This is an important program for that component of broadband 
functionality.
    Besides that, in the context of the reports I mentioned, we 
regularly evaluate to see where we are finding broadband 
deployment bump into a wall and seeing whether that wall is 
something that we can remove through regulation or removal of 
regulation, the barriers to its deployment.
    That often involves whether services can be deployed cost 
effectively. Regulation introduces all kinds of skewed 
judgments about costs. And sometimes we can rationalize those, 
we can incent people to deploy advanced services.
    One quick example. We recently reformed the high cost 
support for rural telephone companies, many of which were 
complaining that without those reforms, they did not have the 
incentives to invest in broadband infrastructure in those rural 
parts of the country. And part of what we were cognizant of in 
reforming the rules was to remove those impediments for 
investment and hopefully break open the bottleneck of 
investment in rural America.
    I think many cities in urban areas will have bright 
prospects, given the tele-density. It is very cost-effective in 
the city environments, and many of the infrastructures, like 
cable, are extremely popular in urban environments and will 
provide a rich opportunity and we see that. We see that 
companies are building in those environments.
    Mr. Serrano. Well, I will grant you that we have seen a 
major dramatic change in the availability of these services in 
our communities, but I think the numbers may be misleading.
    If you say 65 percent, for instance, of all schools are 
connected, you might find a lot of districts where it is 100 
percent, and then others which are much lower, making up the 65 
percent.
    And I am still wondering, I have always felt that the FCC 
should play--and I felt this during the last Administration 
also--should play a more active role in sort of reminding some 
people of their social responsibility, which eventually is good 
business.
    I remember for instance, in the Johnson and Nixon 
Administrations, whenever housing was built in the Bronx, there 
was always some agreement that the person that came and built 
the housing, the private contractor, the developer who built 
the housing, would also build a community center, or would also 
build an annex to a school or something, as part of the fact 
that they were the ones being given the opportunity to build 
this large project.
    And I am wondering if, as we get more and more folks who 
make a lot of dollars in this society in this area, if we can 
sort of encourage them in a friendly way to do some more things 
for communities, not only in the cities, but in rural America 
and those areas.
    Because you know I visit schools in my district, and I see 
that there is a real awakening to this whole issue, but we are 
still so far behind what is happening in other places.
    One last point. Granted that cable TV is an example of how 
well new technology can reach to other countries, but remember 
that before there was cable TV just about every American had a 
TV, so it was a matter of just another way of watching TV.
    The computer age and the Internet were something totally 
new that came in from day one as a whole new item in the house 
or in the school, and we have to spend more time trying to 
figure out what is the best way to reach everyone.
    And I would hope you would consider that in your 
deliberations for the next four years.
    Chairman Powell. Absolutely. And I would emphasize that we 
do engage in that encouragement role. For example, last year, 
the Commission held a series of hearings all around the country 
in which individual Commissioners chaired conferences focused 
on community development and advanced broadband infrastructure.
    I personally hosted one in Lowell, Massachusetts for the 
New England part of the country. We brought in community groups 
and organizations and we examined what the state of broadband 
deployment was in those areas and what we could do to improve 
them.
    And what happens a lot of times is really extraordinarily 
creative ideas emanate from the communities themselves about 
how to aggregate their buying power, how to facilitate the 
removal of local zoning restrictions and things that are often 
barriers to the deployment.
    So I hear your point, and I would submit that we recognize 
that and we have, within certain parameters, been willing to do 
that and have done so fairly aggressively, at least over the 
last year.
    And that does not even highlight the enormously good deeds 
of local franchise authorities all over the country. Cable is 
franchised locally. The local governments have central 
responsibilities at the local level. We have seen a lot of 
activity on their part as well.

                        STAFFING AND CONTRACTING

    Mr. Serrano. Mr. Chairman, I want to ask one more question, 
and then I will give up the mike for other folks, and then we 
will get on to the second round.
    Commissioner Powell, in prior fiscal years, the FCC sought, 
unsuccessfully, authority for a special employee buyout 
initiative in an effort to try to ensure the right mix of skill 
sets among FCC employees.
    What is the current status of FCC staffing issues? Do you 
have the right mix of people in place with the right 
technological skills to carry out your mission?
    And to what extent does the FCC rely on contract employees 
to carry out its mission?
    Are there limitations to your ability to rely on 
contractors?
    Chairman Powell. Well let me answer most of that, and maybe 
for some of the specifics, Andy Fishel can fill in for me.
    My view is that we currently do not have quite the right 
mix. Meaning, I think that, for example, among the two central 
professional classes, we are a little more heavy on the 
attorney side and less on the engineering and technical side. I 
think that is natural.
    I think that in the wake of the 1996 Act, there was an 
extraordinary amount of legal work to be accomplished in 
promulgating the rules associated with the statute. I do think 
that that process has begun to mature and now we are focused 
more on the forward looking dynamics which I think are really 
challenging technical questions.
    So a lot of our talk about engineering in excellence is 
designed to reevaluate that balance and try to do all that we 
can to correct it. And so that really is a central objective of 
mine, as the leader of the Agency.
    I think we have so far only had modest success but I also 
think it is fair to say that we have not previously identified 
it as such a high priority and seen the criticality of it that 
we do now with the emphasis that we are putting on it.
    Andy, are there any specifics on the buyout that you wanted 
to add?
    Mr. Fishel. Just this. As we look at flexibility buyouts as 
well as early-outs, those are factors we took into account in 
the past and are likely to do so again as we try to establish 
the right balance of employees in the agency.
    Mr. Serrano. Thank you. Thank you, Mr. Chairman.
    Mr. Wolf. Mr. Taylor?

                           SPECTRUM AUCTIONS

    Mr. Taylor. Mr. Chairman.
    Mr. Chairman, welcome. It is hard for me to criticize or 
even challenge an agency that is going to bring in $4.3 billion 
for the American taxpayer.
    We thank you for that effort.
    I would--of course last time I had some exception about the 
move of the Commission to the Portals Building and about what 
motivated that.
    But what I am interested in is not involved with the 
appropriations process now. It's the spectrum auctions that we 
have experienced--and of course starting with the 1997 Budget 
Act--my district, which is a rural district, hardships on 
several family-operated stations.
    WZLS-FM is a radio station that is owned by the Lee family. 
They had virtually been licensed. Of course case action put 
that on hold. Then they had to go bid, and they were the third 
highest bidder for a permanent license to continue. They were 
unable to raise the kind of money that two heavily funded out-
of-the-area investor organizations raised to bid on the 
station.
    Now this is a known case that is going on, so I am not 
going to ask you to comment on the case itself. What I would 
ask you to think about and maybe under a solution.
    Are we simply encouraging market concentration in the 
telecommunications area by awarding a license to the highest 
bidder, what is to become of the mom-and-pop operations in the 
small communities especially, or the wireless telephone 
companies that are trying to get off the ground? They cannot 
compete with the kind of capital that can be raised in 
metropolitan area being inserted into the rural area to control 
the market.
    Is anything being thought about in that area?
    Chairman Powell. Well, a couple of clarifications about the 
spectrum laws, just so we are on the same sheet of music.
    The Commission has virtually no discretion any longer under 
the statute not to auction licenses. And we are certainly happy 
to talk to you about what the consequences of that are, but 
interestingly enough, satellite spectrum cannot be auctioned.
    It is exactly the opposite in the case of broadcasting. The 
vast majority of broadcasters, television and radio in this 
country, did not obtain their spectrum by auction. They were 
awarded it long ago under a comparative hearing or other kinds 
of allocations that did not involve cost. And Congress was 
thoughtful to modify the statute in a way that there was a high 
renewal expectancy.
    What that means essentially is when those licenses come up, 
those broadcasters have a reason to expect renewal almost 
automatically save some grave failing that almost rises to the 
level of criminal activity. And so the vast majority of 
broadcasters will not be in a position of having to purchase 
licenses upon renewal and will in essence have them in 
perpetuity, unless there is some statutory change, they will 
maintain those licenses without having to pay an auction for 
them.
    When you get to wireless services of the newer variety like 
mobile telephones, advanced services, there is no question that 
there is an extraordinary capital cost associated with the 
acquiring of licenses. But I think it is fair to note that in 
many ways that was always the case. Because what used to happen 
is--and I think this is what Congress recognized--that people 
would get spectrum for free and that it was sold in secondary 
markets for the same prices that we could have obtained up 
front, and the only difference was, private people got the 
money and not the government.
    And I think that the government in my estimation is wise to 
have reasserted its own ownership rights in the spectrum and 
made sure that the taxpayer generally gets the benefit of those 
transactions as opposed to private actors who got the spectrum 
free in the first place.
    Does it have an effect that you describe?
    Unquestionably, the communication markets are becoming a 
very expensive business to participate in. I could not disagree 
that there will be aspects of that.
    I think the majority of them will be very, very positive 
for consumers. But I do agree that there are going to be 
examples of a lost past where there are stations and others 
that are unable to keep pace with the relentless development in 
the incredibly lucrative communications marketplace.
    When I talk about this with friends, I often talk about 
it--it is kind of like the Wal-Mart problem. You know, Wal-Mart 
in some ways has certainly challenged, if not eliminated, many 
small retail hardware kinds of operations.
    Now consumers have arguably more choices at lower costs 
inside a Wal-Mart, but there is something probably lost by the 
absence of the corner hardware store which provided a certain 
value to people.
    But it is very difficult for me to see as a regulator how 
you could completely stem that development, which has certain 
evolutionary characteristics.
    The other thing I would say is I do not think that the 
government, including Congress or the Commission, has been 
naive to this concern. And indeed, we have an obligation under 
the statute to try to find ways to lower the cost for smaller, 
more entrepreneurial entrants in the form of bidding credits 
and other kinds of devices that are designed to not completely 
but partially mitigate the enormous prices paid by providing 
for designated entities an opportunity to get their license at 
slightly less cost than a larger carrier would.

                          PAY TELEPHONE ACCESS

    Mr. Taylor. It is not just nostalgia that I am talking 
about. And I recognize the statute and your limitations. I 
would be glad to talk perhaps at a later time about what might 
be done.
    It is what impact the spectrum auctions are going to have 
on the rural and underserved areas and what we can do to meet 
that need, which brings me to a second question, Mr. Chairman, 
if I may.
    Pay phone access in North Carolina--now I have written the 
Commission earlier on behalf of the Eastern Band of the 
Cherokee Indians who are seeing many telephone pay phones 
disappear from locations throughout the reservation there 
contiguous to the Smokey Mountain Park, and a lot of the 
reservation is separated by large government tracts and it is 
not an urban area in any way.
    And, of course, throughout America there are over five-and-
a-half million families that are without telephone service, and 
of course about 30 to 40 percent only have wireless service.
    And what I really want to focus on is--of course, some of 
the companies have said the pay phones are totally unprofitable 
and they are bringing that to an end. And that is an area where 
I hope we can focus some attention to serve families, whether 
it be rural or maybe even in urban areas if the practice 
continues. So I would appreciate some comments on that.
    Chairman Powell. Yes. We have recognized that the pay phone 
industry in particular has been under a great siege for a 
number of reasons.
    But certainly one of the most critical is the rise of 
wireless services that have eaten deeply into the use of pay 
phones in lots of markets and I think unfortunately start to 
erode the total economic viability so that places where it is 
probably still very central and important it is difficult for 
those operators to maintain a service just for those areas, 
given that it is being severely challenged by wireless 
functionality.
    The Commission has taken up a number of pay phone 
proceedings and completed them in an effort to provide more 
economic rationality. Indeed, I remember your letter and I 
remember I think Mr. Kolbe was also a signatory. We acted, you 
know, soon after I came in, we quickly acted on what I think is 
the most contentious aspect of pay phones--long distance 
carrier compensation for calls.
    We finally finished that rulemaking I believe in March or 
maybe early April. I think that is the one that pay phone 
providers were most centrally concerned about getting some 
clarification on, and I am proud and glad we got that out.
    Hopefully, that will make a significant difference so that 
people do not have interruptions in their compensation that 
make it difficult to run a business.
    There are a number of smaller proceedings that we are 
moving quickly through as well out of recognition of the 
situation you have described.
    Mr. Taylor. Thank you, Mr. Chairman.
    Chairman Powell. You are welcome.
    Mr. Taylor. Thank you, Mr. Chairman.
    Mr. Wolf. Ms. Roybal-Allard?
    Ms. Roybal-Allard. Welcome, Chairman Powell.
    Chairman Powell. Thank you.

                     LAND-BASED WIRELESS TECHNOLOGY

    Ms. Roybal-Allard. In last year's appropriation bill, the 
Subcommittee directed the FCC to--and this is a quote--``take 
all actions necessary to complete the processing of 
applications for licenses'', end of quote--for services that 
would bring local channels to markets that DBS could not.
    And I understand that no companies have received licenses 
as a result of this directive, even though at least one 
company, Northpoint Technology, was ready to provide the 
services and had applications on file.
    Could you describe the land-based wireless technology 
service and whether you are satisfied about the arguments about 
interference or the need for auctioning--whether those concerns 
have been answered?
    And also what is your timetable in complying with the 
Committee's directive?
    Chairman Powell. I would point out the other thing the 
statutes did was mandate a third-party technical testing, which 
has been an extraordinary undertaking, to ensure that the 
technical interference considerations have been fully vetted 
and considered. We are very close to the end of that process.
    The report has been submitted as our procedures and 
policies require. That was put out for public comment. We have 
received public comment.
    I think reply comments are due tomorrow, I think, on May 
23rd, which will finally close the record on the technical 
questions so that the Commission's engineers can then complete 
the process, as they have been doing. We then will be able to 
have a complete record to sort of finalize their evaluation of 
the engineering questions so that it can make a sound judgment 
about technical interference.
    This is actually a perfect example of the kinds of issues 
that are increasingly requiring independent expertise.
    I would also point out something which is often 
underappreciated, that there is almost another set of problems 
we have to work through that are just as significant as the 
technical interference question, and this is another classic 
example of convergence. And it allows me to describe the 
service as you asked.
    The service is terrestrial at base, meaning it is a land-
based wireless service. It will compete against a service that 
is satellite-based--direct broadcast satellite television, 
which we think is wonderful--that is a healthy thing to do. It 
provides an opportunity for competition, service in rural 
areas, all those wonderful things.
    The interesting thing, though, is that they are companies 
of two different characters that have different regulatory 
responsibilities.
    For example, under the ``orbit'' statute, we cannot auction 
spectrum to satellite providers. Direct broadcast satellite 
companies do not have to pay for licenses at auction. 
Terrestrial companies, however--must do so under the statute.
    So there is a real complicated set of issues here that we 
will have to work through, because Northpoint is a terrestrial 
provider that has filed in a satellite window.
    There is going to be a set of legal issues that we have to 
resolve about whether they are going to be permitted to have a 
nationwide license on an exclusive basis and not have to pay 
for it at auction, which is I think understandably what they 
would prefer.
    They have spent a lot of money developing their technology. 
They are certainly, as I understand it, ready to act on that.
    But we are very cognizant of that. We are very anxious to 
complete it as much as anyone. But I think that sometimes this 
component of the problem is undersold. I think that as soon as 
the technical part is done, that is the prerequisite, I do not 
think that is the hardest part. I mean, I think that we will 
work through the numbers and reach a conclusion.
    I think then we will have to wrestle with whether 
Northpoint's application is mutually exclusive, which means if 
they are the only ones, then it is possible for them to be 
licensed without auction. If they are not, in the sound 
judgment of the Commission, we are compelled by statute to 
allow other people who want to provide a similar service to 
have that opportunity as well.
    So this is what we get paid to do. It is at the top of my 
agenda as soon as the record is closed. It is a little hard for 
me to predict how long it takes for technical types to finish 
technical work. But I think we are optimistic that certainly 
this will be resolved this year and certainly, you know, I 
think I am a little more driven toward the fall. And it is 
never as fast as the applicants want it, but I think the issues 
are probably that complicated.

                         NEW TELEPHONE CHARGES

    Ms. Roybal-Allard. The Washington Post reported on March 
29th that some of the nation's biggest long-distance telephone 
companies are beginning to charge customers $1.50 to have local 
and long-distance telephone service on the same bill.
    In your opinion, should consumers be paying extra for this 
service? And is the FCC doing anything to ensure that consumers 
understand these charges and how to avoid them?
    Chairman Powell. We are examining that situation. I mean, 
one of the things that we think is an appropriate role of the 
FCC is as these industries reorient themselves and look for 
different business models, there is an enormous amount of 
customer confusion that results.
    I often look through these complaints and evaluate where 
consumers' frustrations lie. And more often than not, 
surprisingly, it is not so much the amounts as it is the 
unending confusion about what this line item is or that line 
item is. You get this sense of being nickled and dimed to 
death. It is not the five cents on the line, it is just where 
did that line come from and what on Earth is it?
    Regrettably, there is a lot that we rest on the phone 
bills: the schools and library program is billed on the phone 
bills, universal service. There are a lot of lines. And that is 
before you even add the state lines.
    So the Commission has regularly undertaken a number of 
proceedings that are designed to try to provide greater 
consumer clarity as to about what these charges are.
    We have a number of initiatives, including one that I am 
considering initiating now that we will provide on our Web site 
of billing examples and more clearly explained explanations of 
these items, and to give consumers an ability to shop those 
differences.
    Consider, for example, those fees are for driving people 
off that bill, which is what they are designed to do, for 
fairly economically sound reasons, but not every carrier is 
doing it.
    You potentially could choose if that was important to you 
to go to another carrier, and I think consumers need to 
understand that.
    Part of what we wrestle with as carriers is making sure 
they do not represent fees as mandated from the government when 
they are imposed at their discretion so that consumers know 
whether that is a charge that they can make a competitive 
choice over.
    I think we are looking into that specific situation a 
little bit, but most of what they are doing is outside of our--
you know, I sound like a broken record--but outside of our 
direct reach. We do not regulate long distance rates. They are 
deregulated. And certainly practices like that one. But what we 
do is respond by trying to provide a vehicle that provides 
better customer understanding or encourage the carriers or to 
the extent that we have legal authority, require the carriers 
to provide clear disclosure and clear explanations to consumers 
so they can make responsible choices.
    A lot of what carriers are trying to do, just to give you 
some sense of it, relates to the fact that billing is a huge 
component of the costs of a phone service. And as the market 
becomes more competitive, a carrier like AT&T does not like 
that its billing relationship with you is on the bill of a 
local provider who is now its competitor.
    If you get your bill from Verizon and it says Verizon all 
over it and your long distance charges are hidden in there, 
AT&T does not like that it does not have a relationship with 
you and is trying to get you disconnected from Verizon.
    The other thing that is happening is people are really 
trying to push people toward electronic payment and billing 
systems so that it will lower the costs of billing and I would 
hope accrue to the benefit of consumers in the form of lower 
rates. But that is yet to be seen.
    Ms. Roybal-Allard. I think what angered so many consumers 
was the fact that they were not even notified that they were 
going to add this charge.
    Chairman Powell. Yes. And we are very critical about that. 
I mean, I think at a minimum, even when a carrier is within its 
rights, it really has, you know, a moral imperative as well as 
an economic one to make sure that consumers are fully aware of 
what those options are so that things are not slipped by them 
in the middle of the night.
    Most of us do not read our bill with the level of scrutiny 
that you are going to pick up a $1.50 charge. You might not 
pick it up for a year. And I think we have made our views known 
to them about that practice.

                           MINORITY OWNERSHIP

    Ms. Roybal-Allard. A recent report by the National 
Telecommunications and Information Administration of the 
Department of Commerce indicated that minorities own 3.8 
percent of the nation's commercial broadcast stations at a time 
when minorities represent about 29 percent of the U.S. 
population.
    Most minority owners who are primarily single station 
operators complain about their difficulty in competing against 
better financed, non-minority group station owners and say that 
the problem has been exacerbated by the Telecommunications Act 
of 1996. How carefully is FCC monitoring the Act and its impact 
on minority owners?
    Chairman Powell. Well, I think we were very aware of that 
continuing and persistent deficiency in the allocation of the 
ownership of these things.
    I do think it is fair to say that the statute, particularly 
in the area of radio, dramatically liberalized the prohibitions 
on ownership levels that at a minimum, what that had the effect 
of is, really raising the costs of the station business.
    The prices have been driven very high. They are very 
valuable properties, and it increasingly becomes very, very 
difficult to run a commercial station in an economically viable 
way because you are dependent on advertising revenue that 
others are competing with you for.
    The other thing we are starting to see is that actually the 
explosion of so many new ways of communicating is further 
dividing the national advertising pie. It is sort of an odd 
detriment of diversity, which is, for example, the rise of, you 
know, there used to be three networks. There are nine if you 
count the Spanish networks. Now what it means is all of them 
are competing in the national advertising market, and you are 
getting further splintering of available advertising dollars. 
And when it pinches, it pinches really hard at the smaller 
independent stations who are competing against those kinds of 
forces.
    One of the things that I have been a big proponent of and 
indeed helped encourage the development of a legislative 
proposal which I think was introduced last year briefly in the 
Senate and I hope would be introduced again by Senator McCain, 
is a proposal to provide some tax incentives for large 
commercial ownership interests to sell stations to smaller, 
more entrepreneurial people and be able to realize some short-
term tax benefits as a consequence of that.
    This is the reformation of a policy that the country 
pursued several years ago which admittedly was controversial, 
but I actually think is the one thing that we have ever seen 
that actually had an effect. We actually saw increases in 
minority and female ownership as a consequence. Because it was 
kind of win-win. If you are a big commercial broadcaster, you 
might sell to a smaller interest in order to get the benefits.
    Now the problem with that is, it was wrought with a lot of 
problems. There were shams. There were misuses of the program. 
These are things that I think a very significant group of 
people have tried to fix in the current proposal. I am 
supporter of it, but I think that the Congress and the 
government can look for ways to incent behavior that they 
socially want to advance, just like they do in other aspects of 
the Tax Code.
    What we are finding with the minority and female problem is 
it is really an issue of capital access. It is an enormous 
amount of money to access. And, you know, since the Commission 
does not really provide funding for operations, we do not--I 
think sadly, we do not control the most key piece of how to 
make them more viable. But I think if we look for ways to 
incent that behavior, we may be able to make some improvement 
in those numbers.

                         MARKET ENTRY BARRIERS

    Ms. Roybal-Allard. And my final question has to do with a 
policy forum that the FCC conducted on market entry barriers 
that were faced by small business minority and women-owned 
businesses in the communications industry last December.
    And they analyzed a series of market-entry barriers. And 
there were two findings. One was that minority applications for 
debt financing were less likely to be approved, and that 
minorities paid higher interest rates on loans than did other 
owners.
    The second finding was that market consolidation permitted 
by the relaxation of FCC's ownership rules has created nearly--
and this is a quote--``nearly unsurmountable obstacles to those 
seeking to enter or survive as a small player in the broadcast 
industry''.
    What can be done to address these historical financial or 
financing problems?
    Chairman Powell. Well, at the risk of being redundant, part 
of it is the answer I gave before, which is the tax certificate 
policy and other kinds of policies like that designed to 
improve that situation.
    In 1996 the Congress also established something called the 
Telecommunication Development Fund, which it seeded with a 
relatively modest amount of money, I think 25--was it thousand 
or million?
    I would have to get the number for it to be precise. But it 
was seed capital, the interest of which could be used for 
investment in the kinds of initiatives you are describing. The 
cold reality is it is severely undercapitalized to make a 
serious impact.
    I mean, certainly if the Congress chose, it could consider 
capitalizing that at a more serious level. It could consider 
things like whether some element of auction proceeds could be 
directed into the Fund for investment.
    None of these things are anything I have sufficient 
authority to do independently. We have been creative about 
ideas. But, you know, they represent judgments of where the 
Congress wishes to distribute the funds, and that is above my 
pay grade.
    So I think that those are some opportunities. And I think 
that the Commission's studies basically highlight the problem. 
And for those parts of the community that are able to assist, 
it helps get those balls rolling.
    For example, the commercial broadcasters responded in some 
ways to those studies and created an investment fund designed 
specifically to invest in minority interests in a commercial 
way.
    There have been some criticisms of lending practices, some 
complain that they are not sufficiently liberal in their 
disbursement of investment funds. But, you know, that is 
something that is going on out there, and if there are unfair 
trade practices I suspect that that is something that the 
Federal Trade Commission can evaluate as well.
    Ms. Roybal-Allard. Thank you.
    Chairman Powell. You are welcome.
    Mr. Latham [presiding]. The Chairman has stepped out for a 
moment, so he informed me to just go ahead and proceed.

                        BROADBAND IN RURAL AREAS

    Welcome, Mr. Chairman. I just have one question I guess and 
would like your input. As you know, the House Energy and 
Commerce Committee has passed H.R. 1542, the Tauzin-Dingell 
bill. And it will be coming to the Floor, I assume, shortly.
    Being a representative from a rural area which I think 
advocates for the bill think that it will be of assistance in 
rural America, I would say that there is a lot of debate on 
that. In my region, many of the companies who are pushing the 
bill have really sold their assets off in rural America. So I 
am not sure about the effect. There are some other folks who 
are in opposition to the bill who have invested substantial 
sums in the region.
    I guess first of all, I would ask you what concerns you 
have or what are the biggest impediments to developing 
broadband Internet service in rural America? And have you taken 
a position on the legislation? And have your economists 
analyzed the full impact of the legislation on smaller 
competitors?
    In the State of Iowa I think we have more phone companies 
in Iowa than we have in the whole rest of the country together.
    Chairman Powell. You do.
    Mr. Latham. We have a hundred and I think fifty-four, or 
maybe it has probably changed since the last number I have 
heard, but independent phone companies in Iowa impact on those 
companies and the long-distance carriers.
    I guess in general, do you believe the Tauzin-Dingell bill 
is consistent with the goals of the original Telecommunications 
Act of 1996?
    Chairman Powell. Well, we as a policy do not take positions 
on specific legislation, though we do provide technical 
assistance when requested.
    We have not evaluated the impact to the degree that you 
suggested. I do not even know that we would be capable. But 
just to answer your question, I do not think we have.
    One thing I will say about the way to think about the 
legislation is it represents different visions of the future. 
One I suspect is probably the vision of the proponents of the 
legislation that the future is data, and the future is 
broadband, and that those services are going to be provided to 
consumers by technology differentiated offerings.
    So if you are a consumer, you will look out in the world 
and you will have one broadband option that comes from the 
public switch telephone network system, twisted copper wire, 
DSL services. You will look to the right, and there will be 
your cable service provider, and they will provide using 
coaxial cable and IP protocols, a cable-based option. There are 
at least two that are already in a mass market stage.
    We also think there will be a wireless option for a lot of 
Americans, as well as a fourth, satellite option. The real 
benefits of competition and choice will be realized by 
consumers by these different technological offerings. It may be 
possible as a consequence that within any one of those 
stovepipes--the phone option or the cable option--that those 
markets are fairly concentrated, even perhaps at monopoly or 
oligopoly levels, but that you believe that the harm will not 
be significant to consumers because the choices to them will be 
those three or four as competitors to each other as opposed to 
competitors within a grouping.
    Another view of the world is that, no, that it is very, 
very important to have small entrepreneurial entrants that come 
in within a stovepipe and compete against either the incumbent 
or the large carrier. That is true in cable or telephone. I 
mean, the open access debate in cable is essentially that same 
debate. Do you need intractable competitors?
    Certainly they provide a competitive spur. Certainly they 
can be the source of innovation, too. But it is a very heavy 
regulatory regime. That is, it takes an enormous amount of our 
effort and energy in the regulation of the interconnection 
relationships between, say, a small DSL provider and the 
incumbent, and it is fraught with lots of challenges.
    The 1996 Act in its original form was less focused on this 
kind of broadband data future to the degree that the current 
legislation flirts with. So, you have to evaluate those two 
different versions of the universe and how you resolve that 
probably has to do with how you come out on the legislation.
    I also think that the overlay to all of it is a timing 
component--and do you believe that world is here? Or do you 
believe that world is inevitable? Do you believe that world is 
not inevitable? For example, you can certainly say that cable 
and phone companies are providing two important broadband 
offerings on a mass market basis, continuing to grow. Certainly 
you can see the buddings of wireless. You can see the buddings 
of satellite. What level of comfort does one have that those 
two are enough or that a third is inevitable or that a fourth 
is likely to raise your comfort level? And is that where you 
think you are sufficiently in 2001?
    I think reasonable people can think so, and reasonable 
people can think not.
    But I really think that is what is at stake in that 
question. It is very difficult to predict. I will be candid. 
There is not a company out there that does not know the 
political value of saying that their view of the world is 
better for rural America. It is very difficult to sort through 
that stuff. Because certainly when you are talking about phone 
infrastructure, the teledensity issues and the rural nature of 
the market are significant costs of deployment.
    On the other hand, for example, if you buy this future, it 
will be a much less significant component of wireless service. 
And it will be an almost trivial consideration to satellite 
service. From 28,000 feet at the Clark Belt, your district 
looks no different really than Manhattan does to the satellite. 
So that ruralness is not a critical component of its 
deployment.
    So, you know, I often sort of listen with awe at the degree 
to which everybody promises to serve rural America, and the 
consequence of their vision on the world.
    But I do think that we underestimate the 1,300 to 1,400 
rural phone companies and providers that are out there. I think 
we sell them short sometimes their ability to provide services. 
I think many of them are doing outstanding things, and we 
should pay a lot of attention to those small guys, as much as 
we do to the Bell's vision or the cable company's vision of 
rural America, because the companies that are at the core of 
serving that are the ones that, you are right, proliferate all 
over your state. And I think that is what our focus on the 
rural high cost fund and other things should be to help make 
sure that since they have always been serving their rural 
communities, they continue to be a viable part of that.
    Mr. Latham. Well, we have, in addition to the commercial 
providers, we have several municipal companies who are involved 
in Iowa now with even wireless communities right now with 
municipal basis. It is going to be a debate that is going to 
have long-term consequences obviously, and it is one that--it 
is very hard to cut through all the clutter, obviously.
    And just what is your interpretation of the intent of the 
1996 Act as to whether or not digital communication is the same 
or is different than voice communication?
    Chairman Powell. I think that the 1996 Act is somewhat 
agnostic on that question. It talks about telecommunications, 
and the definition of which easily includes digital 
transmission as it does analog. It is important to recognize a 
good part of the phone system right now certainly uses digital 
communications. Sprint or AT&T when hauling voice traffic is 
unquestionably using digital communications over fiber optic 
cable. Even incumbent telephone companies today have some 
component usually of any phone call that includes 
digitalization.
    So it is hard sometimes to treat this as a very binary 
thing. There is analog and there is digital, and somehow one is 
always the old thing and the other thing is always the new 
thing, and it is not usually quite that simple because networks 
usually are a hybrid of those things, depending on the 
efficiency.
    The last mile is usually more clearly differentiated. Your 
and my house have twisted copper wire, and it is analog. There 
is no reason it has to be that way. We actually hope one day 
that it is not.
    But I am not so sure I am of the view that the 1996 Act 
went into much detail or thought on the bifurcation of those 
kinds of services, with one exception, which is I think the 
1996 Act recognized this category of people called information 
service providers which basically were the Internet people--
ISPs. And while they use digital, I do not think that the 
statute focused on them because it was digital but because it 
was the Internet and there was a desire to not have them get 
caught up in the regulatory constraints of the phone model.
    I know I said nothing. [Laughter.]
    But, you know, I do not think there is much to say there 
about the difference.
    Mr. Latham. Okay. Well, I appreciate your candor. Thank 
you, Mr. Chairman.
    Mr. Wolf [presiding]. Should we strike the comment that you 
said nothing, or should we just leave it? [Laughter.]
    No. I will admit to my spin.
    Mr. Wolf. Mr. Cramer?

                       ULTRAWIDE BAND TECHNOLOGY

    Mr. Cramer. Thank you, and welcome to the Committee. I want 
to add my welcome as well. Speaking of clutter and new things, 
I want to give you the chance to talk about uwb, ultrawide band 
technology. You have been considering the regulation of uwb for 
some time now, almost three years. And I would like to know 
when you expect to proceed with your rulemaking so that this 
new technology can be deployed. Because it can save lives and 
it can offer benefits to consumers.
    Chairman Powell. The Commission itself is extremely excited 
about ultrawide band. It may be one of the most phenomenal 
innovations in spectrum ever. I know the individual credited 
with its invention, Larry Fullerton, I think is a resident of 
your state, if I am not mistaken.
    Mr. Cramer. Yes. My district.
    Chairman Powell. It is an extraordinary possibility. I 
think the Commission is very excited about trying to pursue 
things that are able to use spectrum efficiently and share with 
others so we do not have the continuing problem of scarcity 
because we just do not have enough spectrum for all uses. When 
we start to have creative uses that can use spectrum already 
occupied, we are excited about that.
    This issue is another example of technical difficulties.It 
is bringing the engineering talent to bear to evaluate the 
technical interference questions which we have an obligation to 
do.
    There is a proceeding underway on ultrawide band. It is 
fairly far along. We have recently received about four 
technical studies that the engineers are currently going 
through. We have other studies that are coming from the 
government in the summer that will have to be a component of 
our evaluation.
    One of the challenges here is that the potential spectrum 
that the service wants to operate in is spectrum that is used 
for defense and public safety purposes, and those communities 
understandably I suppose, are very, very concerned about being 
absolutely sure of no interference because these are things 
like the GPS system satellite. The air traffic control system 
uses spectrum that this transmitter will intentionally radiate 
into.
    So the government side of the spectrum users are really 
concerned about interference. I think we can work that through. 
But we are waiting a little bit for the government to complete 
its evaluations, because we have an obligation to coordinate 
with federal users. And when we really get the rest of that 
data from the Commerce Department, NTIA, then we will be able 
to quickly proceed. I think that is the fall part of the year.
    Mr. Cramer. Can I add to what I think you are referring to? 
I am confused because on May the 2nd in Global Positioning and 
Navigation News, you have got a GPR firm, Geophysical Survey 
Systems, Inc., that admitted it has sold uwb devices for 
decades, and there were no waivers there. How do you square 
that or can you square that yet with the process you are going 
through and the concerns that you are raising?
    Chairman Powell. I would have to plead some ignorance on 
the subject of the specifics of what is the company and the 
service you have mentioned, but it is important to recognize 
that ultrawide band proposes to operate principally in a band 
that is unlicensed. And so you do not have to get a waiver and/
or approval to operate there.
    It is the same spectrum that your clock radio would emanate 
in, your microwave oven sends out radiation in that band. You 
do not have to get a license to use it. And I think we have 
permitted certain uses that stay foursquare within the Part 15 
rules of unlicensed spectrum.
    The challenge is what does ultrawide band really want to do 
to realize its full potential--if there are bands that are 
restricted for the reasons I described, like GPS and public 
safety. And this technology intends to purposely radiate in 
them. It intends to operate in spectrum that has legally been 
restricted from that before.
    Mr. Cramer. By the use that we have seen of it already, 
there is indication that there are no interference problems. 
There can be no interference problems.
    Chairman Powell. No. And I do not mean to suggest that the 
Commission has reached its decision that there is or there is 
not. I mean, I do indeed think that we are probably a little 
more inclined toward the positive side of this.
    But we--it does not excuse us from the obligation for those 
government users who are license-holders who have articulated 
their concerns for whatever reason and are going to accumulate 
them and submit them in the proceeding. We will have a duty to 
go through them and guarantee that--not guarantee, but be 
reasonably satisfied that they have not presented anything that 
concerns us.
    We already have hinted positively at our own initial 
judgments, but we still have communities that we cannot ignore 
that claim that their technical studies show problems.
    I also think that you have to think about it on a mass 
market scale as opposed to kind of the limited uses we have 
probably seen to date. But I personally am optimistic about it 
and think that it will happen.
    Mr. Cramer. I want to bring you back to some speculation 
about timeframes. Another year, several years or?
    Chairman Powell. No. I personally think that, at least it 
is our goal that we--I think we would be finished this year. 
But we are in many ways dependent upon the government's 
completion and filing on the record of the stuff we will need 
to do that, and then whatever time it takes for us to resolve 
any technical questions raised by those studies.
    That is why I am a little hesitant to say for sure the 
time, because there is a shoe yet to drop, which is full 
presentation of the government's position. And if it raises 
issues we had not foreseen or there are technical questions we 
did not understand, you know, that might take longer. If there 
are not, I think it will take much less.
    Mr. Cramer. All right. And I do appreciate your attitude 
about it, because I do think it is incredibly exciting and 
almost overwhelming the potential that that has.

                       EXCELLENCE IN ENGINEERING

    Could I switch now to your Excellence in Engineering 
Program and give you the opportunity to comment about that? 
Especially I am interested in what kind of strategic 
partnerships you are forming with universities to develop a 
trained pool of personnel applicants, and especially HBCUs.
    Chairman Powell. You will excuse my--HPCUs are?
    Mr. Cramer. HBCUs. Historically Black----
    Chairman Powell. Oh, Historically Black Colleges and 
Universities. Well, the program is in its infancy, but by way 
of setup, let me say this. I agree completely with the 
Chairman's point that public service is about more than salary. 
And the part that we think is actually the killer ap in the 
engineering equation is the idea that it is an exciting 
environment in which to do interesting work and maintain your 
currency in the Engineering Guild. And so our training and 
development programs I personally think are the feature much 
more than the personnel salary stuff, although that is 
important.
    We have begun to explore quite aggressively partnerships 
and relationships with private institutions, private labs and 
universities. I do not have a specific list in front of me of 
whom we have approached about that. But we unquestionably have 
seen that as a rich opportunity--to share resources or allow 
our engineers to potentially participate in laboratories that 
are in other locations, have university students be able to be 
a part of our policymaking process within the limits of that.
    I do not know for sure whether there is a specific HBCU 
that we have addressed in that regard, but I do not think that 
we have any aversion to doing so, depending on location and 
whether the interests are sufficiently synchronous. Indeed, I 
think that would be a good thing to do if it is available.
    One of the things we are looking at too, which I know is an 
interest to the Chairman as well, is a lot of what we hear when 
we do our surveys with engineers, what would you need. A lot of 
them say, you know, there are a lot of people who would work 
for you on a part-time/full-time basis, but they do not want to 
move to Washington. They are in Silicon Valley. So the 
component of telecommuting or the ability to be an active 
worker with the Commission's business from a different location 
presents real opportunities for the engineering effort as well.
    A lot of Silicon Valley engineers, for example, who do not 
want to leave that part of the country--it is a vibrant 
environment--nonetheless would be willing to consider work with 
us if they could access it.
    I think colleges and universities that are not located here 
may present similar opportunities if we can figure out 
meaningful ways to do that.
    Mr. Cramer. Thank you. Thank you, Mr. Chairman.
    Mr. Wolf. Mr. Vitter?

                    TESTING OF LAND-BASED TECHNOLOGY

    Mr. Vitter. Thank you, Mr. Chairman. Mr. Chairman, thank 
you very much for being here. I am sorry I could not be here 
earlier.
    I know Ms. Roybal-Allard brought up an issue already about 
the need for the FCC to act on applications for earth-based 
technology to serve unserved and underserved local television 
markets. And I know you had a discussion about that.
    I do not want to repeat all of that, but I did want to 
follow up and reiterate my concern and my real hope that the 
FCC acts on this as quickly as possible.
    I believe one of your responses was that you are waiting 
for the conclusion of an independent test that is going on. I 
wanted to make a couple of points. First of all, as I 
understand it, we mandated that that test actually be concluded 
by last February 19th, and it was not even begun by that date. 
So I am concerned about the timetable of that test. Do you have 
a firm expectation of when that independent test will be 
concluded?
    Chairman Powell. Well, the test is concluded. We have the 
test in our possession. What we have as a matter of mandatory 
process is the test was put out for public comment. We received 
public comment. We have a period in which we are required to 
allow reply comment, the date of which closes I believe if I am 
not mistaken tomorrow.
    And with all candor, the original date was a problembecause 
it was established long before the legislation actually passed. And so 
in many ways when the budget proposal passed, the test due date was a 
matter of weeks away from the initiating authority. So we regrettably 
were not able to do a complex test that quickly.
    But we take seriously that Congress wants this wrapped up. 
I do not think that that is an issue to us. I think that we 
have a technical threshold set of issues that Congress 
recognized by mandating the study.
    We are in that process. We are near the end of at least the 
closing of the technical record on that process. And so I think 
we will move expeditiously through the technical questions.
    Secondly, I think we will have this set of legal questions, 
which I do not think are trivial, to work out as well. So there 
are these two components.
    I can assure you and pledge to you that this is on as 
expeditious a track as the Commission can have it on, at the 
same time being faithful to its obligations to ensure that (a) 
it complies with the law, and (b) that we are not inadvertently 
permitting an impermissible technical situation.
    So it is top drawer.
    Mr. Vitter. Given the timetable you laid out in terms of 
the closing of the comment period--I apologize. I thought the 
testing was still going on, but that is completed. Now we have 
the comment period. Given the clear timetable about when that 
will close, when would you expect action?
    Chairman Powell. Well, as I said earlier, I certainly am 
hopeful that there will be action at the worst case this year. 
I think more optimistically it will take at least several 
months to work through the technical questions and the legal 
questions.
    It is important to recognize concerning the process that it 
is not a simple matter of, okay, we are done, here is your 
license. The applicants have applied but their applications 
have not yet been accepted for licensing. There are a number of 
rules that have to go on in developing the--once we, even if we 
were to conclude that there is not a technical problem, we then 
will have to write the rules for operation of the service. We 
will have to write the technical parameters, what the 
conditions of the licenses are. We will have to make a 
determination on how they are allocated, and whether there is 
any mutual exclusivity so that you can get a license without 
auction.
    If we conclude that an auction is required, that is a whole 
other process that we will be required to complete. We will 
have to establish an auction date. We will have to run an 
auction. And once we have the completion of that auction, we 
will have to allocate the licenses as a result.
    I understand that Northpoint and others have a scenario in 
which I understand and they may be entitled to, which is: only 
we are getting the license, and we are not going to have to pay 
for it at auction. It is only a technical question. But that is 
still yet to be finally concluded.
    And so, there are so many variables at each of the stages 
of judgments, that it could be relatively short, if there are 
really clearly no technical problems and we conclude that they 
are the sole viable applicant. But if we conclude otherwise, 
which is possible, the process starts becoming substantially 
longer because of the auction process and the rules that are 
required.
    So, to be honest, I am not able to give that firm a date 
for all of those reasons. But I think that we think it is 
possible that we will make significant progress if not 
completion in the context of the current year. And I know that 
that is not completely satisfying to them. But I think it is a 
fair assessment given the magnitude of what has to be 
determined.
    Mr. Vitter. At the beginning of your response I thought you 
were describing year end as worst case. But then from what you 
just said, there could be a worse case than that. Am I?
    Chairman Powell. The part that I would have to consult with 
people about is if we were going to do an auction, how long 
would that take. The other thing about auctions is, we 
generally run them to exhaustion. So, you know, sometimes 
auctions close very quickly because nobody is bidding anymore. 
Sometimes they go on for months and months. So that is a 
variable completely in the context of bringing the auction to 
its completion. And if you cut that part off, if an auction is 
not required, then the applicants can be awarded licenses 
without that process. That is a lot of months that are quickly 
shaved off what might be required.
    Mr. Vitter. Is the auction issue, whether or not an auction 
is mandated, the biggest legal issue on the legal side that you 
are discussing?
    Chairman Powell. Yes. Let me think of a way to--in a 
nutshell, there are three kinds of issues: Purely technical, 
factual--the interference question. Secondly, a question of 
law, whether under the statute that mandates auctioning for 
terrestrially-delivered service, could these services 
nonetheless obtain their licenses without auction?
    That has to do with whether they are mutually exclusive. 
Are there other people who want to do the same thing and are 
capable of doing the same thing? If the answer to that is yes, 
usually an auction is compelled by law.
    So the third question is kind of an application of thelaw 
to the facts, meaning if we think it is possible to award one without 
an auction, then we have to evaluate the applicants to see if they are 
proposing what the law requires, and whether they are qualified 
applicants or not.
    Mr. Vitter. Okay. Well, obviously, you need to and you 
should follow the mandates of the law. I will express this 
concern with the auction process. That if the process is strung 
out so long that it actually gives other companies the time to 
develop technologies that they were not developing within any 
reasonable timeframe, and at the end of the day--and we get 
into an auction situation--and at the end of the day, through 
this long process we have created an enormous disincentive to 
innovation because if through the bureaucratic process extended 
the period so long that the people who came up with the 
technology have had to sort of sit around and wait and watch 
other folks catch up with them or copy it, and then they are 
basically penalized for having led the charge and innovated to 
begin with.
    Chairman Powell. I think that is a genuine set of concerns. 
At one point government policy used to ascribe a preference to 
pioneers who achieved first-to-market innovations like that and 
the government was able to license in limited ways without the 
additional step. That process has been repealed. We do not have 
that as an option.
    In many ways, Northpoint's most compelling argument is that 
they are an innovator and a pioneer. It is just that there is 
not really, under the way the statute is crafted, a credit for 
that purpose in and of itself, even though I personally share 
your view that we want to make sure that the incentives for 
being the innovator are retained.
    Mr. Vitter. And I am not suggesting that we establish some 
credit that is not there in the law. But I do not want to do 
the opposite, which is through an unnecessary long process and 
delay, we do the opposite and establish a penalty.
    Chairman Powell. No. And I understand that. So we are 
cognizant of all those factors as we try to figure out the most 
efficient way to wrap up the proceeding.
    Mr. Vitter. Okay. Thank you, Mr. Chairman.

                       EXCELLENCE IN ENGINEERING

    Mr. Wolf. I wrote down a couple of questions as I was 
listening to some other questions that we will try to get back 
to. But let me cover this Excellence in Engineering.
    I understand that you recently sent Senator Burns a 
proposal for a program called Excellence in Engineering. Would 
you want to explain a little bit more? And it is not in your 
budget submission, and I guess a question would be, is this in 
lieu of something or is this a reprogramming? Are we missing 
something, or can you tell us a little bit?
    Chairman Powell. Sure. Let me give the complete background. 
When I took over at the Commission in essence the FY 2002 
budget was done. It was developed and prepared and the budget 
numbers that we request today are the numbers that have been 
developed on that process.
    In my leadership at the Commission, I recognized this issue 
about engineering and began developing a program that we 
thought would help satisfy those needs. That program was not 
intended to be a budget proposal of any particular type, more a 
managerial program. It will be a budget proposal over time as 
we identify cost and needs that we will need to seek 
appropriations for, but that was not its original genesis.
    We had testified about the issue of engineering. We had 
made known our concerns about the importance of the Commission 
improving this. Apparently it caught the attention of different 
legislators. We were then approached by Senator Burns and 
others about it, asking to tell them more about the program.
    We shared with them the text of the program. They then 
asked specifically what kind of numbers would be associated 
with different parts of this component and we were asked 
specifically what components would be above and beyond what you 
think you already are seeking in terms of the FY 2002 budget?
    We merely provided those numbers. We did not intend for it 
to be seen as an earmarked appropriation or anything else, 
other than a response to, an honest response to what we thought 
would be the additional costs.
    Our view is that it is an important program, one that we 
are going to pursue over a number of years. It undoubtedly will 
be a component of future budget submissions as well.
    I also think there would just be two points to be clear 
about. The $248.5 million request is our request, and it is the 
critical part of what I need, and a substantial part of the 
increases are for IT programs that are as much about the 
importance of engineering as the stuff included in the proposal 
that was in the letter. So to our mind, those services are not 
in lieu of or a substitute to our submission.
    If the Congress in its own judgment believes that the 
additional needs that we have identified in the context of our 
program are merited, we certainly would be more than happy to 
absorb that in fee increases as opposed to appropriations. But 
we tried to be careful not to get twisted up in the appearance 
of seeking an additional appropriation.
    What is critical to us is the number that we have requested 
in the Fiscal Year 2002 budget. That is the most important 
part. I will stand by the engineering program and the need for 
those funds, but I think in our minds that is something we 
could begin to use now, but we also intended to be part of a 
long-range, long-term program.
    Mr. Wolf. When I was chairman of the Transportation 
Appropriations Subcommittee, we set a relationship up with some 
area universities for the FAA to do basically the same thing. I 
think you have got to be careful, though, that this does not 
become a pork project. I think there probably ought to be a 
peer review board to establish a new program to make sure that 
it is legitimate.
    I think it is very important. I think continual training is 
absolutely necessary. I do not even think it should be an 
option. And with the opportunities now for teleconferencing, 
you do not have to pack up and go to the university.
    As we move ahead, we must make sure that it is not just 
someone saying: ``Here is a great opportunity, maybe I can get 
the university to create a new program. Nobody at the 
university knows anything about it, but maybe I can hire 
somebody. . .'' and all of a sudden, you have a new program.
    And so I think in the process of doing this there ought to 
be some peer review to make sure it is truly in the best 
interests of the FCC and lastly, truly in the best interests of 
the American people.
    Chairman Powell. I would agree. And if you will see our 
rhetoric when we lay this out in writing, I always heavily 
emphasize the word ``independent''. The genesis of this 
proposal and our recognition for the need for it was one that 
recognized that we had to be able to do indigenously the kind 
of work that allowed us to maintain our integrity and be an 
honest broker and a government decisionmaker.
    Mr. Wolf. Exactly.
    Chairman Powell. And not be a lackey of any particular 
interest.
    Mr. Wolf. Believe me, I think that is very, very important. 
And I think that is part of the problem in this complex 
society, that many of the agencies are going to have more and 
more people you are regulating that have greater skill and 
talent than you do. And so I think this is important.
    I do notice from looking at this chart, 83 percent of your 
people are here in the Washington, D.C. area. So, again, I am 
not looking to say bring something to my area, but I think as 
you look at that you have got to look at your locations. 
Obviously you had teleconferencing, so everyone does not have 
to be where everybody else is.
    But it is important. And maybe on a bid or a peer review 
process will ensure that it is being done in a way that meets 
the needs of the FCC.
    And I know you share this view with me. I just wrote down 
that it is important always to be looking after the interests 
of the American people, and not after the special interests. 
And you have a very important job. And I think to be an 
advocate, if you will, and I am conservative Republican, 
probably more conservative than you are. And I believe in the 
marketplace. But I also believe in the best interests of the 
American people. And I think you have a sacred trust. And the 
word ``public servant'' is a good word, and you are in a 
particularly important position whereby special interests who 
have firms in downtown can have access to you easier than 
somebody in Mr. Latham's district in a rural area or somebody 
out in Page County or Luray in my Congressional District.
    And so some jobs are more significant insofar as that as 
others. There are very few people in the telecommunications 
business that do not have a law firm here in town, whereas the 
people that I know and you know very well, whether they be in 
the inner city or in the rural areas, do not have that.
    I think Mr. Taylor's comments with regard to the pay 
telephone is very, very important. There are communities where 
people cannot afford a cellular phone. They cannot afford the 
service. In my old neighborhood there were a lot of people that 
did not have a telephone, and the corner store would send 
somebody to run down and get you on the phone for a call.
    Now we have moved ahead, obviously. But there are a lot of 
people who, for whatever reasons, are not going to have cell 
phones. And there are people that are driving along the 
highways that will not have cell phones. And I think if we move 
to the point whereby there are no pay phones on the corner, in 
the neighborhood or in the rural areas, we will have a real 
problem.
    So, you know, to whom much is given, much is expected. And 
as opportunities are given to companies, I think there is a 
certain responsibility. In a rural area or in an inner city 
area, no telephone, no 411, no 911. So I think there is a 
certain responsibility there.

                         MANAGING THE SPECTRUM

    When you move toward the innovative technologies with 
regard to the better management of the spectrum, I saw an 
article about the competition for spectrum ranging from the 
telephone industry to the Department of Defense and the 
Catholic Church. Right now we have a bifurcated process for 
managing the spectrum, both the FCC and the NTIA at Commerce. 
Should the current process be changed? Should it be 
centralized? Does it make sense? Or should there just be one?
    Chairman Powell. Throughout the history of spectrum, there 
has always been a division between the independent agency that 
regulates commercial spectrum and the Federal Government users 
of spectrum within the Administration.
    I think that it is difficult, particularly when you 
consider that, for example, the Department of Defense is a huge 
consumer of spectrum. Who should make judgments about its use 
of that spectrum in warfighting scenarios? It should really be 
the Commander-in-Chief, and I think it properly belongs under 
the umbrella of the Presidency and the Executive Branch.
    So there are real issues about whether anyone would think 
it appropriate if somehow that spectrum was moved under the 
umbrella of an independent regulatory authority. And similarly, 
I think that there are real concerns about if all the 
commercial spectrum were suddenly moved under the 
Administration, due to the technical demands and what people 
view to be a premium of independence from those judgments.
    That said, there is no question that the country has got a 
problem, which is that it does not have as much cohesion in 
national spectrum policy as it might because of those different 
authorities. I think that one of the things that is being 
pursued increasingly and very aggressively is better 
coordination mechanisms that are forward-looking as opposed to 
reactive between the two institutions. There has been the 
regular discussion and evaluation of spectrum needs and the 
developments that are coming down the pike so that the 
government as a whole can begin to anticipate spectrum demands 
and do a better job of coordinating them.
    My own opinion is that the best fulcrum for that right now 
in the current structure is in the Commerce Department, with 
the personal involvement of the Secretary, who has the ability 
to talk as equals with the Secretary of Defense, with the 
public safety authorities, that can get the ear of the 
President in making difficult judgments between whether the 
higher and best use of this is in the national security 
establishment or in the commercial sector, and that can be a 
key place for coordination of that effort.
    This has become even more complicated because it has a very 
big international dimension. Spectrum coordination is not a 
national activity now. It is an international activity. 
Certainly it is with satellites that cross multiple 
jurisdictions. And increasingly because of mobility, it is with 
wireless phones, too. So it also means that someone needs to 
sit with an effective decisional voice at international forums. 
The Commission is not permitted in its role to be the 
representative of the United States. The Presidency has to be 
such a representative.
    So we have officials at the Department of State and 
Commerce. I do not know that what is needed is more than a real 
cohesive examination of the way we do it and looking at ways to 
improve the coordination and make clear who has what roles and 
in what context and what are the legitimate areas of support 
and cooperation. I personally have had a number of meetings 
with Secretary Evans on just this subject. He seems to be 
personally committed to just that. And I have personally been--
it has been warming to see that at that senior level there is 
some attention being focused on this.
    I think that it has another dimension, which is intra. I 
mean, we are working on this as part of our organization and 
restructuring, too, because we have the same problem even 
within my own building. I mean, the Mass Media Bureau takes 
care of spectrum dealing with television, and I have got a 
Wireless Bureau that does spectrum for telephone systems and 
other systems, and Direct Broadcast Satellite and Satellite are 
in a whole other bureau, and I have the same coordination 
challenges, which is part of the way we are looking at the 
reform operation to fix that as well.
    So, yes. In sum, the government could do a lot better at 
this. I do not know that I know a magic structural bullet if 
you are not willing to move them all under the same umbrella. 
But I do think there is so much room for improvement on the 
coordination front that we can probably substantially improve 
the situation.
    Mr. Wolf. Are there regular meetings, structural meetings, 
every so many months or every so many weeks?
    Chairman Powell. There are some regulatory meetings with a 
group called the IRAC, which is sort of an interagency 
coordination process of spectrum.
    Mr. Wolf. Who is the chairman of that, the Secretary of 
Commerce?
    Chairman Powell. I think it is done under the umbrella of 
the Secretary for federal usage. But really what has been 
missing is not that working level of the technical inclination. 
It is the high level involvement of serious policymakers, 
decisionmakers to be honest, it is up from that. It is the 
Secretary himself or herself. It is the Secretary of Defense or 
one in that top ownership group being involved I think in those 
decisions that is important.
    I mean, I assure you, you go down into the military 
departments or the mid-levels of the Defense Department, the 
answer will generally always be the same. We are not interested 
in giving back spectrum. I mean, it is the same thing with 
commercial entities. We have the same thing. There is no 
broadcaster in America interested in giving back spectrum.
    So what you really need is people who have that kind of 
decisional and scrutinizing authority to say, well, we are 
going to take a careful look at what you are saying you can or 
you cannot do without, and we are going to make some decisional 
judgments about the merits of that. And I think that requires 
very senior members of the government and not just--which have 
done good work--but not just the working level of coordination, 
which I think works fairly well.

                       OBSCENITY AND PORNOGRAPHY

    Mr. Wolf. A couple of other issues, then I will recognize 
Mr. Serrano. The issue of obscenity and pornography. When you 
came by my office, I raised it. It was Sunday, April 15th.
    And it is about the media and violence and sex. At the end 
it says, ``But in the long run, it is we parents who can and 
will make the difference. First we will have to play catch-up 
and do it quickly. According to Parents' Television Council, a 
nonpartisan group that advocates responsible programming, the 
number of sexual references on television alone more than 
tripled between 1988 and 1999, and the pace continues to mount. 
That means that middle school children today are growing up in 
a culture that is different not just from mine but even from 
their older siblings.
    ``Children and adolescents are still looking to us, the 
adults in their lives, for guidance, limits and values. And 
believe me, I know these truths directly from the thousands of 
young people I have listened to in one-on-one classroom 
discussions. It is up to us to close the gap between what we 
want them to think about sex and what those who are after their 
attention and their dollars want them to think. Let's hope it 
will not take too many more teenage sexual scandals or 
tragedies before we do.''
    I remember the debate on the V-chip. I voted for the V-
chip. There was someone who went down on the floor and said the 
answer is just moms and dads. But you know, that is very 
difficult. There is almost nothing that can be watched after 
eight o'clock at night on most evenings.
    And I know the Commission does not monitor broadcasts for 
indecent materials. They have to receive complaints from the 
public. As I looked at the regulations, this is very complex. I 
mean, moms and dads just do not generally sit there with a VCR 
to record or with a tape recorder to collect the information 
needed for a complaint.
    You propose a proactive policy to encourage innovation of 
competition. Kids use all kinds of communications and 
technology. They are exposed every day to pornography. The 
recent statement that you made almost indicates that you just 
were going to almost take a hands-off approach. And I do not 
think that is the best policy. I do not know exactly what the 
law or what your burden is, what your obligations and 
requirement are, but you are the communications leader in the 
nation.
    You are--if somebody stopped me at Tyson's Corner and said 
who do you think is the most knowledgeable person with regard 
to telecommunications and who can I call--I would say Chairman 
Powell. He lives in Virginia and he came before my Committee. 
He is the guy you ought to talk to.
    So I think this is a burden that you have. Maybe it is not 
a legal requirement. Maybe it should be legal and maybe the 
Congress ought to do a better job. But there is a burden. And I 
would hope that you take that responsibility seriously--I have 
a lot of tough questions once we are gone to submit to the 
record.
    I do not plan on grilling you here. And I am not trying to 
put you in a difficult spot.
    But somebody came by the office the other day and he was a 
former fighter pilot and he said if that you are not taking 
flack, you are not over the target. And in some respects, if 
you are not taking the flack on this issue, you may not be over 
the target.
    So, on behalf of the moms and dads and this one Member--I 
remember I broke with my party on this issue--I know there are 
a lot of problems. You get a single parent who has two jobs and 
he or she is not home all the time to watch TV, and everyone is 
not home at four o'clock to say what ought to be on or at eight 
o'clock to say what ought to be on. And so I know some in my 
party would disagree with me, but I think there is a certain 
burden and an obligation Garbage in, garbage out, on what is 
coming over the airwaves.
    So do you have any comments? I am going to submit these for 
the record, but I am going to cover two other issues with 
regard to this. But do you have any thoughts or comments? I 
thought you said you did not want to be a national nanny. I am 
not looking for a national nanny. But I am looking for somebody 
who is willing to say this is a problem. We have got to deal 
with this. If you have the authority, move ahead and deal with 
it. But if you do not have the authority, come up to the 
Congress and to the Administration and say we do not have the 
authority and you should know that this is a problem and we 
need more authority.
    Do you have any comments to make?
    Chairman Powell. Sure. I will just make a few general 
comments. First of all, no matter what comments you may have 
read or not, I am--I do not in any regulatory endeavor take the 
view of laissez faire, which I think if anyone really knows 
what that means, that is the complete absence of rule of law at 
all.
    That is not market economics. That is a theory. There is no 
country in the world that has ever followed it, and this 
country certainly is not one that does either, and it is not a 
part of my personal philosophy.
    Moreover, at least with respect to some of what is on, it 
is not discretionary anyway. I have statutory duties and 
obligations to enforce a component of indecency regulation 
under Title 18 of the U.S. Code. And that is something we do as 
an enforcement matter currently and will continue to do.
    I think that I cannot disagree with some of your 
characterizations about what is on broadcasting. I have two 
sons. I watch a lot of television. I listen to a lot of radio. 
And I know the range of things that are bombarding their lives, 
and I know the challenge of a parent is to protect the values I 
want to instill against what they are exposed to daily.
    But in fairness, I think there are two ranges. My view is, 
in the time that I have raised my sons, we are in a period 
where I have seen the best of television and the worst of it. I 
think that in some ways what we have seen is the real 
amplification of the media culture; I think we see some of the 
finest things that have ever been created available to us. I 
also think we see some of the most toxic. And it is a real 
challenge and a great confusion for consumers to figure out how 
to navigate that which they choose to avoid and that which they 
do not.
    I am a big believer that it is also difficult to arbitrate 
among different values of parents. But one of the most powerful 
things that I think the government does in a positive direction 
is what you said you supported. I think that looking for ways 
to empower parents and empower them in a way that they can make 
choices and then those choices can be adhered to while they are 
not around is valuable.
    The V-chip certainly is one approach to that in the 
violence context. But I also think that the ratings system 
which the government strongly encouraged in which programs are 
rated and provide some warning and technologies that will read 
those ratings and block programs is becoming important things 
in the market.
    You emphasize innovation. I have a dish. I have 400 
channels. I can assure you I hardly ever know what is on all 
400 of those channels. But I have learned that the new guide 
technologies offer a lot of power and possibilities for me to 
limit what we watch and we do not. For example, I have 
programmed using the guide the TV--a kid's guide. And when my 
kids change the channel, it will only go to the channels 
ascribed to their guide. It will not go--it is not a lockout or 
anything, it is just that the remote control will not go there. 
And I have learned to use that, and that works when I am home 
and when I am not home.
    I think the government looking for ways to empower parents 
in that regard is a healthy direction. I think on the dark end 
where we find intolerable content that crosses the definitional 
lines that are prohibited, we will enforce them.
    But I would be remiss if I did not, you know, pay some 
caution to the constraints that I have, which are less about 
authority and more about ceiling, which is I do have to do it 
within the context of the First Amendment and First Amendment 
jurisprudence. The First Amendment is not an excuse in this 
regard, but only a challenge. And whatever judgments you make, 
you do have to navigate its restraints.
    We are, rightly I think, sometimes cautious in the area 
only because of the Constitutional implications. We try to keep 
pace with what the courts determine are within our realm of 
actionable activity, and we try to navigate that. I will tell 
you, it is very, very difficult. These things are definitional 
issues.
    It is very hard sometimes to sit down and spell out or 
write with some specificity what is prohibited and what is not. 
And so we have always had to be, and I think rightfully so, 
cautious. But I just want to assure you that I am not 
dismissive of those concerns and I am not motivated by them in 
my own personal life and in the way that I look at what our 
responsibilities are.
    But I am equally committed to the sacred values of the 
Constitution and I am careful that I am not overly imposing my 
judgments in a way that the courts will find objectionable.
    Mr. Wolf. Well, of course, I am too. I was a lawyer before 
I got elected here, and I think certainly am aware of community 
standards. I think you can make a certain justification for 
acting and in certain of these cases, the FCC did move.
    You are the leader, though, with regard to communication 
policy. And I think the comment is that I think there are times 
that you have to be bold and help out. And I really worry 
sometimes that there may be a tendency of some who say, I do 
not want to go there because I know there is going to be a lot 
of flack and a lot of complaint, and I will be ridiculed.
    We are not asking specific questions here. But I am going 
to watch this issue. I care deeply about it. I am not trying to 
impose my values, but there are certain things, the degradation 
of women and other things that are uniformly accepted as 
destructive. They are universal. And as the leader and as 
somebody who has been given a term by the President of the 
United States, we cannot be family values when we want a tax 
cut but not family values in what comes over during the time 
when the family is watching television.
    So, you know, we are not talking about eleven o'clock, 
twelve o'clock, one o'clock in the morning. There really is no 
family hour anymore. And you are right, you know, last night 
when ``The Diary of Anne Frank'' was on. Great television. But 
I will tell you, you go home tonight at 8:30 or nine o'clock 
and turn on, without mentioning channels, and you are going to 
find a lot of really bad stuff.
    And your child is not only watching it at your house, but 
there will be times--I do not know how old your children are--
they are going to go over to other people's homes. It is an 
issue that I think you should be sensitive about and be willing 
to expend some of the capital that you garner in this job. Too 
many people save capital. It is the old saying, I do not want 
to cash my chips on this one. Sometimes you cash your chips 
when you leave this process, and someday you are going to look 
back and say, if I had only done something, I think maybe that 
would have changed.

                           INTERNET GAMBLING

    What about this issue of Internet gambling? Does the FCC 
have any thoughts with regard to--there was the article in the 
New York Times last Friday about the greater use of Internet 
gambling, and also what about the issue of pornography on the 
Internet?
    Chairman Powell. Of course the most direct answer----
    Mr. Wolf. Gambling and----
    Chairman Powell. Of course, the most direct answer is that 
we have virtually nothing to do officially with any of those 
things, given that we do not--we specifically do not have 
authority over the Internet, even to structural aspects of the 
Internet, we do not have regulatory authority over it. And we 
certainly have authority in the context of content or services 
that are offered using the medium.
    I have only the kind of familiarity with these issues that 
any citizen would who might read the paper. We do not generally 
have an official function or activity that is focused on those 
issues.
    I think that those issues have proven extremely 
challenging. I mean, all I can offer is that the Internet is 
going to prove a very, very difficult space for these kinds of 
concerns, because what makes it phenomenal and at the same 
time, dangerous, is that the intelligence of the network is 
distributed on the periphery, and rather than a central phone 
company or a central institution that you can point to and have 
some chokepoint for regulatory control, you have the 
intelligence of the Internet spread throughout the world in the 
hands of millions and millions of individual innovators who can 
publish and offer services and run services.
    And I think this is going to be an enormous challenge for 
law enforcement, for national security, for, the heinous 
trafficking in pornography, for criminal activity, for fraud, 
because the traditional methods of policing such activity prove 
daunting and challenging in this space. As the prosecutors of 
Napster or anything else will find, it is quite elusive in its 
ability.
    You can articulate the rule, but the actual effective 
policing of that rule proves phenomenally difficult. I think 
the answer rests somewhere in the use of technologies. But 
there are touchy issues there, too. I think that, for example, 
with respect to filtering technologies, which many of us use 
for our own kids and are hopeful--for example, we just 
implemented rules that the Congress did give us specific 
direction in the context of the Schools and Libraries Program 
so as a condition of Schools and Libraries E-rate grants now, 
you are required to demonstrate that you have Internet 
filtering software in place in the schools and libraries as a 
condition of the grant. That was a specific directive to us 
from Congress.
    With respect to the other stuff, I think those issues will 
probably be in the hands of--the ones that have criminal 
implications--law enforcement authorities and perhaps to some 
degree when you get toward privacy, the Federal Trade 
Commission has some unique authority.
    But I do not know that there is a central point right now 
in the U.S. government where all of those issues are subsumed 
in one place. I think pieces are where they have been 
traditionally.

                           DIGITAL TELEVISION

    Mr. Wolf. Last question and then I will recognize Mr. 
Serrano. With regard to the whole question of analog TV 
purchasing now for $200, $300 versus the digital $2,000/$3,000, 
do you have any thoughts about that? The timing, the target 
date? What do you see happening?
    Chairman Powell. To be completely candid, the idea of the 
transition reaching the penetration levels that are called for 
in the statute by 2006 are not achievable.
    Nor would one expect them to be if you look historically at 
the deployment on a mass market basis of this kind of 
transition when color TV came into the market or that when TV 
came into the market in the first place, when CD players came 
in the market, VCRs. It generally is a much longer transition 
than the period that we currently hoped for in the current 
process.
    When you look at how radical a transformation this is for a 
consumer, you are talking about an HDTV that is currently 
priced in the $3,000 range, and that is for one of them. The 
average American family has three to four televisions in their 
house. And that is a lot of swapping out going on.
    I think that what we have to be very careful about as a 
government is that broadcasters have a dog in the fight, 
content providers, the consumer electronic folks have a dog in 
the fight. But the people who matter most are the consumers who 
we are going to push this on. And I think that we need to make 
sure that while we press for an efficient transition, we are 
careful to make sure that we do not, push consumers toward 
things that are not ready or that are inordinately expensive or 
to which they do not have anything to watch once they invest 
that expense.
    And so I think that there is reason to be careful and 
cautious about the pace of this. I think it is a great 
technology and I think it is going to come. I think consumers 
are going to like it eventually and I think they are going to 
buy it. But I think that we have to let them come to it at a 
reasonable pace before we really in our haste say that we did 
it, push onto consumers products they are not ready for. And 
many good products are already out there, but there is going to 
be an early adopter curve when those prices have to get beaten 
down, the technology improved. And that is natural in any new 
technology. The first color sets were the worst ones. The last 
ones tend to be the best ones and the cheapest ones, and the 
same thing will happen with digital. We have already seen 
pretty big drops in prices.
    But it has got some time to go. And so I tend to be avoice 
of caution, and sometimes criticized for it, that the people who are 
not at this table are the ones we are asking to go home and watch this 
thing, and we need to be careful about just in the name of getting it 
done that we are too aggressive.
    Mr. Wolf. Mr. Serrano?
    Mr. Serrano. Thank you, Mr. Chairman. Let me just as an 
aside, Mr. Chairman, say that I am really beginning to more 
than ever like your style. You remind me of Ed Sullivan. 
[Laughter.]
    Mr. Wolf. Ed Sullivan.
    Mr. Serrano. If you notice you will say I have one more 
question and then I will introduce--I will have Mr. Serrano. 
Then you say I have one more question, then I will bring on Mr. 
Serrano. Then one more question. Sullivan would come on and 
say, on tonight's show, Pearl Bailey with the great Duke 
Ellington Band. Then he would do a whole bit, go to 
commercials. Right after commercial, say Pearl Bailey coming up 
with the great Duke Ellington. Topo Gigio would come on. 
[Laughter.]
    And a thousand Hungarian ventriloquists or something. And 
eventually Pearl Bailey would come in at the end of the show. 
But she was the star. So I thank you for the build-up that you 
gave me. [Laughter.]

                          PAY TELEPHONE ACCESS

    Let me, in that vein, agree and join you on something, 
Chairman Wolf, and for the first time in public give another 
side to an issue you brought up.
    First of all, I do want to publicly, on the record, join 
you on the issue of public pay phones. In the South Bronx, for 
the first time in a long time, I am seeing people at the very 
few phones that we have left in lines, the way you used to see 
in Manhattan years ago when all the businessmen lined up 
because they had to call their office or something. Because 
those folks do not have cell phones, and some of those folks do 
not have phones at home. They are the latest arrivals.
    And in the inner city we have the problem of pay phones 
being removed, in addition to the other problem, which is that 
a lot of folks do not know about dialing a certain number or 
something, and the phone call could be $30 for three minutes or 
something. I mean, it is ridiculous. I have been caught in 
that, and so have many people.
    So I join Chairman Wolf on the record saying that, we 
should not abandon or we should encourage pay phones. And I 
continue to believe that you have the way to encourage people 
as you through our government make it possible for some of them 
to become zillionnaires, I do not think it is improper to say, 
and by the way, you know where they should be looking.

                           BROADCAST CONTENT

    Now on the issue of what goes on the air, I tend to agree 
with you that this is a very delicate situation and we have to 
be very careful. I know where the Chairman is going and I 
respect his views and I know that they are very sincere. But it 
is really where you are sitting. You know, I bring up every 
year the issue of the Howard Stern Show. The Howard Stern Show 
has set a record for being fined. I was shocked to find out 
from Chairman Kennard last year that the reason the Howard 
Stern Show gets fined is because people call up complaining. So 
he is kind of done in by the fact that he has got at least 50 
million people listening to him every morning. Because if 
people do not complain, then you folks cannot react, which 
seems a kind of strange way to act.
    But I am more troubled by some of the people I hear during 
the day, and yet I do not want them off the air, than I am by 
Stern. Talk show hosts who claim that liberal Democrats are 
anti-American trouble me, but they should stay on the air. Talk 
show hosts who say that the people in Vieques who want the 
bombing to stop are not patriotic and are anti-American, not 
taking into consideration how many of them or their relatives 
have died in our wars throughout the years, they trouble me.
    Some of those shows where they say on today's show, women 
who have sex with their dogs while, you know, wanting to join a 
seminary or something. You know, I mean, I really do not want 
to see or hear that. But I know their right to be on the air.
    So I still believe that it is--and here probably I am 
sounding more like a Republican than anything else--I still 
believe that it is up to mom and dad to know when to turn the 
dial and when to switch it off and when to control it. It is an 
ongoing battle. We do not know how to win that battle. I do not 
know myself how to win that battle.
    But, you know, there is violence on TV, and I am not crazy 
about it. But sometimes I think there is more violence in the 
hockey game than there is on the regular TV show or on the 
news, so what do we do, start controlling everything? It is a 
balance. It is a real balance. I do not envy you every time you 
have to deal with this. I do not envy any of us having to deal 
with it. And it is a disagreement with the Chairman, but it may 
not be. It is just trying to get to this at all.

                           LOW POWER FM RADIO

    On to one of my questions. One of the big issues last year 
was the whole issue of low power FM. Low power FM for 
communities like mine was great. The whole idea of the local 
church, local hospital, local college having their own station 
was just going to open up a whole new era for us and for those 
communities. And then we ran across and against the big 
stations who feel somehow we are going to interfere with them.
    There was language put in the bill which modified certain 
provisions and so forth. I did not like that, but we went along 
with it.
    Now there was supposed to be an experimental program to 
evaluate the potential interference of low power FM stations 
and to have an independent testing agency conduct field tests.
    So my question is, what is the status of the evaluation, 
and when can the Congress expect to have the analysis of the 
results of the evaluation.
    And also does the Commission have sufficient resources to 
conduct the evaluations in this coming year.
    Chairman Powell. Sure. A couple of quick things. First, it 
is important to recognize that the legislation that requires 
the testing does not prohibit the Commission from proceeding 
with, at least in our interpretation, the opening of licensing 
windows and licensing applications.
    So in some ways, these things are on two tracks. That is 
the licensing is proceeding and we opened three filing windows. 
I think the fourth and fifth windows will be in June, and that 
will have covered the country for low power (LPFM) license 
applications.
    The technical study has to do with an issue about how much 
spacing protection you have to provide between stations. We are 
required to make any licensing decisions with what we call 
third adjacency, which is greater protection than the original 
proposal, until the completion of this study.
    The study has to be procured in the same kind of government 
procurement way. We are not doing it independently. The study 
has to be done by an outside party.
    We are in the process of developing the technical 
specifications, all the stuff that goes into creating and 
letting out a contract for the technical studies.
    We hope that that will be completed--I do not think I have 
a good date, but I think, we are trying to complete that 
process pretty quickly.
    I think that the bad news is that if you comply fully with 
the way that the testing is laid out on the statute, it is 
going to take a long time.
    It is apparently not permitted that you can just do it in a 
laboratory setting. It requires testing in real conditions, 
which means there are actual licensees operating and you test 
in real environments, and you are required by the statute to 
test in different environments like rural, urban, et cetera.
    So there are a lot of dimensions to the testing that are 
going to have to be satisfied and I think that is going to take 
a fair amount of time.
    And then it is important to recognize that the way the 
statute is written is that when the tests are completed, we 
merely provide that to Congress.
    And so whether there are any modifications to allow more 
stations is going to be a congressional judgment and not an FCC 
judgment.
    So in some ways, the long and the short of it is, even 
though the test is required and we will have to proceed, et 
cetera, we are able to continue the LPFM licensing process 
within the one technical constraint now, and we will proceed 
with it.
    And whether Congress ultimately allows more stations, this 
technical thing really goes to that. I mean, if you put in a 
third adjacency, there are that many fewer LPFM stations you 
can have in markets.
    You know, we will await the completion of the study and 
whether Congress authorizes us to remove the technical 
barrier----
    Mr. Serrano. And you authorize how many right now under the 
current law?
    Chairman Powell. I do not know the number off the top of my 
head. The move from second adjacency to third adjacency cuts a 
significant number out.
    You go from somewhere in the neighborhood of a couple 
thousand nationwide to a thousand or under probably with the 
adjacency and it has a lot to do with different markets. It 
depends on how concentrated an area is.
    Mr. Serrano. Right.
    Chairman Powell. In an area like New York, it can make a 
significant difference because it is such a concentrated 
commercial marketplace that if you have projected a third 
adjacency, there are urban markets or concentrated markets in 
which that will knock out the possibility of any stations.
    There are lots of parts of the country that even under the 
rule before were not going to have a meaningful opportunity 
because of the concentration of their markets, which I would 
caution is not all bad. That is, there are a lot of very good 
community-oriented commercial stations that are operating not 
at the high end--you know, they are not clear channel--but they 
are maybe that Spanish broadcasting station in New York that 
has to compete for advertising to maintain its commercial 
viability and we do want to be careful that we do not introduce 
a free service that chips away too far into the commercial 
viability of stations on the small market side who then, you 
know, do not have as much advertising base as they did before, 
and then we lose them too.
    That happened once in the Commission's history. We had 
another service where there were radio stations operating. We 
saw lots of stations dying as a consequence. We had to pull 
back on that once. And so there is a reason to be cautious 
here, but things are going to proceed.
    Mr. Serrano. So it is your sense, which I am glad to hear, 
because, in all honesty, I did not understand it that way. 
Notwithstanding the testing that has to be done, the analysis 
that has to be done, you are still proceeding in putting forth, 
issuing the licenses?
    Chairman Powell. Yes. And it is our interpretation of the 
testing that you almost have to because you have to have real 
operating stations against which to test. Not a laboratory 
where we run interference tests and say that it is okay or go 
out with an antenna and hold it up for a minute and say that it 
is a test.
    What we interpret the statute to be is that there is a real 
station operating in a market, and then we go out there and we 
look at what the interference characteristics are.
    Mr. Serrano. Is the industry somewhat satisfied by what we 
did last year and not jumping up and down? Or they still would 
rather see all these people disappear?
    Chairman Powell. I cannot really speak of the industry. 
They certainly pushed this change. I suppose that they are 
satisfied with it in that regard. There are certainly some who 
would wish there was no service at all.
    My own interpretation is there are some who just do not 
want them, and also some who I think it would be unfair to say 
do not have genuine concerns about their viability both 
economically and technically if the service is not carefully 
curtailed.
    For example, some of the most vocal critics I got who came 
to see me were in small markets like rural North Carolina, who 
were very concerned about, with a small population, if the 
church got a radio station and it was broadcasting the service 
on Sunday, that was a big part of what they did on Sunday and 
was a good part of how they got their advertising revenue.
    They were very concerned that you are going to divide the 
market between us, and we will go out of business.
    Those are tough judgments but I think that we will 
ultimately work out a reasonable situation, then we will have 
experience with it. And if it proves to be insupportable----

                    REORGANIZATION OF THE COMMISSION

    Mr. Serrano. You know, I think that this is one of the more 
exciting things to come along in a long time. I think it gives 
an opportunity for local communities to have a stake and to 
have some power and to have some involvement.
    Let me just ask you, Chairman Powell, your testimony refers 
to your proposals to reorganize the Federal Communications 
Commission in two phases. A short-term phase one restructuring, 
and a longer range phase two plan.
    Could you tell us more about what you hope to accomplish in 
that proposed reorganization, why it is necessary and when we 
will see the details of the proposal as well as more specific 
time line?
    Chairman Powell. The proposal is an effort to examine the 
way the Commission should be organized, given convergence in 
the marketplace.
    I will give you an example to bring meaning to that. If you 
are a television viewer, you might watch cable, you might watch 
over-the-air television, you might get a satellite dish.
    As far as you are concerned, those things are substitutes 
for each other up to a point. You know, they are competitors to 
each other. The cable guys try to get you to subscribe instead 
of watching over the air. The DBS people try to get you to take 
them instead of--but yet we have every one of those services in 
a different bureau.
    And they are regulated differently and it is difficult to 
create harmonization across those services because they are in 
different organizational buckets.
    So this is actually proven to be something industries 
sometimes like because they are able to have advocates for 
their position within the Commission.
    If you are a broadcaster, you like that broadcasting lives 
sometimes in mass media because then you have a bureau of your 
perspective where you do not have a leaderor a chief who maybe 
has more responsibility looking over industries that compete with each 
other and making sure those judgments are harmonized.
    Spectrum is another example, in response to the Chairman's 
question. We will look at whether there are ways to have more 
coherence to licensing by not having licensing being divided 
across bureaus completely just based on where they come from 
historically. So that you have broadcast spectrum and satellite 
spectrum over there, et cetera, et cetera.
    So most of that is the driving impetus for at least the 
examination.
    I designed it in phases because I think that reorganization 
is a tough thing to do responsibly, and I think that we are 
building in milestones for public comment. We just, I think 
last week, issued a press release inviting public comment on 
proposals for reorganization.
    We have a union to work with. We have to be cognizant of 
their concerns, the employees. But it is not an effort to cut 
the agency dramatically or dislocate people dramatically, but 
basically re-optimize it for the current realities.
    Phase one is something that I fully intend to be the first 
step of reorganizing functions. I do not want to get into the 
details just yet, but maybe some reorganization changes that 
occur on a short term frame. In my mind, that is kind of a 
three- to four-month period.
    Phase two is an examination of what is the agency? Really, 
those are the things we think probably need to be done sooner 
rather than later.
    Phase two is sort of the idea of taking a very long view of 
looking at the market, where it is going, what the trends are, 
and how is the best way for the agency to be optimized, and we 
think that there is probably room there for more dramatic 
change. It may be a phase that takes a couple of years.
    We are pretty optimistic about trying to make sure we do as 
much of it as we can under my watch, and under the shorter time 
frames, given the market demands. But the longer those will be 
a more serious examination of putting together the competitive 
services in similar buckets and functions in more similar 
buckets.
    I think at the earliest that is a year. I think at the 
longest, that is three years.
    And you never know. You never know what issues you run into 
as you pry it open. But I do not want to do it hastily or 
irresponsibly.
    Mr. Serrano. Do you envision that any of these changes 
would require congressional approval?
    Chairman Powell. Yes, I think so.
    Mr. Serrano. If so, will we be having any legislation 
coming soon?
    Chairman Powell. I do not know if real soon, but in a 
government agency, we can not even change the name of an 
organization block without some blessing of the Congress. And I 
think that certain structural changes would absolutely require 
a reorganization change through the authorization/
appropriations process. And we would undoubtedly submit them.
    But we intend to be a lot more proactive than that. We want 
to do it partly in partnership with Congress, not just submit 
it to you. So we have been beginning the process of soliciting 
input from Congress and their staffs as to things that they 
have seen that they would like to see improved and get included 
in the process.
    So we will be more than happy to include you in that, and 
will, and so it will not just be ``surprise, here is the 
reorganization plan.'' I hope that it is something that you are 
familiar with as it works its way through the development 
process.
    Mr. Serrano. How about industry and consumer 
representatives?
    Chairman Powell. This is part of what is, the first salvo--
the release last week of the invitation for public comment. It 
is one way of soliciting input broadly throughout the country.
    We fully expect that we will receive comment from both 
industry and consumer groups.
    We probably along the way will hold informational forums, 
developmental discussions that will probably include components 
of that. We will do that internally.
    Our view is basically we have an internal buy-in obligation 
and an external buy-in obligation. The external one includes 
industry and consumer oriented groups and the internal are 
employees and our staffs and the anxiety that change creates, 
making sure that they buy-in and at least have a good 
understanding of what we are doing and why we are doing it.
    Mr. Serrano. One question. There is a group in New York, 
NewsCorp, who wanted--you laugh----
    Chairman Powell. There is a group all over the world called 
``Newscorp.''
    Mr. Serrano. That is that gentleman's group, right?
    Chairman Powell. Yes, that would be his group.
    Mr. Serrano. Okay. The reason they call me is because they 
are opening a newspaper plant in the South Bronx, but their 
question I think I can ask in the broader term.
    Which is, with the changing of the guard, which is very 
natural at this time, the beginning of a four-year period, and 
the Administration having to name new Commissioners and so on, 
there are items that are pending.
    Do you see this as a problem? Is it going to take a while 
to get some of the things that are before the Commission taken 
care of?
    Chairman Powell. Some of them yes, some of them no.
    You know, we try to plan for Commission transitions. It is 
often difficult to do. We are about to lose two members 
completely.
    We have already lost one, and we are one down anyway, so we 
have three brand new members that could arrive any day. They 
have had their confirmation hearings. Purportedly, there is 
mark-up this week. So it is anyone's guess from that point on 
how quickly they will arrive.
    We try to clear, as aggressively as we can, big important 
items that would require a major reinvestment of learning and 
time before the new commissioners arrive. And number one, I do 
not want to do that to them. I would hate to arrive and be told 
I have a major transaction that I have to get on top of in a 
matter of days.
    We just do not want things that have been around a long 
time to get trapped in the transition. I suspect that for the 
most part we will be successful. There is always a possibility 
of things that just cannot get completed. One of the reasons 
is, while I am the Chairman, I have colleagues who can vote or 
not vote at their discretion. I can cajole and push and 
emphasize that they get something done beforehand, and 
sometimes they will and sometimes they will not.
    The transaction you speak of is restricted. I cannot talk 
about the details but it is before the Commission. It is one of 
those that I sincerely hope we will get done beforehand. It is 
in the hands of my colleagues, and I have certainly urged them 
to try to do this.
    But, the issues are complicated and they may or may not 
feel comfortable concluding it before the Senate acts on the 
nominations, but we are going to try.

                         ENFORCEMENT AND FINES

    Mr. Serrano. Mr. Chairman, I have a couple of questions 
that I am going to submit for the record, but I have one last 
question. It has to do with fines.
    You have stated that you support increasing the FCC's 
enforcement ability through an increase in the maximum level of 
fines the FCC can charge companies violating the 1996 
Telecommunications Act.
    Currently, the maximum level for a fine is $100,000 for a 
violation, which may be seen as a cost of doing business by the 
major telecommunications companies.
    What do you see as a more appropriate level of fines, and 
would the Commission require an increase in enforcement funding 
in order to implement any increase in fines?
    Chairman Powell. Well, our proposal, which we submitted in 
the form of a letter to leaders in Congress, was that we think 
we described it at a minimum of $10 million. I certainly would 
not object to any order of magnitude above that if the Congress 
saw fit. But I think that it is the minimum required to be an 
effective deterrent against the kind of decisions that 
companies are faced with.
    The proposal also includes the possibility of other 
enforcement flexibility. Like a lot of times we get trapped by 
the Statute of Limitations. It is fairly short.
    If a company wants to, by the time they drag you around, 
you run out of the clock sometimes. It is an age-old tactic but 
our statute of limitations so short. I think they are a year at 
the most on these things and by the time you have the 
complaints and you do the discovery, people start racing you to 
the door on the time.
    There are also arguments about whether these should always 
be punitive fines, whether sometimes they should be 
compensatory so that the harmed carrier actually gets some 
retribution for its losses. Those are the proposals.
    I think they will make a meaningful difference if Congress 
sees fit to enact them. It has been a deficiency I think in the 
law for a little while and so we are pretty supportive of that.
    On your questions about resources. It is not been what we 
have focused on, we have not yet seen the need to say we need a 
lot more attorneys or a lot more personnel resources to carry 
that out. That is a possibility if we are able to actually 
increase our enforcement effectiveness and it starts to become 
a resource issue, we certainly will come up and talk to you 
about that. That has not been what we have chosen to lead with.
    We think that we have a lot more progress to make before we 
start arguing for it in a resource sort of way.
    Mr. Serrano. Well, I will submit my last question for the 
record, Mr. Chairman. I want to thank you, sir, for your 
testimony today. And I know we have a lot of issues I would 
like to follow up on.
    But I understand the difficulties you face, the excitement 
of the job you have, and I can assure you that while the FCC is 
not an agency that is mentioned day to day in communities like 
mine, I believe that it is one that can make a major difference 
in the future of areas like the Bronx.
    So I spoke to your father about this, and he agrees. 
[Laughter.]
    Chairman Powell. I agree with everything he says.

                            CLOSING REMARKS

    Mr. Wolf. In closing, let me just, we thank you. I want to 
just follow up a little bit on what Mr. Serrano said to just 
put my side of the point in here.
    Some of the stuff on television is having an impact on our 
society, and for adults to deny it is unbelievable. It is 
having a negative impact.
    Secondly, I am disturbed over the burden that you put on 
mothers and fathers. I am a mother and a father. My mom worked, 
came home, my dad was a policeman, and we had five children, 
but we were not everywhere.
    But I have heard the people say, you know, we ought to do 
this but yet there is nobody home in the family. So you can 
give moms and dads a little bit of a help.
    And a single parent, you know, the toughest job in the 
world is not the Chairman of the FCC and it is not a 
Congressman; it is a single parent. It is not the president of 
the United States. It is a single parent.
    And you can do something to help that single parent. And I 
think for the FCC to require them to provide tapes and times 
and dates, I mean, they do not carry tapes around wherever they 
are. Sometimes they do not even have a tape recorder.
    I mean, I think you can make it easier for them, the FCC 
can make it easier.
    You are not changing the standards, you are just helping 
out a little bit.
    And lastly, you have been given a great opportunity I think 
by speaking out because moral leadership, bully pulpit, the 
president, whatever, can make a tremendous difference.
    Many times even a difference that you will never be able to 
quite see but you will know eventually out there, because of a 
comment that you made or a speech that you made, or something, 
a life has changed and things have gotten better.
    And so, you know, with that, I do appreciate your testimony 
and the hearing is adjourned.

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                                             Tuesday, May 22, 2001.

            UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                               WITNESSES

LAURA S. UNGER, ACTING CHAIRMAN, UNITED STATES SECURITIES AND EXCHANGE 
    COMMISSION
JAMES M. McCONNELL, EXECUTIVE DIRECTOR

                              INTRODUCTION

    Mr. Wolf. The hearing will begin.
    We want to welcome Ms. Laura Unger, the Acting Chairman of 
the Securities & Exchange Commission. She is accompanied by 
James McConnell, the Commission's Executive Director.
    And today's hearings will focus on the SEC's budget request 
for fiscal year 2002.
    Fiscal year 2002 budget request for the SEC totals $437.9 
million, an increase of $15.1 million or 3.6 percent over the 
FY 2001 program level.
    The Commission is responsible for the oversight of the 
nation's financial markets. Our financial markets have been 
transformed over the past three years, both by phenomenal 
growth and by technological advances.
    It is an extraordinarily dynamic environment, one that 
provides no shortage of management challenges for you and the 
oversight challenges of the Congress.
    I have other things to say, but let me move on to a couple 
of points.

                 FOREIGN CORPORATIONS AND HUMAN RIGHTS

    Before you begin your testimony, I would like to commend 
you, David Martin, and the whole SEC on the important actions 
you have taken recently on increased enforcement of disclosure 
rules.
    Foreign corporations play a direct role in human rights 
abuses in Sudan have been able to offer securities to American 
investors, and as a result, these investors are unwittingly 
helping to subsidize these atrocities.
    The SEC has a responsibility and an obligation to require 
these corporations to disclose such involvements to U.S. 
investors.

                  THE IMPACT OF SEC'S DISCLOSURE RULES

    I am pleased by the progress you have already made, and we 
will continue to insist and urge the SEC and your new chairman, 
when confirmed, Mr. Pitt, to fully exercise existing 
authorities to inform and protect American investors in this 
area.
    I believe that you have exercised your maximum efforts to 
be responsive to these legitimate market concerns and dangers 
to our national security and fundamental values.
    And over time, I believe five, ten, 15 years from now, when 
you look back on this, you and others will believe that your 
actions will have played a vital role in saving lives in Sudan 
and other countries and I think this will really be an 
inspiration.
    Last night was the second night of the Diary of Anne Frank. 
If anyone in 1943 knew that companies were doing business with 
Nazi Germany and they were on a U.S. stock exchange, we would 
want to know about it.
    With the atrocities taking place in Sudan, 2.2 million 
people killed, Christians, Muslims and animists. What is being 
done by the Khartoum Government is barbaric. It is a form of 
genocide.
    Anyone who raises any objection to you, you just tell us 
about it. We are going to ask them, particularly if they are 
government person, whether they be at the White House or the 
Treasury Department or the USTR, or anybody else. Before they 
discuss this with us, I am going to ask them to go into the 
Holocaust Museum and look at the genocide exhibit.
    This Holocaust Museum has now issued a genocide warning 
with regard to Sudan. And anyone who has not been in the 
Holocaust Museum ought to go in. In fact, government officials 
ought to go in over and over and over.
    Just sitting where you are the other day, Louis Freeh said, 
to his credit, that every time a new class of FBI agents 
graduate, he requires them to take a tour of the Holocaust 
Museum. As you enter the Holocaust Museum, there is an exhibit 
now on Sudan where they have a genocide warning. They do not do 
that very often. This may be the first time ever.
    So anybody that watches the Diary of Anne Frank and reads 
the new book out talking about some companies that were doing 
business in Nazi Germany, if anyone can go over to the 
Holocaust Museum and see that, the genocide warning with regard 
to Sudan, then we can talk about this issue.
    But I personally think what you did was very important. 
There is a great statement by Bobby Kennedy, where he talks 
about moral courage being a rarer commodity than bravery in 
battle.
    The fact that you and your employees at the SEC did this is 
very important. The sum total is that you will save lives and 
you will help the national security of the United States.
    So I think you will be proud of this for a long time and I 
will not quiz you too much on Mr. Pitts' feelings about this, 
but when he is ready to come up here, I do want to talk to him. 
Because if there are any repercussions, if there are any 
pressures brought against anybody that has been involved in 
this, we are going to ask the FBI to investigate. We are going 
to ask the Inspector General to investigate, and we are going 
to be involved.
    And so to you, and to your employees on behalf of the 
people of Southern Sudan and the people of many other countries 
that are going through a very difficult time, thank you very 
much.

                            OPENING REMARKS

    Mr. Wolf. Mr. Serrano is coming and at that time, we can 
recognize him if he has any statement. He had another emergency 
meeting, but with that, you can just proceed, and you can read 
your whole statement or you can submit it for the record and 
summarize, whatever you see fit, but welcome.
    Ms. Unger. Thank you, Mr. Chairman, I appreciate your kind 
statement. Although the Commission touches on many investors' 
lives, it is rare that we have gotten credit for saving 
people's lives, so I am glad to have the opportunity to work 
with you on that.
    I have a short oral statement, and then I have a longer 
statement that I would like to have included in the record, if 
that is okay.
    Mr. Wolf. Sure, without objection.
    Ms. Unger. I do appreciate the opportunity to testify on 
behalf of the Securities & Exchange Commission in support of 
the President's fiscal 2002 budget request.
    As you noted yourself, the SEC today faces some of the most 
complex and difficult issues it has ever considered. More 
Americans invest in our securities markets than ever before. 
Twenty years ago, only 5.7 percent of Americans owned mutual 
funds. Today, some 88 million shareholders, representing 51 
percent of U.S. households, hold $7.4 trillion in mutual funds.
    This exceeds by about $4 trillion the amount on deposit at 
commercial banks, and surpasses by $2 trillion the total 
financial assets of commercial banks.
    At the same time, our markets continue to be transformed by 
the rapid pace of technological change in recent years. New 
technologies, new market entrants, and new financial products 
are reshaping our markets. For example, electronic trading 
platforms, some of which did not exist just a few years ago, 
are now matching buyers and sellers of hundreds of millions of 
shares every day anonymously and for fractions of a penny a 
share. Consider also the QQQ, an index product that tracks the 
NASDAQ 100. This instrument did not exist two years ago, but 
yesterday it traded almost 85 million shares, more shares than 
were traded in Microsoft, G.E., and IBM combined.
    No less important, our markets today are increasingly 
global, a trend that most expect to accelerate in coming years. 
Globalization affects almost every aspect of the SEC's work. We 
must be able to regulate markets without boundaries and 
investigate and prosecute securities fraud irrespective of 
where that conduct originated.
    All of these developments raise complex and critically 
important challenges that the SEC must be prepared to meet. At 
the same time that our markets are undergoing such dramatic 
change, the SEC is straining to keep pace. We have about 3,000 
staff. The SEC is a very small federal agency. The industry 
that we oversee, though, grows daily and includes nearly 
700,000 registered representatives employed by 8,000 broker 
dealers, some 15,000 companies that file reports with us, about 
30,000 investment company portfolios, and almost 8,000 
registered investment advisors.
    Over $41 trillion in stocks are expected to trade hands 
this year on the New York Stock Exchange and the NASDAQ. 
Against this backdrop, the President's fiscal 2002 budget 
requests an appropriation of $437.9 million for the SEC. As you 
noted, this is only 3.6 percent more than our fiscal 2001 
enacted level of $422.8 million.
    The $437.9 million request provides the resources necessary 
to meet the Commission's needs. It is a zero growth budget that 
funds all but $5.2 million of the Commission's cost increases 
with no programmatic staffing increases.
    We support this request. Ironically, though, we can only 
manage at this level because of the severe staffing crisis that 
we continue to face. In the last three years, more than 1,000 
SEC employees, which is over one-third of the Agency's staff, 
have left the Commission, which is a rate double the government 
average. Not only did we lose too many employees, but we 
alsostruggled to find qualified people willing to work for the salaries 
and benefits that we can offer.
    Over the last several months, the SEC consistently has had 
approximately 280 vacant positions, amounting to almost nine 
percent of our hiring ceiling. Because filling open positions 
has proven to be so difficult, we intend to use staffing funds 
to cover some of our mandatory costs for fiscal 2002. However, 
straining the SEC's growth and relying on cutting unfilled 
positions is not sustainable over the long term.
    In the coming years, I believe the SEC will need staffing 
increases to meet the challenges that I described earlier. In 
addition, staffing increases will be needed to meet our 
increasingly complex responsibilities under the Commodity 
Futures Modernization Act of 2000, and the landmark Gramm-
Leach-Bliley Act of 1999.
    Finally, as you know, the Senate has passed, and the House 
continues to consider, legislation that would, among other 
things, grant the SEC the ability to match the pay and benefits 
of our sister regulators at the federal banking agencies, which 
we call ``pay parity.''
    While SEC attorneys, economists, accountants, and examiners 
perform many of the same functions as the bank regulators and 
often work side-by-side with them, staff at the federal banking 
agencies received 24 to 39 percent more than their counterparts 
at the SEC. The pay disparity is a significant drain on morale 
and perpetuates the staffing crisis that is threatening to 
hamper the Agency's effectiveness.
    The SEC, the Chairmen of our Congressional Oversight 
Committees, the securities industry, and the corporate 
community are all on record supporting pay parity. Pay parity 
is important for investors, for the securities industry and for 
our markets.
    I continue to hope that this critical legislation will be 
passed in the near future. In the event that pay parity is 
enacted during this session, full funding for a new pay scale 
will be needed and would require additional appropriated funds 
beyond our current request.
    Thank you for the opportunity to give this oral statement 
and appear here today. I will include my full statement in the 
record and be pleased to answer any questions.
    [Prepared statement of Acting Chairman Unger follows:]

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                    STATUS OF PAY PARITY LEGISLATION

    Mr. Wolf. Sure. Without objection, thank you very much.
    On the pay parity and the staff issue, I support the 
legislation and if you can think of anything that we can do, I 
am hopeful that it will pass, although I did see the other day 
that OPM, I do not know if they opposed it or they--what did 
they actually say, OPM?
    Ms. Unger. The letter itself, which we did prepare a 
response to--and I would be happy to provide both for you if 
you want to include them in the record--indicated that the 
Commission had other options available to it that we could use 
to face the staffing crisis that we have described, and also 
expressed concerns about portability and about fragmentation.
    Portability, I guess, is the ability for employees to leave 
one area of the government and move. Portability is our 
problem. And I think fragmentation refers to the entire Civil 
Service pay scale and the fact that you would have disparity 
among the agencies.
    Mr. Wolf. Well, I support it. It has passed the Senate. 
What was the vote in the Senate?
    Ms. Unger. It was by unanimous consent.

                         FUNDING OF PAY PARITY

    Mr. Wolf. It was by unanimous consent.
    This is a fairly tight budget. You are asking for over 3 
percent above last year, which is pretty much flat.
    In anticipation of passage of pay parity legislation, if 
you do not have the appropriations, if you miss this train, of 
not being able to implement it at least until December, or 
potentially October or November of the year 2002.
    So if the bill passed and were signed into law, how would 
you do it if you did not have any additional money?
    Ms. Unger. My understanding is that the House will take up 
the bill shortly after the recess.
    Mr. Wolf. Okay.
    Ms. Unger. Our hope is that we could have it included. We 
have not had our appropriation hearing yet in the Senate. So 
certainly we would love to ask for it now. I do not know if you 
can actually appropriate money to us for something we do not 
have yet, and I think that is why the President's budget does 
not include the figure to implement pay parity.
    Mr. Wolf. So if it passes and is signed by the President, 
then you will be coming up and asking?
    Ms. Unger. Yes.
    Mr. Wolf. And the cost of that will be roughly again what?
    Ms. Unger. About $70.1 million.
    Mr. Wolf. Per year?
    Ms. Unger. For the first year.
    Mr. Wolf. First year. And what would the second year be?
    Ms. Unger. $78 million.
    Mr. McConnell. It depends on whether we get a staffing 
increase or if it just tracks normal and inflationary growth. 
But it would probably go up by a certain four or five percent a 
year, as do most salary and expense accounts.

                            SPECIAL PAY RATE

    Mr. Wolf. I see you have 280 openings. In fiscal year 2001, 
the Committee funded a program increase of $15 million to 
institute what they call special pay rate, which was 
implemented.
    Your FY 2002 request includes an additional $4 million to 
pay for the annualization costs.
    How will this new rate affect the pay of SEC employees? And 
who is it targeted to? This one here that the Committee gave 
you $15 million?
    Ms. Unger. The $15 million was for the employees that 
received ``SI,'' or Securities Industry, designation. It 
amounted to between three and 18 percent for the employees who 
were eligible to receive it. It applied to about half of the 
SEC employees in total.
    Mr. Wolf. What would that mean. If I could just give you, 
let's say a GS-14 accountant with six years' experience, what 
would they have gotten? Do you know?
    Ms. Unger. I think I would have to defer that question to 
Jim.
    Mr. Wolf. Roughly.
    Mr. McConnell. They would have gotten a fairly small 
percentage increase because----
    Mr. Wolf. Do you know what it is in dollars?
    Mr. McConnell. $117,600 annually is what we are capped at 
for anybody. That is the highest they could have been paid.
    Mr. Wolf. And they all bump up at that level?
    Mr. McConnell. They all bump up to the $117,600.
    Ms. Unger. So what is a GS-14, Step 6?
    Mr. McConnell. Well, it would normally be in the $90,000 
range, but with the special pay, they are likely at the cap 
now.
    Mr. Wolf. They would have hit the cap. And if there had not 
been a cap on it, what would it have been?
    Mr. McConnell. It probably would have gone up a total of 
about 18 percent.

                   IMPACT OF THE ECONOMY ON ATTRITION

    Mr. Wolf. With the downturn of the economy, what impact do 
you see this having on your attrition?
    Ms. Unger. I think we would have to look at past indicators 
to predict the future in terms of the attrition rate. I would 
assume that it would continue because the disparity exists in 
the salaries between the SEC and the federal financial 
regulators and the SEC and private industry. Both of those 
entities is where we are losing our personnel to.
    Mr. Wolf. As they leave, as they exit, unless they are 
retiring, do you ask them why they are going and where they are 
going?

                LOSS OF STAFF TO OTHER FEDERAL AGENCIES

    Ms. Unger. Yes. But they do not always respond and the 
evidence that we have of where they have gone is really 
anecdotal.
    Mr. Wolf. But you believe most are going to your sister 
agencies?
    Ms. Unger. I think a significant enough percentage is going 
to the other agencies, and we are very concerned about it. Even 
aside from that, overall, the ability of the Agency to attract 
and retain talent is diminishing day-by-day.
    And so this is a serious problem. When we look out there 
and see how much more the other financial regulators are 
paying, we say to ourselves: ``Well, we at least need to be 
competitive in the government service.''

       attrition rate of sec vs. other federal financial agencies

    Mr. Wolf. Are they having a similar problem, or is their 
attrition rate very low because of that? People are leaving 
there and going to Wall Street or going to K Street.
    Mr. McConnell. The attrition rates are very low at the 
other regulatory agencies, they are below the government 
average.
    The FDIC, for instance, does not have any vacancies posted. 
If you go to their website, you will not see a single vacancy. 
They have been downsizing, to put it fairly, but they have very 
low attrition rates.
    Ms. Unger. Whereas our attrition rate is 30 percent. 
Government-wide, it is 15 percent.
    Mr. Wolf. How long has that been going on?
    Ms. Unger. I think I actually have a chart. I think since 
the 1980s.
    Mr. McConnell. Yes, we have been tracking these rates since 
the late eighties. We have had very high attrition. We obtained 
special pay in 1992 the first time. That helped a little bit 
for a short period of time, but within 18 months, the attrition 
rates were right back up there.
    Mr. Wolf. So your attrition rate of 30 percent has not just 
been this year and last year during the boom,----
    Mr. McConnell. It has been a long-term problem.
    Ms. Unger. Yes.
    Mr. Wolf. Ms. Roybal-Allard?
    Ms. Roybal-Allard. Thank you, Mr. Chairman.
    Welcome.
    Ms. Unger. Thank you.

                          FAIR DISCLOSURE RULE

    Ms. Roybal-Allard. It is my understanding that there were 
record number of comments that were received about your Fair 
Disclosure Rule last year.
    Critics say that the Fair Disclosure Rule has hurt both the 
quantity and the quality of information flowing from company to 
the market.
    Do you agree or disagree with this? And are you considering 
a reexamination of this rule?
    Ms. Unger. We actually just had a reexamination of the 
rule. I conducted a roundtable in New York City about a month 
ago, and we invited members of the investment, investor 
analyst, and issuer communities to discuss Regulation FD. We 
wanted to find out exactly the answer to your question, which 
is what impact, if any, has it had on the quality and quantity 
of information. I think leaving that roundtable at the 
conclusion of that day most people would agree that it has 
affected the quality of information negatively.
    However, there is more information available, just not the 
depth of information some people would like to see. There was a 
subsequent roundtable that was conducted by the National 
Investors Relations Institute and then the House Financial 
Services Committee held a hearing last week, where I testified.
    So a lot of people are looking at the impact of this rule. 
We will issue a report in the next month on our findings and 
some recommendations, but I think at a minimum we would like to 
perhaps provide more guidance to the industry, so they can have 
greater comfort in terms of what can be disclosed, what should 
be disclosed, and what is material. That area seemed to be the 
biggest sticking point.
    Ms. Roybal-Allard. As part of that report, will you also 
have guidelines to differentiate between the type of 
information that companies must disclose under this rule, as 
opposed to what really is not necessary?
    Ms. Unger. Well I think you have hit upon one of the 
critical issues associated with Regulation FD: what needs to be 
disclosed, what is material information under the rule. The 
rule is triggered by materiality. A company cannot disclose 
material non-public information to an analyst without 
disclosing it to the whole world at the same time.
    So that has perhaps hampered some discussions with analysts 
or caused discussions to cease entirely. Then the questions 
are: if you want to disclose information to the world, because 
obviously you want people to know something about your 
company--then what can you disclose, what is the timing, what 
should you be concerned about, and what should you not be 
concerned about?
    Ms. Roybal-Allard. And I am sorry, you said the report will 
come out next month?
    Ms. Unger. In the next month.
    Ms. Roybal-Allard. In the next month, okay.

                  DISCLOSURE OF PROXY VOTING DECISION

    There has also been controversy about the extent to which 
mutual fund companies should disclose their proxy voting 
decisions to shareholders. And some firms, as I understand it, 
do disclose and others do not. Could you please explain this 
issue a little bit more to the Committee? Does SEC keep track 
of these proxy voting practices by the mutual funds? And is 
this practice typically disclosed in a mutual fund prospectus?
    Ms. Unger. I do not know. I think we have someone here from 
our Division of Investment Management who might be able to 
answer the question in more depth. I do know that people are 
interested in how some of the large mutual funds vote on 
certain issues in terms of corporate governance and following 
what their beliefs are.
    And it has become a more common practice for those funds to 
make available, or the large institutional investors in those 
funds to make available, their proxy voting record on the 
Internet. And so that has provided more transparency in terms 
at least of where the institutional investors' interests lie.
    With respect to--what was the other part of the question?
    Ms. Roybal-Allard. The mutual fund prospectus. Is this a 
practice, you know, that is typical?
    Ms. Unger. It is not.
    Ms. Roybal-Allard. Should it be? I am just trying to 
understand the controversy more because there seems to be a 
real concern by some that sometimes there is what is at least 
perceived to be a conflict of interest, that people should, 
consumers should know, how people are voting through the proxy. 
So I am trying to understand just how serious an issue this is, 
and if it is something that the SEC should be looking at more 
closely and dealing with.
    Ms. Unger. Well, probably what they are talking about is 
that the large institutional investors are voting the proxies a 
certain way and obviously they stand for many individual 
investors. And it could be that the individual investors want 
more information about how their retirement funds are being 
managed and what the position is of the institutions managing 
those funds.
    Of course the SEC is very much a disclosure-based agency, 
and we are great believers in transparency.
    I have not heard a lot about what you are talking about 
recently, but I would be happy to look into that and provide 
you with more information on it.
    Ms. Roybal-Allard. Okay. This is an article that came out 
in The Washington Post. And according to one person, they say 
that the real issue is when is management's interests different 
from the shareholders? So if you could provide me with some 
additional information.
    Ms. Unger. Were you reading--I am sorry--from a newspaper 
article?
    Ms. Roybal-Allard. It is The Washington Post, April 8th of 
this year. And it says ``Prodding for Disclosure of Fund's 
Proxy Votes.''
    Ms. Unger. I would be happy to provide you a further 
response.
    [The information follows:]

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    Ms. Roybal-Allard. Okay. Thank you very much.
    Ms. Unger. Thank you.

                     TRADING AND REGULATION OF QQQ

    Ms. Roybal-Allard. I understand in your opening comments or 
earlier that you mentioned the trading of cubes and how it has 
exploded in the last couple of years. Could you explain a 
little bit about what cubes are and why they have become so 
popular?
    Ms. Unger. Well, they track the Nasdaq top 100 stocks. I am 
not sure as to the reason for their popularity, other than it 
is a new index. There has been a keen interest in Nasdaq stocks 
generally, and indices are a more diversified way to invest. 
But it is an example of a new product. And the reason I 
included it in my oral statement was to illustrate how quickly 
the market is changing and how technology is becoming such a 
strong force in our marketplace.
    Ms. Roybal-Allard. This trading of cubes then is having an 
impact on the market? And so my next question is, is SEC as a 
regulator looking at this to see if it is going to require any 
kind of regulation in the future?
    Ms. Unger. I do not think we have taken the position that 
it requires any new regulation.
    Ms. Roybal-Allard. Just that they keep within existing 
regulations? I guess, again, this is an area that I am not 
familiar with, and I am trying to understand, based on articles 
and things that I have read, that this is something that has 
exploded in the last couple of years and that there is concern 
that it is going to have impact on the market. And I do not 
know whether that is good or bad.
    Ms. Unger. An index is usually not a negative product, or 
it would not have a negative impact on the market because it is 
a large representation of the market. So I would think it would 
not adversely impact the market.
    What is interesting and notable about QQQs is that there is 
such a keen interest in them. We always find new products 
interesting, and the fact that it does track the Nasdaq stocks, 
of course, adds to that.
    Ms. Roybal-Allard. So from your perspective, regardless of 
what we read in the newspaper at this point there is no reason 
to be concerned or alarmed by this explosion of cubes on the 
market?
    Ms. Unger. No.
    Ms. Roybal-Allard. Is that what I am understanding?

                 DISGORGEMENT AND PENALTY RECOVERY RATE

    Okay. Here is another article I am going to be referring 
to. It was printed earlier this year in USA Today. And what it 
did was it highlighted the low recovery rate of the SEC 
pertaining to the victims of fraud. Could you tell me what the 
recovery rate is and why it is so low? And what kind of message 
does this send to investors who are the victims of fraud or who 
may be, you know, thinking of getting to the market and maybe 
afraid because they know that if they are victims, chances are 
they are not going to have a chance of recovering anything?
    Ms. Unger. The Commission can collect two kinds of monies 
in the enforcement context, in effect, two buckets of monies. 
One is for disgorgement, which is ill-gotten gains, and ideally 
that would go back to harmed investors. The other is for 
penalties, and that actually goes into the general revenue of 
Treasury.
    The disgorgement, which is on behalf of investors, is 
something that we try very hard to collect obviously because it 
goes back to the people who were wronged by the fraudulent 
conduct.
    For example, the Robert Brennan, First Jersey Securities 
Case, we sought a $75 million judgment and then he entered into 
bankruptcy proceedings in order to avoid that judgment when we 
ultimately prevailed against him. And I know there were some 
very dedicated staff devoting most of their life to getting 
that judgment satisfied. So we do think it is critical. We do 
whatever we can. We have some full-time staff devoted solely to 
collection practices. I do not know if I should say this, but 
in New York, it was called ``The Terminator.''
    So we do take it very seriously. But there is only so much 
we can do. And we have tried to be creative over the years. 
When I first came to the Commission, I conducted a top-to-
bottom review of the Enforcement Division. And one of the 
things that we all sat and grappled with, this committee that I 
had assembled, was how can we have a better performance rate on 
collecting this disgorgements and penalties?
    We are working with Treasury also because any amount that 
is not disgorged is something that could be counted as income 
to the person who did not disgorge the ill-gotten gains. 
Therefore they would receive a 1099 and be taxed on that money. 
So that is one way to encourage payment. And we have done that. 
That is one way we can provide an incentive to paying the 
penalty and/or disgorgement that you owe.
    Ms. Roybal-Allard. Is there anything that this Committee or 
Members of Congress in general can do to help you to improve 
your recovery rate?
    Ms. Unger. I did not come up with any ideas during that 
enforcement review, but I would be happy to take another look 
at it and talk to the Director of the Division of Enforcement 
and see if there is anything that they need and get back to you 
on that, too.
    [The information follows:]

                   DISGORGEMENT AND PENALTY RECOVERY

    Chairman Unger and the Division of Enforcement reviewed its 
program for collecting disgorgements and penalties as part of 
her Enforcement review. At this time, we cannot identify a 
specific need that we believe would merit Congressional action. 
We very much appreciate the Subcommittee's support for our 
enforcement efforts, and we will certainly attempt to keep it 
apprised should such a need arise in the future.

    Ms. Roybal-Allard. Thank you very much. Thank you, Mr. 
Chairman.
    Mr. Wolf. Mr. Serrano? And if you would like to have a 
statement, we said we were going to leave it open if you wanted 
to make it.

                           THE DIGITAL DIVIDE

    Mr. Serrano. Thank you, Mr. Chairman. I will not have an 
opening statement. I just want to apologize to you and to 
Chairman Unger for being late. I had an emergency meeting that 
I had to attend.
    Interestingly enough, it was related to an issue from this 
morning's hearing, the FCC. I should have had it during that 
time. But I apologize for that.
    Let me discuss with you if I may the issue of the ever-
growing digital divide. I am keenly interested in digital 
divide issues. That is, ensuring that the promise of modern 
information technology is as much a reality in disadvantaged 
and under-served communities as it is in the wealthiest ones.
    To the extent that Internet research and trading are 
growing, do we risk having a class of investment have-nots 
forced to rely on slower processes involving paper information 
and middle-men rather than the speed of the Net?
    If so, what should be done about it? And who should be 
doing it?
    Ms. Unger. I think you have hit on what I consider to be 
one of the biggest regulatory challenges facing the Commission 
today. That is, how do you take the benefits of technology, 
which provides large quantities of information and the ability 
to disseminate and provide information to people at a very low 
cost very efficiently, without in some way hampering the 
ability of those people who do not have access to computers to 
also obtain that information?
    And so all of our regulations moving forward consider that. 
The statistics I have heard are that, as I said earlier, about 
51 percent of U.S. households are investors, and about 50 
percent of households have computers.
    I would love to know if it was the same 50 percent or not. 
And I did actually put on the Internet an investor survey or 
questionnaire--the first ever I think by the SEC--to obtain 
more information about individuals and what they consult in 
making their investment decisions, the extent to which they use 
the Internet, and how we can be more helpful.
    The Commission has attempted to really reach out and 
educate individuals who do use the Internet, but not at the 
risk of not providing that same information to off-line 
investors.
    So we struggle with that every day, and that is harnessing 
the benefits of the Internet without hampering our overall 
disclosure regime to those who do not have access to it.

                  SHARING INFORMATION BETWEEN AGENCIES

    Mr. Serrano. But do you have access to information, or do 
you share information from other agencies who have perhaps a 
clearer picture as to haves and have-nots in this technology 
age in order for you then to see where you need to go?
    For instance, the Commerce Department seems to be doing 
quite a bit on the issue of trying to bridge this gap. They may 
have more information as to what is happening in the society. 
The Education Department may know.
    How do we tie in? Or are you trying to figure this out by 
yourselves without that information?
    Ms. Unger. I think I would be happy to avail myself of any 
information that is available about the use of the Internet 
with respect to investors.
    Moving forward though, we need to be mindful of the fact 
that the world is changing and more people are using the 
Internet to research investments if not to actually place 
orders.
    The statistic I have seen is that about 84 percent of 
investors use the Internet to research, and yet on-line 
investors account for about 20 percent of the trades executed 
or placed.
    So obviously more people are using the Internet to research 
than to actually place their orders. The question is: How do we 
take that statistic and make it meaningful in our regulatory 
regime?
    Some of our more recent rules have been prompted by 
technology, yet each and every rule that we do adopt takes into 
account technology and how it changes regulation and investors' 
behavior.
    Mr. Serrano. I would encourage you to have the Commission 
become even more involved in this area than you may be. Because 
you are the ones that can actually give us the information as 
to whether we are creating a bigger gap.
    I mean, the fact of life is that there is now with this new 
economy a larger number of people in near-poor communities, or 
communities that are not affluent, with the ability to do a 
little investing, or maybe a lot of investing.
    Nothing will really happen unless they get the assistance 
they need to accomplish this. So you may be the ones really who 
have the ability to tell the country where we are going wrong 
in that area. So I would hope that you really stay on top of it 
and expand the analysis that you are doing.
    Ms. Unger. One thing that complicates it a little bit, and 
the beauty of the Internet, is that, even if you cannot afford 
a computer, you can access a computer at the library, or a 
Cyber Cafe, or something like that. So it will be hard for us 
to know precisely those who do not actually have computers at 
home but actually have the ability to use the computer to 
conduct their research or to find out information or avail 
themselves of our education tools.
    But I agree with you, it is something I would like to know 
more about.

                             AFFINITY FRAUD

    Mr. Serrano. Okay. Let me move on to another issue here.
    A recent New York Times article described the growing 
problem of investment fraud against immigrants, often by 
brokers of the same ethnicity or nationality, now called 
``affinity fraud.''
    Would you describe the problem and what the SEC is doing 
about it? Beyond enforcement against brokers and firms that 
defraud immigrant clients, is there anything the SEC can do to 
prevent fraud such as advertising in foreign language 
publications?
    Ms. Unger. We see affinity fraud not just against differing 
ethnic groups but against different age groups. For example, 
the elderly are very much a victim of affinity fraud. So it is 
something that concerns the Commission a great deal.
    We like to send strong messages with our enforcement cases. 
In the cases I have seen so far involving affinity fraud, we 
generally conduct a sweep so we can bring a large number of 
cases simultaneously and really send the message out there 
strongly, and also have the ability to then use that number of 
cases, or the sweep, to educate people about these types of 
frauds and to make them more circumspect about how they examine 
different investment opportunities.
    I think we could probably never make that point enough 
times and in enough different places. And that is, to know your 
broker, ask the appropriate questions. As Chairman Levitt used 
to say, people spend more time, I think, selecting paper towels 
than actually picking a broker. So it is something that we 
cannot spend enough time and resources doing, yet we do reach 
out to the greatest extent possible.
    So we do it both through enforcement and through education.
    Mr. Serrano. Could you----
    Ms. Unger. I am receiving a note over here that we also 
have investor education materials, as I just said, on the web 
site in both English and Spanish.
    Mr. Serrano. Okay. Can you give us some examples, though? 
In general we know that it is brokers from a group trying to 
convince members of that group to invest and defrauding them, 
and you said age is also a ``group'', but these are obviously 
people who are licensed and everything that are misbehaving.
    How do they reach these folks?
    Do they advertise to them in certain places?
    Do they reach them at seminars?
    How are these folks reached?
    Ms. Unger. Generally the way the affinity frauds operate is 
that the fraudster or broker finds a hook, if you will, that 
would appeal to a certain group of potential investors.
    One thing that we have seen recently that is a perfect 
example--I would not exactly call it affinity fraud--of the 
same idea of going out and appealing to some type of interest. 
That is, people who have lost money in the market.
    The appeal is: Have you lost money in the market? Win it 
back, double or nothing. No-risk investment. Earn high rates of 
return. Recover all those losses you have experienced in the 
last six months. Or something to that effect. So that is a way 
that a broker can go out and reach a huge universe of investors 
who are all worried about the same thing.
    Another, more classic affinity fraud, is to reach out to 
one community in some way through a group, through a church, a 
club, or something like that, where all the members are bonded 
by some common heretage interest, and the fraudster reaches out 
to all those members and offers something that would appeal to 
them based on their common membership charteristics or some 
other commonality. So the idea is to find a common interest, 
and then reach all those people simultaneously.
    Mr. Serrano. Okay, Mr. Chairman, I am sure I have some more 
questions in here but I have to kind of put my thoughts 
together, so I will gladly give up the mike.

                    EFFORTS TO COMBAT INTERNET FRAUD

    Mr. Wolf. Congress increased the funding for the SEC by 
almost $100 million over the last two years, an average of over 
15 percent.
    One of the primary justifications for the increases was to 
give the SEC the staff and the tools necessary to combat 
Internet securities fraud.
    What has the SEC done to build on this capability?
    Ms. Unger. In 1998 the number of Internet cases we brought 
was about 4 percent of our total cases. For Fiscal Year 2000, 
Internet fraud was about 16 percent of our total cases.
    So we have used that money to create 75 new positions, most 
of which have been allocated towards the Office of Internet 
Enforcement, which is part of the Enforcement Division. We have 
used it to fund, or to direct resources towards enforcement 
actions, for Internet surveillance, for Internet surveillance 
training, and also for our Enforcement Complaint Center, where 
we receive about 300 complaints a day.
    Mr. Wolf. So since the number of enforcements have grown, 
is it because fraud is growing? Or is it because you now have 
the staff to deal with it and find it?
    Ms. Unger. Probably a little bit of both. So far, year to 
date, we have brought 220 actions involving 760 persons and 
entities. So I do believe it is the resources that have enabled 
us to increase the percentage, as I said, from 4 percent to 16 
percent. So that is a roughly four times increase in the number 
of cases involving Internet fraud.
    Mr. Wolf. Of course in 1998 the Internet was not what it is 
today. And so I just wondered----
    Ms. Unger. That was right about the beginning of it. I 
conducted a retail on-line investor survey, I started in the 
summer of 1998. At that time, about 30 percent of trades were 
executed on-line or placed on-line. So it is actually a higher 
percentage than we are seeing today.
    Mr. Wolf. Really? A higher percentage in 1998 than we are 
seeing today?
    Ms. Unger. A higher percentage of trades overall, yes.

                        THE IMPACT OF CYBERSMEAR

    Mr. Wolf. A recent SEC case demonstrates the dramatic 
impact that one individual can have on securities markets 
through postings on the Internet.
    You filed a complaint against an individual who allegedly 
posted a false message about a particular company on a Yahoo 
Message Board that caused the company's market capitalization 
to drop by over $200 million.
    Could you explain a little bit about this case?
    Ms. Unger. Is that the Emulex case?
    Mr. Wolf. Sean E. St. Heart. ``On March 29th the Commission 
filed a complaint in the United States District Court for the 
District of Columbia alleging that Sean E. St. Heart, age 25, 
engaged in illegal cybersmear by posting a false message about 
NCO group on the Yahoo Finance Internet page. St. Heart's 
message had a dramatic impact on NCO's stock price causing its 
market capitalization to drop by over $200 million.''
    Ms. Unger. Does it say what the name of the case was?
    Mr. Wolf. ``SEC Sues St. Heart.'' ``The Commission's 
complaint specifically alleges that on a Friday night, December 
3, 1999, St. Heart posted a false message on Yahoo in which he 
claimed that he as president and CEO of St. Heart Productions, 
together with 12 of the companies, prepared a $20 million 
lawsuit against NCO for its business practices. The message''--
and then it goes on. SEC versus Sean Edward St. Heart.
    Ms. Unger. I cannot talk about a specific case, but I can 
say generally--and I do not know whether we have completed that 
case or not----
    Mr. Wolf. I think it has. It is over. ``St. Heart further 
consented to the entry of judgment. That waives the imposition 
of monetary penalty.''
    Ms. Unger. We have brought a number of cases like this. I 
can think of three or four cases off the top of my head. I have 
someone here that can talk more specifically about that case, 
but what happens----
    Mr. Wolf. Well I guess the real question is what happens? 
The penalty is cease and desist? Sean goes away. The company 
just gets devastated. How do you resolve that?
    Ms. Unger. Do you want to hear more about that particular 
case?
    Mr. Wolf. Well, no, not that case. But in a case like that, 
cease and desist and that is it? It goes away? But the company 
has been hurt for a long period of time.
    Ms. Unger. In some cases the price of the stock actually 
comes back after the hoax is uncovered and people realize that 
it was not true or real information that was on the website.
    However, if there are buying and selling in that period 
where there is false information out there, obviously investors 
are harmed. That is where the disgorgement figures come in for 
whatever happens during that time period.
    In the cases we have brought, generally, the hoax has been 
uncovered within a matter of hours. I cannot think of a case 
where really it has stayed up for a long period of time, 
something like what you are describing. Again I can have 
someone speak more specifically to it.
    But to the extent that investors are harmed, then we do try 
to provide a disgorgement pool of money for those investors.

                    INFORMATION SYSTEMS INITIATIVES

    Mr. Wolf. In Fiscal Year 2001, the Congress provided a 
program increase of $10 million for the development upgrade of 
the SEC's Information System.
    That base increase is again continued in the Fiscal Year 
2002 request level. To justify the increase, Chairman Levitt 
talked last year about the need to develop electronic forms to 
improve document and records management and to better utilize 
market data and analysis tools.
    How are you using the $10 million provided in the current 
year for information systems?
    And do any of these initiatives constitute a one-time cost? 
And what is the top priority information system needs looking 
ahead to the next year?
    Ms. Unger. I will let Jim McConnell answer this question 
more fully, but we have used the technology to supplement our 
staff resources.
    When the technology can do it better, faster, and more 
efficiently, then we try to implement technology to accomplish 
that.
    One place that I can point to is the web crawler that we 
have now included as part of our enforcement efforts. The web 
crawler that will go and search not private conversations but 
public conversations on web sites and elsewhere looking for 
certain key terms to help us see whether or not there is fraud 
going on on the Internet.
    Mr. Wolf. Is that a self-search, like you put key phrases 
in and----
    Ms. Unger. Yes. Yes. And I think maybe I will let Jim 
answer the question more fully.
    Mr. McConnell. Another area where we are prioritizing our 
information technology budget is in the examination program 
where we want to have modules that people can use in an 
interactive way so that paperless forms populate a database and 
then we can examine against that database when we go into 
brokerdealers and investment advisors.
    We are also extending paperless filings beyond EDGAR to 
broker dealers, and investment advisors, so that we have an 
easier way to examine and know about our regulated population.
    It is an ongoing cost. Most of it is continuing.
    Mr. Wolf. Looking at how fast things are changing, is there 
anything out there that you ought to have that you do not have? 
I mean we have changed----
    Ms. Unger. Besides pay parity?

           RAPIDLY CHANGING TECHNOLOGY OF INFORMATION SYSTEMS

    Mr. Wolf. Well, besides pay parity. We have changed the 
computers in my office a number of times. We are constantly 
changing. I mean we just cannot keep up. The latest technology 
comes out two years, three years later and we are moving.
    Ms. Unger. We have updated recently to Microsoft Outlook 
Program.
    Mr. McConnell. We have a continuing program of 
modernization, both the software and hardware. That is exactly 
what we are finding throughout the industry. It is every two 
years now, it seems like, that you need to upgrade.
    That is why the base is constantly increasing. You really 
do not find one-time increases usually in information 
technology these days. It is just a continuous program.
    We are expanding greatly the use of laptop computers in our 
examination program. They have a usable life of 18 months 
sometimes.
    Mr. Wolf. Do all your employees have laptops?
    Mr. McConnell. All of our examination staff have laptops. 
And then we have a lot of laptops we share. We have pools, and 
if people need them for special assignments, even for 
telecommuting, they can take them and use them in those 
situations.

                             TELECOMMUTING

    Mr. Wolf. How are you doing on telecommuting? As you know 
now it is the law that 25 percent be telecommuting by the end 
of the year.
    How are you doing with regard to that?
    Ms. Unger. That is actually part of our ongoing 
negotiations with the National Treasury Employees Union, and I 
expect we will have more information to you on what the 
proposal will include.
    Mr. McConnell. We have a telecommuting policy in place now. 
We intend to expand it dramatically. Currently we have about 
100 people telecommuting.
    Mr. Wolf. Out of a total of how many employees?
    Mr. McConnell. About 3,000. So we have a ways to go, and we 
intend to do it.
    Mr. Wolf. You have a ways to go.
    Mr. McConnell. Technology is a big part of that. We have 
only recently been able to, in a secure way, have e-mail access 
from the home. We intend by the end of the year to actually 
have work station access from home. So we intend to move ahead 
on this aggressively, but it is part of our initial contract 
negotiation with the Union as well.
    Mr. Wolf. We had a company come by yesterday saying that 
they have the technology using copper wire that, with your 
laptop or with your desktop, teleconferencing, that you can 
actually get on with one of your employees who were out in 
Fairfax or Rockville and verbally talk to them and exchange 
files through that.
    Ms. Unger. We definitely do not have that.
    Mr. McConnell. We do not have that. Security is something 
that really drives us a lot. I mean we are very concerned about 
it. Because we have secure data----
    Mr. Wolf. Sure.
    Mr. McConnell [continuing]. Throughout our web. We will be 
able to by the end of this fiscal year have from home, or from 
a remote access, the ability to go into our internal network, 
work on projects, work on files, in a secure environment. We 
are not videoconferencing yet. We have videoconferencing, you 
know, among our regional offices and headquarters, but not to 
homes yet.

                   LEASE RENEWAL FOR SEC HEADQUARTERS

    Mr. Wolf. You might want to look into that. It is quite 
impressive. They actually have a demonstration downtown. I am 
going to have a staff member go down. With the existing laptop 
that you have, they maintain that you can visualize and see and 
transfer documents.
    Your Commission headquarters lease extension will expire in 
the year 2003. What is the status of the efforts to procure a 
new headquarters?
    You have one building that is on Constitution Avenue? You 
are still there?
    Mr. McConnell. Our headquarters is on 5th Street.
    Mr. Wolf. Fifth Street. And then he said you have one in 
Virginia, or two in Virginia?
    Mr. McConnell. We actually have two locations in Virginia.
    Mr. Wolf. Where? Where are they?
    Mr. McConnell. They are in Alexandria, Edsall Road area.
    Mr. Wolf. So are you going to, when this lease ends, the 
purpose would be to consolidate? Or will you extend, or what?
    Ms. Unger. Well we actually have a second space in 
Washington----
    Mr. McConnell. Right.
    Ms. Unger [continuing]. Also on G Street. So we will 
consolidate the two Washington locations, but keep the 
auxiliary or the additional space in Virginia. We have a lot of 
technology located there.
    Mr. McConnell. Right.
    Mr. Wolf. We have a vote. Maybe we can--we may have to 
recess. I thought maybe Mr. Serrano could stay, but after two 
votes it just almost will not make any sense.
    You have no more questions?
    Mr. Serrano. No.
    Mr. Wolf. Well then in the interests of time, I have a lot 
of other questions but let me just submit them for the record 
and just raise one or two with you to get them on the record.

                  ELECTRONIC FILING FOR FOREIGN FIRMS

    Mr. Wolf. In your letter to me dated May 8 you describe 
several new disclosure initiatives concerning foreign firms 
that are being undertaken by the SEC.
    First, as I understand it, the SEC will now require 
electronic filing of all foreign companies. Can you explain to 
me how this new requirement is different from the past 
practices of the SEC? And what is the significance of this new 
requirement as it pertains to informing investors of human 
rights implications and the activities of foreign companies?
    Ms. Unger. All U.S.-registered public companies right now 
have to file their disclosure documents on EDGAR, which is our 
electronic system, Electronic Data Gathering and Analysis and 
Retrieval System.
    We do not require foreign companies to comply with that 
requirement to date. We will now engage in a rulemaking to 
require foreign companies to also file their disclosure 
documents on EDGAR which will enable us or others using and 
accessing that database and which is available to the public, 
to enter searches and to find out more information about 
foreign companies more easily than they could do today.
    Mr. Wolf. The second initiative is that the SEC will 
attempt to review all registration statements filed by foreign 
companies that reflect material business dealings with 
governments of countries subject to U.S. economic sanctions 
administered by the Treasury Department's Office of Foreign 
Assets Control, OFAC.
    How has this changed the Commission's handling of the 
registration statement of a foreign company doing business for 
example with the Government of Sudan?
    Ms. Unger. Right now the Commission, because of our limited 
resources, selectively reviews registration statements. We do 
not review each and every registration statement submitted for 
filing.
    As a result of our letter to you, we will now review all of 
the filings that you just described with material business 
dealings in for example the Sudan.

               INTERAGENCY CAPITAL MARKETS WORKING GROUP

    Mr. Wolf. You also referenced in your letter the SEC's 
support for an Interagency Capital Markets Working Group which 
could review those foreign registrants which raised egregious 
national security or human rights or religious freedom concerns 
that exceed the SEC's expertise or capabilities.
    Many Members I know would support such an interagency group 
and believe that it should go beyond Sudan to encompass 
countries such as China where there are 14 Catholic Priests in 
jail, and 150 Protestant pastors, and several hundred Buddhist 
monks, and Buddhist nuns, and hundreds of Muslims.
    Can you explain in greater detail how such an interagency 
group might work if it were set up? Would the group be able to 
deny access to those firms deemed to be proliferators or in 
violation of any national security issues?
    Ms. Unger. Well the SEC does not have any authority to deny 
access to our capital markets at this point. However, if we 
were to share information with an interagency group such as the 
one we described in the letter to you, we can certainly pass on 
information about companies who are coming to the U.S. to raise 
capital. And perhaps there are more appropriate agencies that 
could take a different kind of action than the SEC.

             SEC CHAIRMAN-DESIGNATE AND DISCLOSURE MEASURES

    Mr. Wolf. This is the last issue, just to get it on the 
record. I want to cover it in case anybody is listening, or Mr. 
Pitt has anyone here.
    Do you have any indication of the SEC Chairman-designate 
Pitt's views on these new disclosure measures?
    Ms. Unger. I do not, and I have not had a conversation with 
him about this particular issue. At the time that he is 
actually formally nominated, I intend to have a conversation 
with him about this letter and about the issues that you have 
raised with the agency with respect to foreign investments.
    Mr. Wolf. And lastly, it is not a question. It is a 
statement, or a request, if you would.
    If you ever come across--obviously you have a certain 
responsibility and you cannot be the watchdog here, but 
hopefully we can do our job here--but if you come across any 
effort by others in the Administration to dilute or roll back 
these new SEC initiatives, would someone call me and inform me 
of where the resistance or opposition is coming from?
    Because the President has spoken very eloquently on the 
issue of human rights and religious freedom. The fact is he has 
given now four references to these issues since he has been 
President. The last one was to a major Jewish group two weeks 
ago, two-and-a-half weeks ago, here in Washington, D.C. He 
spoke of all these issues.
    He has also referenced the issue of the Sudan I think three 
different times.
    The International Commission on Religious Freedom, has also 
spoken very forcefully on this, Elliot Abrams, and Rabbi 
Sapperstein.
    Secretary Powell, Secretary of State, has also been very 
eloquent when he has spoken out on these issues. Frankly, there 
has been no one in the Administration or in Congress who has 
not been very good when they speak out on these issues.
    So I worry about some assistant secretary of state or some 
deputy assistant secretary for whatever in the Treasury 
Department, or some guy who may have come out of industry and 
thinks they just might try to reverse this, so if you hear of 
anything, if you could let the Committee know, or let me know, 
I would appreciate it.
    Because you did the appropriate thing. And I think it is 
completely within the values and the ethics of both political 
parties in this country, and the President of the United 
States, and the Congress who has a very good bipartisan record 
on these issues, so if you do hear, if you could let us know.
    And when Mr. Pitt feels comfortable, I would like to have 
an opportunity just to sit down with him.
    We will just submit other questions for the record, in the 
interests of saving time. Do you have anything?

                               CONCLUSION

    Ms. Roybal-Allard. No, Mr. Chairman.
    Mr. Wolf. We will just submit the rest for the record and 
the hearing is adjourned.
    Ms. Unger. Thank you, very much.

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                                           Wednesday, May 23, 2001.

                   U.S. SMALL BUSINESS ADMINISTRATION

                                WITNESS

JOHN WHITMORE, ACTING ADMINISTRATOR

                   Opening Statement of Chairman Wolf

    Mr. Wolf. We are going to begin. There are going to be four 
votes stacked, and maybe we can try to get as much in before 
that. Otherwise, we will have to recess and come back. But why 
don't we welcome you.
    I will just submit a statement for the record.
    [The information follows:]

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    
    Mr. Wolf. You can begin. You can summarize your statement. 
Your full statement will be put in the record.
    Mr. Whitmore. Thank you, Mr. Chairman.

             OPENING STATEMENT OF THE ACTING ADMINISTRATOR

    Mr. Chairman, thank you for inviting me here today. I am 
pleased to present the Small Business Administration budget 
request for fiscal year 2002.
    The budget request of $539 million represents a renewed 
focus on SBA's core programs. It will provide capital, credit, 
procurement and technical assistance to America's small 
businesses at a substantially reduced cost to the taxpayer.
    It includes $5 million for SBA's portion of the President's 
New Freedom Initiative to help comply with the Americans with 
Disabilities Act and $5 million as part of the Paul G. 
Coverdell Drug Free Workplace program.
    The budget also seeks to streamline the agency and 
eliminate duplicative programs.
    The budget proposes funding SBA technical assistance 
programs at least year's level with three exceptions.
    We are proposing to increase funding for the SCORE program 
by $250,000 up to $4 million. SCORE is one of the SBA's most 
cost-efficient programs and will soon implement an electronic 
delivery system that will broaden its reach.
    The Veteran's Business Development Program, which was not 
funded in 2001 but will receive $750,000 in 2002.
    The budget proposes a funding level of $88 million for the 
Small Business Development Center Program, the $75.8 million 
coming from appropriations and $12 million in fees. Some SBDCs 
already impose a variation on a counseling fee by requiring new 
start-up businesses to take a training course at a cost of 
between $35 and $45 before receiving counseling. This is also 
in line with other SBA technical assistance programs, such as 
the Women's Business Center Program. Charging a modest fee of 
under $11 an hour will maintain the current service level while 
reducing the expense to the taxpayer.
    The budget proposes funding for Government Contracting 
Assistance Programs at 2001 levels. However, it does include 
$500,000 for a women's contracting initiative and a contract 
bundling study.
    The budget fairly demands that those who benefit most from 
SBA's programs share in the cost. In the exact language of the 
President's budget:

    These programs will become self-financing by increasing 
fees. The budget acknowledges that some small businesses may 
have trouble accessing private capital in the absence of a 
Government guarantee, but does not require the Government to 
subsidize their cost of borrowing. The budget increases fees 
sufficiently to make these programs self-financing and would 
save $141 million.

    This would reduce the burden on appropriations, will allow 
for expanded program levels, and is fair to the taxpayer.
    The budget proposes increasing fees in the Small Business 
Loan Program and the Small Business Investment Company Program. 
In the Small Business Loan Program, the budget raises fees for 
small business loans above $150,000. There is no fee increase 
for loans made under the $150,000 benchmark and continues a 
rebate to the lender. We hope this will encourage smaller loans 
to those who are in the start-up phase in business. This will 
also serve to provide capital to those most in need and will 
support a zero subsidy rate.
    The SBA's new administrator faces many challenges once 
confirmed. Two principal large-scale challenges include: 
antiquated programs and delivery systems that are out of touch 
with today's dynamic small business environment, and resource 
and personnel questions. SBA needs to transform itself into an 
entity that is governed by efficiency, flexibility, and 
empowerment of small business through knowledge.
    More specifically, within the SBA's business loan program 
the number of loans has decreased 21 percent over the last 5 
years, while the dollar volume has increased 26 percent. While 
the dollar volume in loans has increased, the Small Business 
Loan Program suffers from a lack of reach. Larger loans have 
gone to fewer companies.
    This is where the program faces the biggest challenge. 
Cultivating businesses in their initial stage of growth is 
crucial in advancing America's small business community. This 
is where SBA should focus its attention. This is true gap 
lending.
    The fastest growing groups in America's small business 
community are Hispanics and women-owned businesses. These 
groups, along with African Americans, Native Americans and 
veterans are also the most underrepresented in SBA's Small 
Business Loan Program. Significantly, loan volume to women, 
veterans and other minorities has been flat or trended down.
    Another major challenge facing us is to focus on the 
current organizational and functional structure of SBA. This 
challenge has been exacerbated in recent months by the hiring 
of 70 people in the November-January period without regard to 
the agency's top priorities of loan monitoring and lender 
oversight.
    The SBA's Loan Monitoring System is a project that was 
authorized in December of 1997, with $8 million appropriated 
each year since 1998, for a total appropriations to date of $32 
million.
    In early February, after I became the Acting Administrator, 
the staff informed me that that project--estimated at $40 
million--was headed towards $90 million; and instead of 4 
years, it would take 7. I began looking into the status of the 
project and reported my finding to both your committee and the 
oversight committees. In brief, I have concluded that the 
congressionally mandated Loan Monitoring System has become 
commingled with an internally sought modernization initiative, 
where costs and timeline for implementation were to have risen 
significantly. I have since directed that the program be 
refocused on that which Congress intended.
    With that in mind, we have signed a contract with KPMG to 
provide us with expertise in accessing available options.
    SBA intends to evaluate current systems at established 
financial institutions which already have operational risk 
management and loan monitoring systems. We believe they can 
meet our needs in a timely and cost-effective manner.
    Other elements of SBA's modernization effort will wait 
until the Loan Monitoring System is fully operational.
    Thank you. I will be pleased to answer questions.
    [The information follows:]

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    Mr. Wolf. Before I have questions, Mr. Serrano.
    Mr. Serrano. No comment, Mr. Chairman; just to welcome the 
Acting Administrator and look forward to some exchanges.
    Mr. Wolf. When will your new administrator be on board?
    Mr. Whitmore. We were hopeful he would be on by the 
beginning of May. We are hopeful by the end of June.

               BUDGET REQUEST FOR BUSINESS LOAN PROGRAMS

    Mr. Wolf. You have not requested any appropriations for 
your 7(a) General Business Loan Program or for your Small 
Business Investment Company Participating Securities Program. 
Why is that?
    Mr. Whitmore. Mr. Chairman, we believe that those that 
benefit most from the program should help share in the cost. We 
are not increasing fees at all on our smaller loans under 
$150,000. We think that is the area where SBA should be 
focusing its attention. That is the area where start-up 
businesses have the most difficulty in getting financing, and 
the $72,000 loan or the $120,000 loan are very difficult to 
get. Most of the dollars of our loans are made of larger loans. 
We think that this will encourage smaller loans, will encourage 
loans into the communities where we are underrepresented. And 
we also think it is good for the taxpayer. In the SBIC program 
the industry has indicated they are willing to accept zero 
subsidy rate. They are able to do it with some minor 
exceptions. They would like the full authorized level for the 
program.
    Mr. Wolf. But you are not--are you assuming the legislation 
is going to pass then? Have you sent the legislation to the 
Small Business Committee?
    Mr. Whitmore. Yes.
    Mr. Wolf. And when are their hearings scheduled? When do 
you expect them to report it out?
    Mr. Whitmore. We don't know.
    Mr. Wolf. Do you think it will?
    Mr. Whitmore. Do I think it will pass?
    Mr. Wolf. Yes.
    Mr. Whitmore. I testified at both the Senate Small Business 
Committee and the House Small Business Committee, and it did 
not receive favorable review from either side.
    Mr. Wolf. And did you know that when you sent it up?
    Mr. Whitmore. No, we did not.
    Mr. Wolf. Honestly? Sincerely? If I put you under oath now, 
could you honestly tell me that you--that this has taken you by 
surprise?
    Mr. Whitmore. No, I can't say that it has taken me by 
surprise. The SBA has proposed fees for the lending programs 
and fees for the other programs over the years.
    Mr. Wolf. This is really, though, in essence kind of a 
gimmick. This is what used to be done in Transportation 
sometimes with regard to the FAA and the Coast Guard. They 
would put in fee collections that they knew were not going to 
take place. They--has this ever been before the Small Business 
Committees before?
    Mr. Whitmore. Yes, sir.
    Mr. Wolf. And how successful was it then?  What was the 
vote?
    Mr. Whitmore. I was not involved at the time. I know we 
have proposed fees in the past.
    Mr. Wolf. But what was the vote on this proposal? You said 
you have done this before. What was the vote the last time. Was 
it a close vote?
    Mr. Whitmore. Sir, I can respond for the record.
    [The information follows:]

    The 7(a) program has had fees associated with it for many 
years. The original 7(a) guaranty fee was \1/4\ \0/0\ annually 
for several years. That fee was replaced by a 1% one-time, up-
front fee. The 1% fee was raised to 2% in the 1980s. The up-
front guaranty fee has continued to change over the years with 
the most recent change enacted in December 2000. Under that 
legislation, the one-time guaranty fee is 2% for loans up to 
and including $150,000, 3% for loans between $150,000 and 
$700,000 and 3.5% for loans over $700,000. Beginning in FY 
1994, for loans sold in the secondary market only, Congress 
authorized an annual fee of 40 basis points on the SBA share of 
the outstanding loan balance. That fee was replaced in FY 1995, 
by an annual fee of 50 basis points charged for all loans based 
on the SBA share of the outstanding loan balance.
    Also included in P.L. 103-403 enacted in October of 1994, 
was a limitation on the authority of the Administrator to 
implement new or changed 7(a) program fees [Section 5(b)(12)]. 
Under this statute, the Administrator is authorized to collect 
only those fees that were in effect on September 30, 1994 or 
which are subsequently specifically authorized by law. 
Therefore, all fee changes in the 7(a) program occur only after 
full discussion and Congressional action.
    Several years ago there was some discussion about making 
the 7(a) program self-funding. However, to the best of our 
memories, no such provision was ever included in proposed 
legislation. Therefore, there have been no Congressional votes 
specifically related to this issue.
    In regards to the Small Business Development Centers, we 
are unable to re-create the total history of fee proposals 
since the beginning of the program in 1984. However, in 
response to the proposal in the FY '98 budget request to charge 
fees for counseling, legislation was subsequently enacted to 
prohibit charging counseling fees.

    Mr. Wolf. Does anyone with you know?
    Mr. Whitmore. It wasn't introduced.
    Mr. Wolf. It wasn't introduced. You know what you have 
done, and it is really not good to do it from the budgeting 
point of view. I think from a credibility point of view, if you 
want to cut a program or change a program, then--have you been 
up here lobbying for this? Can you give me the list of the 
Members of Congress that you have personally gone by to see, 
asking them to support this program?
    Mr. Whitmore. I have spoken with the chairmen of both 
oversight committees, and I have talked with the staffs of the 
ranking members and have talked with a little of the 
congressional staffs about this. We pointed out that all 
commercial loans generally carry some fee. The additional fee 
for a guaranty loan is proposed to go from 3 to 3 and a half. 
There are fees at least of 1 point, maybe 1 and a half points 
on commercial loans.
    Mr. Wolf. I was more referring to their reaction about what 
they were going to do with it.
    Mr. Whitmore. I would say in both the House and Senate 
oversight committees when I testified it was not received 
favorably.
    Mr. Wolf. If the legislation is not enacted, which it now 
appears that it will not--is that a fair statement that you 
doubt that it will?
    Mr. Whitmore. I would think that on the SBIC fees there is 
a chance that that would be enacted. On the 7(a) fees, it was 
not warmly received.
    Mr. Wolf. So if the Committee fulfills your request by 
appropriating zero for 7(a) what would the effect be on these 
programs?
    Mr. Whitmore. I think if it was zero, the SBIC program 
probably would go on. And probably----
    Mr. Wolf. What about 7(a)?
    Mr. Whitmore [continuing]. Have a fully authorized level. 
In the 7(a) program, if we did not receive an appropriation and 
fees were not enacted, the size of the program would be cut 
significantly.
    Mr. Wolf. The 7(a) programs guarantees up to $1 million of 
a $2 million maximum private sector loan to small businesses 
for every conceivable business purpose. This is your flagship 
program. Do you consider this so?
    Mr. Whitmore. I would say it is, sir.
    Mr. Wolf. How many guarantees were provided on the 7(a) 
program last year?
    Mr. Whitmore. In fiscal year 2000 there was approximately 
43,000 loans.
    Mr. Wolf. What was the total dollar amount of the loans 
guaranteed?
    Mr. Whitmore. $10.5 billion.
    Mr. Wolf. Under the current authorization law, how many 
7(a) loan guarantees will you be able to issue in fiscal year 
2002 if we appropriate no funds as you requested?
    Mr. Whitmore. Mr. Chairman, I didn't calculate that. It 
would be whatever the amount of the fee structure that is 
currently in place with that amount would support. You would 
have some amount of carryover funds.
    Mr. Wolf. How much carryover do you have?
    Mr. Whitmore. Twenty or 30 million, we would estimate.
    Mr. Wolf. So how many loan guarantees will you be able to 
issue then if we do no money?
    Mr. Whitmore. Roughly that would be about a fourth of the 
$10.7 billion--$2.8 billion.
    Mr. Wolf. Assuming there is no change to the authorization 
law, how much in appropriation would be required to subsidize 
the $10 billion 7(a) program level?
    Mr. Whitmore. $107 million.
    Mr. Wolf. I am going to recognize Mr. Serrano after just 
two more questions.
    Mr. Serrano. Thank you.

                              SBIC PROGRAM

    Mr. Wolf. The SBIC participating securities program 
guarantees supplementary borrowed funds to privately owned 
SBICs to serve as a source of equity capital to help qualified 
small business enterprises secure the equity to start a 
business. Likewise, assuming no change to authorization to 
raise fees, how much in appropriations would be required to 
subsidize 2 billion SBIC participating in a security program 
level?
    Mr. Whitmore. Approximately $38 billion.
    Mr. Wolf. $38 billion?
    Mr. Whitmore. Excuse me--$38 million.
    Mr. Wolf. Do you want to check that? We will leave that 
down, but for the record do you want to----
    Mr. Whitmore. I would like to respond in writing.
    [The information follows:]

    A subsidy of $46.5 million would be required for a $2.5 
billion program level.

                   SUBSIDY RATES OF SBA LOAN PROGRAMS

    Mr. Wolf. We understand that the GAO is currently reviewing 
your processes for setting subsidy rates for your loan 
programs, particularly whether those rates are overstated and 
are resulting in overestimated appropriations and fee 
collection requirements. When do you expect to get GAO's 
findings and recommendations?
    Mr. Walter. Mr. Chairman, I am Greg Walter.
    We had our entrance conference with GAO this morning on the 
subsidy rate process. They have an ending date of their review 
of July 29th where they have to report back to the Small 
Business Committees. So we expect to know the outcome of this 
by July 29th.
    Mr. Wolf. If the report indicates that subsidy rates in 
your fiscal year 2002 budget are inaccurate, would you formally 
submit a recalculation of appropriation requirements for all of 
your loan programs so we can factor any changes into that 2002 
bill?
    Mr. Whitmore. I don't believe OMB would submit for the 
2002. I think it would be in the next go around. We certainly 
could ask them. But I think their intention would be on the 
next submission that they would take those into consideration.
    Mr. Wolf. Mr. Serrano.

                     INADEQUACIES OF BUDGET REQUEST

    Mr. Serrano. Thank you, Mr. Chairman.
    Mr. Whitmore, I am baffled. You have been around this 
agency for awhile, and you know that the entire time I have 
been on this committee I have been very supportive of SBA's 
work. I make no secret about the fact that my support was based 
primarily on the fact that I believe SBA renders a great 
service to our country and, but also because during the last 
Administration I was very thrilled to have an Administrator 
whom I knew since my early days and sadly had nothing to do 
with her appointment. So the combination made me a big fan.
    Now, you are asked--because I know you are not doing it 
yourself--you are asked to come here with a 40 percent cut. It 
seems to me a desire to destroy this agency. I am wondering, 
one, what your feelings are about this 40 percent cut; and, 
two, how can you justify--you or anyone. I am not trying to put 
you on the hot seat because you are not going to be there, but 
how can we claim that we intend to make this agency grow and 
serve our Nation with these kinds of cuts? And rarely, by the 
way, do you get them.
    Why didn't you ask for more? Our tradition is to say, why 
are you asking for so much? But this one is kind of ridiculous.
    Mr. Whitmore. Some of the projected 40 percent cut is 
really not apples to apples, at least in my opinion. Some of 
them have to do with initiatives that we generally wouldn't 
request in our budget routinely. It also takes into account 
programs that we think were added last year that were 
duplicative to other programs.
    With regard to the fees both in the SBDC program and the 
7(a) program, we think that the amount of costs to the business 
is rather insignificant. On a million dollar loan, the cost 
would probably be around $42 a month to add these fees. We 
think it would allow us to expand the program in size. We would 
not need additional appropriations. We also think it would help 
us to focus on loans under $150,000, which we think is really 
where the most demand for our program is and where we are not 
meeting the needs.
    Mr. Serrano. Well, I am wondering how this budget request 
is put together. Now, we understand that there are no Bush 
Administration appointees. If there were, the easiest thing for 
me to do would be to say, well, the agency now is already run 
by 50 percent Bush appointees, and Republicans want to cut the 
budget everywhere, and so this is the result. But this is not 
the case. So how did this happen? Is this the request from SBA 
to OMB? And why would this request then be so dramatically 
different than we saw in the last few years?
    Mr. Whitmore. I wasn't involved when the request was made 
to OMB, so I cannot answer that question.
    I can tell you that one of the other things----
    Mr. Serrano. But you could answer or help me understand who 
or which group of people make this request?
    Mr. Whitmore. The original budget I believe is submitted in 
the fall. Mr. Walter just informed me the budget was not 
submitted in the fall because of the transition. When I 
arrived, the budget had already come back from OMB.
    Mr. Serrano. I think it is a proper question to just find 
out, and maybe you could supply an answer for the record later. 
But I think it is a proper question for this committee just to 
find out whose idea this was for this budget.
    [The information follows:]

    Because of the short transition period for the new 
Administration, the budget was developed and approved with 
minimal policy input from SBA and input only from transition 
policy officials at OMB.

    Mr. Whitmore. If I could go back to the cut of 40 percent, 
what I was saying is the Disaster Assistance Program is not 
being cut, and there is a proposal in the Administration's 
budget to fully fund it at a 5-year level. It is proposed to 
fund it through a national emergency reserve account.
    We are understanding that it is being negotiated with 
appropriators and SBA would be fully funded. We think it is a 
better way for SBA, but that is a hundred and some odd million 
dollars of the cut. It is not a cut in the assistance to 
disaster loans, it is just not coming through the SBA budget. 
We would be able to draw down on that as we used up the funds 
that were in our budget.
    In addition, funding of legislative initiatives, we 
normally don't request in our budget every year. So that is 
over $150 million of the difference between this year and last 
year alone.
    So the cut is not a 40 percent cut, we don't think, when we 
compare apples to apples. We do think that the counseling fee 
proposed for SBDC is unreasonable, given the fact that, the 
SBDC charge fees right now asking fees for counseling, when 
they already charge for training, and $11 is a very reasonable 
amount of money over a course of a year.
    In addition, as I said, on the 7(a) loan program we are 
concerned certainly that the amount of loans have decreased 
significantly at SBA in the last 5 years. We have seen African 
American loans going from 2,700 loans to only 2,000 loans 
Nation-wide. We think that we can do a better job in those 
areas, and we think this would actually help us because there 
are no fee changes on small loans.
    Mr. Serrano. Let me ask you, around here the process 
usually is people ask for a certain amount of money, and then 
somebody decides to cut them or it goes somewhere. But when a 
person or a group, again, an agency comes in willingly with 
such a drastic cut, you wonder if you are not signaling that 
you really don't want any negotiations between the House and 
the Senate or between the two parties to bring your amount up.
    Now, with that in mind and with the shortcomings that the 
Chairman has to deal with and this subcommittee has to deal 
with when we get our allocations, coming up with the additional 
money is not going to be that easy. So with that in mind, what 
do you think the impact of this terrible cut here would be on 
the Nation's small business community?
    Mr. Whitmore. Mr. Ranking Member, I don't think we are 
proposing cutting the programs. We are proposing to fund them 
in a different way. The 7(a) program could completely be funded 
through fees, and it would not require an appropriations, and 
we would not be limited to $10 billion.
    Mr. Serrano. Those fees--in fact, the climate seems to be 
for not getting those fees approved. So how are you going to 
propose to do your job? And listen--incidentally, please 
understand what I am doing here. I am not trying to give you 
guys a hard time. I am trying to help you, as I have in the 
past, do the job you are supposed to do. But it seems to me 
that you are cutting your own throats here, and at least you 
should be telling me who put this budget together so I can go 
talk to them. Because no one seems to know who put this request 
in, but the request is very dramatic. And notwithstanding the 
fact that you say it is going to be offset by fees, the 
Chairman just told you that becomes difficult. That may never 
take place.
    Mr. Whitmore. Certainly I understand that they may not, but 
I think that shouldn't prohibit us from looking at new ways to 
deal with problems and funding programs. This is something that 
I said earlier, the banks charge fees on a loan that is not SBA 
guaranteed, asking to pay an additional point for those that 
are benefitting from the SBA guaranteed program. I don't think 
is that unreasonable.

                  NEW MARKETS VENTURE CAPITAL PROGRAM

    Mr. Serrano. Okay. I don't know how much you covered in 
your opening statement, but could you bring us up to date on 
the new markets venture capital program and where we are?
    Mr. Whitmore. With the New Market Venture Capital Program, 
the proposals are due on--I believe May 29th is the final date. 
We have it scheduled very tightly, but we expect to evaluate 
those proposals, do the due diligence onthem, have them 
reviewed. We expect to be able to make awards by the end of the year.
    Mr. Serrano. And there has been some concern as to whether 
the program will reflect to the letter what Congress had 
intended. What can you tell me about that?
    Mr. Whitmore. I think it will reflect exactly what Congress 
had intended.
    Originally, this rule was put out as an interim final 
rather than a proposed rule. That caused some problems. It was 
sent to the Federal Register on January 19th, published on the 
22nd. It was put out in a way that I virtually could not get an 
attorney to re-sign to go back out. None of the attorneys at 
SBA thought that the rationale was justified to put that out, 
so we went back through and reproposed it.
    We made a couple of minor changes but one very significant. 
And the original proposal required investments on the 80/20 
basis--eight investments to two in low income areas. This 
Administration changed that to be 80 percent of the money as 
well as the number of investments. So I think we are sure we 
are going to focus 80 percent of the dollars invested in those 
areas. I think it would certainly meet the intent of Congress.
    Mr. Serrano. Now the funds have to be obligated by the end 
of this fiscal year. Do we feel that community groups will be 
able to come up with matching funding--what is it--$6.5 million 
by September 30th or should we extend that period?
    Mr. Whitmore. Certainly an extension would be helpful. Our 
time frame is very tight. I can submit the time frame on how we 
plan to complete the evaluation. If there was an extension, 
before we determined who were the finalists, then I think it 
would be fair to everybody, those that have applied right now 
and those that haven't. If it came after, say, the beginning of 
July, I think it would be very unfair to those that have 
already submitted proposals.
    The other part of that, Mr. Ranking Member, is the money 
for the investments themselves is multi-year money. The money 
for the grant portion needs to be obligated by the end of the 
year.
    Mr. Serrano. The other one goes to what, 2006?
    Mr. Whitmore. Yes, sir.
    Mr. Serrano. Should we change----
    Mr. Whitmore. The funds are 2 years, but they fund it out 
for a 10-year basis. It was intended as a 1 time funded 
program.
    Mr. Serrano. Have you given any thought to asking us to 
have it perhaps end all at the same time or match the dates 
properly so we don't have these situations which you face now?
    Mr. Whitmore. No. Certainly it has been discussed, and I 
think we have discussed it with the committee staff both on the 
House and Senate side, if there was a way of doing it in a 
manner that we could be timely and not penalize those that 
actually are going forward right now. I think we think we are 
going to get 50 or 60 proposals. That is the estimate the 
program office has given us. They feel they will be able to 
match those funds or at least have a program in place to match 
those funds by September 30th.
    Mr. Serrano. One last question. Could you tell me quickly--
I know--is that a vote?
    Mr. Wolf. We have 7 minutes left.
    Mr. Serrano. Could you tell me the process by which someone 
got to apply?
    Mr. Whitmore. We have a footprint that lays out every step 
of the way on what we do and what we expect them to do. I 
looked at it yesterday. I looked at the dates to be sure. The 
applications are due. There will be a review panel and a due 
diligence panel going simultaneously reviewing these things. 
Then the proposals are referred for a background check.
    At the same time, the firms would be trying to raise both 
the capital needed and the matching funds for the grant 
program. But I would be happy to submit that for the record 
that lays out every step and what time frames we have on that.
    [The information follows:]

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    Mr. Serrano. All right. I have of course many more 
questions.
    Mr. Wolf. We have six votes. One 15, one 15 and four 5s. 
Ms. Roybal-Allard.

                      NEWMARKETS AND SBIC PROGRAMS

    Ms. Roybal-Allard. Let me associate myself with the remarks 
that were made by Mr. Serrano and the chairman about, frankly, 
how shocking it is as that reflects a lack of commitment to 
small business in this country.
    Quickly, one of the questions that I would like to address 
is that, in your testimony on page 13, you say that the SBIC 
program is implementing a program to encourage investment in 
economically distressed areas, and you propose the SBIC program 
as a substitute for the New Markets Venture Capital Program 
that you are proposing for additional funding. Now it is my 
understanding that the SBIC investment dollars made in low 
income areas are only about 13 percent, 24 if you include 
moderate income areas, and SBIC investments made to minority-
owned businesses are only about 4 percent. What evidence do 
have you that SBICs are suddenly going to start investing large 
amounts in economically distressed areas or in minority-owned 
businesses?
    Mr. Whitmore. Certainly we have encouraged that. And SBIC 
looked very closely at that. They want to make the best 
investment possible wherever possible, and I believe they did 
over $700 million in investments in low income areas last year.
    In addition, we think that the New Market Venture Capital 
Program is going to be running for 5 years here, and it's 
intent is to be in low income areas.
    As I said to Mr. Serrano that we changed the regulations to 
ensure that 80 percent of the dollars are going in not just 80 
percent of the investments. So we think the combination of the 
two over the next 5 years will increase investment and equity 
investments in low income areas, in rural areas.
    Ms. Roybal-Allard. So you are basing this really on the 
hope that there will be greater investment. Because if you look 
at the record here in terms of what they are doing now, it is 
obvious that they don't invest in these economically distressed 
communities. So you are just hoping that they will.
    Mr. Whitmore. We are hoping and encouraging, but we also 
know that the New Market Venture Capital Program is 
specifically designed to do that.
    Ms. Roybal-Allard. My understanding is that the New Market 
Venture Capital Program has been zeroed out.
    Mr. Whitmore. That is not accurate. The New Market Venture 
Capital Program was authorized for a one-time appropriation 
which was fully funded, and it is a 10-year program, so it was 
not zeroed out in the budget. The funding last year of $52 
million was intended as a 10-year funding.
    Ms. Roybal-Allard. But you just said that that the new 
venture capital was part of the--this was not your word--but 
part of the safety net in terms of what you are attempting to 
do here. And you just said then this will only be there for 5 
years. So what is going to be there to replace it 5 years from 
now? Or are you just hoping that----
    Mr. Whitmore. I think during the 10-year period we would 
like to assess both the SBIC program and see how it has done 
during that period, and also we would like to assess if the 10 
years is ample time to assess the New Market Venture Capital 
Program to determine how it is meeting the objectives and the 
intent of Congress.
    Ms. Roybal-Allard. Does the SBIC program have a technical 
assistance component like the new market venture?
    Mr. Whitmore. No, it does not. The technical assistance 
component in the SBIC program is provided by the venture firm 
itself. It is not funded by the government.
    Mr. Wolf. We are down to 2 minutes. We are going to vote 
two 15 minutes and four 5 minutes, so we should be back in 
about----
    Mr. Kennedy. An hour and a half.
    Mr. Wolf. I was thinking closer to 50 minutes--an hour 
probably. We can come back, and then we can go. We will come 
back in the first 15.
    Why don't you just start asking questions?

              ASSISTANCE TO MINORITY AND WOMEN-OWNED FIRMS

    Mr. Kennedy [presiding]. All right. This is very powerful 
now. Thank you.
    Congratulations on your position. Obviously, the SBA is 
very important to a State like mine, Rhode Island.
    Joe, how are you? We have had great success because of the 
leadership of people like Joe Loddo in our State. We have 
increased--and Joe will just cringe because I don't have all 
the facts and figures that he has always been so good at 
telling me--but we are the lead office in the country, or at 
least under his leadership, for expanding the kinds of loans 
that help tremendously the small businesses in our State. And 
because our State is 96 percent small business, the 8(a) 
program has been a great program.
    But what we found is that we still have a lot to do to get 
people plugged into the 8(a). And pilots--beyond pilots like 
the 8(a), what are you exploring in terms of assistance to 
minority-, women-owned firms, both from the technical 
assistance side, like my colleague had commented on, as well as 
the financial assistance aspect, given the fact that SBDC funds 
are level funded? So what----
    Mr. Whitmore. If I could go back to the small loan program, 
the 7(a) loan program proposal certainly has not been readily 
accepted, but the point is we really think that the 7(a) loan 
program could do a whole lot better in minority lending and 
lending to women. I am sure Rhode Island has done a great job, 
but in the last 5 years, say, our loans to women have dropped 
from roughly 13,000, the number of loans, down to 9,000.
    Mr. Kennedy. That is why they brought Joe down here to 
change that.
    Mr. Whitmore. Making loans right out of 3rd and D street 
down here.
    Mr. Kennedy. It is not the case up in Rhode Island, not the 
case at all.
    Mr. Whitmore. I don't have the statistics on Rhode Island. 
I am looking at the entire program. We think that, in African 
American lending, we have gone from roughly 2,600 loans down to 
2,000 nationwide, only 2,000 loans. Although we have had a 
slight increase in the dollar amount, the percentage of loans 
going to African Americans in our program is roughly 3.3 
percent. We are not happy with that.
    We think that the proposal we have made, although there is 
not a lot of support for it, to increase fees on the larger 
loans would allow SBA, without an increase on the small loans, 
to encourage loans to women-owned, basically start-up 
businesses. We think that that is really the void in SBA's 
programs.
    The fee increase we are proposing on a million dollar loan 
would amount to about $42 a month. We are not proposing any 
increase on the small loans. It is very difficult to get a loan 
for $82,000. Banks say it costs them the same to make that loan 
as it does the others. That is why the fees are not increased.
    We think this would help in focusing our loan program. We 
think start-up businesses is really the area that SBA could be 
the most help. Making a $2 million loan and guaranteeing 
$750,000, we would certainly wonder why they made that loan 
with us.
    In addition, we certainly have directed our technical 
assistance programs to the segment of the business community 
that is the fastest growing--women- and minority-owned 
businesses. We have opened in the last number of years a number 
of new Women's Business Centers. We just recently opened one 
last year in Rhode Island. We have high hopes for all of those.
    The Small Business Development Center Program needs to 
focus itself as well into the areas that are the fastest 
growing, and we have encouraged that through our request for 
proposals on SBDCs to ask them to specifically outreach into 
the minority community and to the veterans community, 
especially service-connected disabled and also the women's 
business start-ups.

              SCORE AND SMALL BUSINESS DEVELOPMENT CENTERS

    Mr. Kennedy. Well, obviously, I feel a great deal of 
comfort knowing that someone like Joe, who has been so 
successful in my State, is now in your office advising on these 
issues, because he will certainly know from his own experience 
what makes a difference for our State of Rhode Island.
    But I wanted to ask with respect to the fact that the SBA 
has been a catalyst of the private marketplace. It has been the 
facilitator in so many areas, not only in funding but also in 
services and counseling. They help put together, as you know, 
the senior executives volunteer--retired volunteer program, the 
SCORE program and others. So all these things are good in terms 
of helping these small businesses get up and going.
    And, as you know, channeling the money is just part of it. 
You only channel the money into 7(a) once you know that the 
business is ready to go and whether it meets that seal of 
approval.
    So that will invariably involve a lot of counseling, and 
that is the unwritten kind of cost. But in your budget it isn't 
an unwritten cost. It is a written cost. So I wanted to explore 
with you, and I know this was explored by Mr. Wolf in more 
general questions about fees, but in the statutory language, 
you know, you are prohibited from charging for counseling--13 
CFR part 130 regulation, Small Business Development Centers. 
And you are prohibitedfrom--specialized services fees may not 
be imposed for counseling.
    And section 21 of the Small Business Act, Prohibition of 
Certain Fees: A Small Business Development Center shall not 
impose or otherwise collect a fee other than compensation in 
connection with the provision of counseling services under that 
section.
    That section is very narrow, and I just wanted to see, if 
you don't think you will meet the $12 million in fees that you 
are banking on, how are you going to make ends meet?
    Mr. Whitmore. Well, first let me go back to SCORE, which 
you mentioned. We at SBA and I think the committees should be 
very proud of SCORE. They have 11,000 volunteers. And recently 
I have seen a number of stories in the Washington Post.
    In Virginia, there was one on how much two SCORE counselors 
from Washington helped a woman get her business going. Most 
SCORE chapters vote not even to take the mileage expense. They 
would rather use it for other things. We propose a $250,000 
increase. It helps them with administrative costs.
    Going back to the SBDC program, I am really kind of 
surprised myself how they are so concerned about charging the 
fees. All SBDCs charge training fees now.
    In the State of Rhode Island, they charge a fee for 
training or precounseling before you can even start counseling. 
The same amount they charge is what is proposed in the budget. 
It is required in the State of Rhode Island that if you are a 
start-up business going to a Small Business Development Center, 
you have to take a training course at a cost between $35 and 
$45.
    What we have proposed in the budget is a fee of under $11 
an hour. The statistics have found that the average business 
going to SCORE for counseling takes about 5 hours of 
counseling. Our proposal basically allows them to not charge 
fees on the first hour but charge fees of $10.75 for the next 4 
hours over the course of the year. We certainly don't think 
that is prohibitive to a small business, especially if they 
were able to pay the SBDC fee of training before they even 
started the counseling.
    So for the SBDCs to say they are just surprised at this, I 
am kind of shocked myself. They have been charging training 
fees for many years. None of the provisions that you cited 
prohibit them from charging training fees, and each and every 
SBDC throughout the country does charge that. We are asking 
them to charge a very moderate fee on counseling. I doubt it 
would put them in competition with the private sector.
    Our Women's Business Centers who deal with very low and 
moderate income women that want to start up do charge fees, 
although quite of number of them get scholarships by co-
sponsorships with local institutions. So I think it is a very 
modest proposal. I don't think it would paralyze the SBDCs by 
any stretch. And most of them are charging fees. We are not 
asking them to remit them back. We are asking them to keep them 
and use them in the program they operate.

                  NEW MARKETS VENTURE CAPITAL PROGRAM

    Mr. Kennedy. Obviously, the proof will be in the pudding. 
We will see how it all works out. Ideally, it works out the way 
you anticipate, where it won't be a hinderance to your overall 
budget goals to ensure that the funds that you do have budgeted 
to other areas are funds that are there because they are 
recouped through these fees and the program moves forward.
    Obviously, I don't want to--when you are in my position you 
end up becoming a little bit redundant, because everyone gets 
to ask your questions that you were going to ask first. So I 
would just associate myself with the comments of Ms. Roybal-
Allard and I know others when it comes to the new e-markets of 
venture capital. Because that, obviously, is we need to get 
more capital out and not less. And obviously I know you have 
ways that you are going to accomplish that same goal through 
other programs like you said, the 7(a) and other programs.
    Mr. Whitmore. Certainly on the New Market Venture Capital 
Program it is a 10-year program, and during the course of the 
entire 10 years we will be evaluating that program to see if it 
is doing exactly as the Congress intended. If it wasn't, we 
certainly would ask for modifications. And depending on the 
success of the program, if it was doing what it was doing, we 
have ample time to fund that after the 10-year period.

                BUSINESS ASSISTANCE TO NATIVE AMERICANS

    Mr. Kennedy. I just again say we really appreciate what the 
SBA has been doing in our State. We just want it to keep going 
strong, and I am sure that it will because it enjoyed great 
popularity. I think that may make a big difference as to why it 
has been so successful. Success generates success, and that has 
been the experience.
    Finally, let me say, as the co-founder of the Native 
American Caucus, obviously we need to do a lot in terms of our 
Native American areas to expand business opportunities to them.
    Mr. Whitmore. Certainly, I think that that is probably the 
area that is most underrepresented in SBA. We talk about the 
SBDCs, they have something like 950 subcenters around the 
country, but I don't think there is one on a Native American 
reservation. I know that is sad for SBDCs, and it is sad for 
SBA, and it is certainly not helpful for economic development 
out there.
    We have information centers located on, I believe, 16 
American reservations. We are looking at the effectiveness of 
that. We are not sure that that is doing enough to stimulate 
economic growth out there.
    We think certainly SBDCs are a great tool for Native 
American reservations. We think within the amount of funding 
there we should be addressing those issues in the States where 
there are those reservations and SBA not Bear has successful 
getting them to do that.
    Mr. Kennedy. Well, my colleagues on a bipartisan basis 
would be very excited about working with you with the 
relationships that we have developed already. Because we have 
certainly heard about the chronic problems of seeking capital 
and getting the necessary support to get businesses started 
where there is no governmental bonding authority, if you will, 
an ability to use the creative powers of financing, you know, 
our government uses for our constituents that their governments 
can use for their people. So I would be excited to work with 
you on seeing that take place.
    Mr. Whitmore. Okay.

                   SMALL BUSINESS DEVELOPMENT CENTERS

    Mr. Wolf [presiding]. Following up on Mr. Kennedy's 
question, how many--your request for Small Business Development 
Centers, how many receive funding from SBA?
    Mr. Whitmore. They all do. Small Business development 
centers?
    Mr. Wolf. How many are there? How many receive?
    Mr. Whitmore. I believe it is over 900 and some odd 
subcenters.
    Mr. Wolf. You want to get the exact number for the record.
    [The information follows:]

    SBA funds 58 small business development centers and 
approximately 1,000 sub-centers.

    Mr. Whitmore. The funding would come directly to the State 
lead organization, and they determine how to fund within the 
State.
    Mr. Wolf. Would your program then be a cut of support to 
each individual center?
    Mr. Whitmore. Yes, it would.
    Mr. Wolf. Okay. And with regard to the legislation, have 
you asked the authorizers?
    Mr. Whitmore. Yes, we have.
    Mr. Wolf. And would you submit for the record who you have 
spoken to?
    Mr. Whitmore. Yes.
    Mr. Wolf. How many members of the committee?
    Mr. Whitmore. I don't know that we have talked directly to 
members, but we certainly have talked to all the staff.
    [The information follows:]

    I personally briefed the minority and majority staff of the 
Senate and House authorizing committees on the SBDC as well as 
our other proposals. I was asked several questions on details 
of how the fee would be implemented.

    Mr. Wolf. You know, again, it is a question of insincerity. 
I mean, you know, I guess it just proves again, if the 
legislation is not enacted, what would your appropriation 
request be to maintain the current program?
    Mr. Whitmore. It would be approximately $12 million more. 
We are requesting $75.8 million.
    Mr. Wolf. If the committee appropriates a level of $75.8 
and the legislation is not enacted, what would the impact on 
the program overall and what would the impact be on the 
individual centers receiving funding under the program?
    Mr. Whitmore. Mr. Chairman, I would like to submit that for 
the record.
    [The information follows:]

    The impact cannot be determined until the FY 2002 budget is 
enacted.

    Mr. Whitmore. One of the things that would change in all 
the SBDCs this year is the funding by State because of the 
change in the population. It is based on a population census 
formula. So we have to calculate that change as well as what 
the fee change would be. It is on a pro rata basis.

                         DISASTER LOAN PROGRAM

    Mr. Wolf. This is my first year on the committee, but I do 
know in talking to Members that budgeting gimmicks with regard 
to the disaster loan program have been a source of friction 
between the SBA and the committee over the years. Do you agree 
with that?
    Mr. Whitmore. I think in the past it has certainly the 
case. I think today the budget proposal that has been submitted 
is not a gimmick. It is in a different plan to fund it under 
the national emergency reserve. It would be offset against the 
caps. It is fully funded for a 5-year average, which has not 
been done in the past.
    Mr. Wolf. The committee has insisted in the past that the 
SBA request enough new regular discretionary budget authority 
to support an average annual disaster loan program level, and 
you haven't done that, have you?
    Mr. Whitmore. I believe we have. Between what has been 
requested directly to your committee and what is being 
requested as part of the President's National Emergency Fund, 
SBA's share of that would fully fund the average 5-year 
disaster program.
    Mr. Wolf. That was not in the budget resolution.
    Mr. Whitmore. Please repeat what you said.
    Mr. Wolf. That was not in the budget resolution. So it is, 
in essence, not there.
    Mr. Whitmore. We believe that OMB has indicated that they 
are still working with the full Appropriations Committee to do 
that. If it was not, I assume that that full amount would be 
transferred back to our request.
    Mr. Wolf. Let me ask Mr. Serrano if he would like to ask 
questions.
    Mr. Kennedy. Mr. Chairman, to answer your question about 
what cut it will be to Rhode Island, the impact of the budget 
in terms of the Small Business Development Center would be 
$74,847 just in my Small Business Development Center in Rhode 
Island. Of course, Rhode Island is a very small State. So you 
can imagine what it is----
    Mr. Wolf. We are talking about the degree of difficulty in 
making up the shortfalls we have in other areas, that it would 
have been more appropriate if they aggressively lobbied for the 
legislation and get it passed, get the approval.

                BUDGET REDUCTIONS FROM FISCAL YEAR 2001

    Mr. Serrano. Thank you, Mr. Chairman.
    Let me ask you a question. The more time I spend here 
today, somehow you are painting this rosy picture and you are 
not convincing me that you actually feel that at the end of 
this road your agency is going to be treated properly. And, 
traditionally--I mean, maybe I could turn the tables around, 
but it can't happen.
    Chairman Rogers, Mr. Chairman, would sit here and say, tell 
me the truth, this was something OMB did to you. You know you 
really don't want this budget. But in this case we don't know 
when this budget was submitted, so we can't seem to point a 
finger at who accepted or invited or asked for this kind of a 
cut.
    So it puts us in a unique situation in that, for me, I seem 
not to be getting any help from the agency in telling me, help 
us out; and we are going to be out here sort of on our own to 
say, what you think is good for you is probably not the way to 
do business. But if we don't do that, you will be destroyed.
    And I just want to, you know, make that point for the 
record that I am troubled by the fact that I am not hearing, 
help us, there is a problem here. And you are right, a 40 
percent cut is ridiculous. It will kill a lot of programs 
based----
    Mr. Wolf. Maybe could you submit at this point, following 
his question, the name of your OMB examiner. Put in the record 
at this point. I will refer----
    Mr. Whitmore. We will submit it for the record.
    Mr. Wolf. If you want to tell us, that is fine.
    Mr. Whitmore. Alan Reinsmith is the senior person on our 
side.

                    SYSTEMS MODERNIZATION INITIATIVE

    Mr. Serrano. Mr. Whitmore, your prepared testimony makes a 
reference to the SBA's systems modernization initiative and the 
loan monitoring system (LMS) that I find troubling. On pages 11 
and 12 of the statement, you state that you have concluded that 
the LMS has become commingled with an ``internally sought 
systems modernization initiative'' and that you have ordered 
that the program be refocused on the activities for which 
Congress authorized and appropriated the funds. That is a 
strong statement.
    I do not think that is the case. When I review the prior 
year's budget requests and hearings before this subcommittee, 
and this committee's reports, it is clear that a systems 
modernization initiative is exactly what funds were both 
requested and provided for. So I would like to know what 
specifically are you asserting in this statement. Do you not 
agree that the Appropriations Committee clearly stated in the 
fiscal year 2001 conference report language that the $8 million 
provided for the current year was for the agency's systems 
modernization initiative?
    Mr. Whitmore. Mr. Ranking Member, the authorization, a Loan 
Monitoring System was in the authorizing bill of December 1997. 
Specifically, I believe the intent of the Congress, concerned 
with the size of SBA's growing portfolio was to modernize the 
SBA Loan Monitoring System, and so the following year $8 
million was appropriated for lender oversight and lender loan 
modernization.
    Mr. Whitmore. We have been working towards that end and the 
Agency testified many times, that we were working and in fact 
we have testified, I believe the last time, that it would be 
ready in September.
    When I came in in February of this year, the first briefing 
I had from that particular staff was that they did not think 
they were going to be able to deliver this system for $40 
million but it would be more like $90 million, and they did not 
think that they could meet a 4-year projection, what they had 
testified to, but they thought it would be more like 7 years.
    So I asked them to look at this very closely. Some of the 
things that were being done I think were certainly necessary 
for the agency, but probably not in line with the intent of 
developing an automated loan monitoring system. We were 
expanding this system up quite a bit. It looked like we were 
developing a proprietary system that would have no end and no 
real hard cost to it.
    In addition, people that debriefed me indicated, at least 
in the oversight and some of the appropriation areas, that the 
Congress was still intent on getting a loan monitoring system 
and was not as interested in a systems modernization effort 
that went across the SBA entirely. I am not saying that systems 
modernization may not have been needed, but we felt certainly 
it didn't meet the intent of the December 1997 authorizing 
language or even the report language in the appropriations 
bill.
    So what we were asked to do is look specifically to develop 
a loan monitoring system, because our portfolio has increased 
significantly in the last 10-years, to have the better handle 
on where we are and how much risk is in their portfolio. It 
would be very helpful to us and certainly be helpful in looking 
at these subsidy rates as well.
    Mr. Serrano. Let me ask you a question. You say that the 
agency feels it doesn't meet what the authorizing committee had 
intended or the appropriating committee. Now, when was this 
decision or this conclusion reached? Was this during the time 
that we had the other Administrator or after she left?
    Mr. Whitmore. It was in February this year, after she left.
    Mr. Serrano. Okay. So the last time that folks were here 
from the SBA, they told us what they wanted and we gave them 
what they wanted. Chairman Rogers was very supportive of it. 
Then, somewhere between then and getting a permanent new 
Administrator, some folks decided that this was no good and 
should be done away with or refocused, which also leads me to 
another question. If you are refocusing, does that mean you 
still need the $8 million now for the current fiscal year?
    Mr. Whitmore. I think we still need a loan monitoring 
system. I mean, we have a large portfolio that I think we need 
to have better information on. We have checked with commercial 
institutions, and we feel we can get it without doing a 
proprietary system that we felt was not controllable either in 
terms of cost or time.
    Mr. Serrano. Well, you know, I keep telling you, this is a 
strange situation I find myself in. I am trying to help you 
guys. I am trying to help you and I am hearing nothing as a 
request for help. In fact, I am hearing that sometime between 
the presidential election and the settling in of the next 
Administration--which is fine by me, I understand what a new 
President coming in means--but somewhere in between you decided 
all these good things are no longer any good and I don't know 
how the decision was made.
    Mr. Whitmore. Certainly, if I can go back on the loan 
monitoring system, I was very surprised myself. I looked at the 
testimony. We had testified a number of times that this system 
would be up and operating. On the Senate side they were trying 
to set up time frames to come down and review the system when 
it was fully operational as SBA had testified to would be done 
by September of this year, and then the first briefing I 
received said it is no longer at $40 million but it is looking 
more towards $90 million and was no longer going to be done in 
4 years but it was now going to take 7 years.
    Next thing I was asked was to concur in a spending letter, 
and I did not want to send a spending letter to the Congress on 
how we spent $8 million when the Congress was under the 
impression that this was a $40 million system, and my recent 
briefing talked about $90 million.
    Mr. Serrano. Well, we were told last year that it would be 
more than $40 million. I mean, we knew what we were doing, and 
Chairman Rogers knew exactly what he was doing, and what I know 
he was doing was being very supportive of what you folks wanted 
to do.
    Mr. Whitmore. Well, I think, you know, everybody supported 
developing a loan monitoring system.
    Mr. Serrano. Well, we just don't seem to hear it from you 
guys. Let me for the record just state the following, and I am 
sorry the chairman is not here, but I will give him a copy.
    While we in Congress may be disappointed that the SBA 
doesn't have a lot to show on the loan monitoring system, this 
committee under Chairman Rogers' leadership did intend to 
provide funding for the entire SBA systems initiative. If the 
new administration wants to revisit these decisions, that is 
fine, and I mean that sincerely. That is their right, but don't 
try to insinuate that anyone here on this subcommittee or 
anyone in the agency for that matter was somehow doing 
something wrong by going forward with the proposed systems 
modernization initiative. And that is what I am hearing and, to 
be honest, I don't like it.
    Mr. Whitmore. I didn't think we intended to insinuate 
anybody was doing something wrong. I think what we intended to 
say was that the loan monitoring system that was first 
authorized was being lost in this entire modernization effort, 
and we think that the risk to the agency today is in our 
portfolio in that we need to have better data.
    Mr. Serrano. I don't want to sound like a broken record, 
but who is we? Who made this decision?
    Mr. Whitmore. I did.
    Mr. Serrano. I mean, what I hear from every other agency is 
how they can't do something until they have certain things in 
place. And you guys are revising everything we agreed to with 
the last Administration without revisiting anything. I mean, if 
President Bush and a new Administrator come to us, to this 
committee, to this chairman, says we don't like this, we don't 
want this, we don't want that, I understand that. I may not 
like that but I understand it. This is a different situation. 
This is in between Administrators, someone--and you are saying 
that was you?
    Mr. Whitmore. Yes.
    Mr. Serrano. Decided to change these things.
    Mr. Whitmore. We decided we should focus on loan monitoring 
to be the top priority.
    Mr. Serrano. All right. Well, that is not the only thing we 
had in mind, and I think as we go along we will have to discuss 
this further.

                      DISASTER LOAN PROGRAM LEVELS

    Mr. Wolf. We will recess, I think again, on this vote for 
15 minutes, but you are requesting no new funding for fiscal 
year 2002 disaster loan subsidies. Based on your most recent 
carryover estimates, what disaster loan program level will you 
be able to support with no new appropriation?
    Mr. Walter. The budget proposed a $300 million program 
level with no new appropriation.
    Mr. Wolf. Your funding request for disaster loans also 
assumes the enactment of an interest rate hike on disaster 
victims. These loans are a critical piece of Federal assistance 
for disaster recovery for people who have lost their homes or 
suffered severe economic injury to their businesses. Your 
budget assumes accompanying legislation that would increase by 
35 percent the interest rate paid on economic injury loans by 
disaster victims who are unable to obtain credit elsewhere.
    Is this a good idea? Is this a good policy decision?
    Mr. Whitmore. Well, I think it is a very slight change in 
the interest rate today, as we would be from just under 4% to 
slightly over 5%.
    Mr. Wolf. But these are all people who were disaster 
victims, are they not?
    Mr. Whitmore. Yes, business disaster victims, not 
homeowners.
    Mr. Wolf. Right, but their business is wiped out in many 
respects?
    Mr. Whitmore. Or damaged, yes, sir.
    Mr. Wolf. So is it a good policy or good idea?
    Mr. Whitmore. It is still a very low cost loan at slightly 
over 5%. The increase would be relatively minor.
    Mr. Wolf. Was this proposed before?
    Mr. Whitmore. I believe it was proposed in a broader sense 
across all disaster loans in the past.
    Mr. Wolf. And the authorizing committee agreed to make this 
change this time out?
    Mr. Whitmore. I don't believe they have agreed to this, no.
    Mr. Wolf. Do the people in the executive branch think it is 
a good idea for a budget----
    Mr. Whitmore. I believe they think it is a good idea.

                    NATIONAL EMERGENCY RESERVE FUND

    Mr. Wolf. Last question. The National Emergency Reserve 
Fund has not been included in the budget resolution. So 
assuming, as we said before, no bailout is coming in the form 
of emergency appropriations, and no congressional action, how 
much in regular discretionary appropriations would be required 
to fund a program level of $800 million in fiscal year 2002?
    Mr. Whitmore. For $800 million, it would be approximately 
$135 million more.
    Mr. Wolf. Okay. We are going to recess for three more 
votes, but they are just 5 minutes. So we should be back at 20 
to 25 after.
    [Recess.]

                         NEW FREEDOM INITIATIVE

    Mr. Wolf. We will reconvene. You are requesting $5 million 
for the New Freedom Initiative to provide technical assistance 
to small businesses on complying with the Americans with 
Disabilities Act, which was enacted in 1990. Why would you be 
asking for this assistance now?
    Mr. Whitmore. It was part of the President's New Freedom 
Initiative, which further enhances the Americans with 
Disabilities Act. It is a governmentwide initiative of the 
President. The SBA has a small portion of that. We are part of 
a task group which I believe is led by the Department of Labor, 
Secretary Chao. We are working with them right now. Our portion 
will be to try to assist small businesses in complying with the 
provisions of the Act to make small businesses more accessible.
    Mr. Wolf. Could the Small Business Development Center or 
Business Information Center or Women's Business Center train to 
do that?
    Mr. Whitmore. I think, they all could play some part in 
this, and we intend certainly to have all our assistance 
centers involved.

                                TELEWORK

    Mr. Wolf. How good are we on telework? How many SBA 
employees telework?
    Mr. Whitmore. I think we have 138.
    Mr. Wolf. Out of how many employees?
    Mr. Whitmore. We have 2,900 in the agency.
    Mr. Wolf. And the law calls for 25 percent by the end of 
the year. That is the law. That is not a recommendation. How 
are you going to meet that?
    Mr. Whitmore. We have run a pilot in the last few years. We 
have just recently put together a standard operating procedure 
to expand the pilot.
    Mr. Wolf. Do you have a Web page if somebody wants to get 
on the Web page?
    Mr. Whitmore. I don't believe it has been put on the Web 
page, but certainly that is good idea and we will do that.
    Mr. Wolf. Go ahead and finish.
    Mr. Whitmore. A lot of our offices around the country are 
very small and it is difficult for some of the staff to be on 
telecommuting because they deal with the public so much. But we 
fully intend----
    Mr. Wolf. We are not suggesting they have to do it every 
day. One out of four.
    Mr. Whitmore. I understand, and we are certainly supportive 
of telecommuting. We are still struggling though, Mr. Chairman, 
to do that with alternate work schedules. A large majority of 
SBA employees are already on----
    Mr. Wolf. Fifty-five percent of the AT&T workforce is now 
doing it.
    Mr. Whitmore. And we are looking at a number of ways----
    Mr. Wolf. You have a presumption that the job is a 
teleworking job unless they prove opposite or do you make them 
prove that they have a teleworking job before they can do that?
    Mr. Whitmore. I believe SBA has tried to assess the jobs 
across the agency and which categories would be eligible for 
telecommuting. We did not do that on the pilot. We allowed 
anybody that wanted to ask and who could work with their 
supervisors and the union to get that approved. We think it has 
been successful, and we certainly are looking to expand that 
program.
    Mr. Wolf. So you are a couple hundred short to meet the 25 
percent goal?
    Mr. Whitmore. We would be several hundred short of that 
goal.
    Mr. Wolf. How are you going to meet that? That is the law, 
25 percent this year.
    Mr. Whitmore. I may be wrong. I was under the impression 
that 25 percent of those eligible.
    Mr. Wolf. But I will tell you what, if we find that you are 
defining eligibility narrowly, I will personally take it up 
with the Administrator himself or I will cut his office. I will 
do that and stick with it all the way through the bill. Not 
just for a threat, we will take it to the very end. We will 
pass it. This is a congestion problem. It is good for morale. 
It is good for recruitment. It works. The private sector is 
doing it very, very aggressively and the figure is 25 percent 
this year, 50 percent next, 75 percent the following year and a 
100 percent the fourth year, and the average Federal agency, 
the assumption is 40 to 60 percent of the people have jobs that 
enable them to telework, some agencies higher.
    Mr. Whitmore. I understand. We are proposing that almost 
2,400 of our 2,900 employees would be eligible for it.
    Mr. Wolf. Well, then you will meet it then.
    Mr. Whitmore. We certainly intend to meet it.

                      DRUG-FREE WORKFORCE PROGRAM

    Mr. Wolf. You are requesting $5 million for the Drug-Free 
Workplace Program, an increase from $3.5 million appropriated 
in fiscal year 2001. The Congress has provided $11 million for 
this program over the past 3 years. How do you measure the 
success or failure of the program and what results have you 
seen so far?
    Mr. Whitmore. That is an increase actually of $1.5 million 
over the previous year. I would ask that I be allowed to submit 
the evaluation on that. I am not familiar with how they have 
done that.
    [The information follows:]

    The first full year of the program was completed in 
September 2000 and SBA now has narrative reports from the 15 
intermediaries and 14 SBDCs funded. The reports describe the 
recipients' accomplishments and give statistics such as: the 
number of small businesses educated; the number of working 
parents educated on how to keep their children drug-free; and 
the number of small businesses that implemented a drug-free 
workplace program. These reports are one of the performance 
measurements used to determine success.
    Another evaluation tool used by the SBA was site visits. 
During the first year of the program, SBA and its partner 
agencies conducted 14 site visits.
    SBA and its partner agencies are encouraged by the progress 
of the recipients and believe this program is filling a vital 
need in the small business community. During the program's 
first year, approximately 975 small businesses set up drug-free 
workplace programs. A consistent comment from these small 
businesses is that they would not have done this without the 
financial and technical assistance provided by SBA's Drug-Free 
Workplace Program. Increasing the appropriations for this 
program will allow more small businesses to implement drug-free 
workplace programs.

                           OPERATING EXPENSE

    Mr. Wolf. Sure. Your budget request for operating expenses 
is $307 million, an increase of $11.1 million over fiscal year 
2001, while at the same time you are showing a reduction of 100 
full time equivalent staff. Why does it cost $11 million more 
to pay 100 less people?
    Mr. Walter. Mr. Chairman, the reason for the increase is 
principally the pay raise that we expect in January next year.
    Mr. Wolf. The 3.6 percent or 4.6 percent increase?
    Mr. Walter. The budget was based on 3.6 even though we now 
realize it could be closer to 4.6. We also are seeing some 
fairly significant increases in our rent bills being passed on 
by GSA. With the amount of funds that we had in the budget we 
felt that the only way we could still accommodate the existing 
level of activity would be to lose about 100 people, through 
attrition.
    Mr. Wolf. No one will be laid off?
    Mr. Walter. No, we won't lay off. We attrit about 150 to 
200 people normally during a fiscal year.
    Mr. Wolf. What is your vacancy rate now? How many openings 
do you have?
    Mr. Walter. We don't have an authorized ceiling to have a 
vacancy rate, but we do have a number of critical jobs that 
remain unfilled at the agency.
    Mr. Wolf. How many would that be; do you know?
    Mr. Whitmore. It is in the 110 range.
    Mr. Wolf. This is a good opportunity with the downturn in 
the economy to recruit, particularly here in Washington. We had 
a job fair last Monday, and a lot of very capable people showed 
up looking for jobs. If you would like, my office could furnish 
you a list of the companies that were there who had employees 
who were laid off.

           TRANSFERS FROM LOAN ACCOUNTS TO OPERATING EXPENSES

    The Congress has included bill language each of the past 2 
years placing a limit on the amount of money that can be 
transferred from disaster loans to the S&E operating expenses 
absent reprogramming. In the past SBA used a liberal transfer 
authority to basically create its own operating budget and 
staffing levels. The committee has found that the bill language 
limitation gives the Congress the ability to establish solid 
operating budget and staffing levels, as we do with other 
agencies. Why are you requesting that the bill language be 
deleted?
    Mr. Walter. Mr. Chairman, on that particular one, last year 
as well as in the budget, we did not plan to transfer any more 
than what has been appropriated. We feel that the limitation is 
not necessary because there is no intent on the part of the SBA 
to transfer more than the appropriation.
    Mr. Wolf. So in future years you would tell the committee, 
put it in this year because we are going to do it or don't do 
it?
    Mr. Walter. There is no limitation. We provide an estimate 
in the budget, and we would stick with the estimate in the 
budget unless there is a deviation after appropriation, and 
then we would come up for a reprogramming.
    Mr. Wolf. Mr. Serrano.

                        PERSONNEL ACTIONS AT SBA

    Mr. Serrano. I have some questions that I will submit for 
the record. I have just one further question for now.
    I know, Mr. Whitmore, that you have made some personnel 
changes. We were wondering, first of all, why those changes 
were being made prior to a new Administrator coming in, but 
just as importantly, if you could tell us what those changes 
are.
    Mr. Whitmore. We haven't made any permanent changes. We 
brought in some people to act in some of the positions that 
have been vacated by the previous administration, for example 
in the public communications area, in the Office of Field 
Operations. The President appointed an Acting Chief Counsel 
during this interim period. In the Government Contracting and 
Business Development Program, we have asked someone to act in 
that role as well.
    These are all jobs that will be filled by the new 
Administrator. These people are all on a temporary basis. There 
have been no permanent changes.
    Mr. Serrano. And these were to fill positions that were 
vacant or people were replaced?
    Mr. Whitmore. These were all positions that are normally 
held by political appointees that haven't arrived. After the 
Administrator is confirmed, he would make permanent selections 
from political appointees.
    Mr. Serrano. Is it the norm to have the Acting 
Administrator during the period--can you tell me if in another 
agency during this transition period the Acting Administrator 
replaces people?
    Mr. Whitmore. I didn't replace anyone. I didn't transfer 
anyone. The people that we brought in to be acting took 
positions that were held by the previous administration's 
political appointees.
    Mr. Serrano. I understand that. So these people left?
    Mr. Whitmore. They left on January 20th.
    [The information follows:]

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    Mr. Serrano. All right. I will submit the rest of the 
questions for the record.

                            CLOSING REMARKS

    Mr. Wolf. Okay. I will submit a couple extra questions, and 
I thank you very much for your testimony, and I this is 
difficult for you, but I think it would be healthy in the 
future if you could be more open about the holes in your 
budget. I know that must be a way of operating at OMB because 
they did the same thing on the FAA with the overflight fees. 
They did the same thing on the Coast Guard, and it does create 
a problem.
    So I think it is better if it is an important program just 
to say we are going to cut it a little bit or we are going to 
do better. I understand. It is not directed towards you, but--
--
    Mr. Whitmore. Well, if I could just add one thing on that.
    Mr. Wolf. Sure.
    Mr. Whitmore. We have a number of programs that are zero 
subsidy, and over the years they were challenged each and every 
time. The 504 Development Program is zero subsidy. The Surety 
Bond is zero. The SBIC Debenture Program is at zero subsidy.
    I think this has been a trend that SBA has moved towards 
over the years. We knew it wouldn't be easy, but we thought it 
was certainly something to take advantage of and look at 
different opportunities for funding these programs.
    The 504 program is continuing to operate fairly well. In 
fact, they expect a significant growth this year. The Surety 
Bond Program has continued to operate without a subsidy for a 
number of years, and certainly we have been told by the SBIC 
Association that they feel they can go to a zero subsidy as 
well. So we have tried these in the past, Mr. Chairman.
    Mr. Wolf. Sure. I guess that you would want to kind of make 
an effort and get the White House involved in coming up and 
talking to Mr. Manzullo and whoever it is over on the Senate 
side and really making a sincere effort, but obviously we would 
hope when the bill comes out that it is an honest and open and 
legitimate bill without playing any games. Sometimes you get to 
the end, and you don't have a number so you have just got to 
zero something out with the idea that later on something 
happens.
    My sense is that is not going to be the way this year. It 
may very well be what actually comes out of the House, and the 
numbers coming out of the Senate are relatively close, and then 
you are faced with, you know, what do you cut because there may 
not be the increase.
    I think if the committee were to exceed the budget, based 
on what I read in the paper, I think the administration will 
veto the bills, and if that is the case it will come back in 
here and you are going to be faced with the question of which 
program do you want to cut. Obviously the small business 
program is an important program to the economy. Small business 
is absolutely critical. There is probably more job generation 
there than the large businesses.
    I have no additional questions, and with that the committee 
is adjourned.
    Thank you both.

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                           W I T N E S S E S

                              ----------                              
                                                                   Page
Bosley, D.E......................................................     1
Donnelly, Tony...................................................     1
Hantman, A.M.....................................................     1
Heyburn, Judge J.G., II..........................................    67
Kennedy, Justice A.M.............................................     1
McConnell, J.M...................................................   281
Mecham, L.R......................................................    67
Piersol, L.L.....................................................    67
Powell, M.K......................................................   203
Rider, Sally.....................................................     1
Smith, Judge F.M.................................................    67
Suter, Bill......................................................     1
Thomas, Justice Clarence.........................................     1
Unger, L.S.......................................................   281
Whitmore, John...................................................   325

                                

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