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



                 DEPARTMENTS OF COMMERCE, JUSTICE, AND

                   STATE, THE JUDICIARY, AND RELATED

                    AGENCIES APPROPRIATIONS FOR 2003

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS
                             SECOND 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, Californi
 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.
   Mike Ringler, Christine Kojac, Leslie Albright, and John F. Martens
                           Subcommittee Staff
                                ________
                                 PART 8
                              THE JUDICIARY
                                                                   Page
 The Federal Judiciary and the Administrative Office..............    1
 The Supreme Court of the United States...........................   81
                            RELATED AGENCIES

 Federal Communications Commission................................  127
 Federal Trade Commission.........................................  215
 Small Business Administation.....................................  337
 Securities and Exchange Commission...............................  551

                              

                                ________
         Printed for the use of the Committee on Appropriations
                                ________
                     U.S. GOVERNMENT PRINTING OFFICE
 80-619                     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 2003

                              ----------                              

                                           Thursday, March 7, 2002.

                JUDICIAL CONFERENCE OF THE UNITED STATES

                               WITNESSES

JUDGE JOHN G. HEYBURN II, CHAIRMAN, COMMITTEE ON THE BUDGET OF THE 
    JUDICIAL CONFERENCE OF THE UNITED STATES
MAGISTRATE JUDGE THOMAS B. McCOUN III, 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

                            Opening Remarks

    Mr. Wolf. Good morning. The committee will come to order. I 
want to thank Judge Heyburn, Judge McCoun, Director Mecham and 
Judge Smith for appearing before the committee this morning to 
discuss the Federal Judiciary's fiscal year 2003 budget 
request.
    An independent judiciary that all of our citizens trust and 
respect and can resolve criminal, civil and bankruptcy disputes 
in a fair and expeditious manner is a fundamental tenet in our 
Nation. We will try to ensure the courts have the resources 
needed to accomplish their important mission.
    In fiscal year 2002, I believe the subcommittee was very 
successful in addressing many of the court's most pressing 
needs, including an increase in the hourly rates paid to 
private panel attorneys representing defendants who were unable 
to afford counsel to $90 per hour, maintaining the courts' base 
funding, and addressing the courts' security needs in the wake 
of the terrorist and anthrax attacks. However, the budget for 
fiscal year 2003 is really going to be tight. You have been 
reading every State seems to be broke, and as they are all 
broke, they seem to be coming to Washington as if we have some 
source that they do not know about, and now we are having the 
same problem.
    Now the numbers are getting a little bit better if you 
believe the latest newspaper stories, but the budget this year 
will be extremely tight, and it all obviously is based on what 
took place on 9/11. It obviously has put a greater stress on 
all of you, and on so many others. We have military in 
Afghanistan as we speak in that Operation Anaconda, and we lost 
a number of people. So there are a whole series of things that 
are coming in. So we will attempt to be fair and do what we 
can, but I think this year may be a little more difficult than 
we thought perhaps before 9/11.
    With that, let me just recognize Congressman Serrano, the 
ranking member.
    Mr. Serrano?
    Mr. Serrano. Thank you, Mr. Chairman.
    I welcome the witnesses. I saw you on C-SPAN yesterday 
Judge Heyburn. I noticed you did not say anything nice about 
the chairman or myself, but----
    [Laughter.]
    Judge Heyburn. They cut me off before I could.
    Mr. Serrano. That happens to me all of the time when I am 
speaking about judges. I never get to say anything nice. 
[Laughter.]
    No, really, as one who comes from the city that took a 
major physical hit and that then became the symbol of our 
country coming together, I know that the strain put on the 
courts, which will continue to be placed on the courts as we 
sort this whole thing out and, on all of us is tremendous.
    I echo Chairman Wolf's words. These are difficult times, 
but on the other hand, we work very well together on both 
sides, when it comes to folk like yourselves, understanding 
well the need to be supportive. I take this opportunity to say 
that all branches of our Government have come together and not 
only wished New York are but assisted in so many ways. As you 
know, the city has been hurting for a while, but New Yorkers 
are tough people, and we know how to come together, and we 
have. So has this country, and so we will do the best we can to 
continue to help you folks.
    Thank you.
    Mr. Wolf. All of your statements will appear in the record 
as if read. You can proceed however you see fit.
    Judge Heyburn. Yes, Congressman Wolf. If it is all right 
with you, I would just like to make a few brief introductory 
comments, and then I look forward to answering your questions 
and explaining, in whatever detail you would like, our 
appropriations request.
    It is my pleasure to appear before this committee now for 
the sixth time. It always is a tremendous experience because I 
feel as though I am acting out a part of our Constitution here, 
two of the independent branches of Government arecooperating 
with each other and dealing with each other in a manner that our 
forefathers envisioned.
    I would completely concur with your statements about the 
need for an independent judiciary, and I really appreciate your 
understanding of that. We are here to protect the rights of all 
of our citizens to enforce the laws that you, in fact, enact 
and to mediate disputes between our fellow citizens, between 
the citizens and States, and with our national Government. I am 
appearing before you today to ask for the funds that we believe 
are necessary to do exactly that job.
    Appearing with me are Magistrate Judge Tom McCoun, from 
Florida; Judge Fern Smith, who is the Director of the Federal 
Judicial Center; and Ralph Mecham, who is the Director of the 
Administrative Office, and we will all be glad to answer your 
questions.
    I do want to echo also what you said in thanks for what you 
did for us last year. In every single one of the areas you 
mentioned, you absolutely did help us. And specifically the $90 
an hour pay rate for panel attorneys, that is going to come 
into effect in May. We think it is going to have a tremendous 
impact. We hope it will, and a lot of people around the country 
thank you, and Congressman Serrano, and the rest of the 
committee for doing that. I would also thank you for retaining 
our base funding and meeting our unusual security need. As the 
Congressman knows, it was not too far from the tragedy that 
there were Federal courthouses, and we received some of the 
after-blast. Employees were traumatized, fortunately, not to 
the extent of many other New Yorkers, but we had our own 
issues, in a minor sort of way, I must say, compared to others 
in the aftermath of that tragedy. And, of course, the judiciary 
is gearing up to play its role in the aftermath which is, as 
yet, unknown.
    A couple of things I would like to mention and want to 
emphasize just about our fundamental commitments.
    First of all, we have a commitment to explaining to you 
exactly why we think we need the appropriation we are asking 
for. We are asking for an additional $500 million. Even in 
Washington, whether you are from Kentucky or California, we 
know that is a lot of money, and we would like to explain to 
you exactly why we need that.
    We believe it is necessary to help us take care of the 
growing, and largely uncontrollable, workload of the judiciary, 
whether it is the additional persons who are being supervised 
by probation officers, whether it is that now 85 percent of the 
people who were indicted in Federal Court are indigent and 
require the assistance of counsel, or our new security needs. 
All of those things we would like to address.
    Every year it seems there are things that come up that we 
do not even take into account in our request. Of course, last 
year we dealt with the southwest border, and we really 
appreciate your attention to that issue. We have not even taken 
into account of what the impact may be of things like the Enron 
or Global Crossing bankruptcies. Those are both filed in New 
York, as a matter of fact, Congressman Serrano. The AO has 
already devoted additional resources to the Bankruptcy Court 
there to make sure they can efficiently take care of those huge 
cases.
    Second, I want to emphasize our continuing commitment to 
you to be good stewards of the funds that you give us. We try 
to do that by developing objective staffing and operating 
expense formulas, to quantify for ourselves and for you the 
needs that we have. We try to do that by encouraging 
teleconferencing among our employees and innovative ways of 
dealing with court hearings that require less personnel and 
less travel. We try to do that by reallocating our resources to 
the places that really need the help, and we have done that in 
recent years, totally revising our staffing formulas so that 
there are fewer persons who are directed to the Bankruptcy 
Courts because they take so much advantage of automation 
advances and more to the probation area, where they are less 
able to do that. Of course, there has been a huge increase in 
the number of persons who are on probation.
    So we are constantly looking for ways to improve the 
efficiency and effectiveness of the way we use the resources 
you give us. We really believe it is a cooperative effort. Many 
of the things that we have pursued in recent years were matters 
that former Chairman Rogers or others on the committee 
encouraged us to do, and we tried to follow that direction.
    We know the budget is tight. We hope you believe, as we 
believe, we are good stewards of the funds you give us. In 
fact, I think we are one of the few agencies that actually 
gives money back. We have already identified to your staff $100 
million that we believe will be carried over into fiscal year 
2003. It is not money that we have in hand, so it is somewhat 
risky to identify it, but we believe that is going to be a 
carryover. And, of course, that is $100 million that you don't 
have to appropriate to us for that fiscal year.
    We are looking forward to working with you in the same 
cooperative attitude we have had in the past. We really 
appreciate the way your staff identifies the questions and 
problems they have, and we are able to answer those in advance. 
And we believe and appreciate the fact that you understand that 
in many respects it is an independent judiciary that sets our 
country apart from so many other places in the world.
    As an institution, we really are a conservative lot, 
although we may have many different ideologies. We do not 
create the cases; we do not reach out to make the law. We wait 
for the cases to come to us, and the way we do justice is 
ruling on those cases, one case at a time, as fairly as we 
possibly can, and the mosaic of those cases is the justice that 
we create.
    We do it, and I have come to believe this now in my tenth 
year as a judge, by watching the dedicated employees and 
judges. We do that by enforcing the laws, whether we happen to 
believe they are good or bad laws, whether the people before us 
are rich or poor, whatever color they are. We do that by 
talking to the jurors and reinforcing with them the idea that 
they are performing a public service and how valuable that is, 
that ordinary citizens tell people what justice is.
    We do that by sentencing criminals who are a danger to 
society, getting them out of society so society can be safe. We 
do that also by working with probation officers to give people 
maybe who have committed a crime, but we believe deserve a 
second chance, and can have a second chance to lead a law-
abiding life, and we do that all of the time.
    We help safeguard our freedom of religion, our freedom of 
speech. We enforce laws against discrimination, and we preserve 
our equal rights, and we just want to work with you to have the 
funds to do all of those things. It is a complex and difficult 
job, probably not as complex and as difficult as the job that 
you have, but we look forward to working with you and answering 
your questions.
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    Mr. Wolf. I thank you.
    Do any of the other panelists have----
    Mr. Mecham. I have a brief comment, if I may.
    It was 50 years ago today that I came to work in the United 
States Congress.
    Mr. Wolf. How old were you then?
    Mr. Mecham. I was 12. [Laughter.]
    Mr. Serrano. You do not want to get a judge lying, do you? 
[Laughter.]
    Mr. Mecham. I hesitate to bring it up because it was in the 
other body that I went to work. There was no Hart Building or 
Dirksen Building or Rayburn Building when I came on board then, 
but I do have great veneration for this body and the Congress, 
and I have been associated with working for Congress ever 
since, and I particularly appreciate your leadership.
    The tendency in Congress and elsewhere, is to forget there 
is a third branch, but I noted with great pleasure and advised 
all of the judiciary of the fact that the two of you, last 
September, had called an informal meeting in this very room to 
talk about security. You asked us what our needs were, what our 
concerns were. You were the only people who did so, and we 
really appreciate that. It gave us a chance to weigh in because 
we were confronting some real security problems, and we felt 
like we had been given an audience, and somebody out there 
cared for the third branch of Government.
    So we thank you for that and for kind of rescuing the 
Administrative Office in conference last year. Though 
inadvertent and unintentional, an earmark on the Senate side 
faced us with the possibility that I was going to have to RIF 
160 to 180 of my 900-member staff, which would have decimated 
us. But through your good efforts and their good efforts in 
conference, thank you for rescuing us from that.
    I really thought that since the CBO and others said we were 
going to have a surplus, you were just going to write out a 
check today, Mr. Chairman. I am disappointed that you say it is 
going to be tough. So we will try to do our best to justify our 
request.
    You might be interested in some of the response we made in 
the AO to the terrorist attack. We had set up in 1992 a 
disaster response group after Hurricane Andrew hit, and 
fortunately that group was in place. And so after the airplanes 
crashed into the World Trade Center, we were ready and 
reasonably able, even though communications were disrupted, 
computers were down, phones were out, to make contact with the 
District Court, the Circuit Court, the Bankruptcy Court, the 
public defenders, and probation and pretrial services offices 
in the lower part of Manhattan, and extend all of the help that 
we possibly could.
    We, also, worked with some of the local courts who 
volunteered. They deserve a commendation, I think. The court in 
New Jersey and Newark, the Northern and Eastern Districts of 
New York, for example, and then later the Eastern District of 
Pennsylvania all sent volunteers. My people immediately visited 
the area and offered help. We got the Bankruptcy Court going 
almost immediately, in part, because of the support you have 
given us over the years in computer and network technology, but 
it was really tough for them up there. They improvised and just 
did a terrific job, and we were happy to work with them.
    The local courts were inspired in their own right for what 
they did in New York City. The chief judges, the judges and the 
court employees really rose to the occasion, and I think they 
deserve the designation of heroes, along with some of the other 
people who very correctly receive that.
    I received a letter just a couple of days ago, February 
14th, from Chief Judge Michael Mukasey of the Southern District 
of New York, and just one sentence, if I may, ``The 
administration of security burdens thrust upon us by the 
ghastly events of that day, namely, 9/11, are still with us, 
but the help you provided, both in resources and personnel, 
have enabled us to carry on the court's business even while 
bearing these burdens. We were only able to do that because you 
were able to provide us with the resources which enabled us to 
do that, and we thank you very much.''
    We also coordinated the evacuation of the United States 
Supreme Court. The Judicial Conference of the United States was 
meeting that day. Judge Heyburn was there, as was Judge Smith. 
We convened at 8:30 for a breakfast. At 9:30, we convened the 
meeting. As I was about to speak, we were told that an 
explosion had occurred at the Pentagon. Later we found it was a 
lot more than an explosion.
    But the Chief Justice was going to keep right on going, and 
the Marshal came in and said, ``You must evacuate this building 
immediately. There is a plane on the way down here.'' You 
remember there was a plane that crashed, but we did not know 
whether, nor did you, it was going to hit the White House or 
the Capitol. If it had hit the Capitol, it could have knocked 
out the Supreme Court as well.
    So, hastily, we evacuated. We were able to coordinate that 
effort. We did not have a good evacuation plan, but I can tell 
you we do now. We have learned a few lessons along the way, and 
we did the same with respect to the anthrax scare. We hired a 
contractor and made him available to all of the courts for 
testing. Twenty-five courts have been tested, including most 
recently the Federal Circuit Court of Appeals here, which had a 
couple of problems.
    We hired a consultant, Dr. Barbara Johnson, who is an 
expert on anthrax and other infectious problems, and we made 
this available to the courts. We had to set up a testing 
facility for Supreme Court employees to come over and be 
examined after they had to evacuate, following their anthrax 
situation. We provided space for some of the Justices for a few 
days. We provided space for some of the Supreme Court staff. My 
people had to squeeze down, double up, but they were pleased 
and honored to be able to accommodate the Supreme Court staff, 
at least part of their activities, in our building.
    As for the terrorism trials, again, our emergency response 
group was immediately ready when the Moussaoui trial or at 
least the indictment was issued and the proceedings began in 
the Eastern District of Virginia. We got in touch with Chief 
Judge Hilton, with Judge Leonie Brinkema, and with Judge T.S. 
Ellis, and promised our full support and help. We arranged for 
a closed-circuit television for an overflow court so that the 
press and the public could get in there when the proceedings 
are held. We worked with GSA to assure perimeter security 
there, and we think things are moving along. We have done the 
same thing, although not as in depth yet, in Boston for the 
Reid trial that is being held.
    I think I have pretty well stated everything I wanted to 
say in my statement. I do not want to double up on you, except 
just to tell you that we operate a lean and mean operation at 
the AO. Our staffing has been basically flat for 6 years, while 
the court staffs have gone up 15 percent. Remember, our work 
goes up in direct proportion to the number of staffing that is 
out there in the court, but we have been able, through 
efficiency and hunkering down, to do the job. I think to do it 
with some distinction. We are requesting eight additional FTEs, 
and we hope that you will be able to accommodate us on that.
    At that point, I will rest my case.
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    Judge Smith. Mr. Chairman, if I may?
    Mr. Wolf. Sure.
    Judge Smith. Thank you. I would just like to make three 
very brief points on behalf of the Federal Judicial Center.
    First, I would like to thank the committee for the funding 
that you have provided the Center this year. It is our first 
program increase and our second full current services 
adjustments increase in more than 10 years, so it has a huge 
impact. And even though we are not on C-SPAN, I would like to 
personally thank you, Congressman Serrano, and you, Chairman 
Wolf, for the support that I know you gave us. We really 
appreciate it very much. And that thanks comes not only from me 
and from the Center, but it comes from the Chief Justice and 
our board members, and it comes from every Federal judge in 
this country and the support staff who are going to benefit 
directly from your assistance.
    Second, this year we are seeking an 8.7 percent increase 
overall; 5.3 percent are adjustments to base, so 3.4 for 
program enhancements. We are asking for additional funds to 
make a general judicial education program available to every 
Federal judge once a year, and I do understand everything you 
said about 9/11 and the problems that that has given the 
country and all of you. But 9/11 is going to affect the courts 
as well. We are facing new statutes. We are facing new causes 
of action, new kinds of indictments, a whole new category of 
litigants. And the judges who handle these cases are going to 
be faced with making tough decisions in these areas, and they 
need to be kept informed of what they mean, and education in 
these areas is going to be very important.
    And so while we do understand it, we do want you to know 
how important we feel this particular request is, and we also 
would like to say that even with that request, the $500,000, we 
would still be spending a million dollars less in travel than 
we were spending in 1995. So we have not lost track at all of 
the need to enlarge our distance learning and to make use of 
it. And the extra money you gave us last year specifically for 
that purpose, for distance education, is going to be of great 
assistance in keeping our commitment to that.
    Third, Judge Heyburn said that we are the stewards of the 
money you give us, and that is true, but we know that you are 
the stewards of the taxpayers' money and that you have to be 
very careful with what you do with it. And so my statement 
includes, as usual, an accounting of all of the programs that 
we have designed and given with the money that you have 
entrusted to us in this country for Federal judges. Also 
because I know that, in particular, you and Congressman Serrano 
are very, very interested in what we do to assist judiciaries 
of other countries, I have also tried to set forth in detail 
what those programs have been in assisting in that area.
    In response to last year's accounting, we were pleased to 
make available to you and your staffs some videos and some 
manuals of things that illustrated what we are doing in some of 
our distance learning. Of course, this year we again would be 
more than happy to send up any of our materials, any of our 
videos, our manuals, anything that would help you or your staff 
or that might inform you in more detail about what the Center 
is and what it does.
    Obviously, today I would be more than happy to answer any 
questions that I can.
    Thank you for your time.
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    Judge McCoun. I just echo Judge Heyburn's sentiments that 
it is an honor to be here. This is my first opportunity to 
testify before the Committee, and I am grateful for the 
opportunity to be a part of the process.
    Thank you.
    Mr. Wolf. Thank you. Well, thank you for your comments and 
your testimony. There is creative tension between the 
Legislative and the Judicial Branch, going back to a guy named 
Marshall, who actually comes from, I guess I come from his 
district because he was there certainly before. [Laughter.]
    If you ever get a chance to go to the Warrenton Courthouse, 
there is an original portrait of Marshall. As you know, Justice 
Marshall is from Warrenton, which is in my congressional 
district. In fact, I was surprised his house has been up for 
sale for quite a while, and I thought the American Bar 
Association or someone would have come in because it is a large 
portion of land--it has since, I think, been sold in the past 
month--to put some sort of conference or something there, but 
for one or another reason they did not.
    But, you know, I respect what you do. It is very important, 
and obviously the decisions that you make are so important not 
only to the country, but to the individuals that come before 
you.
    Things are rapidly changing. This war on terrorism is just 
beginning. It is not nearly over. I had mentioned yesterday, 
when Secretary Powell came before the committee, I was in 
Afghanistan for 2 days in January, the first week of January. 
This war will go on for some time. I do not know what is going 
to happen.
    I hope the Karzai Government makes it, but there are 
countries all over that region in the north, that are potential 
future problems. If you read today's paper, four individuals 
were picked up in Macedonia today and have been transferred 
over to us. So this will be continuing. Fifteen thousand people 
went through the training camps, and we only have 450 of them. 
Some of them just took their jerseys off, others changed their 
jerseys, but you are going to have a tremendous burden there, 
and they will be particularly difficult cases because, as you 
know, the security requirements that you had during the 1993 
World Trade Center case, with Ramsey Yusef and the others, so I 
understand all of that. And bankruptcies are up, unfortunately.
    Frankly, I might say, with the spread of gambling in this 
country, both Indian gambling and non-Indian gambling, I think 
you are going to find bankruptcies skyrocketing 5 yearsfrom 
now, if the Internet is not controlled, and spreads to the degree that 
they want to. I just saw my colleague, Mr. Serrano, who has a 
Republican governor, Mr. Pataki, who I could not disagree with more, is 
now urging Indian gambling for the State of New York. My goodness 
gracious. So I think you are going to have bankruptcy cases going, up.
    So we are going to try to do what we can to help you. I 
understand you also do not have an advocate. The OMB process. I 
have a question that we may or may not ask about that. And Mr. 
Serrano has been very, very supportive. We have not had any 
disagreements on these. I think it is all going to come down to 
the allocation we are given, and the programs that we deal with 
that Mr. Serrano and I think are really important programs. How 
do we deal with the FBI? Mr. Mueller was up yesterday. How do 
we deal with the DEA? How do we deal with INS? What do we do 
with regard to Secretary Powell's embassy security and the 
Small Business Administration? Some of the cases you will have 
will deal with bombing in Tanzania and Nairobi.
    So every time we sort of, and we really have not had 
differences, we have been able to work these things out. But 
when you are faced with it is kind of like which one of your 
children do you want to cut. Most of the programs in this bill, 
Commerce, Justice Department, and State Department, and also 
the independent agencies, the SEC, have tremendous needs. I 
mean, the Congress passed the pay parity bill last year, but 
the pay parity has not been funded. So we have a $76-million 
gap, hole, automatically with the submission of the budget.
    Now, in fairness, I think they may very well correct that 
because as you know, the budget process takes effect all 
through the late summer and fall. We will attempt to be very 
supportive. And we also have, and we wanted to keep it on 
track, the Supreme Court building upgrade. Well, you know that 
is a large amount of money. In some respects, you are in 
competition a little bit with that, although that is part of 
you, you are sort of on the same team there, but that would be 
something that we want to maintain, so they can complete it.
    With that, we will do everything we can to help and consult 
with you as you are doing these things, and as we have to make 
choices, try to involve you in those choices so that if we do 
have to make some changes, we know what are the most important.

                       FUNDING FOR COURT SECURITY

    A couple of questions about court security. Your budget 
request totals for court security, $298 million, about the same 
level that you had last year. Should the funding request 
decline from fiscal year 2002, since much of the 
counterterrorism supplemental was for nonrecurring security 
requirements?
    Judge Heyburn. I understand exactly what you are asking. 
That is a good question. The supplemental was about $77 million 
and about half of that we view as recurring. The part that we 
view as recurring is the United States Marshals, who we think 
are going to perform a really tremendous supervisory and 
organizational function, for fiscal year 2003. The amount is 
needed for those positions in 2003 is about $17 million.
     We also hired approximately two additional CSOs for each 
district to take care of perimeter security. Although we 
recognize that those CSOs have been hired on a temporary basis, 
we believe that they are necessary for our security at the 
building perimeter. That is why we believe that it is really a 
recurring cost. The remainder of the $77 million is 
nonrecurring, but our budget requests an additional $24 million 
for CSO wage adjustments equipment, X-ray machines and other 
things that we think are necessary for the security of our 
courthouses, and obviously we would be willing to talk to you 
about all of that, but it really breaks out about 50-50, in 
terms of what we believe to be recurring and nonrecurring.

          JUDICIARY'S RELATIONSHIP WITH U.S. MARSHALS SERVICE

    Mr. Wolf. There have been some complaints about the 
Marshals Service not dedicating enough individuals with regard 
to the protection of the judiciary. You saw the film. I think 
we had a film last year that you saw on the southwest border.
    Judge Heyburn. Yes.
    Mr. Wolf. The Department of Justice fiscal year 2003 
request includes funding for 246 additional deputy marshals. Do 
you think it is a good level? Is it about right? Is it a little 
low? Is it too high?
    Judge Heyburn. Well, it is hard for me to say specifically, 
but certainly, from the judiciary's point of view, as you know, 
Congressman, we have been advocating additional funding for the 
Marshals Service for a couple of years. Of course, we are not 
here to carry their brief, but we are delighted that they have 
asked for the 240, and of course----
    Mr. Wolf. Was that done in consultation with you or not?
    Judge Heyburn. No, not specifically, no.
    Mr. Wolf. They just knew your need. You are a customer of 
theirs, and they felt that----
    Judge Heyburn. Yes. The Marshals Service has a lot of work. 
Some of it is directly to support the judiciary, some of it 
tangential, and some of it has little to do with the judiciary 
directly.
    So we are delighted they have asked for it, and we 
certainly hope you will give it consideration.
    Mr. Mecham. May I make a comment on that point, Mr. 
Chairman?
    Mr. Wolf. Yes.
    Mr. Mecham. We do meet regularly with the head of the 
Marshals Service here in town, and the Executive Committee of 
the Judicial Conference meets with the Attorney General twice a 
year. We have urgently requested, every time we have met with 
them, that they provide more Marshal manpower because we do not 
have enough protection out there.
    Mr. Marshall, the prior head of the Marshals Service, had a 
survey made, and they concluded they were upwards of at least a 
thousand positions short of what they needed, and some people 
even thought it might be as high as 2,000. I cannot verify 
those figures, but I do remember the statement. And the problem 
is that the Marshals Service has to go through the Department 
and has to go through OMB. And by the time it gets through, 
usually, they do not get enough. And our experience has been 
that the Marshals Service has been the orphan of the Justice 
Department. DEA, FBI, all of the rest of them come in and get 
substantial increases, but generally the Marshals Service lags 
way behind.
    Mr. Wolf. If the Senate goes along with it, one of the 
former heads of the Marshals Service will be joining your team, 
Henry Hudson.
    Mr. Mecham. Oh, yes, good man.
    Mr. Wolf. He is a good man. He really is. I would not 
expect there would be any controversy with regard--he was head 
of the Marshal Service I think during both the Bush 
administration and the Clinton administration, but I think he 
will really, really do a good job.

              IMPACT OF ANTHRAX SCREENING ON THE JUDICIARY

    On the anthrax issue, a couple of questions. Are all of the 
courts going through this anthrax screening that you are 
talking about or is it just in certain areas. Like our mail, my 
letters, I am still getting Christmas cards now, and the 
letters that I am signing, which came from constituents, I am 
making clear, like it will be dated December 2nd, and I get it 
on, you know, March 1st, I put it in there because of the 
anthrax and explaining it. So what impact is the mail system 
having on the courts, and are all of the courts dealing with 
this or is it just those in the metropolitan areas that are 
impacted?
    Judge Heyburn. Director Mecham can respond, also, but I 
think it is fair to say that the Administrative Office has 
provided the resources for the individual courts to look at the 
problems as they see fit, and also the expertise to assist the 
individual court units.
    I think it is fair to say that the court units have 
responded in many, many different ways. In my own court, for 
instance, we immediately established a separate mail sorting 
room in the basement, very little additional expense, and we 
have all of the mail sorted there with special personnel, and 
then it goes right up. So there has been no delay in the actual 
mail.
    The situation in Washington is a little more complicated, 
but the Director, I think, could respond.
    Mr. Mecham. All of the courts have had the consultant 
support made available to them for testing, if they wish, but 
only 25 felt there might be a problem in their courts, and so 
they did undertake testing. We have provided a consulting 
service as well.
    With respect to the mail, all of our mail used to go 
through Brentwood, too, and I am still getting the same kind of 
mail you are. Mail that was sent in November, we did not get 
until mid-February in some instances.
    Mr. Wolf. Did you get my Christmas card? [Laughter.]
    Mr. Mecham. Did you get mine? [Laughter.]
    But what we have had to do----
    Mr. Wolf. I sent you one, just----
    Mr. Mecham. Well, I sent you one. [Laughter.]
    What we had to do to meet this problem was, and again it is 
because of the resources that you provided us, we have set up a 
data communication network and an Internet system throughout 
the country, local area networks. We were able to go swiftly to 
almost total use of e-mail, fax, and flash fax. Just about all 
of the mail that we are sending out of my agency is going out 
that way, and a lot of the courts are doing the same. It is not 
as pressing for them because they do not have to go through the 
Post Offices in this area, but their mail comes through here 
when it comes to us. So we have I think responded with some 
effectiveness. We still have a couple of problems. We hope we 
can work them out.
    Mr. Wolf. Are more electronic filings taking place all over 
the country? Is it changing the way people practice law now?
    Judge Heyburn. I do not think that it is fair to say that 
9/11 has changed the way the filing has occurred. That is a 
much more complicated issue, and the judiciary has been dealing 
with that over a number of years, and particularly in areas 
such as bankruptcy, Social Security and in other high-density 
areas the particular courts are dealing with it.
    But I do not think the practices have specifically changed 
because of 9/11, except that in some courts they have had to be 
aware of the fact that mail was delayed, that people did not 
have access to courthouses so things could not be filed in a 
timely fashion. So courts have had to adjust their schedules 
and be sensitive to that all around the country.
    Mr. Wolf. Maybe it is a bigger problem here, I guess, 
perhaps.
    Judge Heyburn. I think it is.
    Mr. Mecham. It is.
    Mr. Wolf. Because of Brentwood, yes.
    Why do I not recognize Mr. Serrano and then we will go for 
another maybe 9 minutes, and then we will go down and vote.
    Mr. Serrano?
    Mr. Serrano. Thank you so much.

JUDICIARY'S ROLE IN THE PROTECTION OF CIVIL RIGHTS IN THE AFTERMATH OF 
                                  9/11

    As I am listening to you, and we talked so much, as we 
should, about September 11th, it dawned on me that an issue 
that I have discussed with the FBI, with the Secretary of 
State, with the Attorney General, plays perhaps as big a role 
for the folks you deal with as for anyone else, except that it 
is a touchy subject to bring up with you. And that is that 
during this very difficult time, many of us feel that the 
government at times may overstep how it deals with people that 
are suspected of something and a violation of civil liberties 
may come into play. I brought that up with the FBI; I raised 
the same concern with Attorney General Ashcroft, with the 
Secretary of State, General Powell, yesterday, and with anyone 
who will listen.
    It just dawned on me, as I listen to you, that I had not 
concentrated on the fact that at the end of that road might be 
a judge somewhere who may look at a case and say, while we are 
all in favor of getting rid of terrorists, the way this person 
or this group was brought before me was not the right way, and 
some people's rights have been violated.
    I am not asking you to even comment on it if you do not 
wish. I am not asking for anything other than that I hope that 
the judiciary, in general--and I know today we are talking a 
lot about buildings, and hiring, and so on, but at the end of 
that is the fact that you folks have this wonderful 
responsibility in our society, and you might be the ones who, 
at the end of the road, stop some abuses from taking place, 
abuses that otherwise we may 40 years from now be discussing, 
as we do what happened during World War II.
    You have a lawsuit right now that I just read about in my 
Blackberry, a group suing over immigration detainees and the 
way that immigration hearings are being held in secret without 
the public scrutiny that we had before. So I would just hope 
that all of us, as Americans, and residents of this country, 
but certainly folks in yourwonderful profession, keep in mind 
that at the end of the day you might be the ones who decide that our 
desire to get the bad guys may at times hurt the good guys, and that is 
not right. And so I just wanted to say that to you.
    Judge Heyburn. Well, I think that all of the members of the 
judiciary, obviously, without commenting on a specific case, 
would agree with you. My predecessor, Richard Arnold, who 
appeared before this committee, used to say that sometimes 
people forget that something occurs in between the arrest and 
ultimate incarceration of a defendant, and that is a fair 
trial, and that is what we are here for, among other things. 
And, of course, one of the things the Founding Fathers 
envisioned as a central purpose of an independent judiciary 
was, in fact, to protect the citizens from the excesses of 
their own Government.
    Mr. Serrano. Right. I think that you will have, and I will 
close on this, you will have perhaps the greatest 
responsibility of them all because actual trials with people 
being brought up as suspected terrorists or alleged terrorists 
may be a small number compared to how many lawsuits or actions 
will begin to take place with people saying people's rights are 
violated, the way you detain people, the way we are reading 
mail, whatever, and that at the end of the day you may have to 
make those decisions.

Role of the Judiciary and the U.S. Marshals Service in Providing Court 
                                Security

    The U.S. Marshals issue is a little confusing to me, and I 
want you to try to clear it up. As I understand it, you are not 
going to be actually going out to hire some marshals?
    Judge Heyburn. No.
    Mr. Serrano. You will be paying for them.
    Judge Heyburn. What you authorize----
    Mr. Serrano. You should hire people you pay for, you know 
that. [Laughter.]
    Judge Heyburn. The Marshals Service has the primary 
responsibility for the protection of the judiciary, and we have 
no desire to change that at all.
    Through the AO and our Security Committee last year we 
engaged a consultant to make recommendations about how we could 
improve the security of judges in courthouses, not how to spend 
more money, but how we could improve the security.
    One of the initial suggestions they made, based on their 
observation that perhaps there was not a central coordinating 
figure for the security needs in districts, and part of it had 
to do with the lack of resources of the Marshal, was that a 
United States marshal be designated in every district as the 
central coordinator. So our response was to suggest, and 
Congress agreed, that a United States marshal should be hired 
for the specific purpose of doing that.
    We are now engaged in, if you will, negotiations with the 
Marshals Service to come up with a Memorandum of Understanding 
to make sure that when these additional 106 United States 
marshals are hired that they perform the function that Congress 
envisioned when you authorized their hiring and which we 
envisioned, and that is to perform a coordinating and 
supervisory function of all of the judicial security needs.
    So that is our hope, and we are in the middle of doing 
that. We hope to have about half of those hired by the end of 
the fiscal year. The remainder of them would be hired in 2003. 
So it is a work in progress, but we think it is a good idea. We 
are glad Congress agreed, and we hope it is going to provide a 
significant benefit, for a relatively small expense.
    I hope that is responsive to your question.
    Mr. Serrano. Yes, it is just that it is almost like, well, 
I know that we authorized it, but it is almost like we are 
tearing away certain parts, and then it is not clear the 
responsibility that you will have in supervising them. I mean, 
it is coming out of----
    Judge Heyburn. We will not have a supervisory 
responsibility. I would hope it is a cooperative effort. 
Obviously, the marshals have to listen to the concerns of the 
judges and the employees in a courthouse in order to provide 
security, but we are not the experts in security. I do not 
think any judge believes that they are an expert in security. 
It is the Marshals Service, and so we believe that they have 
the responsibility. We want to be cooperative and helpful, of 
course, just as you do, and that is the basis I think upon 
which we are proceeding really.
    Mr. Mecham. Can I make a comment, Mr. Serrano?
    Mr. Serrano. Sure.
    Mr. Mecham. Basically, they will be working for the U.S. 
Marshals, and they will be Marshals' employees, but we will be 
working very closely with them, hopefully, to make sure that 
they do the court security work that they are intended to do. 
In a way, this is a continuation of the work that began in 
1982/1983. At that time, the General Services Administration 
was systematically starved for money. OMB would not allow them 
to request anything, and consequently the Federal Protective 
Service almost died, and the courts were totally or almost 
totally unprotected.
    As a result of that, then-Chief Justice Warren Burger and 
the Attorney General, William French Smith, got together and 
said we just cannot have this continue, and so they reached an 
agreement. The agreement was that the judiciary would request 
money for court security officers, and the Marshals Service 
would administer the program if the money was transferred over 
to them. That is how the Court Security Officer program was 
born. If it had not have happened, we would probably have had 
very little security since 1983.
    The Court Security Officer program is a parallel because, 
as you know, we have money in our budget for that program, and 
then we transfer it over to the Marshals. We monitor that very 
carefully to be sure that it is spent the way it was intended, 
and I am sure the Marshals Service monitors it very carefully 
as well.
    As I said earlier, the Marshals Service has been starved, 
not as bad as the GSA was, but the judges are sitting out there 
worrying about their security, and this is the reason we 
recommended this. It was the highest priority recommendation of 
our consultants to get someone to coordinate security.

                           Shadow Government

    Mr. Serrano. On the issue of security, first of all, this 
question almost sounds like a comical question, but it is not. 
It is not funny at all. Is the judiciary part of the so-called 
``shadow Government''? [Laughter.]
    See, I knew they would laugh, but it seems that everybody 
in that so-called ``shadow Government'' is appointed and not 
elected.
    Judge Heyburn. I do not know that we are a part of the 
shadow Government. When my son heard about the bunker at the 
Greenbrier, he wanted to know whether I had a bunk there. I 
told him if I did, nobody had told me yet, that I thought there 
maybe were nine bunks there for Justices, but that the rest of 
us maybe were left out.
    Mr. Serrano. The reason I ask, and I am deadly serious 
about this is, it would seem to me that if the purpose of a so-
called ``emergency Government'' is to keep the republic 
functioning, then you would think, in addition to some White 
House folks, there should certainly be some people there that 
were elected by someone somewhere to make some decisions; and, 
secondly, that you would have members of the judiciary.
    Now, again, I do not have to tell you--I did not watch, but 
I am sure Jay and Dave made a thousand jokes about the shadow 
Government for a couple of days and ``Comedy Central'' is going 
to go crazy this week, and ``Saturday Night Live''--but it is a 
serious issue because most people certainly do not know what is 
going on, and so I guess publicly we are asking for someone to 
perhaps answer later in the day or tomorrow from the White 
House: who is planning on including whom and should the 
judiciary be included, which I think they should.
    Mr. Mecham. Can I make a comment which is somewhat germane 
to that?
    Mr. Serrano. Sure.
    Mr. Mecham. The Senate Appropriations Committee last time, 
and I gather you accepted it in conference, directed us to make 
a study with respect to the Administrative Office to determine 
whether or not we should have some sort of off-site facility so 
that the judiciary could continue to operate in a crisis.
    Mr. Serrano. That is my next question.
    Mr. Mecham. Oh, well, then I should not be taking it up. 
But we have a member of the staff here from the Supreme Court, 
and he indicates that the Supreme Court is not included in the 
shadow Government either.
    Mr. Serrano. Not included.
    Mr. Mecham. Not included.
    Mr. Serrano. Well, that is interesting. We finally have 
heard from someone who is not included. We have heard from no 
one who is included. [Laughter.]

         Off-site Facility for Administrative Office Operations

    So that is interesting. Now, that was my question. Is there 
something in place for off-site, you do not have to tell me 
where, but for continuity, should there be a problem?
    Mr. Mecham. What we have is a study underway pursuant to 
that language in the Senate Appropriation Committee report to 
determine whether it would be desirable and feasible to have a 
Court Operation Support Center, not the whole Administrative 
Office moving out of Washington, but where if all of our 
communications get knocked down, we had some off-site ability, 
if we do not have computers, if we do not have telephones, to 
have sort of an emergency off-site center available, where we 
could continue those functions. Probably, it should be near 
Washington, D.C., where we could interact if we need to.
    Mr. Serrano. We have to go vote. We have two votes, right?
    Mr. Wolf. Two votes. We are in recess. We will be back in 
about 5 minutes.
    [Recess.]
    Mr. Wolf. Do you want to continue?
    Mr. Serrano. No, go ahead.

              Judiciary Participation in Shadow Government

    Mr. Wolf. Following up on what Mr. Serrano said, I had 
written down here shadow Government too. I think the Bush 
administration did do the right thing with regard to that. It 
is just prudent, and I think the more you look around the 
world, and if the American people could see what has taken 
place in Algeria, and Sudan, and some of those places, but I do 
think there is a need, perhaps, that somebody from the 
judiciary should probably be participating in that, in whatever 
way.
    My suggestion is that the Chief Justice might want to just 
place a call. I do not think that is the type of thing you do 
in public or anything, but probably someone from the judiciary 
probably ought to be involved. We were talking to Mr. Serrano, 
and you could do probably without the Congress, insofar as that 
process, because this is a different process. That is an 
orderly process of making the water come, and making checks go 
out, or making whatever, and then I think obviously there is 
consultation with the Congress.
    But I think the Executive Branch has to make sure that 
those basic functions of health care and emergency response, 
and I think the courts would sort of fit into that. So there 
might want to be something, following up with what Mr. Serrano 
said, where someone from the judiciary does make a contact with 
the Administration with regard to this thing as it develops 
because this effort will be with us for a long, long, long 
period of----
    Mr. Serrano. Mr. Chairman, can I break a rule and interrupt 
you a second?
    Mr. Wolf. Sure. Absolutely.
    Mr. Serrano. Here is my concern: We are easily unique. We 
are the greatest democracy on Earth, and people now more than 
ever look to us and ask how do you run a Government, how do you 
run a country the way you guys do. It would be a mistake I 
think if we did have an emergency Government in place, if it 
did not include the judiciary, and in my case, I think if it 
did not include someone, the Speaker or someone.
    The problem is that we keep hearing that this Government 
may be in place as we speak right now, ready to take office at 
any given moment, so to speak. Of course, it would be easy to 
know which members of Congress have been missing for the last 
60 days. That is a problem, but I have a serious problem with 
the notion of having any kind of a Government, even if it is 
just to run the water system, as long as you call it a 
Government and think it is a Government that will function that 
way, if it does not have the judiciary.
    And then, secondly, how can it not have someone who is 
elected by the people?

                     Increase in Bankruptcy Filings

    Mr. Wolf. A couple of more questions. If you would just 
give us a report, unless you want to comment about it, how much 
are bankruptcies up? Have you done any studies, Mr. Mecham, on 
the bankruptcy level?
    Mr. Mecham. Yes, we have. We put out monthly reports, as a 
matter of fact.
    Mr. Wolf. Where are they now?
    Mr. Mecham. Well, we are up about 50 percent over the 
bottom.
    Judge Heyburn. 1.4 million filings.
    Mr. Mecham. 1.4 million filings, the chairman knows.
    Mr. Wolf. And what was that, say, 5 years ago?
    Judge Heyburn. Well, it has been up and down. As the 
Director said, at one point in the past 10 years, filings were 
as low as about 800,000, and the 1.4 million would be the high.
    Mr. Wolf. Are we at the high now?
    Judge Heyburn. Yes.
    Mr. Wolf. We are at the high.
    Judge Heyburn. I believe that what we are projecting for 
2003 is going to be higher than that.
    Mr. Wolf. Is that because the American population is 
growing or is that because bankruptcies are actually growing. 
If you would look at the normal growth rate based on the 
census, is it tracking that or is it going up higher? I think I 
know the answer, but I want to make sure.
    Judge Heyburn. I think the answer is that the economy 
obviously has something to do with it, and the more people you 
have, you are going to have generally more bankruptcies, 
although the bankruptcy rate seems to go up and down 
irrespective of population growth. It depends on the economy, 
and particular things that are happening in certain sectors of 
the economy.
    Mr. Wolf. Now I had seen that several years ago that 
bankruptcies were high when the economy was booming.
    Judge Heyburn. Well, as I said, there are all kinds of 
things that happen in different sectors. When the economy is 
booming, people are buying things, they have more credit card 
debt and that could be a factor.
    But, currently, it is at a record high, and the only 
obvious thing you can attribute it to is the higher 
unemployment rate and the current economic conditions.

                   Impact of Gambling on Bankruptcies

    Mr. Wolf. I would maintain, though, and I would test this 
theory with you and maybe you could have your people put this 
together. I would argue that you will find that bankruptcies 
are higher in areas that have a heavy concentration of 
gambling. I would argue that in Memphis it is higher because 
they are booking down at Tunica. I would argue in certain parts 
of California they are going over to Vegas. This is not an 
original idea of mine. I had seen a bankruptcy study 5, 6, 7 
years ago that seemed to indicate there were four areas of the 
country.
    So, if you could have your people look at this, and I may 
be wrong. If I am wrong, that is fine, but I think I may be 
right. There is no secret on how I feel about gambling. I was 
the author of the National Gambling Commission. I think it is 
beginning to corrupt the process in the country, but I think I 
would like your people to see if there is any correlation 
between bankruptcies and areas that have a high concentration 
of gambling. See if there are any indications. I would just 
like to see information for the record with regard to that.
    Judge Smith. Mr. Wolf.
    Mr. Wolf. Yes, ma'am.
    Judge Smith. One of the things you might be interested in, 
in that regard, is that the Federal Judicial Center was 
recently asked to update the case weights for the Bankruptcy 
Courts, which basically involves looking at the time that 
different kinds of cases require. That might, I think by 
inference, at least, show some of the issues you are talking 
about, and so we would be happy to analyse----
    Mr. Wolf. Good. I would appreciate that.
    Mr. Mecham. One of the big issues, too, is credit card 
debt. It is so easy to get credit cards--high school kids, 
college kids, anybody.
    Mr. Wolf. And now with Internet gambling, you can sit home 
in your bathrobe in your family room with your credit card and 
go bankrupt in about a weekend. It does not take long, you do 
not even have to get up and, you know, get dressed, and shaved 
and go out to the casino. You can just do it, and that is all 
with credit cards. Were it not for the ability to deal with a 
credit card, you could not do it.
    The country, the Congress, the Administration are going to 
have to address this issue. It is really going to have an 
impact on this country in a very, very negative way. I think it 
will begin to corrupt the political process, which leads me to 
the next question. There is no connection to this question of 
what I just mentioned.

                  Impact of Threats on federal Judges

    I appreciate the high standards of the judiciary. We very 
seldom hear of a corrupt Federal judge. It is a rarity, and I 
think that is important for the American people to know that 
the judiciary is made up of good men and women of all political 
views, obviously, but where there is a standard of ethics, and 
integrity. So you really literally never almost hear, we have 
had these certain cases, which we all know, but at the Federal 
level, you have had a very few, and at the State level, too, at 
all levels, but since we are talking about Federal issues, 
there is a very good, very positive record which I think the 
American people can be proud of.
    For the record, unless you want to comment or give me some 
idea, how many, since we were talking about security how many 
Federal judges in the last 20 years have been injured or have 
been killed or have had impacts of threats?
    Mr. Mecham. Judge Vance, circuit judge in the Eleventh 
Circuit was assassinated. His wife was seriously injured.
    Judge Daronco was killed by the father of a disappointed 
litigator. He was a new judge in the Southern District of New 
York.
    Judge Wood, I do not know whether that is within your 20 
years or not, but he was killed in Texas.
    As far as threats go, we would have to get that from the 
U.S. Marshals Service. They put out a threat list almost every 
week of how many people are under constant protection. Earlier 
you had mentioned the World Trade Center trial. We have had two 
judges that have been under constant protection, one of them 
since 1991, one since 1993, their families as well, everywhere 
they go.
    It is a serious matter, and judges are kind of a natural 
target, and I fear that courts would be a natural target for 
terrorism as well.
    [The information follows:]

              Federal Judges Killed or Under Direct Threat

    Over the past 23 years three judges have been killed. They are:
    Judge John Wood (Western District of Texas)--1979.
    Judge Richard Daronco (South District of New York)--1988.
    Judge Robert S. Vance (11th Circuit)--1989.
    The U.S. Marshals Service reports that seven judges are presently 
under protective detail due to direct threats and/or high risk trials. 
In some cases the protection is for 24 hours, seven days a week. In 
other cases the protection is ``portal to portal'', to and from the 
courthouse. From 1990 to the present, the Marshals Service has had 
1,209 protective details. Some of those details have been for U.S. 
attorneys and assistant U.S. attorneys, but the majority have been for 
judges.

    Mr. Wolf. I agree. I agree completely.

                   Integrity of the Federal Judiciary

    Judge Heyburn. I appreciate your remarks about the 
integrity of the judiciary, and I think they are correct. One 
of the things we pride ourselves on, one of the reasons for the 
integrity of the judiciary, is the openness of the judiciary. 
Almost everything we do is open to the public, and so there is 
that observation. When we make decisions we give reasons for 
them, and those reasons are on paper.
    Obviously, not everybody agrees with a particular decision, 
but that is part of our craft, that is part of what we do, and 
I think it contributes to the respect for the judiciary. Even 
when, in difficult issues, we know that fair-minded people can 
disagree about things, we take considerable time and effort to 
explain why we come down on one side or the other.
    If people do not agree, of course, they can appeal, even 
appeal to Congress, if it is a matter of interpreting a 
statute, as Congress often does. It is sort of like a 
communication between us and the Congress. We give our 
interpretation of a statute, and of course if the Congress 
disagrees, as happens from time to time, then the statute is 
reenacted. That is the way our Government works. I appreciate 
your comments.
    Mr. Wolf. Well, all the way back to the time of Thomas 
Moore, I think he almost sets the standard for lawyers. You 
know, the king wanted him to agree, it would have been very 
easy to have agreed, and yet the king wanted him to agree more 
than anyone else because he was probably the most honest guy in 
the land. And, yet, in essence, because he did not agree, we 
all know what happened to Thomas Moore.
    Judge Heyburn. I think a very interesting example of that 
is what has happened just in the past couple of days. As you 
know, Chief Justice Rehnquist for years has championed the need 
for pay increases for the judiciary. I noticed there was a 
comment in the New York Times on how could he be for a pay 
increase and yet be one of the justices who did not go for 
cert? The reason, I think, goes to his integrity as a person 
and as a judge.
    There is a great deal of difference between, as a policy 
matter, being in favor of increased salaries, and on the other 
hand, believing that as a Constitutional matter, judges are 
entitled to an increase. He understands the difference, and 
therein lies the reason why one can be, for years, in favor of 
a pay increase and yet not vote to grant cert on an issue that 
many, many judges thought was a valid case.
    Mr. Wolf. I understand.

          Location of Administrative Office Off-site Facility

    Director Mecham, your statement discusses a study on the 
feasibility of an office, that you said it ought to be 
somewhere in Washington. Obviously----
    Mr. Mecham. Near Washington.
    Mr. Wolf. You are not suggesting it has to be a secret, 
this facility, though.
    Mr. Mecham. I am not in this case. That could be part of 
the study, but I would think it would not be secret.
    Mr. Wolf. I would not think so. I do not think that would 
be--you know, the Marshall property would have been a great 
property for that.
    Mr. Mecham. Well, we will keep you fully advised.
    Mr. Wolf. It is sold, so----
    [Laughter.]
    Mr. Wolf. I bumped into a gentleman about 2 weeks ago who 
said he had purchased it, but I thought, wow, for lawyers not 
to, but that would have been a great, but to have been able to 
kind of walk the land that Marshall walked, and his house is 
still there. It is, as you are going out 66, off to the right, 
when you come around the Marshall area. If you can keep us 
informed, though, I think it ought to be close by.
    Mr. Mecham. We will be pleased to keep you informed.

                          Panel Attorney Rates

    Mr. Wolf. In the fiscal year 2002, we provided funding to 
increase the hourly rate paid to private panel attorneys from 
$75 per hour in court and, $55 per hour out of court, to $90 
per hour both in and out of court. The increase implemented in 
May 2002 provides panel attorneys with a 20-percent pay 
increase for in-court hours and a 64-percent pay increase 
forout-of-court hours.
    On top of requesting $30 million in fiscal year 2003 to 
annualize the increase provided in fiscal year 2002, your 
fiscal year 2003 budget requests an additional $17 million to 
increase the hourly rates to $113 an hour. Can you explain to 
the committee why you have requested an increase to $113 per 
hour, when the Judiciary has not even implemented the $90-per-
hour rate or studied what impact a $90-per-hour rate would have 
on the courts' ability to attract and retain counsel?
    Judge Heyburn. Yes. We would be glad to do that. It is a 
good question.
    As you know, we requested $113 last year based on a study 
by our committee, and a belief that due to inflationary 
pressures $113 was the hourly rate that we believed was 
necessary. Last summer, the Defender Services Committee 
recommended to us, and the Budget Committee approved the 
request for fiscal year 2003 for a $113 per hour rate. At the 
time we did not know, of course, whether you were going to give 
us any increase at all for fiscal year 2002 or, if so, what it 
was going to be.
    You are exactly correct, number one, that we are so 
appreciative, and so many people around the country are 
appreciative of the increase to $90. You are exactly correct 
that we do not know what the impact of that will be. We do not 
know whether that will end up solving a lot of our problem or 
whether there will still be pressures. But the reason we asked 
for $113 is twofold.
    We believe, based on the study we did in the last year, 
that the $113 is the number that would bring us up and correct 
for inflation, and it was the number that we had decided on 
prior to the time we had approval of the $90.
    We are obviously going to be looking at it and trying to 
assess what the impact of the increase to $90 is, once we get 
there. We view that as a floor. We hope it is going to create 
an impact. If our views change on that, we will certainly let 
you know.
    Mr. Wolf. Have you ever looked at an hourly rate based on 
location? The Federal Government does a locality pay. 
Obviously, it is much more expensive to live in Mr. Serrano's 
district than it is to live in Davenport, Iowa. Maybe that is 
not fair, but whatever. There are different places in the 
country----
    Mr. Serrano. Waukegan, Illinois.
    Mr. Wolf [continuing]. Waukegan, Illinois. [Laughter.]
    Judge Heyburn. Yes, we have.
    Mr. Wolf. I just wondered, it has worked in certain areas. 
There was a standard pay, but then for people who are in 
particularly difficult areas like New York and Washington, that 
they then go a little bit higher. Have you looked at that?
    Judge Heyburn. We have looked at that, and years ago we did 
have, in essence, a sort of locality pay situation set up. We 
believe, at this point though, with respect to the $90, we did 
go across the board because we believed that was really a 
floor. If we went to a higher rate, perhaps we would think 
about locality.
    But it is interesting. We have really studied this, to a 
great extent, and the cost of living in any particular area is 
not necessarily the determining factor about how difficult it 
is to get panel attorneys, and after all that is what we are 
concerned about--whether we can get adequate representation for 
the indigent defendants.
    You know, New York is sort of an interesting example. 
Because New York has such a strong ethic of service, pro bono 
service and representation for indigent defendants, at least in 
Federal Court, that even though it is a place of a high cost of 
living, the panel rate does not necessarily seem to be a bar to 
finding adequate representation. In other areas, where the 
travel is difficult in rural areas, even though the cost of 
living is low, the panel rate does seem to have an effect. It 
really just varies around the country, depending on the 
circumstances, the prevailing ethic of the bar, and a variety 
of things.
    It is not really analogous to a Federal employee. We know 
they all have to rent or buy a house. They have to buy food and 
pay for transportation. You can quantify that it is going to 
cost more in New York than it is in Albuquerque. The issue of 
panel attorney rates is a more complex situation, and that is 
really why it was difficult to come up with a number that we 
thought was fair, both to all of the panel attorneys and the 
Congress. There were many people who thought the $113 was too 
low and urged us to go higher, and we just thought, no, we will 
not make that kind of a request.
    I hope that is responsive to your question.
    Mr. Wolf. Yes. You anticipate providing representation for 
the current list of terrorists in the high-profile cases. Do 
you think that will have an impact on this account?
    Judge Heyburn. It is bound to. Of course the request we 
have made to you this year does not take that into account 
because it is a mere speculation, although I think it is a 
speculation we can count on. But we base our appropriation 
request on the projected numbers of indigent defendants and the 
previous average defense cost. Obviously, if you get a 
situation like Oklahoma City--we have been through these 
situations before--the Oklahoma City trial, the World Trade 
Center trial back in the early 1990s, these are huge, huge 
drivers of cost, particularly if the death penalty is involved. 
In those cases, you have a higher panel attorney rate and more 
attorneys.
    So there is going to be an impact. I do have a lot of 
confidence that our people in the AO, the people in the 
defenders organization can keep track of this, and we can 
deploy the resources in a way that we can handle the situation. 
We always keep your Committee and the Senate advised if an 
extraordinary circumstance arises. There is always the 
possibility of that happening, and we are prepared for it, we 
believe.

                      INCREASE FOR FEES OF JURORS

    Mr. Wolf. With regard to fees of jurors, your request asks 
for a 20-percent increase for Fees of Jurors, from $48 million 
to $58 million. Can you explain that increase in the request?
    Judge Heyburn. Yes, absolutely. It looks like there is 
actually an increase in juror days, but in fact, there is not. 
The increase is due to the fact that back in fiscal year 2000, 
at one point we underestimated the number of juror days, and 
there was some carryover left that was applied in 2001 and 
2002. We are having to adjust for non-appropriated sources of 
Funds that will not be available in 2003. It is really a budget 
readjustment situation.
    In fact, if you looked at the actual expenditures for the 
payment of jurors, it has gone down slightlyover the last 5 
years, but to most people it looked pretty flat. The increase is a 
financing adjustment to the budget year. Next year the request should 
be down.

            IMPACT OF ENRON AND GLOBAL CROSSING BANKRUPTCIES

    Mr. Wolf. You should also give us, too, some indications of 
the resources, perhaps later on, but with regard to both Enron 
and Global Crossing bankruptices that you mentioned, and if 
there are others, which we hope there are not, but what impact 
that is going to have too.
    Judge Heyburn. We have already deployed extra resources to 
New York to make sure we can efficiently handle the Enron 
bankruptcy, and the Global Crossing bankruptcy.
    Mr. Wolf. Why is that in New York and not in Houston?
    Judge Heyburn. There is an answer to that question, and it 
would probably bore us all, and I would probably get it wrong 
if I tried to give you the answer. The very brief answer is, 
that under the bankruptcy statutes there are a lot of different 
places you can actually file a bankruptcy action, and New York 
is one where it is apparently permissible to file a bankruptcy 
in the Enron action. At least one of their major subsidiaries 
is a ``citizen'' of the State of New York. There are a lot of 
different bankruptcy rules, but apparently that is the reason 
why it has been filed, at least for now, in New York.
    Of course, there is always the possibility, and I am not 
suggesting at all that this would happen, but that one of the 
parties to the case could come in and say, this should not be 
filed in New York, it should really be someplace else.
    Mr. Wolf. Is that a situation of forum shopping?
    Judge Heyburn. I guess that would be the pejorative term to 
use. You know, in any lawsuit, there are usually a variety of 
different places in which it is permissible to file a lawsuit, 
and in a lawsuit as large as the Enron bankruptcy there are 
probably a multitude of places where it might be permissible. I 
never was a bankruptcy lawyer so I do not want to get too far 
afield, but I am informed that New York is one of the places 
where it is permissible to file. Of course, once any case is 
filed in a place where it is permissible to file, a court can 
then determine, even though it was permissible to be filed 
there, and they have jurisdiction, it is not the most 
convenient or best place to resolve this matter, and there can 
be motions to transfer to some other place. I am not suggesting 
that is going to happen in this case, but these things do get 
resolved.

                     PRO BONO EFFORTS OF LAW FIRMS

    Mr. Wolf. A little controversial question, so you know it 
is coming. President Bush asked people to donate, over their 
life span, 4,000 hours of volunteerism. In America, people 
volunteer. We have this culture that is different than most 
other places. In Romania, volunteerism just is not something 
they ever really thought of, and it is beginning to change as 
they begin to have experience with the West. But in America, do 
you think that major law firms give enough pro bono effort to 
helping the poor, and the hungry, and doing those things? I 
mean, I am not singling out any particular----
    Judge Heyburn. I do not know that I am qualified to answer 
that question. I know that a lot of law firms donate 
substantial time, and effort, and even money to charitable 
legal matters. Someone else would have to make the judgment 
whether they donate enough, and I am sure that some firms are 
more generous than others. We are not just talking about, you 
know, big law firms. I mean, lawyers, as a whole, I think are, 
in my view, very, very civic-minded. I mean the whole ethic of 
lawyers is to solve problems and donate or contribute their 
expertise to a variety of different causes, and I think you 
find that in any community, large and small, in any civic 
endeavor, there are lawyers involved.
    Mr. Wolf [continuing]. I know. I am a lawyer.
    Judge Heyburn. It always, I guess, depends on how you count 
it up.
    Mr. Wolf. I was just wondering if maybe, I know there are a 
lot of law firms that do have lawyers who donate their time, 
but I just wondered if there is really enough of it, really 
being--sometimes it is done on a high-level case when there is, 
you know, big class action, a lot of publicity, but I am 
wondering on a case where a poor person, he really literally 
cannot afford, you are not going to make great case law, but 
you are going to help that individual. And to that individual, 
that is more important than making great case law or getting a 
newspaper story.
    I just wonder if some of the larger firms are doing--I know 
they and I know they do some of that, but I wondered if they do 
enough.
    Judge McCoun. Chairman Wolf, I was going to point out, 
though, a lot of that is driven by the State bar associations.
    Mr. Wolf. The State bar kind of sets the standards as to--
--
    Judge McCoun. In Florida, you have an obligation to work 
``X'' number of pro bono hours. You have to verify that on an 
annual basis to the Florida bar. The interesting thing that 
they are doing in Florida is they are now discussing whether or 
not they should impose that pro bono requirement on the judges 
as well. Heretofore, it has not been a part of the requirement. 
In fact, the judges have been exempt, but on an annual basis, I 
think it is 25 hours or they can opt out and pay ``X'' number 
of dollars into a fund that would then be used for that type of 
thing, but a lot of it is driven by the State Bars.
    Mr. Wolf [continuing]. How many States have that type of 
a----
    Judge McCoun. How many States?
    Mr. Wolf. Yes.
    Judge McCoun. I wish I could tell you. I do not know. I do 
not know.
    Mr. Wolf. I have some more, but I will just recognize Mr. 
Serrano, and then I will kind of end with this last batch.
    Mr. Serrano. Thank you, Mr. Chairman.

         PROGRESS OF RECRUITMENT OF MINORITIES IN THE JUDICIARY

    I will ask Justice Kennedy this question next week, and I 
asked him last year, but I want to also ask you folks, what are 
we doing to encourage the participation of minorities, and what 
are we doing in terms of recruitment, and have we made any 
progress in hiring in the judiciary?
    Judge Heyburn. Well, I know one thing that we have done----
    Mr. Serrano. I am sorry to interrupt you.
    Judge Heyburn [continuing]. That is all right.
    Mr. Serrano. Let me say something that I told FBI Director 
Mueller yesterday. One of the things that I have noticed in the 
aftermath of 9/11 in New York is that the coming together of 
the community now has people wanting to participate at all 
levels in the society that before you didnot hear, but now I 
often get that kind of request.
    I commented to him, and he laughed and was very happy, that 
people who ordinarily would never approach me in my 
neighborhood and ask me about the FBI and the CIA are asking, 
young people, interested. In other words, if there is, and I 
was clear yesterday that I do not think there is, but if there 
is anything positive that came out of 9/11 is the fact that 
there is a new sense that we are one family and that this 
family has to take care of each other.
    And so you have people who want to go into areas of work 
that before, for whatever reasons, they did not believe in, 
they did not think it was for them or maybe they thought it was 
not treating their community fairly, like the FBI, and yet now 
people want to be part of it.
    So, with that in mind, what are we doing in the judiciary?
    Judge Heyburn. Well, one thing that we have done, I think 
we all know that one problem in anyone being hired as a law 
clerk for a Federal judge is simply access to the process. That 
is very important, and that is particularly difficult, with 
respect to getting hired as a law clerk, because you 
essentially have a thousand different processes. Every judge 
makes his or her own individual hiring decision, and it makes 
it sort of difficult for someone who is not clued into the 
process.
    One thing the Administrative Office has done is set up, as 
part of the judiciary's website, is a law clerk clearinghouse, 
if you will. So all of the information about hiring of law 
clerks for all of the participating judges is on that website, 
and you can find out exactly what judges are hiring law clerks, 
when they expect the applications to be in and what should be 
included in the application.
    In my opinion, that represents a huge lowering of the 
barrier to just access, generally, because we are always, as 
judges, trying to get the best applicants we can to apply, no 
matter where they are from and no matter what their color or 
background. And part of the problem is, and this does not apply 
to a particular minority, it is that, number one, a lot of 
people think, well, I will never get hired, and so they are 
reluctant to apply. They do not exactly know how to apply, and 
sometimes the law schools are not as helpful as they could be.
    That is why we thought the best way is to open up the 
process, and if we can give people more information, then 
everybody will know how to apply, and then it will be more 
fair. I think that is, at least in the last year and a half, 
that is the biggest thing that has occurred to open up the 
process, and I think it will have, hopefully, a long-term 
effect.
    I do not know exactly what the numbers are at this point.
    Mr. Serrano. Let me tell you, in one of the exchanges that 
I had with Justice Thomas a few years ago he said the schools 
do not send us minorities.
    And then I said, ``Well, what schools are you talking 
about?''
    He said, well, I think he said Harvard right? He said, ``We 
recruit from Harvard.''
    I said, ``How about recruiting from some other schools?'' 
It seemed that the Supreme Court was recruiting, had an 
unofficial contract with a couple of schools in the country. 
That is fine. But if you are looking at specific product, if 
you will, then you have to go where that product exists.
    Judge Heyburn. I think the Supreme Court may recruit. I do 
not know their hiring practices. But there are over 650 Federal 
district judges, and we hire, between us, about 1,200 law 
clerks a year, and there are probably about 40 or 50 Supreme 
Court law clerks. Admittedly, that is a more prestigious job, 
but for the average law student out there, they would be 
delighted to have a clerkship with one of us.
    Most District Court judges do not recruit. It is a very 
time-consuming process. So what most District judges and Court 
of Appeals judges do is, answer the mail. People send in their 
resumes, we look at those letters, we pick out a few people to 
interview, and then we hire. So that is why I think the 
Internet site is so effective. I do not go to Harvard, I do not 
go to Howard. I just do not have the time to do that. I wait 
for the resumes to come in.
    We felt, and I think it was a correct decision, by opening 
up the process, we encourage anybody to apply and no one would 
be discouraged because they were intimidated or because they 
did not know the information.
    Mr. Serrano. But we have to be careful in how much we rely 
on the Internet because you might have very well-prepared 
people out there who still have no access to the Internet. I 
mean, that is a fact of life.
    Judge Heyburn. I think most of these law schools have 
access to the Internet.
    Mr. Serrano. Right, but a lot of those schools do not have 
people there who are involved in trying to steer these folks, 
minorities, into the judiciary.
    What I am saying is that one has to do outreach, and the 
Internet is a very--I am a big fan of the Internet. I promote 
it, I use it, I am addicted to it, but I also know its 
shortcomings. I mean, Roberto Clemente did not make it on the 
baseball All-Century team because it was done through the 
Internet and all of the kids voted for Ken Griffey, who they 
knew from this generation.
    The other folks, they voted for who their parent had spoken 
about, and so Clemente missed by a handful of votes. Why? 
Because his constituency, if you will, may he rest in peace, 
did not have as much access to the Internet. And so it plays 
along the society. I am not asking you to recruit, because I do 
not think the Supreme Court recruits, but I think, as I have 
been advised by staff, the Supreme Court may have a 
relationship with certain law professors, for instance, who 
then recommend the cream of the crop for them. Well, there is 
cream in other parts of the society.
    Again, we cannot ask people to continue to take a major 
role in the defense of the country and not share with them some 
of the perks of the society, which is the prestige, and the 
satisfaction, and the import of working with you folks.
    Judge Heyburn. I would agree with that. I hope that we are 
having an open process. I know a lot of Federal judges who like 
myself go to our universities. I am in Louisville, Kentucky, 
and I have gone to both the University of Kentucky and the 
University of Louisville law schools and talked to the first- 
and second-year class, generally, about encouraging them to 
apply for clerkships. People of all races are there. Of course, 
we cannot control who applies.
    One situation, you know, is a changing dynamic. Even though 
the clerkship is a very prestigious job, and I think a 
fascinating learning experience, a lot of these kids getting 
out of law school now have debt. Although we pay a decent 
salary, I think a starting law clerk maybe is $45,000 or$50,000 
now, many of these kids can earn over $100,000. Some of them can earn 
even more than a Federal district judge in their first year in a firm. 
And so it is a sacrifice for those people, particularly those who are 
in debt or not financially well off to begin with, to take a job with a 
Federal judge.
    Mr. Serrano. I understand that, and I do not want to beat 
this to death, but let me tell you something. About 20 years 
ago, the problem in New York for getting minority judges was 
exactly that. Every politician we spoke to said, but, you know, 
if you are one of the few blacks or Hispanics graduating from 
law school, somebody is going to offer you a lot of money, and 
the keys to the executive washroom, and you do not want to be a 
judge. My political answer was then go find them. Find the one 
who does not want the executive washroom key and would rather 
come and serve.
    Now we have a lot of fine, fine Hispanic and African 
American judges in New York because there was a political 
effort, and the word ``politics'' in this case is not dirty. 
When it came to the judiciary, there was a political effort to 
go find these folks.
    So what I am saying to you is I am the biggest friend you 
have got. Be a friend to me. Find some folks to serve our 
society with you.
    Mr. Mecham. Mr. Serrano, the discussion has been pretty 
much on judges and law clerks. There are 2,000 judges out 
there, and we have 30,000 other employees in the judiciary. We 
put out a Fair Employment Practices report every year for the 
judiciary, and in looking at that I would say that we are 
showing real progress in identifying and developing employee 
skills and abilities and involving minority people in hiring 
opportunities.
    I think, really, there is a proactive program in a lot of 
courts across the country on recruiting, hiring, promoting, and 
retaining minority employees, as well as those with 
disabilities and others. So I am not saying we have conquered 
the world yet, but I think we are making progress.

           POTENTIAL WORKLOAD INCREASE ON THE NORTHERN BORDER

    Mr. Serrano. I have one further question here.
    Last year we discussed a lot the Southwest Border 
Initiative. Now, since September 11th, there is also a lot of 
attention being paid to the northern border. Has this increased 
workload? Has this increased the kinds of things you folks have 
to do? Does this play a role in how to finance your activities?
    Judge Heyburn. Well, it certainly will if and when the 
response on the northern border creates the kind of cases or 
activity that the response on the southwest border did. The 
appropriations request that we make in any given area, for 
instance, with respect to probation officers or clerks, has to 
do with the actual caseload for 2002. That is the request that 
we make. So, even if we might project that there will be an 
increase in 2003, our request to you is not based on that 
projection, it is based upon the actual workload that we are 
experiencing now.
    On the northern border, it may well be that in the coming 
year we will see an increase in activity, but we do not know 
that yet. We are not going to speculate at this point and ask 
you for resources that we may or may not need. We really 
appreciate the way you responded last year with Southwest 
border situation, and that is a distant memory, it seems, at 
this point. It is still its own mini-crisis down there, but I 
think we are handling it pretty well with the additional 
resources that you have given us.

                           JUDICIAL VACANCIES

    Mr. Serrano. One last question. How many nominees are 
currently pending before the Senate, judicial nominees, to your 
knowledge?
    Judge Heyburn. How many nominees are pending?
    Mr. Serrano. Right. Federal judicial nominees. And given 
the concerns that the Senate has raised with the White House 
about some of these nominees, what assumptions do you make in 
your budget request concerning these positions being filled?
    Judge Heyburn. There are 53 nominees that are currently 
pending. I do not know how many vacancies there are.
    Mr. Mecham. There are nearly 100.
    Judge Heyburn. And in our budget request, we make certain 
assumptions about the number of judges who will retire and the 
number of judges who will be confirmed, all of which obviously 
affects, to some degree, the amount of money we will need to 
pay the judges, et cetera.
    I think, at this point, the number of confirmations is 
actually running slightly ahead of what our projections are. If 
that were to continue, of course, that would be a greater 
expense. To the extent the Senate confirms fewer than what our 
projection was, I cannot remember exactly what our projection 
was.
    Mr. Mecham. Sixty-eight.
    Judge Heyburn. Sixty-eight, then there would be a savings 
there. Of course, you know, what has happened in the first 3 
months of this year is not necessarily a precursor to what is 
going to happen the remainder of the year.
    So we make the best estimate we can on that, and we 
certainly cannot control the politics of judicial 
confirmations.
    Mr. Serrano. Thank you, Mr. Chairman.
    Mr. Wolf. Hopefully, we can finish by or before 12:00.

          PROGRAMS AND SERVICES PROVIDED TO RELEASED OFFENDERS

    There are a couple of things. With regard to your probation 
services, what are you doing to help offenders released from 
Federal prison, particularly those involved in substance abuse?
    Judge Heyburn. We are doing a lot. Just in my time as a 
Federal judge, what I have really appreciated is the many, many 
more options that are available for sentencing and for 
supervision, whether it is home confinement, community 
confinement, half-way houses, all of these sorts of different 
resources that involve different kinds of community treatment, 
drug treatment, and alcohol abuse treatment.
    What we are seeing at the district level, and this is a 
tribute to the professionalism and the innovation of probation 
officers and some of the training they get from FJC is what we 
want as judges--more options because with people who are 
involved in crime it is not a cookie-cutter situation. 
Obviously, many of them need to go to prison, but there is a 
whole other classification of people where treatment, some kind 
of treatment, appropriate to the security needs, is the best 
option, not to mention being hugely less expensive. So we are 
dealing with that.
    We have got 138,000 people that are now on some sort of 
supervised release, which is more persons that are in the 
Federal prison system.
    Mr. Wolf. Now, when you are out, and you come out for a 
drug offense, are you obligated to be in a drug treatment 
program? I know you are, when you are in a Federalprison, but 
when you leave?
    Judge Heyburn. I am not sure whether it is actually a 
statutory obligation, but in almost every instance where there 
is drug involvement in a crime or where the probation officer 
determines, based on their intensive review of the background 
of the individual that there is a drug problem, then there will 
be a mandatory requirement of drug treatment.

              INCREASE IN OXYCONTIN CASES IN FEDERAL COURT

    Mr. Wolf. Have you seen any growing number of OxyContin 
cases in the Federal courts?
    Judge Heyburn. I have not, personally, in Kentucky, and I 
do not know whether anybody knows----
    Mr. Mecham. I did not hear the question.
    Judge Heyburn. OxyContin.
    Mr. Wolf. Have you seen any increase in OxyContin drug 
cases in the Federal courts?
    Judge McCoun. It is in vogue now.
    Mr. Wolf. I know.
    Mr. McCoun. Mr. Mecham, there were four OxyContin robberies 
in Loudoun County 2 weeks ago, a CVS, an Eckards, a Safeway, 
and I forget the other store. While this is a very good drug 
for people who are dying of cancer for severe pain now you are 
finding people knocking over pharmacies and taking. It was also 
in downtown Reston, which is very close to where I represent, 
not in my district, 2:10 in the afternoon, I think, a Target 
pharmacy was robbed.
    But I wonder, is there a growing number? Can you tell us, 
for the record, perhaps, what is taking place around the 
country?
    Judge Heyburn. I can get you that information.
    [The information follows:]

           Increase in Criminal Cases Relelated to OxyContin

    OxyCodone, present in large amounts in OxyContin, is the generic 
substance which is tracked by the Sentencing Commission in criminal 
sentences. The data on the number of criminal sentences (cases) are as 
follows: FY 1999--13 cases, FY 2000--16 cases, FY 2001--50 cases.
    The increases is significant for a drug which is not one of the 
major drug types.
    In FY 2000, of 23,376 drug-related criminal sentences (cases), all 
but 557 were related to the five major drug types: Powder Cocaine, 
Crack Cocaine, Heroin, Marijuana, Methamphetamine.
    Of the 557 cases which include a number of substances such as LSD 
and Ecstasy, OxyCodone counted for 16. If the total ``other'' drug 
cases in FY 2001 stays about the same in FY 2001) (557), not only would 
the 50 cases be over three times the number in the previous year, but 
it would represent 10% of the ``other'' drug cases.

    Judge McCoun. The problem, the main problem would still be 
with cocaine and methamphetamine, that type of drug. I do not 
think it has reached that level yet at all.
    Mr. Wolf. You have been to Hazard, Kentucky.
    Judge Heyburn. I have been to Hazard, Kentucky.
    Mr. Wolf. Mr. Rogers has done a great job in trying to 
bring attention to this, but in Hazard, Kentucky, a lot of 
families there have been devastated. OxyContin has literally, 
and also in Southwest Virginia, down in Lee County, very few 
families in that area have not been negatively impacted, either 
a family member robbed or a family member involved.
    Judge Heyburn. I did not know that. That is, actually, as 
you know, that is in the Eastern Kentucky District Court, and I 
am in the Western District.
    Mr. Wolf. No, I did not know the district.
    Judge Heyburn. We have split, and I am in the Western side.
    Mr. Wolf. Where does Eastern sit, in Lexington?
    Judge Heyburn. They have a courthouse in London, they have 
a courthouse in Lexington, they have a courthouse in Ashland, 
which is right on the border there, and they have a courthouse 
in Pikeville.
    Judge Smith. Mr. Wolf, may I just add something to the 
previous question you asked about drug counseling and other 
things?
    Mr. Wolf. Sure.

          FJC EDUCATIONAL PROGRAMS ON SPECIAL NEEDS OFFENDERS

    Judge Smith. A great deal of the education that we do at 
the Center is for pretrial and probation officers. Most of that 
is done by distance learning, including a series that we have 
on special needs offenders. Many of those that come out of 
prison are offenders with a great need for education, job 
counseling, help with drug and alcohol dependency, et cetera. 
And part of our training is to make sure that our probation 
officers are current on what is available in all of these 
areas, both in community agencies and faith-based agencies.
    One of the other things that we are involved in right now 
is that the Administration Office and the Judicial Conference 
Criminal Law Committee, have asked us to do a study of special 
needs of Native American offenders. That is an area where I 
think there is a crying need for counseling and alcohol and 
drug rehabilitation. And so we are going to be working with the 
Criminal Law Committee and with the Justice Department's Tribal 
Justice Office to see what we can come up with and to try to 
stay on top of Probation's ability to deal with these things.
    Mr. Wolf. So that is a growing problem, huh?
    Judge Smith. It is. It is a terrible problem, and one of 
the sad things is that, well, the whole thing is sad, but one 
of the really saddest parts is how many juvenile offenders are 
involved.

                         HARD LIQUOR ADS ON TV

    Mr. Wolf. You just triggered something. I had not thought 
about it. NBC has now decided to be the first network to begin 
to take hard liquor ads. Shame on NBC. CBS does not, ABC does 
not, Fox does not. NBC broke the code. For 52 years, there was 
a self-imposed prohibition. We are just beginning to get a 
handle on drunk driving with regard to the young people. Every 
hour of every weekend some young person dies in an accident, 
and 50 percent of them are through drunk driving.
    And NBC, even to the point of putting ads on the Olympics, 
I mean, that is unbridled, corporate greed. NBC's role is 
unbridled corporate greed. And G.E., I mean, if I were to go 
out now to buy, we just had to buy a new dishwasher, and we 
bought a G.E. You cannot take a dishwasher back once it is in, 
but would not buy a G.E. product because G.E. has been silent 
on this issue.
    Are all of you parents? They said they were not going to 
have this after 8 o'clock. Eight o'clock?
    Judge Heyburn. I wish my kid would go to bed by 8 o'clock. 
[Laughter.]
    Mr. Wolf. Central time, it just triggered that thought. Why 
would NBC do it? We hope to have hearings. We were promised 
hearings, and if anybody from NBC is listening, we were 
promised hearings by the committee with jurisdiction. Some 
people say we are not going to get hearings.
    I want to tell NBC, if they are listening, we are going to 
have hearings in this committee. If the other committee does 
not have hearings, I am going to call a hearing, and we are 
going to bring up all of the people to talk, 25 groups in this 
Nation, from the American Medical Association to the many 
others, that have really come out against this. And NBC thinks 
they can hire some powerful lobbyists in this town and people 
will forget. We are not going to forget about this.
    This is unbridled corporate greed, exploitation of people 
who have a real problem. And if you are trying to fight 
alcohol, and you are in a family where that is the problem, and 
you are doing everything you can, and NBC flushes these ads 
out, and then to see the number of young people----
    Mr. Serrano. Mr. Chairman, may I interrupt you a second?
    Mr. Wolf. Sure.
    Mr. Serrano. And I am sorry to do this. Just for your 
information, NBC just purchased Telemundo, which is one of the 
larger TV networks in Spanish. So those ads now, Spanish 
version, will be in the 50 States, and the Caribbean and parts 
of Latin America, just creating even more of a disruption.
    I agree with you. It is a very touchy subject for guys like 
me because of my belief in freedom of the press and freedom of 
expression, but what I always believe is that you should have 
these freedoms on paper and protect them by the Constitution, 
and then you should use good judgment and not necessarily 
exercise every single freedom that you have. And so I agree 
with you.
    Mr. Mecham. Chairman Wolf, I should report to you that my 
son is president of an NBC television affiliate, which has 
refused to run the ads.
    Mr. Wolf. Good for him.
    Mr. Mecham. I do not know how many others have, but that 
station has refused to run those ads.
    Mr. Wolf. Well, good for him. I would just say, because I 
have heard from some NBC people, that the NBC employees favor 
this. I do not think a lot of their people that you know really 
favor this, and so I think you have a situation of a couple, 
you know, people that are trying to get the bottom line to be 
more than it is, and so I am appreciative of that.
    I understand that a lot of the employees have not been 
very, very supportive of it, but you find, I will not mention 
the guy's name, I do not want to mispronounce it or say it, he 
and a handful of others have made the decision.
    I appreciate ABC not running this, and CBS not doing it, 
and Fox not doing it, because if they were to break this thing 
open, you know, it would just be, ``Katie, bar the door.'' I 
mean it would be wide open. I think we would have major 
increase in drunk driving. I think we would have a major 
increase in the breakdown of the family and just a lot of 
problems. But we are not going to, you know, you triggered that 
when you mentioned youth drinking.

                       JUDICIAL EDUCATION PROGRAM

    When you do your conferences, the 3-day conferences, are 
most of them done by telecommunication by satellite or most do 
they come together and where do you do them?
    Judge Smith. The judges do come together, which is I think 
an essential component of that particular conference.
    Mr. Wolf. Are they done on a regional basis?
    Judge Smith. It depends. We have alternated between 
regional conferences one year, when we were on a 12-month 
basis, and a series of national locations the following year 
because each of those have advantages. So this past year we had 
national conferences. One was in San Diego, one was in 
Washington, D.C., and one was in New Orleans. When they are on 
a regional basis, they tend to go circuit-by-circuit.
    And if you would let me expand on that just a little 
because these conferences I think play a special role. If I 
could, I would like to speak to them not in my role as the 
director of the Federal Judicial Center, I would like to speak 
to them briefly as someone who has been a Federal judge for 
almost 14 years. It ties in, and if I can use Congressman 
Serrano's example, with something he mentioned about the new 
antiterrorism laws, and human rights.
    Being a Federal judge, I am not going to say it is more 
difficult than other jobs, it is certainly no more difficult 
than yours, but it is different, to some degree. One of the 
reasons it is different is because the vast majority of Federal 
judges do whatever they do in isolation. You know, we go out 
into our courtrooms by ourselves, we write our opinions by 
ourselves, we make our decisions by ourselves.
    As valuable as distance education is, it does not, and 
cannot, replace the ability to sit down and talk to your 
colleagues. Something like the USA Patriot Act or some statute 
that says you can keep people in jail a reasonable amount of 
time, what does that mean? How are you handling it? Where is 
the juxtaposition? Where is the confrontation between 
constitutional rights and what the statute says?
    And the ability to meet with your colleagues to discuss 
these issues, to have speakers, and then say, ``Well, you had 
that case? What did you do?'' is just invaluable, and that is 
why we feel so strongly and why even our board of which the 
Chief Justice is chair, and Mr. Mecham is a valued member, 
wrote a supporting letter, which it had never done before about 
this, to say ``once a year let the judges do this.''
    Mr. Wolf. I think it makes sense, and to develop 
relationships and share because you are kind of alone. After 
you become a judge, after a while, I guess you have got to be 
careful of who you know, becoming friends with. So I think it 
does make sense to get together.
    Judge Heyburn. No one calls you any more.
    Judge Smith. That is right. [Laughter.]
    And we do try to combine efficiency and cost. I mean, we 
look at hotel rates. We do try to be as careful as we can.
    Mr. Wolf. No, I think it makes a lot of sense. I have no 
problem.
    Mr. Serrano. Red Buttons used to say, ``Nobody throws you a 
dinner any more.'' [Laughter.]

                    International Education Programs

    Mr. Wolf. On your international programs, I just wanted to 
ask, AID funds most of that when you do the exchange programs; 
is that correct?
    Judge Smith. Well, it depends. AID----
    Mr. Wolf. Particularly, if you go to a foreign country.
    Judge Smith [continuing]. AID funds some. The foreign 
countries fund a lot of them. We do not fund them. That is the 
main thing, but a lot of the countries send their own people. 
The State Department does some independent funding. Sometimes 
the Asia Foundation funds them.
    Mr. Wolf. Do you do many in the Middle East?
    Judge Smith. We do a lot with the Middle East--or we were 
until the last couple of months. Yes, there are a lot. I, 
personally, have been to Egypt, to Tunisia, to Morocco, to 
Jordan. We do a lot over there. We have done a fair number with 
Russia. This past week we had Chinese judges. We had a 20-
country multinational group that included I think six countries 
from Africa, which I was very pleased to see because they have 
not been as involved. We do a fair amount with South America. 
We have a big project, which we mentioned last year with Puerto 
Rico, which is going very well. We have a project in Venezuela 
having to do with public defenders, which we are very proud of.
    Judge McCoun. Mr. Chairman, we have six Russian judges 
coming to the Middle District of Florida next week to visit 
with us.
    Mr. Wolf. I think that is good. And I think the more from 
the Middle East, too, that see the values that we have here. I 
mean, when you saw the poll the other day, we are not doing 
well there. We should be doing very well because we are good 
people, and we are--if they only knew who we really were, but 
that is good.

                         Relationship with OMB

    The President transmitted your fiscal year 2003 budget 
without change, and I think that has been the tradition and the 
history. However, the President's budget included a $400-
million negative allowance for ``certain pass-through 
accounts.'' Since the Legislative and Judicial Branches are the 
only major pass-through accounts, this negative allowance must 
be intended to be applied, at least in part, to the Judiciary.
    Can you explain your relationship with OMB and what 
authority they have to reduce the judiciary's budget request?
    Judge Heyburn. Well, it is a complex relationship. We have 
met with them over the years on numerous occasions.
    Mr. Wolf. And they have a tough job, too. It is very easy 
to criticize OMB, and they have a tough job.
    Judge Heyburn. Certainly, I am not here to criticize them.
    Mr. Wolf. Oh, I know you are not.
    Judge Heyburn. I am here to----
    Mr. Wolf. I just wanted to make it clear I was not trying 
to develop a fight between you and them.
    Judge Heyburn [continuing]. Oh, exactly. I mean, we do 
believe quite firmly that a negative allowance in any form is 
unauthorized and perhaps illegal, and we do not believe they 
should do it because it implies that they have some ability to 
control what kind of appropriations requests that we make to 
Congress.
    We submit it to OMB, pursuant to statute, so that the 
President and OMB can compile a budget that is ultimately 
presented to you, not so they can look at our budget and make 
their own decisions. Of course, with the State Department, the 
Justice Department, OMB has a function of looking at their 
request and putting it in a priority with all of the other 
elements of the Executive budget, but of course they do not 
pretend to do that with us, and they do not with you either.
    So we do not believe that they should indicate a negative 
allowance. I thought perhaps the entire $400 million applied to 
the Legislative Branch, but----
    Mr. Wolf. I do not think we know. [Laughter.]
    Judge Heyburn [continuing]. Nobody knows, and of course 
they did not check your budget either. I think our view is they 
ought to make their own priorities and let us submit the 
budget, as is, pursuant to statute.

                        Family-Friendly Benefits

    Mr. Wolf. Without asking you, and you can just submit for 
the record, too, the family-friendly programs, you know, flex 
time, flex place, job sharing, leave sharing, tele-commuting, 
the language that we put in last year, I do not believe 
includes the judiciary. I am not sure if it does or not.
    [The information follows:]
    [GRAPHIC] [TIFF OMITTED] T0619A.040
    
    [GRAPHIC] [TIFF OMITTED] T0619A.041
    
    [GRAPHIC] [TIFF OMITTED] T0619A.042
    
    Mr. Wolf. I put language into the transportation 
appropriation bill mandating tele-work for Federal employees 
who are eligible to tele-work; 25 percent, 50 percent, 75 and 
100 percent by the end of 4 years.
    I know you have a lot of jobs that are not eligible, but I 
do not know, is the judiciary covered by that?
    Mr. Mecham. Not to my knowledge.
    Judge Heyburn. I do not think it is, but we have encouraged 
it, and I think 29 percent of our courts actively have people 
in tele-commuting, and I think about 2 percent of our employees 
are actually involved in tele-commuting.
    As you suggest, there are just many job categories within 
the Judiciary where it is simply very, very difficult to 
implement, but where appropriate, we are certainly encouraging 
it.
    Mr. Wolf. Also, some of the others, the flex time, and flex 
place and job sharing.
    Mr. Mecham. We do that.
    Mr. Wolf. With that, I will just submit the rest for the 
record, unless Mr. Serrano has anything.
    Mr. Serrano. No. In fact, I have to get to the White House, 
name-dropper that I am. [Laughter.]
    Judge Heyburn. Maybe you will find out that you are in the 
shadow Government.
    Mr. Wolf. Maybe they were watching. [Laughter.]
    I just have a meeting in my office, so I do not----
    Mr. Serrano. I just hope this shadow Government does not 
have an English-only provision. [Laughter.]
    I had a lot of problem with the other one.
    Judge Heyburn. If he does not come back, we will know he is 
in the shadow Government.
    Mr. Serrano. Let me just say, very briefly, I made a 
comment, you were comparing to another community, and I threw 
in Waukegan, Illinois. For years, I did that, when comparing a 
smaller place to New York, I said, Waukegan, Illinois, and why 
Waukegan, Illinois? Because that was Jack Benny's hometown, and 
I was a big fan--okay.
    Now I come to Congress, and a wise-guy comment, I say, 
``Waukegan, Illinois,'' and the only person on the panel was 
from Waukegan, Illinois. [Laughter.]
    And I learned how to quickly backtrack and say that I was a 
big fan of Waukegan, Illinois.
    Mr. Wolf. Have you ever been there?
    Mr. Serrano. Yes, in fact, years ago.
    Mr. Wolf. Maybe they should give you the key to the city.
    Mr. Serrano. No, that is okay. [Laughter.]
    I want to thank you. Again, we have immense respect for 
what you do. You are such an important branch of our great 
democracy, and we will continue to work together to make your 
life easier. And just remember what I said, just keep thinking 
of the fact that at the end of the day, you may be the ones to 
protect this democracy more than anyone else during these 
difficult times.
    Thank you.
    Mr. Wolf. Thank you. The hearing is adjourned.
    [GRAPHIC] [TIFF OMITTED] T0619A.043
    
    [GRAPHIC] [TIFF OMITTED] T0619A.044
    
                                         Wednesday, March 13, 2002.

                   SUPREME COURT OF THE UNITED STATES

                               WITNESSES

HON. ANTHONY M. KENNEDY, ASSOCIATE JUSTICE
HON. CLARENCE THOMAS, ASSOCIATE JUSTICE

                           Opening Statement

    Mr. Wolf. The hearing will come to order. Good morning. 
Thank you, Justice Kennedy and Justice Thomas, for appearing 
before the subcommittee this morning to discuss the Supreme 
Court's fiscal year 2003 budget request.
    Obviously a lot has happened since you were here last year, 
and I am sure your testimony will cover that.
    We are also interested in hearing the status of your 
building renovation project. We were pleased that we were able 
to fund over $60 million for this important project in fiscal 
year 2002. And I--or we, if I can speak for Mr. Serrano, would 
hope that we can continue to fund this project. But I would ask 
you and say quite forcefully and sincerely, you really are 
going to have to tell us what you need and not what you would 
like to have, because the budget this year is extremely tight. 
I am committed to keeping within the confines of the budget 
allocation that we are provided. I would like to know precisely 
how much funding will be obligated this year on the project so 
that we can fund only that portion and not be required to cut 
funding for another agency such as U.S. Attorneys or the courts 
or the FBI or whoever we may be talking about.
    I do appreciate both of you being here. I have great 
respect for both of you as individuals and for the Court. I 
have felt an obligation to adequately fund the Court--because I 
know you really can't lobby, and you should not be lobbying for 
funding. So we are attempting to meet your needs, as we have 
attempted to meet the needs of the Judicial Conference, 
particularly as a result of September 11th.
    With that, I recognize Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman. And welcome to both 
of you.
    As I have said in years past, I always feel somewhat 
uncomfortable at this hearing because I hold the Court in such 
a special place in my life, and certainly in the life of this 
Nation, that the whole idea of members of the Supreme Court 
talking possibly about buildings and paper clips and paper and 
supplies just doesn't sit well with me, even though at times, 
obviously, the Court breaks my heart. But, interestingly 
enough, this is the one hearing where we know that there is a 
line drawn between discussing budgetary issues and philosophy. 
All the others who come before us--Secretary of State, Attorney 
General--are questioned heavily on where are they going, 
although I suspect that a lot of the questions I have been 
asking them will come to rest with you, this whole issue of how 
we deal with terrorism, how we deal with people's rights and 
civilliberties.
    But I do welcome you. I want to join Chairman Wolf in 
telling you that I also want to be helpful for the things you 
have to do, but he is right, this is a tough budget year. We 
suspect there will be a couple more to come before it gets 
better, and we should be talking about that which you must have 
rather than that which you wish you had.
    Thank you so much.
    Mr. Wolf. Thank you, Mr. Serrano.
    Justice Kennedy, Justice Thomas, you can proceed. Your full 
statement will appear in the record, and you can proceed as you 
both see fit.
    Justice Kennedy. Thank you very much, Mr. Chairman. Justice 
Thomas and I bring to the committee the greetings of all of our 
colleagues.
    We have a number of our Court officers with us here today. 
I also see the Architect of the Capitol, Mr. Hantman, with whom 
we have developed a wonderful working relationship over the 
past few years; Tony Donnelly, our Budget and Personnel 
Officer, who works with your staff. And this also has been a 
very productive working relationship, and Pamela Talkin, our 
Marshal from our Court; and some of our other Court officers 
and personnel.
    We are very conscious, Mr. Chairman and members of the 
committee, that it has been our tradition and our practice to 
be very cautious about our request. And let me talk to you--and 
we think that we have reached our budget request and our 
estimates in the correct manner, with the correct methodology. 
Of course, we are here to assure you that that is our purpose 
and that we have succeeded in that.
    It is true, Congressman, that there is a very interesting 
interplay of checks and balances, and judges in foreign 
countries are fascinated by this. Even as we speak, there is a 
conference, a very important conference of judges in Rwanda 
where they have made it a first priority to have a judicial 
infrastructure. And I addressed that convention, and the 
President was there, by a closed-circuit television camera over 
at the State Department. They have such great respect for the 
American judiciary that I think what we do in this city and in 
this Government with the courts and what we do in order to have 
the correct working relationship with the Congress of the 
United States is of immense importance, not only to us but to 
all who view us as a singular example of the independence of 
the judiciary and of the primacy of the rule of law.

                  Supreme Court Salaries and Expenses

    Our budget is in two parts. Of course, I would like the 
headline to be that we are asking for a reduction. As you know, 
that is just because of the way in which the major 
appropriation for the building has been allocated in 2 years. 
So far as our operations are concerned, we are asking for an 
increase of some 16 percent over last year's authorized amount. 
Two-thirds of that are adjustments to base that you are 
familiar with. You will notice that we have a very substantial 
amount for the police overtime. Police costs are going to 
continue to rise because of security concerns.
    Also, we have something of a personnel problem. Air 
marshals are paid very well, and we have lost a number of our 
really good people to the air marshals because of not only the 
base pay but apparently the retirement benefits are much 
better. And I am not sure if that is true with the Capitol 
Police, although it may have been true there, too. So two-
thirds is adjustment to base.
    The balance of the increase you approved last year in this 
committee, and we are simply requesting it again. I am talking 
now about our operations, and I will leave the building for a 
moment.
    Last year, and again this year, we are requesting 15 new 
positions, and the way to think of those is four are related to 
workload--library, telephone, and analysts in the Clerk's 
Office; five are related to our off-site facility where we are 
doing mail screening and where we are storing hazardous 
materials and moving our shop function, which shouldn't be in 
the Court; and five are for our computer technology and our 
electronic technology.
    Although these were denied to us last year, in a sense it 
was fortuitous because we can confirm now that we really need 
it. We have been doing the Peter-to-Paul larceny act with our 
staff, assigning them to different functions, and borrowing 
here and borrowing there, particularly with computer 
technology. We are moving more and more into that age. The 
entire Court is dependent on it.
    Just as an example, last December was, setting aside the 
events of September, we thought somewhat of a normal month for 
the Court. And our website had over a million hits, and 
something just under 150,000--I think they call them 
``lessons'' or ``conversation,'' ``visits,'' something like 
that, where the user talks back and forth with the Court to get 
the information.
    We were very concerned about mail disruption. Maybe some of 
you are still opening Christmas cards.
    Mr. Wolf. We are.
    Justice Kennedy. And we are dependent on the mail for our 
certiorari petitions. And we were concerned that we would fall 
behind. The certiorari petition is protected because the 
postmark protects the filing, so the petitioner wouldn't be 
late. But we were concerned that we would not have enough 
inventory and that they would have to put into next year and 
have an imbalance of our case inventory.
    What our clerk's office did--with, I think, considerable 
innovation--is contact all the major printers in the country. 
They tell us the names of the attorneys who are filing, 
requesting you to print petitions for certiorari. We then 
contacted them by telephone and had the filings done 
electronically, and the clerk's office was able to find 400 
cases that otherwise would have been delayed. So we use this 
electronic technology all of the time.
    And Justice Thomas is our real in-house expert on that, and 
he has looked at each of these five positions and can speak 
more directly to that.

                         BUILDING MODERNIZATION

    On the building, Mr. Chairman, we assured you last time--
and we continue in this effort--that this is what we need. We 
have some questions whether we are sacrificing things that 
should be done. We think the answer to that is no, although, as 
you will recall, we said that this was not going to be 
historical restoration where you spend many hours and dollars 
in restoring original paint colors and so forth. We are not 
doing that. These are structural things that need to be done.
    The building costs, using round numbers, the project cost, 
is $122 million. As we told you before, this was a new number 
for us to deal with, a new concept that we would have to spend 
so much money on an existing building. And as you know, we 
hired our own architect. We had peer review. We made it clear 
to the Architect of the Capitol that we want just the minimum. 
But because of all the systems to be replaced and it is a 
historic building, the cost estimates have been done in the 
right way. We have been assured, and our own outside architect 
has assured us, of that.
    Of the $122 million for the building, we are asking for 
just under $50 million this time. About $49 million of the 
architect's $53 million budget is for the balance of the 
appropriation for the building. So far--and the architect can 
speak with more precision--my information is we have spent 
about $10 million of that on plans, drawings, testing, seeing 
whether a slab can handle the new construction, soil testing, 
taking out some of the walls to see the most efficient way to 
replace pipes and air-conditioning ducts. The balance, we 
request be appropriated this time so that we can let the 
contract. The contract is ready to go on the present schedule 
so that construction can begin in 2003, and a completion date 
is 2009. So we will be competing with your jackhammers right 
across the street from us for that period of time. As I told 
the Committee earlier, we said we would examine the possibility 
of our moving out of the building, if that would accelerate its 
completion and save dollars, and the answer was it would not 
save dollars. It would cost more. And we have assurances that 
they can work around us, and we are satisfied that the project 
is appropriate.

                           PERIMETER SECURITY

    We may ask for a supplemental appropriation for perimeter 
security. That is still unresolved because we do not know what 
the master plan is going to be for Capitol Hill and what 
streets are going to be closed off with barriers. And our 
staff, our Marshals Office, are working with planners at the 
Capitol to see what the master security plan is going to be. 
Although I haven't followed that closely, it seems to me they 
are a little bit slow in coming up with some recommendations. 
But we want to be a part of that, and we don't want to spend 
money unnecessarily on perimeter security if a wider perimeter 
plan is going to adopted.
    Mr. Chairman, I think I should say that our appearances 
before this Committee have always been ones in which we have 
been treated with great respect, and you have been very 
attentive to our needs. We have tried to follow the directions 
of the Committee. You have asked us to make sure that we are 
updated say, for instance, in computer technology, and we are 
following that direction. We think our requests are both 
necessary and prudent, and we ask for your favorable 
consideration of our budget request.
    Thank you, Mr. Chairman.
    Mr. Wolf. Justice Thomas.

                            COURT AUTOMATION

    Justice Thomas. Good morning, Mr. Chairman, members of the 
Committee. I would just simply reiterate a portion of what 
Justice Kennedy said.
    Last year, we did request some upgrade to our technology 
area, and we are, at bottom, an information-based entity. We 
receive petitions. We then process them. We accept cases. We 
decide them. We write opinions. We distribute them.
    Everything we do has some basis in information that we 
receive or generate. And the ability to do that efficiently and 
effectively in this age, this modern era, is imperative. And I 
have said that before.
    Each time I have come here, we see that this Committee 
recognizes it just from looking at the equipment. We are not 
there. You attempted to do that for us last year, and somehow 
portions of that did not end up in the final budget. It is a 
small part compared to the renovation project that we are 
talking about, but I think it is a very critical part. And I 
think it is the sine qua non of our ability to do our job 
effectively in the future. And that is why I continue to 
highlight that and to place an asterisk next to it.
    I would hope that you would continue to be supportive of 
that aspect of our budget, and it would be my hope that on the 
other side of the Hill that that would continue to prevail in 
the budget.
    With that, Mr. Chairman, I simply attach myself to my 
colleague's remarks.
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                   POLICE PAY AND WORKING CONDITIONS

    Mr. Wolf. I thank you both.
    On the air marshal issue, other agencies are having the 
same problem. I am not sure how long that will last because 
that is one of the most boring jobs that you can have. 
[Laughter.]
    I had someone tell me--and I think Mr. Serrano may have 
been there--that they sat next to a person who was an air 
marshal, who was detailed, and he asked him how he liked the 
job, and he said: I have so many more weeks and so many more 
days and so many more hours, and I am out of here. So I think 
that is a temporary issue.
    I think there is a law enforcement pay problem-officers 
jump from one agency to the other. We would hope before this 
Congress is over that we can address this issue and establish 
uniformity between law enforcement agencies. There has to be 
uniformity so that officers are not jumping back and forth just 
to get better pay. These jobs are too important.
    Is the pay scale for the Supreme Court Police approximately 
the same as the Capitol Police?
    Justice Kennedy. Yes, we are achieving parity with the 
Capitol Police. We had not had that a few years ago, and we are 
rapidly getting there.
    Mr. Wolf. The Capitol Police are working 12 hours a day, 
and they are really doing a tremendous job. But 12 hours a day, 
anyone can do that for a couple weeks, but it is pretty tough 
to do that for 6 and 7 months. And yet they are doing it. How 
many hours a day are your people working?
    Justice Kennedy. Well, I don't know precisely the figures. 
I was actually quite concerned when we had the anthrax scare 
and we had to move our operations to the Court of Appeals 
building that they were really putting in full double shifts, 
16 hours, and we said this is just too much.
    Mr. Wolf. If you could, just for the record, let us know 
how many days a week they are working and how many hours a day.
    [The information follows:]

    Question. Please provide the number of days of the week the 
average Supreme Court Police employee works and the number of 
hours of overtime worked.
    Response. As of April 21, 2002, the average Supreme Court 
Police Officer works five days per week and approximately five 
hours of overtime per two week pay period, for an average 
overtime cost of $17,821 per two week pay period. this is more 
than twice the overtime cost per pay period in the previous 
fiscal year. Through April 2002, the Police have worked 7,295 
hours of overtime. The total overtime hours worked during the 
entire last fiscal year was 6,262.

    Justice Kennedy. We would be glad to give you that 
information, Mr. Chairman.

                  SECURITY AND VISITOR TRANSPORTATION

    Mr. Wolf. We are going to have a journal vote pretty soon. 
We will adjourn briefly for 2 or 3 minutes and come back. I 
think the White House has to appoint someone in the city to 
look at the whole city and its security issues. We can't shut 
the whole city down. Coming from Virginia, where both of you 
live, if my memory serves me, you come over one bridge and you 
are hitting the closure of Pennsylvania Avenue. You come over 
another bridge, and you hit the closure of something else.
    I go through two security checks to come here, and that 
backs up traffic. We just can't shut the Nation's capital down.
    Also, we are finding one agency is buying a certain kind of 
barrier; another agency is buying another type of barrier. 
There needs to be some uniformity so when people who come to 
see the Court and the Capitol see some sort of uniformity that 
is pleasant. So I think the Architect of the Capitol ought to 
be in touch with the White House, and I think the White House 
and with regard to the Supreme Court and the National Park 
Service have to create some uniformity and some understanding 
of what we shut off and what we don't shut off.
    Route 110, on the other side of the river, no longer allows 
tour buses or trucks. Well, that has now impacted buses coming 
from Loudoun County. It is impacting on the way people live. I 
think we can do things in a very secure manner, but also make 
sure that the city is open for people to come and see and there 
is some pleasantness to what they actually see not a bunch of 
jersey barriers and concrete pipes.
    Justice Kennedy. If I may make just one comment on that, 
Mr. Chairman, I hope that as part of that plan the 
transportation for your new visitors center is studied. Itseems 
to me there is a real opportunity there--I was talking with Congressman 
Miller before the hearing--to at least think about some off-site 
assembly point, for instance, using RFK, which is vacant all day long 
and has freeway access, and facilities for visitors who get off buses, 
and then think about transporting them on a shuttle bus or fast-rail or 
something.
    Mr. Wolf. Sure.
    Justice Kennedy. Because as it is now, we are going to have 
buses in front of our building, and it would seem to me that 
that is not the kind of campus atmosphere you want.
    Mr. Wolf. No.
    Justice Kennedy. I hope someone is thinking about that. We 
have asked our people to please be in contact with capital 
planning bodies, but as you indicate, there are any number of 
these bodies, and they are trying to coordinate. I just don't 
have the expertise to comment on how well they are doing.
    Mr. Wolf. Well, I will tell you what we can do. We can ask 
the staff to do a letter to the White House and to the National 
Capital Planning Commission to ask that someone from the 
executive branch, obviously, and someone from the legislative 
branch, the Speaker's office, and someone from the Court come 
together to make sure that everything is being done, to make 
sure that visiting Washington is a pleasant experience. And it 
is safe and you are able to easily travel across the city.
    So we will do that, and we will send both of you a copy of 
the letter.
    Justice Kennedy. Thank you very much.
    Mr. Wolf. I will tell you what I am going to do. I am going 
to go vote and let Mr. Miller continue. I will be right back. 
That way we will just continue and won't waste time.
    Justice Kennedy. That is all right. We are here at your 
convenience.
    Mr. Miller. This is just a quick vote on the journal.
    Justice Kennedy. What would you like to know about? 
[Laughter.]
    Mr. Miller. The new facility, is it going to be more family 
friendly? That is one of the problems we have with the Capitol, 
with our facility and the reason we are building it, visitor 
friendly instead of family friendly.
    Justice Kennedy. Yes, with one exception. It is a thrill 
for visitors to go up our steps. They remember that. I did that 
when I came to Washington. I am afraid that we are going to 
have to have security screening facilities downstairs and they 
must enter downstairs. They can then exit off the front steps.
    That isn't quite the symbolism of going up to see something 
that we want, but we just can't figure out any other way to do 
it.
    The Court already is, I think, quite friendly toward 
families. It has exhibits in the downstairs. It has a good 
cafeteria that people enjoy. When you get out of the building, 
you are immediately in a beautifully landscaped area, and we 
will preserve that. We are increasing the size and moving the 
location of the movie theater. There is a film that runs for, I 
think, 20 minutes or 22 minutes about the Court, and young 
people particularly like to see that film. Now it is in just a 
makeshift, hot little theater, and that theater is going to be 
part of the center corridor. And I think it will, in your 
terms, make it very much more of a friendly experience.
    Mr. Miller. What we talked about earlier and what Mr. Wolf 
talked about is the copies of the plan, and maybe our committee 
doesn't get involved in it. I don't know if the Architect of 
the Capitol can address it here, if that is proper or not. But, 
the visitors come to this area, and more buses could be coming 
in. The last thing we need is a bigger traffic jam there on 1st 
Street. How do we handle that? I hope in the security concerns 
of 2nd Street and the whole area--I am interested in that, but 
it may have to come up at a different hearing.
    Justice Kennedy. I had hoped that it would be addressed as 
part of the approval of the visitor scheme as a whole. I 
thought transportation should have been a key link to that.
    The Architect has thought about how buses enter and leave 
and so forth, but I think we have to go beyond that and think 
about new ways of getting the people up to Capitol Hill.

                            CONTINGENCY PLAN

    Mr. Miller. You mentioned September 11th and security and 
communications. I assume you all learned something. We learned 
on Capitol Hill that we didn't know how to communicate. Now we 
have BlackBerrys and stuff and alarms that go off. The White 
House is the same way. There are no fire alarms and such in the 
White House. There are a lot of things we learned. I was on Air 
Force One that day. They don't have--did not on that day have 
the ability to have live reception of CNN. They do today. So I 
assume you all have had a lesson about communications and 
security from that.
    Justice Kennedy. We have. I might say that there was a 
contingency plan in place for moving our Court operations 
elsewhere, and we used it. It worked like a Swiss watch. We 
moved to the Court of Appeals. That was for the anthrax.
    Mr. Miller. Thank you. I will yield.

                           SHADOW GOVERNMENT

    Mr. Wolf. If I could just ask one more question, then I 
will go to Mr. Serrano.
    Justice Kennedy. Yes, sir.
    Mr. Wolf. Are you part of the shadow government?
    Mr. Serrano. You took my question. [Laughter.]
    Mr. Wolf. Are you participating, has the Court been a 
participant--and I don't want to know where you are or anything 
like that. But are you a participant in the effort with regard 
to the shadow government?
    Justice Kennedy. There are two different types. One for 
emergency evacuation and----
    Mr. Wolf. No, not emergency evacuation.
    Justice Kennedy. But on a continuing basis, we are not--and 
we wonder about the necessity for it. All Article III district 
and circuit judges are courts of general jurisdiction and can 
issue writs under the All Writs Act. So we already are 
dispersed nationwide.
    Now, it is true that the members of our own Court are all 
here, but there are provisions in the statute for what will 
happen in the event we are all disqualified somehow and there 
are en banc procedures. There are circuit courts in the country 
in that event.
    So I think particularly because we are talking about a very 
short time frame, we would hope, for any emergency we are a 
reactive rather than proactive part of the government.
    Mr. Wolf. Okay.
    Justice Kennedy. We are satisfied that the judicial branch 
can continue to function.
    Now, it is true that the nine of us are always here for 
Court sessions and must, by necessity, be here because we are a 
collegial body.
    Mr. Wolf. Okay. Thank you.
    Mr. Serrano.
    Mr. Serrano. Thank you. Thank you so much.
    Let me follow up on that because that was going to be one 
of my questions. The concern that some folks have is, first of 
all, we were hit, you know, out of left field with this thing 
about a so-called shadow government, and based on what thought 
I have given to it, I don't have a problem with our leaders at 
that level deciding that something has to be in place.
    However, for it to be truly an extension of who we are or a 
continuation of who we are as a people and as a Nation, what I 
am grappling with is how do we make sure that all branches of 
our Government are included?
    For instance, one of our greatest complaints was the fact 
that, if it is true that these folks are going away for periods 
of time, you wouldn't notice Congressman X missing for 3 weeks. 
But something has to be done to deal with the fact that the 
elected body of Government was not represented in that 
government, and we think definitely that the judiciary should 
be.
    And so while it is true that you are a body that reacts to 
actions taken rather than initiates them, I know that you have 
the ability to speak out every so often, you know, in non-
official decisions, and I think your advocacy for making sure 
that there is a judicial branch inclusion in any kind of an 
emergency is only proper.
    Justice Kennedy. Thank you. I have to tell you, I haven't 
given it that much thought, in part because I do think that the 
national dispersion of our districts and our circuits mean that 
the whole judicial branch is already dispersed.
    It is true that with us there is an institutional memory 
that other judges do not have, and that we think is priceless.

                 CIVIL LIBERTIES DURING NATIONAL CRISES

    Mr. Serrano. Along those lines, in terms of things you 
could be involved with, or may not be--you know, most Americans 
are somewhat confused at times as to whether the members of the 
Court have the opportunity or the ability to comment on issues 
that are not necessarily before them prior to them becoming 
major issues.
    So, with that in mind, as I mentioned in my opening 
statement, one of my greatest concerns is during this period of 
difficulty in this Nation, where we need to make sure that we 
protect ourselves and protect future generations, there is a 
great concern that in other agencies and other departments we 
may be stretching how we deal with people's civil liberties and 
people's civil rights.
    Is there a role for the Court to play before issues come to 
you? Is there a role that the Supreme Court or individual 
Justices can be warning us about, issues they could be warning 
us about in that area? Or do you feel that that is something 
you should get involved in at all?
    Justice Kennedy. Probably more of the latter than the 
former because what we say tends to be attributed to a specific 
issue and to a point of view.
    The Court's principal function in our tradition is to 
remain open and to give reasons for what we do. And if we were 
to comment in advance, it might impair that splendid function 
we have of giving very clear reasons when we do act.
    Our jurisprudence also is there for people to consult, and 
we have had cases, as you know, in World War II on saboteurs, 
Ex Parte Quirin, 1942--these were when the saboteurs who landed 
in Long Island and Florida and were tried by a military 
tribunal. And the Court was open to hear the authority of the 
commission or of the tribunal to act and ruled on the authority 
of the tribunal to act.
    In the same way with the Japanese war crimes, In Re 
Yamashita, the Court again said that it had the jurisdiction 
and responsibility to determine the lawfulness of the tribunal, 
and it determined it was lawful. And it did not review the 
substance of its judgment.
    In a case one or two terms ago called St. Cyr, INS v. St. 
Cyr, the Court passed on the question of whether in one of its 
recent immigration reform acts the Congress of the United 
States had intended to suspend habeas corpus for a deportee. 
And as I recall, this was a case where he had entered a plea 
bargain some years ago, and the question is whether that 
conviction would require his mandatory--would permit his 
mandatory deportation without a hearing. And we said, number 
one, we had habeas corpus authority--the courts had habeas 
corpus authority to hear his complaint; and, number two, we 
found it was not retroactive.
    So that kind of jurisprudence is there, and it should be 
reassuring. And in the Civil War, Ex Parte Milligan said that 
if the courts are functioning, if they are open, you had to go 
to the courts.
    So those cases can be distinguished. They are not on all 
fours with everything that is happening today. But the 
rudiments of the jurisprudence are there, and there is a lot to 
learn from it.
    Mr. Serrano. Just one more thing on this. All those cases 
were a result of somebody or some group coming to the Court for 
an opinion, or the Court decided to speak out on it?
    Justice Kennedy. No, the courts must wait or there is no 
case. We can only hear a case of controversy. But the fact that 
we have proclaimed time and again that we are open, that we 
will in many cases scan the authority of the tribunal, seems to 
me a very important principle.
    Mr. Serrano. Sure, it invites people to question it then.

                            Court Automation

    Justice Thomas, I know that you told us that our computer 
equipment indicates that we know how useful it is. It seems to 
me that this is an area where we should be giving you much more 
support. You gave us somewhat of an overview. How serious is 
it? How is it hindering your performance, if you will, not your 
philosophical performance but your ability to do the work you 
have to do, not being a modern court when it comes to the use 
of technology?
    Justice Thomas. I think that we can work more effectively. 
I think that you were able probably to do your job before you 
all had BlackBerrys. You were able to do your job probably 
before you had computers. But you know that you can do more, 
more efficiently, with them and you can communicate with your 
office and others more effectively when you have the 
communications equipment. But we are in the same position.
    But a concern when we do that is security. The more we 
communicate, the more easily we do it, the more remote it is, 
the more security issues we have.
    So we are asking just for the personnel and the budget to 
build that communications and communication environment at the 
Court and to make it secure so that we are comfortable using 
it.
    I will give you an example of something that is critical. 
We don't have a backup system built yet. If our systems were to 
implode, we have got a problem. I think that we all would think 
that, look, you have got to have complete backup systems or 
redundant systems so that, when the systems are inoperative, 
you are unable to perform your duties.
    The capacity, the computing capacity is changing. We have 
got to change with it. The platforms are changing. We can't 
install the latest operating platforms simply because we don't 
have the people. We have the people who are capable of doing 
it, but we don't have enough people. They are busily just 
trying to maintain what we have.
    We are also trying to keep current. We are behind 
technologically with simple things like the more effective 
screens. And we work--I spend most of my time staring into a 
screen, and we know there is a difference between the older 
screens and the newer screens. That may not be a necessity, but 
it certainly makes your life easier to be able to see what you 
are reading on the screen.
    We also are finally getting to the education part of it to 
make the technology accessible to the members of the Court. We 
have significant generational differences on that. And the more 
inaccessible it is, I think the more reluctant the members of 
the Court are to use the available technology to do their work. 
We are finally bridging that gap, but in order to do that, we 
need people.
    So what you see here are just--we have a library, for 
example. We have one of the--probably the finest law library in 
the world, and we need it to be able to do our work and to not 
make mistakes, at least not to make mistakes based on inability 
to have the appropriate research done. And we simply have to 
bring that technologically up to the standards that we think 
are appropriate.
    So there is nothing here that is saying, look, put us at 
the cutting edge. What we have here is simply saying let's just 
make us current so that we can then have a system that we 
maintain.
    I will give you an example of how it helps to do your job. 
I may have used it in the past. When I arrived at the Court a 
decade ago, when we had the emergency petitions in the death 
cases, I found it rather odd that the members ofthe Court would 
call their--we would call our clerks, who would read the petitions to 
us in the middle of the night, so you just simply stayed up or went in 
the family room and waited for the call. It would be read to us.
    Now, on something that important, we know that is kind of a 
tough way to do it, and sometimes they would read portions of 
it several times.
    Then we moved to the secure fax machines, which helped 
significantly, because now you can get the documents as they 
are sent. But now what happens is Cynthia Rapp, who handles 
this area, simply e-mails it on a secure e-mail system. And I 
am notified. I have it at my desk at home, and I can read the 
petitions as quickly as my law clerks can read the petitions. 
And then I can actually communicate with them electronically.
    Similarly, when Justice Kennedy and I a few years ago were 
in London at a judicial exchange program, I was able to log on 
in the middle of the night and deal with emergency motions and 
read the actual documents.
    I think it is very important--indeed, I think it is 
critical now that we come up to speed. We are behind, and there 
are other courts, as I travel around the country, that are 
quite a bit ahead of us. And I think it is very important that 
we not fall behind any more.
    Mr. Serrano. And the $1.6 million that you are asking for 
will----
    Justice Thomas. The $1.6 million, as I remember, includes 
the personnel and the equipment that we are going to need. It 
is $1.55 million just to enhance--to get current on an 
equipment basis, and another $200,000 for new personnel in the 
computer area. These are redundant, these are repeats, in 
effect, in large part from last year. So none of that is new. 
And as I said on the Senate side, we rob Peter to pay Paul, but 
now Peter doesn't have any money, and we are just simply going 
to fall farther behind. And that is the reality.
    Mr. Serrano. Mr. Chairman, I have one more question.
    Mr. Wolf. Sure.

                    Hiring Minorities as Law Clerks

    Mr. Serrano. One of the issues that we discuss every year, 
and I would just like to know what progress we have made on it, 
is the issue of hiring of minorities at the Supreme Court as 
clerks and others. We have discussed it in the past. I would 
like to know how is that going in terms of the clerks and other 
professional staff and also what, if any, outreach activities 
have taken place.
    Justice Kennedy. I think again there is a heightened, 
conscious awareness of the necessity for us to be inclusive. I 
know Justice Thomas can affirm from personal experience that 
when there is a very qualified minority candidate, we all 
compete to get him or her. Sometimes early hire helps them 
because they then can plan financially.
    There are a couple problems with outreach. As you know, we 
take from a pool of the circuit clerks, and you have to be 
careful not to have a finger-pointing exercise. Well, it is the 
circuit pool. Then the circuit pool says, well, it is the law 
school pool. And the law school says, well, the colleges aren't 
sending us enough people.
    I think each part of the chain has to be conscious to make 
this effort.
    I talk to law school professors about it all the time, and 
I have law school professors and some of my former clerks who 
will identify for me at a pretty early stage a highly qualified 
minority person.
    We want to encourage them to take clerkships. Sometimes 
people from a somewhat disadvantaged background who do very 
well in law school will look at what they would make as a clerk 
on the Court of Appeals and look at what they would make in 
private practice, and they don't go the clerkship route. So 
there is sort of a self-selection factor that works against us 
in that regard.
    And, again, if we can have people give informal assurance 
that, well, they are Supreme Court material and they can maybe 
be considered, then that persuades them to take the first step 
and to be a circuit court clerk with the hope that they can 
come to us, and I think that is what we can do with outreach.
    The statistics are not good. In the law schools, the 
Hispanic population is really underrepresented in law schools. 
And, in fact, the last time I looked, they had less 
proportional representation than members of the black 
community. I don't know why that is. Those are the statistics I 
have.
    So I think all parts of society have to work on this.
    Mr. Serrano. I understand. I can sense from your answer, 
that we don't have an answer yet to this problem and I will 
just ask you for numbers. We find out that we haven't done that 
well. I would just like to close with this comment:
    We can point fingers, and we can go back to the law schools 
and so on. But, you know, when people want to become lawyers 
and they see that what is available to them is only one aspect 
of the law, then you may draw less people. If they saw that 
throughout this society there was more involvement for them, 
certainly if they saw people or they knew of people clerking or 
part of the professional staff at the Supreme Court, that might 
encourage some people. I know it would encourage me if I wanted 
to be a lawyer, because it would be endless. It would be a vast 
world out there for me.
    So I can sense in your answer that the Court still has not, 
found a way to deal with this or found a need to deal with it 
or found the importance of dealing with it. Let me just tell 
you that it is to me as important to see minorities working in 
the Court, as it is to see them on the Court itself. And not 
just with the Court, but we do it other places. We just 
established a program in the Bronx between Hostos Community 
College and Columbia University to prepare people for the 
Foreign Service and for the Diplomatic Corps because it is not 
enough for me to see General Powell. I need to see other people 
surrounding him making those decisions in the future.
    So I would just hope that every so often you think of that. 
You know, you have this aura about you, and the picture you 
present not only of the membership but of the staff is also 
what people look at in this country, and it is reassuring to 
them to see that the Court represents in every aspect who we 
are in this society.
    Justice Kennedy. Thank you.
    Justice Thomas. I think your point was well taken when you 
made it several years ago, and I think Justice Kennedy didn't 
intend to leave the impression that there hasn't been change or 
there hasn't been movement.
    The problem, as I said in the past, I think, the word 
``minority'' is too broad, because you do have Asian clerks. 
Someone who has been in the news over the past few months 
clerked for Justice Kennedy, Miguel Estrada, who has 
overcomeall kinds of obstacles and is facing an additional one.
    There are clerks who are coming to the Court who will fit 
in the category of the subset of minorities that are 
problematic in getting to the Court, that is, black and 
Hispanic. I think that it is going to take time, and I do 
believe that if they are not in the pool and have not been 
prepared at the level that we take clerks, it is not going to 
happen. The kids we are taking are outstanding students, and 
that is a small pool. And when they appear in the pool, they 
become very hot commodities. So there is no callousness toward 
that.
    The other thing that I had suggested or indicated in the 
past was that I don't think that all intellect resides east of 
the Mississippi or in the Ivy League. I think there are other 
schools, and you are just as apt to find kids there.
    Now, we have to be careful with that because you are 
sometimes venturing into uncharted waters, but I have had good 
experience with that.
    I do believe that we cannot fabricate what the law schools 
don't give us. I have found it unfortunate at the law schools I 
have visited that many of the kids aren't even informed as to 
what these opportunities are you are talking about.
    When I went to law school, I didn't know there was an 
opportunity to clerk--not that I would have, because I was 
under some of the pressures that some of these kids are under 
now, and that is a debt pressure. You have got to go get a job 
to repay the loans, and I had a kid and I had a wife who I 
thought should--we needed to assist in her going to school.
    So there were pressures that undermined the sort of luxury 
of taking 2 more years at significantly lower incomes to clerk. 
It would have been fun for me if I had known about it, but it 
would have been expensive for my family.
    I think that if we were realistically to look at the number 
of problems that prevent us from having these higher numbers 
and be realistic about it, I think that we would find that the 
reluctance of the members of the Court does not appear among 
those problems. But I think we do have to be realistic that we 
cannot create a pool that is not presented to us. We react to 
that pool. We hire out of a defined pool. But the numbers, I 
think, that the--I don't like the idea, I find it distasteful 
to categorize people, but just from observation you can walk 
through the building, you can see that it does reflect the 
country fairly well. And there are very talented people there, 
and I think all the people who come there are talented and 
should be talented.
    It is hard to tell a kid--you know, I think our law clerks 
make $50,000 a year. The first job upon departure they make 
over $200,000 a year with bonuses. It is hard to tell a kid, 
when that kid is facing debt pressures or financial pressures, 
to forego that kind of income level, a 6-figure income level, 
to take a job for less.
    So I think there is no reluctance. I don't think that there 
is any bad intention or indifference on our part, and that is 
certainly reflected in the fact that when we do see minorities, 
they are quickly taken.
    I had the experience of Justice Kennedy just scooping a kid 
out from under me. I had invited him in, and it just happened 
to be a week later than he had invited him in. And so that kid 
was gone.
    Now I have another kid that he didn't know about. 
[Laughter.]
    So I didn't play my complete hand.
    Mr. Serrano. Secrets of the Court. I think you have hit on 
something here that maybe I should focus some of my energies 
on, telling folks at other levels to open up, to change 
somewhat the pool.
    Let me just close by saying--and I say this with all due 
respect. This may come as a shock to some people. I also find 
it distasteful to categorize people, but I find it more 
distasteful for people to categorize me and exclude me from an 
opportunity to go somewhere I want to go. And I know there are 
folks who would love to be around you guys because you can't 
get better than that. You can't get higher than that. You can't 
serve your country better than that. So keep in mind that some 
of these folks, all they want to do is serve their country in 
the best possible place.
    Thank you, Mr. Chairman.
    Mr. Wolf. Mr. Cramer.

                        RUSSIAN JUDICIAL SYSTEM

    Mr. Cramer. Thank you. Thank you, Mr. Chairman.
    Welcome back to the subcommittee. I enjoyed your 
presentation last year.
    Justice Kennedy, I am going to focus--I am on the board of 
trustees of the Center for Russian Leadership Development, and 
that is under the umbrella of the Open World Division of the 
Library of Congress. And last week we had our first board of 
trustees member meeting, and there were Russian judges there. 
And I understand that you met with those Russian judges and 
that last summer you were in St. Petersburg for a meeting with 
judges from developing nations, and that you met with President 
Putin there as well.
    Justice Kennedy. Yes.
    Mr. Cramer. Could you give us the benefit of that exposure 
about, in particular, the Russian judicial system, judicial 
independence, the Russian jury trial system there? What 
progress are they making?
    Justice Kennedy. After the breakup of the old Soviet Union, 
I think about 10 years was wasted in drift. And President Putin 
and one of his top advisers whom I had met made it a major 
priority to strengthen the rule of law through the judicial 
structure and the legal structure. And I met with him several 
times and with Russian judges, and we talked about the 
rudiments of judicial independence.
    This was one--became one of President Putin's top three 
priorities, and he put through a judicial reform project which, 
I don't know, tripled or quadrupled the salaries of the 
judges--take note, please--also, I have to say, fired some of 
the judges. [Laughter.]
    Mr. Cramer. Would you like us to take note of that, too?
    Justice Kennedy. They now have licensing standards for 
members of the bar, and he recognized that you simply can't 
attract investment unless you have a stable, reliable, 
predictable legal system.
    The President was very gracious to invite me and two or 
three other judges, when we were at the St. Petersburg 
conference, to come to Moscow, which we did. And we 
congratulated him for he had done, and said that our resources, 
to the extent we had time, were always open to him and 
encouraged him in this course.
    I, of course, met with the State Department, and I was one 
of the first people, I guess, to meet with President Putin 
after he came into office, and told them of my reactions to 
him, that I thought he was very committed to this process.
    The rule of law lives in the consciousness of a people,and 
that is where this country is so blessed. And it takes time to 
establish respect for the rule of law, and if people understand it in a 
tangible sense the investors feel more secure That is the beginning of 
the rudiments of the rule of law.
    Russia I think is proceeding in the right way to make the 
legal profession part of its capital infrastructure.
    Mr. Cramer. Who sponsored that conference in St. 
Petersburg?
    Justice Kennedy. The World Bank.
    Mr. Cramer. And was that a first conference there, or had 
they gathered----
    Justice Kennedy. Well, I have met with members of the 
Russian judiciary over a period of some years, when they come 
to Washington or when I am in Europe in different venues. I 
have been to Moscow at other times to meet with judges. And I 
must say they have some remarkable jurists. They are great 
scholars. They are committed to the law. On some of their 
courts--they have three different courts, as you know: the 
Supreme Arbitration Court, the Supreme Court, and the Supreme 
Constitutional Court. And each one of those has judges of 
marvelous ability, and we have hosted them when they have come 
here to the United States. There was a conference at NYU.
    So these conferences are ongoing. And they are not any 
expense to the government, as I recall. I don't think the 
Government has ever paid for them. But we are very encouraged 
by what we see.

                            CONTINGENCY PLAN

    Mr. Cramer. Switching over, your first opportunity since 
1814 to hold hearings at alternate locations occurred after the 
anthrax issue that we were all suffering with. How did that go? 
And is there a plan for the future that if you have to do that 
again, you consider it an adequate plan?
    Justice Kennedy. I was not aware that we had the plan, but 
it was in place. As I indicated earlier, it worked like a Swiss 
watch. There was no disruption in our calendar schedule. The 
attorneys were disappointed that they couldn't come to the 
Supreme Court building itself, and the hearing room was 
slightly smaller, so not as many spectators could hear.
    Mr. Cramer. How long did that continue?
    Justice Kennedy. We had a full month sitting there, which 
was 2 weeks of oral argument there, as I recall. And the Court 
of Appeals personnel couldn't have been more accommodating to 
us. If the judges of the Court of Appeals felt disrupted, they 
certainly didn't mention it. They came to hear some of the oral 
arguments, I noticed. But I think that worked very well.
    Justice Thomas said it was one week of hearings.
    Mr. Cramer. One week.
    Justice Kennedy. And the staff is nodding, so we had one 
week of hearings.

                            COURT AUTOMATION

    Mr. Cramer. Justice Thomas, your comment earlier about 
technology and comparing the Supreme Court to other courts 
around the country that you were behind some of the courts 
around the country. I am from Alabama and we are way behind. 
What other court systems around the country are on the cutting 
edge in the use of technology?
    Justice Thomas. Well, one that is very close here, D.C. 
Circuit. Our Chief Judge, Harry Edwards, did a marvelous job in 
moving that system along. And, of course, he is very literate, 
technologically and otherwise. He is a brilliant man. And he 
was just one of our--he was just a fabulous chief judge. He is 
no longer chief judge. But I would say the D.C. Circuit.
    I think any judge on that circuit would tell you that it 
makes a difference in the way that we do our work. I feel much 
better now than I did when I first arrived at the Court in just 
the ability to digest large amounts of information.
    Mr. Cramer. You mean you feel a lot better based on how far 
you have come with the technology available to you?
    Justice Thomas. That is right. The technology has made it 
possible to have information at your fingertips all the time. I 
mean, that is what your BlackBerry does. So if I am up--I 
usually get up fairly early. Let's say I get up my normal time, 
at 4:00 or so--I can log on and start working and clear off my 
desk and download the opinions that have circulated and read 
them in the morning before I get in my car and come to work.
    There is no way at the Court to catch up when you get 
behind and do your job thoroughly. You have to keep up. You 
have to develop a system. I didn't know this when I got there. 
I was used to working at a frenetic pace, you know, running for 
meetings, looking at budgets, looking at personnel, looking at 
issues.
    The Court is different. You sit and you read. Then you 
stand and you read. And it is all reading, and you have to 
digest it. And to do it in a sustained way, you have to have 
access to information.
    I have one of those big L.L. Bean bags that my wife got for 
me that I think is pretty fancy because it has my initials on 
it. And I would fill that every evening with documents and 
carry it home. And I have noticed in the last year the bag is 
empty, routinely, because I am not lugging big reports, et 
cetera. I can now download it. My desk is not stacked high like 
it used to be with files and with draft opinions because they 
are all on my computer.
    So when I get on a plane, I have a secure laptop--it is 
that big--and I have all of the material that would probably 
fill 100 of those L.L. Bean bags in that computer. And it has 
changed the way, the comfort level that I have with processing 
that much information, and do it in a way that is easily 
digestible.
    Mr. Cramer. We want to help you continue making that kind 
of progress.
    Thank you, Mr. Chairman.
    Mr. Wolf. Mr. Vitter.

                            LAW SCHOOL DEBT

    Mr. Vitter. Thank you, Mr. Chairman.
    Justices, thank you for being here. I just have two brief 
sets of questions. One is a follow-up to Mr. Serrano's 
discussion, which we have every year, really, regarding clerks 
in particular.
    Has any thought ever been given to some sort of a 
scholarship program--I am not sure how you would do it legally 
or ethically, but to allow clerks to get debt forgiven as part 
of their package deal through some sort of scholarship when 
they clerk to put them more on par with what they might make or 
be able to do with regard to that debt in private practice?
    Justice Kennedy. Two things on that. One is the law firms 
are good in this respect because they will give their clerk who 
comes to them credit for his first year on the salary scale. In 
other words, they will pay him as a second-year associate even 
though he has been there for one year. So that is small thing.
    Whether a clerkship qualifies for some scholarships for 
people that do public service, I am just not sure. There are 
some--Yale has a tremendous fund for that. I think it is used 
mostly for young people that want to go into teaching, and I 
know Stanford is that way, too. Whether or not it applies to 
clerks, Congressman, I am just not----
    Mr. Vitter. Really, what I am talking about--and, again, I 
realize there would be all sorts of legal and ethical and other 
hoops to jump through. What I am talking about is a scholarship 
that would kick in or be available when you go to your building 
as a clerk. To forgive debt would be the most obvious need, so 
that basically their salary, which is modest in the grand 
scheme of things in terms of other legal opportunities, would 
essentially be supplemented, at least with regard to the actual 
debt they are burdened with.
    Justice Kennedy. I am aware of no such program.
    Mr. Vitter. Well, I just mention that because that may be a 
way to make a Supreme Court clerkship immediately more 
attractive and competitive to someone burdened with debt, who 
many of these minority students----
    Justice Kennedy. And I think it is important, Congressman, 
really it probably should be at the circuit level because if 
there is a clerk in the circuit court, he will come to us. A 
clerk will come to us for one year and take the salary cut, in 
part because he enters as a second-year and in part because he 
or she knows that it is very helpful for their professional 
career.
    Where you have to concentrate is at the circuit level in 
order to get the pool going.
    Mr. Vitter. Well, I think you are right. That is probably 
where that sort of program might be effective.
    In the same vein, have you ever seen any rigorous study 
that basically tells great law school students how much they 
gain in terms of earnings at the end of the day through either 
a circuit court or U.S. Supreme Court clerkships? In other 
words, in their career I am sure they gain financially 
enormously at both levels, particularly your level but at both 
levels. And if that were quantified and publicized in the law 
schools, that might be useful.
    Justice Kennedy. It might be. I think it would track 
academic performance generally in large part.

                           ELECTRONIC FILING

    Mr. Vitter. A second brief set of questions. We talked 
about this last year, and I just wanted a quick update where 
you think the Court is in terms of electronic filing, which is 
a subset of this technology issue we are talking about.
    Justice Kennedy. As I have indicated, we took some 
extraordinary measures in order to get cases up. But so far as 
electronic filing, I am not sure we are ready for it, but 
Justice Thomas is really qualified at that.
    Justice Thomas. I think some of the bankruptcy courts are 
experimenting with electronic filing, but I don't think any of 
the Federal district courts or courts of appeals are.
    As I said last year, during Bush v. Gore, we received a lot 
of the material, the briefs, electronically. And we do get the 
emergency motions in the death cases electronically, and they 
are distributed quickly that way.
    I do think, though, that if--I think that is on the 
horizon. That would just be my guess. And what I am trying to 
suggest here in building our computer system and our technology 
area is to anticipate that, that much of our work will be dealt 
with electronically. And with the anthrax scare, it became 
clear to us that at least there should be some capacity to have 
redundant filings so that even though the requirement is that 
you file a hard copy, there can be some way to get the 
electronic copies. And I would prefer to have the briefs 
electronically, quite frankly, because that way I can carry 
them around much more easily.
    I just had one of my people in my office use one of those 
big mail bins to take some of the materials from the next 
sitting to my car. That was, what, a floppy disk's worth of 
material or a CD-ROM worth of material. And it would be much 
easier to move around.
    But I think that is the future, and I think we should just 
simply anticipate it.
    Mr. Vitter. I would encourage that. In most areas of the 
private world or the business world, that sort of thing isn't 
in the future. It is the present. And I would encourage that as 
you explore and develop technology, that you also do that with 
sort of the consumers, customers, practitioners, clients in 
mind, which is basically electronic filing, because I think 
that can have enormous benefit for the Court, for the parties 
involved, for everyone. Obviously for some initial period, 
which might be extensive, you couldn't make that mandatory, but 
it could be an alternative, and I think that would have great 
benefit.
    Justice Thomas. Well, I have been informed that 85 courts--
I misspoke--85 courts are at some stage of electronic filing, 
and those include 71 bankruptcy courts, 13 district courts, and 
the Court of International Trade. Of those 85 courts, 33 are 
already in live operation to some extent or another.
    Mr. Vitter. In terms of your comments about your personal 
work and having so much of the material you need on your 
computer now, I take it, then, that that doesn't include 
filings, or is that scanned in? Can you deal with filings on 
your laptop?
    Justice Thomas. Not now I can't because they are not 
available. I was in the Bush v. Gore case and----
    Mr. Vitter. Right. But apart from those extraordinary 
situations, you can't?
    Justice Thomas. I don't. We don't have--we may have the 
capacity to do it, but we don't routinely do it.
    Mr. Vitter. Okay. Thank you very much.
    Mr. Wolf. Thank you, Mr. Vitter.
    I have a series of questions, but we are going to have a 
vote at 11:30. We will vote and come back if we haven't 
finished, and I don't think we will.
    On electronic filing, I think it should be mandatory. I 
think you could certainly have a 3-year phase-in period. You 
could certainly have a requirement whereby it is electronically 
filed and paper filed. The opportunity to do both for a period 
of time gives you a little bit of backup.
    Most of the people that are filing are from large law firms 
that certainly have the capability. Very few briefs are filed 
by a single person who would not have the ability to file 
electronically. So I think Mr. Vitter makes a good point.

                               CONSULTING

    Secondly, I think the Court ought to consider having an 
outside consultant to come in to look at the Court's operations 
and see what could be and should be done to improve them. It is 
very difficult for those in Government to change the way they 
do things. When we mandated telework, the Court is not covered 
by that mandate, but an amendment that I offered 2 years ago 
mandated for Federal employees telework 25 percent the first 
year, 50 percent the second, 75 the third, and 100 percent in 4 
years for those employee whose jobs are eligible. The 
resistance level was unbelievable.
    Now the agencies are beginning to accept the program. There 
is nothing magic about strapping yourself into a metal box and 
driving on 66 or 95 at 8:15 in the morning when you could be 
home or with a computer. We would be willing to put the money 
in the budget have an outside consultant to look at the Court 
to see how you could streamline the Court's operations. You 
have consultants that come in with regard to the reconstruction 
and rehabilitation. When the air-conditioning system breaks 
down, you don't get out there and fix it. You bring an expert.
    So if that would be of interest, I think the committee 
would certainly be willing to put some money in your budget to 
allow the court that opportunity. That doesn't mean that you 
would take every recommendation because you have a unique role 
in government and you are trying to turn out cases quickly. So 
if that were an interest, you might want to let us know.
    [The information follows:]

    Question. Please provide the Committee with your views on 
hiring an outside automation expert to help the Court evaluate 
its automation program and provide the Court with 
recommendations on possible enhancements.
    Response. The Court contracted with outside automation 
experts in the past to get an objective view of the automation 
program and how it might be improved. In 1992, the National 
Center for State Courts performed an extensive study of the 
Supreme Court's data systems approach and organization. The 
Court found the recommendations helpful in planning and 
implementing the rapid improvements in automation during the 
1990's. We intend to acquire the assistance of an outside 
automation expert during the upcoming fiscal year. In addition, 
we are consulting with automation experts from other agencies 
in the Judicial Branch.

                         ANTHRAX/MAIL SCREENING

    Mr. Wolf. Has anthrax changed the Court's operation very 
much? Or was that just a temporary thing that you have worked 
out?
    Justice Kennedy. There is still a mail lag. Even things 
that are mailed today take longer to get to us than they did 
before.
    Mr. Wolf. What post office does Court mail go through?
    Justice Kennedy. My understanding is it goes to Ohio before 
it comes to us.
    Mr. Wolf. So all your mail is irradiated like ours?
    Justice Kennedy. Yes.
    Mr. Wolf. Any sickness reported by employees? We have had 
people, young people here on the Hill maintain they have been 
having headaches and different things.
    Justice Kennedy. Not that I am aware of. But we do--as part 
of the budget request for our off-site facility, we are going 
to put the mail screening facility off-site. And there is a 
modern room with the appropriate ventilation and controls and 
detectors that will be operational this April, in another 45 
days.

                     POLICE PAY PARITY AND OVERTIME

    Mr. Wolf. Okay. Your budget requests $871,000 for an 
increase for the Supreme Court Police to pay overtime and the 
comparables we talked about with regard to the U.S. Capitol 
Police. The fiscal year 2002 appropriation did not provide any 
additional funds for these costs. How are you funding these 
additional costs this year?
    Justice Kennedy. I am not----
    Justice Thomas. We just reprogrammed. That is a part of 
what--and postponed certain things. It is what I said about 
robbing Peter to pay Paul.
    Mr. Wolf. So you have robbed Paul. You have actually taken 
away----
    Justice Thomas. Yes, we----
    Mr. Wolf. For the record, you can just tell us, what have 
you had to pay out for that? You obviously don't have it off 
the top of your head, but if you can----
    Justice Kennedy. To begin with, we had vacancies. We had a 
lot of vacancies in the Supreme Court Police for the reason 
that I indicated, and then the overtime in part made up for 
that.
    In the clerk's and computer office, we have just shifted 
functions.
    Mr. Wolf. Can you tell us what the cost was to the Court?
    Mr. Donnelly. It was about $300,000 a year additional. 
Annual would be about $750,000 for police overtime and premium 
pay.
    Mr. Wolf. You are asking for $871,000.
    Justice Thomas. Half of that is just the pay parity with 
Capitol Police, with their increase, and the other half is for 
the overtime.

            PROJECTED OBLIGATIONS FOR MODERNIZATION PROJECT

    Mr. Wolf. Okay. Since I took a tour of the Court last year, 
has anything broken since then? Did the air conditioning break 
down? Did something happen, or is it just about where it was?
    Justice Kennedy. There were no major failures that we are 
aware of. Every once in a while we have to get a part, and then 
the thing was manufactured so long so they can't find the 
person with the part, but they seem to take care of that. They 
are resourceful at doing that. But no major breakdowns.
    Mr. Wolf. No major breakdowns.
    When do you anticipate awarding a construction contract 
with $63.8 million we were able to provide for the building 
renovation project?
    Justice Kennedy. The construction contract should be 
awarded in 2003--or construction should begin in 2003.
    Mr. Wolf. So when would the contract be awarded?
    Justice Kennedy. The contract, March of 2003.
    Mr. Wolf. So a year from now. Okay. The budget request 
includes $49.7 million to complete the funding for the project. 
And as you said, the project would be completed in 2009.
    Justice Kennedy. Yes.
    Mr. Wolf. And you really have to tell us how much funding 
is needed in fiscal year 2003? I am very sympathetic. This is 
not an adversarial relationship whereby we are trying to hold 
you up to squeeze every nickel or do anything to create a 
problem for you. But knowing specifically how much funding is 
needed in fiscal year 2003, is necessary to appropriate the 
correct amount in fiscal year 2003? Would some of the funding 
be obligated in subsequent years?
    When you are building a house, you have a drawdown, and you 
draw from the bank--the builder draws, because you are paying 
interest on that loan. You are paying interest on that money. 
And you obviously don't want to draw from the bank to just have 
it kind of sitting around.
    So you really have to think about what is really needed. I 
don't think we are going to have a change of attitude 
concerning this project, unless Mr. Serrano and I leave or 
something happens. But my sense is the Committee has been 
fairly well united on this.
    Also, as you begin to put money into the project, you 
obviously can't stop this project because then you increase the 
cost and everything else.
    But knowing it is 2009 when the project will be completed 
and we are taking basically a draw, is it really necessary for 
this $49.7 million in fiscal year 2003?
    Justice Kennedy. As we indicated last year, how the 
Committee wants to spread the money is a matter of some 
indifference, to me, at least, provided we can obligate it by 
awarding one contract.
    Mr. Wolf. Well, I think you can, and a builder or a person 
who does the work isn't doing this for a rinky-dinky day 
school. It is the Supreme Court of the United States. They must 
know they are going to be paid. It would be helpful to know 
what you really need to continue this project on a stream 
rather than gathering. For instance, when I was chairman of the 
Transportation Appropriations Committee, some of the systems 
would come in and ask for X. Four years later, we would find 
out that that money hadn't been allocated. It was still sitting 
there. And there were other rail systems that were ready to 
move ahead and build.
    We now have the FBI asking for Trilogy. They are ready to 
move ahead. We have DEA asking for things. We have other things 
moving on. And since you know the Committee is in support of 
what you are doing, I think it is important to know what you 
really need. So if you think about that and then you can 
comment for the record or now if you want to, or your staff can 
talk to our staff. So keep the stream coming, but still not 
taking money from another area that you may need or some other 
person needs.
    Justice Kennedy. We will be glad to submit something on 
that, Congressman.
    [The information follows:]

    Question. The fiscal year 2003 request includes $49.7 
million to fully fund the building renovation project. The 
Committee understands that this project will not be completed 
until fiscal year 2009. How much of the requested $49.7 million 
is necessary to be obligated in fiscal year 2003 for the 
project?
    Response. We anticipate that approximately $38 million will 
be necessary for obligations expected during fiscal year 2003. 
This amount, when combined with the $67 million appropriated 
for the project during fiscal year 2002, will permit the award 
of the major construction contract as well as provide for 
reasonable contingencies that will likely require funding 
during fiscal year 2003. The contingencies include various 
types of tests prior to construction as well as spending to 
address problems and conditions that emerge during actual 
construction. The remaining $12 million that will not be 
obligated during fiscal year 2003 will fund similar 
contingencies that are expected to occur as the construction 
process continues over several years, as well as the salaries 
of Architect of the Capitol staff dedicated to the project.
    Question. What activities has the Court been unable to fund 
in order to pay for increased pay and overtime costs for the 
Supreme Court Police in fiscal year 2002?
    Response. During fiscal year 2002, the Court has absorbed 
the increased pay and overtime costs for the Supreme Court 
Police by eliminating major projects as well as some training 
and equipment spending. The Court's planned operations have 
been disrupted by the combined effect of having to absorb the 
increased pay and overtime costs for the Police in a year that 
the budget request was reduced by over $2 million, including 
funding for additional positions in critical areas. Data 
Systems staffing is stretched too thin and cannot get to 
important projects. Existing staff cannot implement and support 
the Court's Internet network in a timely fashion. We cannot 
deploy the next PC hardware and software upgrade for the Court 
that would replace PC's three and four years old and office 
software that is almost five years old. We have deferred needed 
improvements to aging computer equipment such as the Docutech 
machine that is used to produce and distribute draft and final 
copies of the Court's opinions, as well as many other important 
Court documents. Because of the age of the Docutech machine 
(over eight years old), we have developed backup plans in case 
of a failure. The Office of Data Systems lack sufficient staff 
and funding resources to conduct adequate disaster recovery 
planning and testing, which is essential to making sure we can 
respond in the event of a disruption of operations. Resource 
constraints forced the cancellation of a planned disaster 
recovery exercise in February. In addition, we have postponed 
the upgrade of Police radios, restoration of bronze and brass 
fixtures, replacement of existing carpet in the public area of 
the lower great hall, and improvements to telecommunications.

                          DIALOGUE FOR FREEDOM

    Mr. Wolf. On the five FTEs, I think Justice Thomas covered 
that, and we would hope that we could do that.
    Also, I saw that you were doing a project called ``Dialogue 
for Freedom.'' What is that?
    Justice Kennedy. This is a project of my own--in the wake 
of September 11th, I felt that the young people in this country 
wanted to find some answers as to what America stands for. I 
think we, as members of the legal profession, have some 
obligation to talk about the values that sustain America and 
that define its free institutions.
    And so I didn't think it should just be a dialogue--I 
didn't think it should just be a dialogue that members of the 
Court or the Government engage in. I thought it should be 
opened to all members of the bar because members of the bar, I 
think, have an obligation to defend first principles when first 
principles are under attack.
    And so I asked the American Bar Association if they would 
be willing to participate in the program where lawyers go into 
high schools around the country and talk to the young people 
about what the values of freedom really are. And I have been to 
five high schools----
    Mr. Wolf. Where?
    Justice Kennedy. I began at Langley High School, which is 
four blocks from where I live. And some people said, well, now, 
these young people might not be able to talk with you at your 
level. Forget that. These were marvelous young people. They 
quoted Sophocles. They had read Gandhi. They knew about the 
writings of John Locke. They knew the Declaration of 
Independence and the great words of Jefferson: ``These truths 
are self-evident that all men are created equal'' and that they 
``are endowed by the Creator with certain inalienable rights. 
Among these are life, liberty, and the pursuit of happiness.''
    And we had a marvelous discussion on what happiness meant 
in Jefferson's and Washington's time and what it means now, and 
they were so appreciative to know that happiness for them, for 
their families meant enrichment through civic contribution. 
That is what happiness meant to them.
    I then went to the School Without Walls where the First 
Lady was gracious enough to attend the class and to participate 
with me.
    I then went to Stuyvesant High School in New York, which is 
just a few blocks from the World Trade Center.
    I was at Punahou High School in Honolulu, which is a 
private school, and I was at my old high school in Sacramento, 
California.
    I wanted to see if we could have a format that would be 
somewhat cohesive, even though the dialogue should sustain 
itself and generate its own ideas. I have a hypothetical, a law 
school model, where the high school student is on an airplane 
that makes an unscheduled stop because of engine troubles, and 
the high school student finds himself or finds herself in a 
country where they are criticizing America, and the high school 
student has to defend American values. And what we are hoping 
is that on May the 1st, which is Law Day, in high schools 
around the country lawyers and judges and law professors will 
engage in discussing these fascinating questions with our young 
people.
    I asked the students what three books they would leave 
behind in a foreign country, what three films. We are going to 
have the students collectively submit a list of 15 films, 15 
books that they think most well illustrate the meaning of 
freedom in the American culture and the American history and 
the American heritage. And I am asking them to have a time 
chart of 15 dates that they think are the most significant 
dates in freedom.
    The American Bar and I think maybe the American Inns of 
Court are quite fascinated with this project. I think that on 
September 11th we lost something, but we also found something. 
And these young people are so enthusiastic, so eager to grasp 
the fundamentals of the American democracy, that it has been 
very heartening to me, Mr. Chairman.
    Mr. Wolf. Well, that is good. I don't know that I 
completely agree with you. I was at Langley about a month ago. 
I had just gotten back from Afghanistan. I was in Pakistan for 
5 days, and we were in Kabul for 2 days. And the kids picked up 
the vision and wanted to do something. I have also gone into a 
lot of other schools. The kids are good kids. I have five kids, 
seven grandchildren. I do worry about some of these things.
    These kids are being bombarded with garbage on television 
and in the movies, the death of a hero, you know. I think it is 
great that the American Bar Association is doing this project. 
I think it is great that you are doing it. I think we sell the 
young people short. I think we ought to be challenging them 
more for public service. I think President Bush has done the 
right thing with regard to the Freedom Corps, urging people to 
participate and be involved.
    We have lived in the land of good and plenty. I don't think 
a lot of people in this country focus on the fact that there is 
tremendous violation of human rights around the world. I don't 
think Americans focus on the fact that there are 11 Catholic 
bishops in jail in China, that the Evangelical Taps Church is 
being crushed in China, the Buddhists are being plundered in 
China. They don't hear this and focus on it.
    My sense is that really the leadership of this country 
hasn't spoken out and articulated many of these values, 
speaking out on behalf of people that are being persecuted, 
speaking out and taking on some of the tough issues. I see many 
in political leadership moving just the other way. Quite 
frankly, States are pushing lotteries in essence to help people 
and gambling is spreading and there is garbage on television.
    So I think partially I commend you for what you are doing, 
and encourage you to continue. I hope the bar will also 
continue to work on the project. I think we ought to be 
challenging children more, the opportunityto make a difference, 
to participate, to volunteer, to go on mission projects, to be involved 
and to reach out.
    Now I think it is--so I think the more you are doing 
projects, like ``Dialogue on Freedom'' the better, and I hope 
that we can challenge the children and urge them to 
participate.
    I have seen surveys, that say children don't all know the 
words of the Declaration of Independence, ``We hold these 
truths to be self-evident.'' In fact, my sense is you could go 
into a lot of high schools now and say those words, and they 
wouldn't particularly know where they had come from.
    I commend you for this project. I think all of the Justices 
should do it. I think all of the Members of Congress should do 
it. We have a great country. Ronald Regan said that the words 
of the Declaration of Independence, ``We hold these truths to 
be self-evident,'' were covenants--covenants that we had not 
only with ourselves but really with the world. And I think the 
more that people are speaking out and are emboldened on behalf 
of the persecuted church and on behalf of those who are being 
discriminated against in this country and all these things, the 
better off we are. I think we really have to challenge young 
people.

               BOOKS ILLUSTRATING THE MEANING OF FREEDOM

    What are the three books they want to leave behind?
    Justice Kennedy. That is a work in process, so far as I am 
concerned.
    Mr. Wolf. Well, one book they ought to leave behind is 
Robert Bolt's ``A Man for All Seasons.'' Both of you are 
lawyers. I am sure you have seen the movie.
    Justice Kennedy. That is a great example.
    Mr. Wolf. I have Thomas More's picture hanging in my 
office. Every time I see that movie, it is now granular, it is 
so old. It is usually on on a Saturday afternoon when it is 
raining. But Thomas More and Robert Bolt's ``A Man for All 
Seasons'' is one.
    Also, another great book is Kennedy's book, ``Profiles in 
Courage.''
    Justice Kennedy. ``Profiles in Courage'' is one that they 
mention often. I have heard everything from Dr. Seuss to 
Shakespeare, and there is a dynamism. It is true, I think we 
have been negligent, I think we have been remiss in not 
teaching our students about the fundamental values that America 
stands for, and they can't defend those values if they don't 
understand them. And in the world to come, it has become very 
clear that America has to make its values known and understood. 
America is a tolerant country that believes in freedom, and 
tolerance and freedom are not a threat to anyone. But we have 
to understand it first before we can explain it to others, and 
I don't think we have done enough.
    Mr. Wolf. I agree, and I was troubled by the poll that I 
saw 2 weeks ago showing that in the Middle East how few 
understand that American's are good, decent, honest people. 
They say we are anti-Muslim, it was America who led the effort 
with regard to the Muslim community in Bosnia, with regard to 
Kosovo, with regard to Kuwait. And yet if you looked at the 
survey, Kuwait--the three books that I would leave behind: one 
would be the Bible; two would be Robert Bolt's ``A Man for All 
Seasons''; and three would be President Kennedy's book, 
``Profiles in Courage.''
    Frankly, I think everyone ought to read those three books. 
At the end of the stories, none of them really do very well. I 
mean, the man who had the deciding vote with regard to the 
impeachment of President Johnson, he never had a good political 
career. It kind of went down from there for that period of 
time. But yet looking back on it, they were the people that 
made this country what it was. So I think Kennedy's book, 
``Profiles in Courage'' is a book I would select.

                             TELECOMMUTING

    The last question I want to ask you is: Does the Court have 
telework and telecommuting?
    Justice Kennedy. No.
    Mr. Wolf. Shouldn't you be looking at that? Because the 
productivity of people who telework is actually as high, if not 
higher. There are so many family-friendly personnel policies--
flex-time, flex-place, job sharing, two people share the same 
job, leave--does the Court have leave sharing?
    Justice Kennedy. Yes.
    Mr. Wolf. That was a bill that we put in years ago.
    Do you have flex-time?
    Mr. Donnelly. In isolated cases where it is appropriate for 
the office. We do have job sharing.
    Mr. Wolf. You do have job sharing. You might want to look 
at telecommuting. It is particularly helpful if someone has 
just had a major operation, the opportunity to continue to work 
during the rehabilitation period. But the studies are showing--
and we can share it with you--that telecommuting can be very, 
very productive. Obviously every job can't be done using 
telecommuting, but, Justice Thomas, when you get up at 4 
o'clock, in essence you are doing a form of telecommuting. And 
there are new technologies. We had a man bring in the other day 
a new laptop where you can flip up and see each other. It is 
basically videoconferencing. You could flip it up and talk to 
your law clerk and see your law clerk and share documents 
whereby you could put the document through and you could both 
say, now, in paragraph 1 or paragraph 2--so technology is 
changing. There are people you talk to on the phone and they 
are sitting somewhere far away, and they sound like they are in 
their offices.
    So I would urge you to look at it at least on a pilot 
program. The law that is in place today does not cover the 
Court because obviously it is not our job to set standards for 
the Court. But it does cover the executive branch, and it is 
working very well. Kay James has really gotten behind it for 
the Federal Government. I would urge you to take a look at 
that.
    Justice Kennedy. We will take a look at it, Congressman.

               BOOKS ILLUSTRATING THE MEANING OF FREEDOM

     We are going to tabulate the reading list that the high 
schoolers give us, and I will send you a copy of the 
tabulation. I am sure ``Profiles in Courage''will be on it. ``A 
Man of All Seasons'' I hadn't thought about.
    Mr. Wolf. When you provide it, I will put it in the 
Congressional Record.
    Justice Kennedy. Perfect.
    Mr. Wolf. Sometimes when I am kind of going through a 
different phase of where I am, I will go back and read Robert 
Bolt's book. The book was about More's life, and, of course, 
the King wanted More to be with him more than he wanted anyone 
else to be with him. And, of course, More, who loved the law 
and makes a great case, and yet it ends with--More obviously 
has his head cut off and loses his life, but in the process 
wins. Well, it is very, powerful.
    Justice Kennedy. Thomas More is the patron saint of 
lawyers, was a very good friend of Erasmus, was well acquainted 
with the writings of humanism at the time, and is really one of 
the great lawyers, one of the great chancellors in the history 
of--he was Lord Chancellor of England.
    Mr. Wolf. Right.
    Do you have anything further?

                 CIVIL LIBERTIES DURING NATIONAL CRISES

    Mr. Serrano. Again, I want to reiterate the Chairman's 
desire to help you in any way that we can. We discussed most of 
the questions I had, and I have a couple more that I will 
submit for the record because they basically ask your opinion 
on things, and I keep forgetting I am not supposed to ask you 
for opinions here. I would love for you to make a couple, but 
not right here. You don't want your thoughts on cameras in the 
courtroom later on and so on.
    I wish you the best. I wish all of us the best, because I 
still believe that we are heading down a very difficult road in 
this country right now. And in the process of doing over the 
next 3, 4, 5, 6 years overseas what is right and here within 
this country what is right, I suspect that pretty soon you will 
be facing actions from groups and people who feel that their 
civil liberties have been totally thrown out the window. And I 
told Attorney General Ashcroft, I told Secretary Powell that I 
don't envy any of us, including myself, you know, for the 
decisions we have to make to balance this situation carefully--
getting the bad guys, as I say, and at the same time not 
hurting the good guys.
    Right now I can tell you that this is a period of time 
where people know that we have to stick together and defend our 
country, if you will. But, increasingly, there is a concern 
that in the process we may harm our Constitution and our 
democracy.
    So I really wish you the best because when it is all said 
and done, it is going to be with you folks, a lot of these 
decisions on how we handle that.
    As far as these other mundane things like renovations and 
so on, we want to help you, and we will help you in any way we 
can. I can't expect you to make the right decisions if you are 
not happy with your work. I know I don't function well----
    Justice Thomas. Oh, we are happy where we work. [Laughter.]
    Mr. Serrano. Well, we want you to be happier.
    Justice Thomas. Okay.
    Mr. Serrano. And I want your laptops to become a 
BlackBerry. You will notice I was working under the bench here. 
I took care of a lot of business at the same time, and I told a 
reporter you were doing a great job, both of you. [Laughter.]
    Thank you very much. I really wish you all the best. We 
stand ready to support you. Thank you.
    Justice Kennedy. Thank you very much.
    Mr. Wolf. Mr. Serrano raises something, and I think it is 
important that we have a balance and we be very, very careful. 
And obviously I know you will do that, and I know the Congress 
will encourage you to do that.
    The other side of the coin, though, is the eyes of 
terrorism and the vision of terrorism is very difficult. Kabul 
has been destroyed. Afghanistan is gone. There are other 
terrorist groups roaming all over the world. Now we are dealing 
in Yemen and Sudan. Osama bin Laden lived there from 1991 to 
1996; 2.1 million people have been killed in the South Sudan. 
They were in essence at the beginning of this whole wave. The 
Philippines, the Burnham couple in the Philippines, and perhaps 
are now soon to be Indonesia, if you read the New York Times on 
Sunday.
    As I told Secretary Powell, I was in Algeria 3 years ago 
where 100,000 people had been killed. They slit people's 
throats. We had been in villages where they would go in and cut 
people apart and pull out the babies. It is a tough, brutal 
world out there, and many people wish us very evil. And I know 
Mr. Serrano has gone through the same thing that we have gone 
through. We had 27 or 28 people from my Congressional district 
who were killed in the Pentagon. And I believe there are 15,000 
people that went through these training camps in Afghanistan. 
We have only arrested 450. The others have just changed 
jerseys, but really have not changed their mind. You have to 
have a balance. We are a great country with diversity. I come 
from animmigrant family, but the real world is the World Trade 
Center, the Pentagon, what took place in Pennsylvania, the bombing in 
Kenya, the bombing in Tanzania; the Khobar Towers, we lost 17 people; 
the U.S.S. Cole; the 241 marines that we all seem to forget about, the 
241 Marines that were killed because of the Hezbollah in Iran; the 
American Embassy in 1983 with 91 or 92 killed; the USAID employee from 
my district who was thrown out of a plane and his body was jammed into 
his legs. I asked the Library of Congress for a report--and we put it 
in the Congressional Record of Secretary Powell's hearings--of all the 
terrorist activities that they can place. It is very thick.
    Think in terms of 9/11. So much has gone on before that. 
And we are the last best hope for mankind insofar as defending 
and standing up to terrorism. And I appreciate very much the 
fact that we--you don't have to comment on anything I am 
saying--that President Bush has taken action and moved, because 
my sense is that what the terrorists thought that we were 
relatively weak, that we were not going to defend ourselves and 
defend liberty and justice. The American people are good 
people. When you see the soldiers and the sailors and the 
Marines that are defending us in Afghanistan, they are really 
good people.
    And so I think it is a balance, but I think we really have 
to make sure that terrorism does not get a foothold and in the 
process do precisely what Mr. Serrano says, and I couldn't 
agree with him more, to make sure that they don't change us in 
the process of fighting the war on terrorism whereby we become 
like them and do things that we ought not do.
    Mr. Serrano. But where else do you go as members of the 
Supreme Court and hear a debate on this issue but here? This is 
a good place to come. He just told you how he feels, and I 
agree with him. But your Court had to deal with issues of how 
we treated Japanese Americans during World War II because we 
were afraid of Japanese. And I suspect that if we are not 
careful, in a few years you will be handling a lot of cases 
about Arab Americans who were born here, whose parents were 
born here, and Africans who are now Americans or who are born 
here from folks who came from Africa who were treated in a 
certain way because of their religious beliefs or whatever, out 
of a fear that we somehow we were getting the right people when 
we were curtailing their liberties.
    So, to be continued.
    Justice Kennedy. An attack on freedom for its own sake is 
an attack against all humanity, and the rest of the world has 
to realize that one of the most beautiful, inspirational 
aspects about democracy is that it matures. And I asked the 
high school students if there are some other values that are 
expressed in Mr. Jefferson's life, liberty, and pursuit of 
happiness, and I noticed at the State of the Union message, 
that on the credenza under your desk there are three words 
carved in the House of Representatives. On the left is 
``liberty,'' on the right is ``justice,'' and I said, ``What is 
the word in the middle?'' And I gave them nine blank letters, 
and it is ``tolerance.''
    And this is what the American idea stands for. We accept 
other people, we accept other beliefs, so long as there is a 
basic, fundamental respect for human dignity, and that is what 
we stand for.
    Mr. Wolf. With that, we will adjourn. Thank you very much.
    [GRAPHIC] [TIFF OMITTED] T0619A.060
    
                                         Wednesday, April 17, 2002.

                   FEDERAL COMMUNICATIONS COMMISSION

                                WITNESS

MICHAEL K. POWELL, CHAIRMAN
    Mr. Wolf. Our hearing will begin. We want to welcome 
Chairman Powell to his second appearance before the 
subcommittee, and let me just say as an aside, I appreciate the 
good job your father is doing, the degree of difficulty, and I 
think the American people are very, very appreciative. I want 
to get that on the record.
    You will be testifying today regarding the activities in 
the fiscal year 2003 budget request of the FCC, seeking a total 
operating budget of $268.3 million, offset by regulatory fee 
collections of $248.2 million.
    We want to hear today about the details of this request, 
including program increases you have requested for automation 
and training.
    With that, let me just recognize Mr. Serrano. Your full 
statement will appear in the record. You can go through the 
whole thing, summarize, or whatever, and then we will have a 
series of questions.
    Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman.
    Chairman Powell, I want to add my comments first for the 
job you are doing and, secondly, for the job your father is 
doing. And I found myself in an interesting situation. My son 
was elected to the city council in New York, and he is chairman 
of a committee, so he is Chairman Serrano. I am only Ranking 
Member Serrano. [Laughter.]
    You are Chairman Powell, and he is only a Secretary. 
[Laughter.]
    Mr. Powell. I assure you I never point that distinction 
out.
    Mr. Serrano. You just showed me how smart you are.
    Well, we do welcome you, and we know that your agency now 
is dealing with so many fascinating areas that speak to the 
power that our Constitution gives and that our laws give to the 
airwaves and to the community to use the airwaves. And, of 
course, from all of us you will hear questions, but I know 
certainly from Ms. Roybal-Allard and myself, you will hear 
great concern about minority ownership and the purchase of 
Telemundo by NBC and what that means for our community and what 
the future holds under your leadership for our community.
    So with that, I welcome you and I look forward to your 
testimony.
    Mr. Wolf. You may begin.

                      Statement of Chairman Powell

    Mr. Powell. Thank you, Mr. Chairman. It is a pleasure to be 
with you in this intimate setting, which I have had the 
pleasure of being in before, along with what appear to be 40 of 
my closest friends. But it is a great opportunity to appear 
before you because I really have the distinction of reporting 
on the progress of the Commission with respect to requests we 
have made to you in the past and to report positively on some 
of the developments that have occurred in the wake of the last 
time that we stood before you. I look forward to discussing the 
FCC's fiscal year 2003 budget.

                           FCC Reorganization

    Last year I appeared before the subcommittee for the first 
time and made a personal commitment to effectuate fundamental 
change within the Commission. I guaranteed that the Commission 
as an institution would complete a thorough self-examination 
and develop a reform plan designed to make the FCC a more 
responsive, efficient, and effective organization, capable of 
facing the technological and economic opportunities and 
challenges of the new millennium. The Commission delivered on 
this promise and sent you a reprogramming request for its 
reorganization 6 months later. We appreciate this 
subcommittee's rapid consent to our request, and we began the 
implementation of our reorganization plan just last month.

                           Training Programs

    I also pledged to enhance the Commission's independent 
technical and engineering expertise. The Commission, as it 
promised, dedicated resources to recruiting, training, and 
retaining a solid technology-oriented workforce under the 
program we dubbed ``Excellence in Engineering.'' I am proud to 
report that we have hired 24 mid- and senior-level engineers 
and 15 entry-level engineers in just that time frame. We have 
instituted training programs to keep current and future 
engineers up to date in their profession, and we have improved 
the environment for engineers by purchasing equipment to 
facilitate the spectrum management process and to upgrade the 
Columbia, Maryland, laboratory testing facility. Our ongoing 
efforts in this regard, coupled with the agency's ``FCC 
University'' and ``Excellence in Economic Analysis'' 
initiatives hopefully will preserve our existing wealth of FCC 
staff knowledge and expertise and enhance and extend that 
collective knowledge well into the new millennium.

                          Agency Streamlining

    When I first appeared before this subcommittee, I pledged 
to make the Commission a model of solid management techniques 
and performance. As such, the Commission moved forward to 
continue to streamline agency processes and procedures, 
automate agency processes, provide improved access to agency 
information, and modernize its information technology 
infrastructure. During our January 2002 Open Agenda Meeting, 
the Commission's staff delivered presentations demonstrating 
the results in backlog reduction and management benchmarks.
    Finally, I also vowed that the Commission would use the 
remainder of its fiscal year 2001 and expected fiscal year 2002 
funds to implement its statutory mandates and serve as a 
constructive and fair independent agency, cognizant of the 
intent of Congress and dedicated to serving the public interest 
and consumer welfare. I am confident that the Commission has 
met these commitments and, in doing so, has raised the 
standards for serving the public.

                         Continuing Challenges

    The Commission has made these achievements, however, 
against the backdrop of tragic and dramatic national events. 
The events of September 11th provided us all with an important 
lesson in the significance of the FCC's portfolio. We know now 
that our society has developed more than just an appetite for 
communications services. America is vitally dependent on these 
services in times of crisis as well as in times of peace. A 
strong and competitive communications network is essential to a 
healthy economy, and our Nation depends on both, whether to 
bolster its ability to defend itself or to communicate in times 
of normalcy or emergency.
    I am unwavering in my commitment to implement the long-term 
business plan outlined in my full written statement. To 
effectuate our stated goals, however, the FCC has requested 
$278,092,000 and 1,975 FTEs for fiscal year 2003. This request 
includes $9,765,000 to fund the administration's government-
wide proposal to fully fund retirement costs in each agency's 
budget. The Commission's requested operating costs thus are 
$268,327,000.

                    Fiscal Year 2003 Budget Request

    This figure in operational costs requested by the 
Commission for fiscal year 2003 is the minimum needed to allow 
us to continue the progress made during the past year. In order 
to achieve our goals and stay abreast of communications developments, 
the Commission must keep ahead of changes in technology, economics, and 
the law. Accordingly, we are requesting $15,066,000 for critical 
programming initiatives. An additional $8,190,000 would be dedicated 
toward uncontrollable cost increases related to salaries, benefits, and 
inflationary cost increases for rent and supplies. The administration's 
request of $9.765 million for retirement costs brings the total budget, 
again, to $278,092,000. The fiscal year 2003 regulatory fee offset for 
the Commission would be 89 percent of the proposed fiscal year 2003 
budget, making our direct appropriation request from the committee 
simply 9.5 percent over our total fiscal year budget, or 13.5 percent 
if one includes the administration's pension cost proposal.
    From the perspective of funding Commission objectives, the 
critical segment of the overall budget is the $15,066,000 
dedicated to programmatic initiatives. Of that amount, almost 
$5 million will be dedicated toward Commission employee 
training, enforcement, and spectrum management initiatives. Due 
to national security needs identified since September 11th, the 
Commission also will spend roughly $1 million to improve 
internal security and support other security efforts. The 
remainder of these funds, $9,080,000, will improve information 
technology critical to supporting program performance 
initiatives. With these funds, the Commission will improve 
existing systems to ensure compliance with government-wide 
standards pertaining to system security, accessibility, and 
financial management.
    This year, Mr. Chairman, you have my personal pledge, as 
always, to continue driving forward in a patient and a 
deliberate manner, to handle the expected and the unexpected, 
from homeland and internal security to biennial reviews, an 
expected heavy influx of Section 271 long-distance applications 
that we anticipate for this year, as well as pending major 
merger reviews, just to name a few. The Commission intends to 
use its expected funding to continue its campaign to upgrade 
the facilities, as well as to initiate and complete critical 
rulemakings. The present request is the minimum amount 
necessary to continue to capitalize on our past successes and 
to carry us through the immense challenges of the next fiscal 
year. Already, fiscal year 2002 has been marked by a tidal wave 
of new policy and regulatory issues. I expect fiscal year 2003 
to be at least as opportune and at least as challenging.
    I respectfully request that this subcommittee grant the 
Commission its full funding request for fiscal year 2003. I 
thank you for your continuing support, and at this time I would 
be happy to answer any questions that you might have.
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    Mr. Wolf. Thank you very much, Mr. Powell.

                       FAT-FINGERS DIALING SCAMS

    We have a couple questions here, and one I spoke to you 
briefly about, but let me go into detail. We have a segment 
that we used at our hearing on the FTC the other day. This 
segment, which was on the ``Today'' show, shows just one 
example of what I would call a scheme to which consumers 
unknowingly are subjected on a daily basis. It is called the 
fat fingers dialing scheme, and I wonder if you could take a 
look at this and see, one, if you do not have the ability to 
deal with it; two, do you need any new law; and, three, using 
the bully pulpit, if you will, if there is something that we 
can do to deal with it. But why don't we begin the segment?
    Mr. Serrano. You will note that there is a picture of 
another Powell on that screen. That is just a coincidence, 
right?
    Mr. Wolf. I assume it is. [Laughter.]
    [Videotape played.]
    Mr. Wolf. Do you have any comment on what authority the FCC 
might have? I am going to get a copy of that and send it to 
Senator Hollings and Congressman Tauzin. We are also going to 
send it to the Justice Department, the Criminal Division, and 
ask them to take a look at it. But I think the FCC, it seems--
do you have any thoughts about that or do you have the 
authority--or do you want to comment?
    Mr. Powell. Certainly I will do my best.
    It strikes me that the scheme is very similar to what we 
have seen on the Internet where people attempt to secure URL 
addresses that have misspellings or errors in them in the 
hope--``site-jacking,'' I think it is referred to, as an 
attempt to direct you to their site. It is a similar scheme. 
And, clearly, it seems to me that from the limited facts I can 
gather from the tape that some form of deception, if not fraud, 
is involved, which should mean a couple things. First of all, 
contrary to the reporter's conclusion, I think it probably 
should be clearly illegal and prosecutable somewhere, 
particularly by the State regulatory authorities. The report 
purports to have the call be within--he said his brother calls 
him from four blocks away, or something, which means it would 
be an intrastate telephone call--which might run afoul of the 
State's regulatory commission; in addition, there are consumer 
fraud actions, which the lawsuit is probably being brought 
under in that case.
    As to the Federal level, I think the FTC--I should not 
speak for them--is right in the fact that if it is a service 
provider, a common carrier, they are expressly exempted from 
pursuing actions in that regard.
    With respect to the FCC, I am opining a bit without a clear 
factual basis, but it could be unlawful under the TOCSIA Act, 
which we require--when the call is placed from an aggregator, 
which would be something like a hotel or a pay phone, most 
dramatically, that the carrier has a legal obligation to brand 
the service. So, for example, if it is accurate the carrier 
does not tell the caller what service it has reached, it may be 
violating the TOCSIA provision and its obligation to provide 
the brand. And it may also have obligations to explain the 
rates to the consumer if the consumer asks for them. And it 
must--if I remember correctly, it has to provide the consumer 
an opportunity to hang up the call and not have it completed. 
At least in the story it looked as if those things were not 
possible. At least the gentleman's story is that the call came 
from a pay phone, so that might trigger, given the right 
factual record, a violation of TOCSIA under our statute.
    TOCSIA, though, is far from complete. If you did the exact 
same thing from your home, it would not reach you at all. That 
is, the statute did not account for this branding obligation 
from your home or from other locations other than these 
aggregator locations. So certainly there would be this big 
group of fact patterns in which TOCSIA probably would not be 
implemented, and there would be very limited, if any, FCC 
authority in those instances.
    So, my initial judgment is that there probably are some 
various jurisdictional holes here that are well worth working 
together with the FCC and the FTC and the Congress to try to 
find a better solution for if this is widespread.
    Mr. Wolf. What do you suggest, then? We--we are going to 
send a copy, as I said, to those individuals. If you could have 
your people meet with the FTC--and perhaps we should do a 
letter to some State attorneys general, maybe a handful of 
States where we could get some sense that this is taking place.
    Mr. Powell. I would agree with that. We at times do try to 
reach out and work with the FTC on issues like slamming and 
other kinds of consumer issues in which we have had this same 
issue about common carrier jurisdiction--we try to do things 
cooperatively.
    The other thing which we can do and I can commit to right 
away is that the Commission has a system that we are proud of 
in which we issue consumer alerts about scenarios that we think 
are troublesome and make them available to the public as a way 
of alerting them to certain dangers associated with them so 
that at least they have the ability to be a little more 
vigilant about these difficulties. We certainly could do that 
as well.
    I also could just look more carefully at what evidence we 
have--I do not think we have ever received a complaint likethis 
one, so we do not have an actual factual experience. But we could also 
look into the way the laws work and offer whatever advice you would 
like on that.
    Mr. Wolf. Well, if you would do that, I would appreciate 
it.

                       INDECENCY IN BROADCASTING

    Let me ask you a couple of other policy questions. Another 
one is on the issue--and it triggers a little bit with the 
Supreme Court decision that came out yesterday on child 
obscenity. Last year, I said that the burden on parents to 
report and complain about indecent material broadcast over the 
airwaves is too great and that the Commission should consider 
making it easier for parents, who are stressed now, moms and 
dads having such a difficult time keeping things together, to 
protect their children from offensive programming.
    One of your colleagues on the Commission has called on 
radio stations to voluntarily retain tapes of their programming 
for several weeks after broadcast so that in the event of a 
complaint, the FCC would be able to investigate it without 
placing the burden on parents to provide the programming in 
question.
    The average person certainly doesn't listen to a radio or 
watch television with regard to having a recorder, so the type 
of voluntary action could be a great benefit to the 
individuals.
    Do you have some thoughts about what the Commission could 
do insofar as helping out if there is a situation like this 
that we know take place so many times? I have read some 
transcripts and things like that.
    Mr. Powell. Well, a couple points. Commissioner Copps' call 
for voluntary industry actions has been well responded to by 
some institutions. I know that Disney in particular is 
committed to doing so. I note that he did call for it in a 
voluntary way because we have seen difficulties with mandatory 
requirements along that line.
    But I would also like to emphasize, ever since we had that 
colloquy, the Enforcement Bureau has looked for ways to make it 
easier to file complaints. It is important to note that we 
actually don't require tapes or transcripts per se. What we 
require is some factual indication that gives us a context 
because the legal regime requires us to consider it in context. 
No matter how regretful yesterday's Supreme Court decision may 
be, it has re-emphasized the importance of a holistic context 
to those in the Government who pursue these sorts of things.
    What we do have a frustration with is we need something 
from the public or from the factual circumstances that allow us 
to look at the offensive material in a holistic context. 
Indeed, many of the bigger-profile cases that we took 
enforcement action against this year did not include specific 
recordings or tapes. I think specifically some aspects of the 
Sarah Jones case did not include tapes from the complaining 
public. But the complaining individual was able to give us 
enough of the time and place when it was heard, some of the 
specifics that they recalled hearing.
    If we can get enough to provide for meaningful examination 
of the purported offending station, that is usually enough. 
What we had in that case, for example, is enough to go on in 
terms of putting an investigatory letter before the licensee 
and saying we have evidence that you may have violated this 
pursuant to a complaint. We specifically have these allegations 
and respond. And then in some ways that dialogue produces the 
record we need to make an informed decision.
    So there has been this statement almost consistently that 
we require tapes, and I just want to state again it is not 
really accurate. I wish I had more specific suggestions that we 
could tell the public directly to make it easy. But we have 
been able to pursue enforcement complaints with not too much 
from particular individuals if there is enough context.
    Mr. Wolf. Are complaints up or down, do you know?
    Mr. Powell. I do not want to guess off the top of my head 
because I am not positive. My sense is they--well, I should not 
guess. Our enforcement actions have been up a bit. I mean, we 
have issued more fines than in past years this last year.

               SUPREME COURT DECISION ON CHILD OBSCENITY

    Mr. Wolf. A couple other questions, too, and I know--this 
is an unfair question to a certain degree, but I haven't read 
the opinion either, other than newspaper reports. But as an 
attorney, have you read the Supreme Court decision?
    Mr. Powell. I am sorry. I have not had the chance.
    Mr. Wolf. Then I won't ask you if you had any sense how 
successful could the Congress be in crafting a piece of 
legislation that would meet the test, that would not be 6-3, 
but would be 9-0 or 7-2, reading some of the dissents and the 
opinion. But if you haven't read it, I don't think that is a 
fair----
    Mr. Powell. I have only read the press reports myself, and 
I think the problem for the Congress always is this question of 
breadth. And, as I understood it, the Supreme Court found 
constitutionally offensive the ``appears to be'' kinds of 
qualifications that are less precise than apparently what they 
would like to see. But it is not really my area, and without 
reading it, I don't want----
    Mr. Wolf. Sure. No, I am not asking that.
    You might want to--if you can check and let us know, who 
are some of the best minds on this issue that you know of in 
the country. You can submit that if you have any thoughts of 
different law schools----
    Mr. Powell. I will give that thought, and I----
    Mr. Wolf. Because I would hope that Congress would try to 
craft a law that could meet the test, because I think the Court 
decision could be very devastating in the future.

                            FCC RULEMAKINGS

    On the issue of the Tauzin-Dingell bill, let me ask you 
this: Some have said that with the proposed rulemakings by the 
FCC that you are now looking at, that they could potentially 
have a similar impact on the telecommunications industry as the 
bill itself. What are your thoughts about that?
    Mr. Powell. My view is that is not entirely accurate, for a 
very fundamental reason that should be obvious, which is the 
Commission can only make changes within the statute. The 
Congress can change the statute. Without question, Congressman 
Tauzin and Congressman Dingell's bill is an extensive 
modification of provisions of the 1996 Act itself, provisions 
that no matter what our inclinations were, we could not change 
as an administrative agency interpreting that law faithfully.
    Now, there are certain actions that we can take within the 
confines of the statute that could have some ofthe components 
of Tauzin-Dingell. I will not try to recite item by item, but I think 
that sometimes there is an effort to associate our decision or our 
efforts in this regard as the administrative identical equivalent to 
that legislation, and I have always believed that that is inaccurate.
    Part of what we have most committed to doing is trying to 
finally clarify what the nature of certain kinds of new and 
emerging services are within the definitions of the statute. 
The statute itself lays out certain kinds of services and 
defines them, and then it defines quite clearly what the 
regulatory consequences of each of those definitions are.
    There has been some confusion and ambiguity in the 
marketplace, understandably, that as the new service which has 
components and attributes of various kinds of services within 
the definition come into the marketplace, there is an 
uncertainty about what the regulatory consequences are, in part 
because there is regulatory uncertainty of what they are. And I 
think that what we committed to is it has gone on too long with 
the Commission in, candidly, sort of avoiding the question to 
give it a clear interpretation of the facts as applied to the 
statute definitions and say what we think the service is.
    Indeed, we have been chastised by some courts because these 
issues have found their way into courts in the cable context 
and even in the phone context. And the courts are sitting there 
saying I do not know which the service is. Is it a telecom 
service? Is it an information service? And, increasingly, the 
courts were feeling that the Commission had not yet ruled so 
they were going to do it.
    I personally don't believe the courts are the appropriate 
place to work through the thorniness of the technology and the 
facts, and I think that it is our obligation, no matter how 
controversial, to try to settle in our best judgment what the 
nature of the service is and let that process play out. And 
then I think what the regulatory consequences of that are are 
important, but those questions are far from answered or clear 
based on our ruling.
    The statute itself tries to anticipate and clearly identify 
what will be the regulatory consequences.

                 INCREASES FOR TECHNOLOGY AND RETENTION

    Mr. Wolf. On the budget, with your increase of 9.5 percent, 
$9 million for information technology initiatives, including 
consolidation of licensing systems; also, $7.5 million in 
program increases last year, including funding for technology 
initiatives.
    What are the results of that money? And can you tell us 
what kind of success are you having in keeping people? I know 
you hired those new people, and I want to congratulate you for 
that. We had the SEC up here today. They now have pay parity 
because they were losing a lot of people. So how does this all 
fit in? And are you losing people while you are bringing these 
people on?
    Mr. Powell. Well, I will start with that question. I am 
happy and sad, which is, our retention is so far down we are 
actually having trouble now because we have limited hiring 
authority left, period. We lost very few individuals last 
year----
    Mr. Wolf. Well, that is a credit to you.
    Mr. Powell. And we are proud of that because we think that 
is a consequence of making it a better workplace. We think the 
training initiatives that you gave us money to put into place, 
which we put a lot into, really improved morale, really 
improved people's sense of developing in the institution. But 
our retention is very, very high right now. We are losing 
dramatically fewer people in the last year than we had in 
previous years, so much so that it has become an issue on the 
other side, which is we don't have any more space to make any 
hirings even when we sometimes think we need to, because the 
attrition has been improved so greatly. So I am very proud of 
that, and that is a challenge I am happy to have.
    Mr. Wolf. And that is a tribute, because today the SEC, 
they had lost about a third of their workforce.
    Mr. Powell. Oh, no, we are not.
    Mr. Wolf. People were leaving. And I think in your area 
many people could leave and go out into the private sector, so 
that is a good problem to have.
    Do you have a relationship with any university? Or where 
does the advance training take place? Is it on-site?
    Mr. Powell. It is a great program. And, by the way, we have 
structured it so that your staff can attend things, you 
personally if you were ever interested. We really wanted to 
make that a service to people who were in this business and for 
the Government as well. We do both. Number one, we try to 
capture the talent within the agency, which is significant, and 
encourage leaders to be instructors, to take time out of their 
schedule, to commit to programs, seminars, courses in the 
context of the curriculum. So we have a component of that. We 
have gotten a number of universities, including George 
Washington, Georgetown--the list is actually fairly 
significant--to commit some professors who would come at no 
cost to us directly to teach some of these courses.
    We also have tapped some of the best technology companies 
in the country to commit their expertise at times for certain 
kinds of courses, and they have agreed to do so. So we are just 
about to put the final touches on, a full, complete course 
catalogue for our employees, and I am integrating it into the 
performance evaluation system so that a manager will sit down 
with an employee and say now let's talk about your training 
development plan for the next year. We pop open the course 
catalogue, and we identify what you need to be more proficient 
in, and we get you scheduled for it. And we have also explored 
on-line curriculum so that employees can do it at home. 
Employees can do it at their own pace. Employees can do it over 
the Internet. And we are pretty excited about that. So, yes, we 
have tried to take advantage of all of those things, and so 
far, so good.
    Finally, just to give you an indication, our attrition, in 
2000--over the last year we lost 142, and the next year we lost 
only 40.
    Mr. Wolf. Forty?
    Mr. Powell. Forty. And years previously, 194, 186, 237, 
178, 207, 156.
    Mr. Wolf. Well, that is great.
    Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman. Let me just pick up 
very quickly on two items that were discussed before.
    First of all, last week at the FTC hearing, the FTC 
Chairman said that he wanted legislation that would give his 
agency jurisdiction over consumer protection involving common 
carriers, especially telephone companies. What do you think of 
that?

                 FTC JURISDICTION OVER COMMON CARRIERS

    Mr. Powell. It does not bother me in and of itself. I 
actually have believed that there are some matters in the 
consumer area that I think it is a mistake that the FTC does 
not have jurisdiction over. But it is a little simpler than it 
sounds. I would want to carefully talk about as to what, 
because there is a huge part of the common carrier regulatory 
screen that includes consumers, which we consider to be a very 
valuable part of communication policy and would not want to 
just punt consumer issues in their entirety to the FTC, with 
due regard for their ability to enforce them, because we think 
a lot of those concerns are part and parcel of regulatory 
policy and should not be completely divorced. So we would have 
to think about exactly where the overlaps and parameters were, 
but I think there is room, some constructive room for them to 
have some greater authority in this area for the expertise that 
is unique to them and not unique to us.
    Mr. Serrano. Based on what the chairman was talking about, 
Chairman Wolf, and based on your answer now, Mr. Chairman, 
maybe it is time for an FTC-FCC summit so they can discuss 
areas where you guys could come out together and ask for 
legislation that would help the consumer and help you both.
    I don't know. I didn't see anybody cheer in the background. 
[Laughter.]
    Maybe we can discuss it with another Powell about that 
summit. But, anyway, it is something that I think needs to be 
done, and the lines have to be clarified, because, judging from 
that report we saw there and some other things, you may be 
stepping on each other's toes, or in the process of not wanting 
to do so, the consumer may be denied some very needed help.
    Mr. Powell. Well, we have a good relationship with them. At 
times we have tried on our own initiative to work together as 
agencies where we saw holes. Slamming is a really good example. 
My predecessor worked very aggressively with the FTC to try to 
find ways to do things jointly in that regard. But there is no 
question there could be some farther reaching exploration that 
would include legislation.
    My only caution, more as advice to you than with regard to 
my problem, is that there is a congressional theory, if you 
will, that exempts a number of areas from FTC reach because 
they are otherwise in expert agencies, and one might want to 
consider what the impact is on all of them. I believe they also 
have limits in transportation, maybe in labor and some other 
areas. So it is actually part of a bigger question, if you 
will, about the roles of the expert agencies and the FTC, and I 
just do not know enough about those other areas.

                    Broadcast Indecency Enforcement

    Mr. Serrano. Another issue that you were discussing with 
Chairman Wolf is the whole issue of monitoring and so on. Both 
with Chairman Powell and his predecessor, I have always been 
kind of taken aback at the fact that you only respond to 
complaints.
    Now, I understand that I don't have the solution. You can't 
assign one person to listen to every radio station in the 
Nation. But you do respond to complaints, and so the more 
popular programs probably get more complaints. I have always 
brought up the case of the Howard Stern Show where there are 
people, judging from what we know, who do nothing else but 
listen to that show so they can complain to the FCC. And, you 
know, they are offended by talk about sex and whatever on 
radio, and a number of fines have been levied on that program.
    Again, it is all a matter of taste. I am offended by right-
wing commentators who think every immigrant should be kicked 
out of the country, regardless of what kind of job he or she 
holds and so on. But there is no movement by guys like me to 
complain to you about them. And then I don't know what it is 
you would complain about, anyway, since there are no rules that 
cover that.
    I don't know the answer. I just go on the record again 
saying that I wish there was a way to deal with that issue 
rather than just based on who complains, because I get the 
feeling some people will continue to complain and other people 
will never get any complaints launched against them.
    I know, you are not going to comment on that.
    Mr. Powell. I would love to comment if you want me to.
    Mr. Serrano. Sure.
    Mr. Powell. One, I would emphasize it does not take a mass 
of complaints. We will explore and act, potentially, on a 
complaint from a single individual. So one listener, no matter 
what the program or where it is, potentially can precipitate an 
investigation.
    The second thing that I would note is I have thought about 
this long and hard and still come down to the fact that it 
needs to be complaint-driven at the moment for lots of reasons. 
One of them is the nature of broadcasting--you actually have to 
have personnel and resources in locations all over the country 
to be listening posts. We cannot hear Los Angeles broadcasts 
from Washington or those in a remote part of Montana from 
Washington. You really would need people out there in some 
way--employees are deputized to be monitoring programming. And 
if you did not do it, if you did it on a limited basis, I think 
that we would have a legal vulnerability about the 
arbitrariness of what markets you are in and your complete 
elimination of the other one.
    Mr. Serrano. Well, you know, it would be a great, come to 
think of it, affirmative action program because nobody is 
listening to Spanish radio in terms of monitoring, and some of 
the stuff that goes on in the mornings would get a lot of 
complaints. But that would be another thing.

                          BroadBand deployment

    Mr. Chairman, last February Congress passed and I strongly 
supported legislation promoting the deployment of and 
investment in broadband networks. This is an issue that is of 
critical importance to many constituents, and many in New York. 
In fact, a recent study by Corning, a wonderful New York-based 
company, indicated that fewer rules requiring the telephone 
companies to unbundle their networks to move to a more free-
market approach will actually increase broadband deployment by 
31 percent over the next 10 years.
    I know that the FCC has undertaken a broadband initiative. 
Can you give us your thoughts on where you think the FCC is 
headed? And when can we expect a decision?
    Mr. Powell. Let me start from the back and move forward. We 
are trying to have significant aspects of the decisions this 
year, before the year is over. My usual caveat is we do not 
control the unexpected events that sap our resources, like 
mergers and 271 applications, so we may or may not meet that. 
But that is our internal planning objective.
    I think this is a challenging set of issues because it 
requires some degree of best judgment about the future that is 
always difficult to do, what will stimulate more, what will 
not, what will be the anti-competitive consequences.
    But I think the Commission's initial view is first it needs 
to clarify the law that exists. That is, in my opinion, the 
easiest part, which is while the judgments might be 
controversial, they will be difficult to wade through, it is 
something that an agency, I think, has a sacred obligation to 
do, which is read the law and say whether you think this thing 
is this kind of widget or a that kind of widget. That part we 
have been pushing hard to do, and I think that the clarity that 
will bring in part lowers risk.
    I think companies that are out there investing in broadband 
infrastructure generally are concerned about risk, and that 
comes from many places, and one of those places is regulatory 
risk. And there are different kinds. One risk that we are 
concerned about is we have no idea what they think it is. I 
think when you say what you think it is, they can at least then 
evaluate what the obvious regulatory consequences are of that 
definition. So the clarity point I think is first and foremost 
in our minds.
    From that point on, I think you begin to tackle very 
specific regulatory issues in the context of that new 
definition. Probably the most important and the most debated 
will be what the role is on the wholesale side of an 
incumbent's obligations to provide inputs to other competitors. 
One, do they have to do it? Two, if they do it, on what terms 
and conditions? Which I really think isthe billion-dollar 
question.
    And there is no question, depending on where you draw that 
line, you could screw it up or you could make it a lot better, 
in my opinion.
    I think if you were too aggressive, if you will, too 
regulatorily aggressive, I think you would run the risk of 
stifling investment. You would run the risk that large 
incumbents and others who are building and investing in 
infrastructure slow or stop. And I would also really emphasize, 
because I think in this debate people are not always that 
precise about who we are talking about. I am talking about 
residential consumers. I am not talking about Ford Motor 
Company or some of the mid-sized businesses who I think do have 
a fairly healthy competitive broadband environment, most of 
whom are wired, and many competitors out there want to compete 
to serve that market. And I think that is wonderful, and they 
should continue to try to do that.
    But when we say universal service, when we say ubiquity, 
when we say Americans, I mean Americans in their homes. And I 
think that it is important that the core infrastructures reach 
them if many of these economic benefits we talk about are going 
to be realized.
    There is no question in my mind that that includes first 
off the major infrastructures that are already there. The 
telephone network reaches homes in America. The cable network 
reaches most homes in America. Those networks being upgraded 
will give our citizens access to at least two significant 
broadband providers, and that is something we should be pushing 
to do.
    So I think the next set of questions will be the wholesale 
relationship and at what level should these respective 
incumbents provide those inputs. And I donot even think that is 
the hard part as much as I think on what terms and conditions, 
in a way that is extremely expensive to them to do, or a way 
that allows them to have reasonable recovery of their costs, 
because everybody wants to share networks. Very few people want 
to share the costs, expense, and risk of constructing them.
    Mr. Serrano. Do you think you are moving towards at least 
advising people what their behavior should be?
    Mr. Powell. I don't think we are there yet. I think the 
proceedings are honest in their intent to develop the record, 
which has not been completed and looked at. And I would not 
want to speak for my colleagues either. But I think we have 
made no secret that we believe that this is a new service, that 
it has great potential, and that the regulatory hand should 
be--I like to say deregulated or unregulated, but the 
regulatory hand should be reluctant, which means when we are in 
an area of service that is new and emerging, that the 
applications have not clearly manifested themselves that are 
the killer apps that the consumers value. But we are still 
struggling to see what the right price is and what the 
inefficient price is. I think that is at a time when Government 
often is at its worst, if it tries to be very speculative and 
predictive about how it all--we know how it will unfold so 
let's started regulating every component of it.
    So, yes, I am proud to say that I think that we are 
approaching it with regulatory hesitancy and conservatism 
because we really want to understand what it is we are being 
urged to attach to and how deeply. So it is a lighter touch, 
but I think not just out of ideological preference. In my 
opinion, it is part out of the necessary foment that has to go 
on with innovation and experimentation before we are sure what 
broadband even is and what the applications are that people 
want and what they value it as before we are sure we know 
exactly what the specific terms and conditions should be.
    Mr. Serrano. Thank you. Before I give up my time, Mr. 
Chairman, let me ask a question that I need to so that when I 
go home this week I won't get hung from a tree or something.

                     BASEBALL COVERAGE IN NEW YORK

    I understand, Mr. Chairman, your reluctance on principle to 
bring the FCC into private contractual disputes among carriers. 
But when my constituents in the Bronx can't watch the Yankee 
games, we are talking about a genuine crisis here. Cablevision, 
the local carrier, as you know, refuses to carry the Yankees' 
new network, YES, Yankee Entertainment and Sports, on its basic 
package. YES wants the cable company to pay $72 million, about 
$24 per subscriber. Cablevision says YES is overpriced and it 
would be unfair to pass the cost on to all consumers. Instead, 
it decided that those who wanted to sign up for the service 
could add it as a premium channel. Officials at YES declined, 
arguing that they need to be on a basic channel to charge 
higher advertising rates.
    The season has started, and if this stalemate continues, 
about 3 million households in the New York area, including all 
in the 16th Congressional District, former home of Secretary 
Powell, will lose access to 130 Yankee games. What can we do 
about this?
    And let me tell you, in the Washington area last Monday, 
April 1st, I saw the Yankees play the Orioles on local TV, and 
when I went home to the Bronx, I couldn't watch the Yankees, 
America's greatest franchise and team. [Laughter.]
    Now, I know that it is of great concern to you and the 
children of P.S. 52, where Danny Almonte is now going to 
school--and he will probably become the wealthiest person who 
ever went to that school.
    Seriously, this is a problem that no one in the 
neighborhood--folks on the street can't figure it out, and they 
are saying to their Congressman and to their State Senator: Can 
you do something about it? Why are these two people not 
allowing me to watch these games on TV when I have been doing 
this all my life?
    Mr. Powell. Well, I do not have a great answer for you 
because, in part, there is not a clear basis on which the 
Government can mandate that the cable system carry a particular 
programmer's network, no matter how valuable that program might 
be. I am not aware of any provision that would allow me to step 
in and say, you know, you better get those Yankees on by the 
end of the week, nor do I think necessarily it would be wise.
    One of the things in this dispute--and I do not take any 
position--is they both are pursuing positions that are not 
wholly unreasonable. From Cablevision's perspective, at least 
as I have read about it, they want to carry it. I do not think 
it is that anybody does not want it on the network. I think it 
is, again, this terms and conditions issue, which is always 
critical. There are a lot of sports fans, but their argument is 
there are a lot of people who are not sports fans either and do 
not want their bill to go up $1 to accommodate those that are. 
And if those who are value it, why won't they pay for it on an 
upper-tier basis like we do for other upper-tier programming?
    I am not defending them----
    Mr. Serrano. But their bills went up for CNN and they went 
up for ESPN. Their bills--they had no choice about those 
channels. Those channels are in the basic package. I am not 
knocking ESPN or CNN. But all of a sudden the issue of putting 
it on is an issue when it wasn't before. Those channels are on, 
and we all paid for that, and no one said----
    Mr. Powell. Again, I am being more of an observer here than 
a policy wonk, but, candidly, this is a never-ending battle 
with cable companies' high-end programs. I assure you that 
these same battles have gone on with ESPN, and ESPN is often 
the most egregious example of conflict. The rates that ESPN 
charges cable systems regularly have drawn out bitter 
negotiations in an effort to either lower the rates being 
insisted upon by ESPN or to try to put them on a premium 
channel. They ultimately reach a deal that they find mutually 
satisfactory. That is how ultimately it got resolved.
    I do not know what else to say other than I think in many 
ways your statement about the passion of Yankee fans is the 
best factor in the whole thing, which is, I think, neither of 
them can ultimately afford to go too long without satisfying 
the public appetite for it. And we have seen this before. You 
know, last year sometime, or maybe it was 2 years ago, in the 
Washington area the cable system refused to carry Channel 7, I 
think it was, that was carrying Redskin games. Well, to 
Washingtonians, that is almost as egregious. And at a point, 
they almost get to mutually assured destruction, which is, you 
know, there is going to be a riot here soon if we do not reach 
a deal. I suspect that they will reach a deal long before you 
all make your usual surge in the playoffs. [Laughter.]
    Boston notwithstanding.
    Mr. Serrano. Let the record indicate, Chairman Powell, that 
I have ended my questioning, but he ended on a very high note. 
[Laughter.]
    Thank you, Mr. Chairman.
    Mr. Wolf. Mr. Vitter.
    Mr. Vitter. Thank you, Mr. Chairman.
    As an aside, on the issue of the FCC not having authority 
in this area, I think Representative Serrano would invoke some 
national security clause to make you take emergency action. 
[Laughter.]

                               Northpoint

    I have some quick questions. The first is about something 
we discussed last year which has to do with a new technology 
company in my neck of the woods, Northpoint Technology. At the 
hearing last year, I expressed to you my concern that the FCC 
can create a tremendous disincentive to innovators like, in my 
opinion, Northpoint Technology when the regulatory process 
drags on for too long. And we had a general discussion about 
that. I thought you shared that concern. I am very concerned 
now, more concerned, because I understand that since last year 
the FCC has voted on an order that not only calls for a 
controversial auction, which we talked about, but also 
dismissed all the applications from Northpoint's affiliates 
that were filed over 3 years ago.
    Again, I really think this is a troublesome example of 
regulatory action penalizing--dragging on so long and then 
ultimately penalizing innovators, and it has taken so long that 
you are rewarding competitors and penalizing the innovator who 
came up with this. And it also hurts consumers who lack 
competitive alternatives.
    There is a specific provision in the Act, 309(6)(e), that 
says that the auction requirement cannot be ``construed to 
relieve the Commission of the obligation in the public interest 
to continue to use engineering solutions, negotiations, 
threshold qualifications, service regulations, and other means 
to avoid mutual exclusivity in application and licensing 
proceedings.''
    So I guess my question is what the FCC has done in this 
proceeding, with that provision in mind, to avoid forcing the 
Northpoint applicants into an auction and penalizing them for 
their being ahead of the curve and their innovation.
    Mr. Powell. Well, Congressman, you have me at a slight 
disadvantage because, contrary to press reports, we have not 
released a decision on this, and so I am not yet at liberty to 
really discuss the specifics.
    I will confirm to you that an item has been adopted, but it 
is in its finalization for release and things can change. So I 
really do not feel comfortable talking about any of the 
possible specifics, but I am happy to come up and talk to you 
about them when I can actually get into the substance of what 
you are concerned about and maybe offer any explanations you 
would like or would need. But I do not feel comfortable with 
that at the moment.
    We should also be issuing a press statement within a number 
of days that will provide the outline, at least, and that also 
may give us the basis for having a conversation.
    Mr. Vitter. Beyond that few days, first off, what is the 
realistic time line on this?
    Mr. Powell. I actually think pretty imminent. The only 
things that I am aware of holding up release are the kinds of 
things that should be resolved pretty quickly, and when they 
are, everything will be ready for release. This is not one 
where we will vote and 15, 20 days later you are still waiting 
to see the order, I think. I think it would be fast on the 
heels of any public announcement of the decision.
    Mr. Vitter. Okay. Following up on this hearing, if I could 
just submit the comment and question to you in writing, and 
then at the appropriate time, if you and the Commission could 
follow up, I would appreciate that.
    Mr. Powell. Yes, sir.
    Mr. Vitter. Thank you.

                         700 MegaHertz Auction

    The second issue is about the 700 megahertz auction that 
has been delayed, I think six times. This notwithstanding, is 
it your understanding that the law requires the FCC to go 
forward with that auction? Do you agree or not that digital TV 
transition policy and, in particular, the allocation of the 
spectrum for third generation services are not a point that 
makes the auction make sense? What are your views on this?
    Mr. Powell. Sure. This is an important issue because I 
think it is important to first set out the legal obligation. 
Sometimes this issue is being debated as if it is purely FCC 
discretion, and I would emphasize that Congress stated quite 
unequivocally in the 1997 Budget Act and subsequently that you 
shall auction by dates certain. And I will confess that I have 
great anxiety about our faithfulness to these legal dates, 
including the one where we have delayed it six times.
    The argument against the legal obligation seemed to be, 
well, you did it before. Maybe we did not do the right thing 
before. I do not know. But I do not know that that would be a 
defense in court against a suit that claimed that we hadignored 
a direct congressional directive to do something by a date certain.
    And the other argument that had been made in favor of past 
decisions to delay was that, well, everybody wants it delayed 
and no one will sue you. Even if that is a defensible basis for 
looking askance at a direct statutory directive, that is not 
true this time. There are absolutely clear industry players who 
want the auction to proceed in a timely way and are more than 
prepared to challenge legally a decision by the Commission to 
delay an auction. And we have to take into consideration the 
defensibility of any such action against such a challenge. And 
in past delays, we had not really faced that problem because 
almost everybody was unanimous in its view that the problems 
warranted the delay.
    Now, that said, I have a lot of empathy for the arguments 
that are being made in favor of delay, but there are some 
challenges with those arguments. The first is many of the 
problems that are pointed out are problems that Congress was 
well aware of when it ordered the auctions, anyway, meaning the 
digital television transition, which you mentioned. Congress 
had already established that the transition would go at least 
until 2006, and I do not think anyone genuinely believes it 
will be complete even then, given that Congress has qualified 
that date by saying you have to have 85 percent penetration in 
America of digital televisions, which nobody believes you will 
reach that level by 2006.
    But even with that in place, Congress still ordered the 
Commission to auction the spectrum despite the incumbency. It 
is hard to argue that they were not conscious of that problem 
and that set of problems when they made that decision. I do not 
know that I think it was a wise decision, if I can be so 
candid, but it is the decision the institution made.
    It seems to me that many of the arguments that, again, I 
have some empathy for also are ones that are not likely to be 
resolved any time soon. The incumbencies of the DTV transition 
I think are going to occur for many, many, many years to come. 
I think that some of the other issues surround 3-G are 
important, but part of a process that does not have a clear end 
either.
    And so I feel a little bit as an institution between a rock 
and a hard place with regard to the pressure for us to exercise 
discretion to delay auctions that are statutorily mandated. 
Again----
    Mr. Vitter. I don't want to interrupt or cut you off, but 
if I could follow up sort of more concretely. Is there 
something those of us in Congress who have these qualms about 
the auction being a good idea at this point could do, short of 
an outright statutory change, that would satisfy the Commission 
in terms of putting it off? Or is your answer that really the 
statute is what it says and so, short of changing that now?
    Mr. Powell. Let me say two things. First of all, the bureau 
rejected the request for an extension, at least, arguably, that 
matter--and there have been some press reports of CTIA asking 
the full Commission to consider that decision. So I certainly 
would not want to prejudge that we would entertain the 
arguments. I can only speak for myself--we are a membership of 
four people--whether there is something that would persuade a 
majority to delay, though time is of the essence. I do not 
know. But I think it would honestly entertain questions. So 
whatever represented that view certainly would be considered on 
the record.
    That said, though, I do think--I would be remiss if I was 
not candid in saying I think the real answer ultimately does 
have to be a congressional act to overturn a congressional act. 
The real tension here is that it was a prior Congress' judgment 
to do it, and as the court will remind me in blistering terms, 
a letter from a member or several members is not the same thing 
as a legislative action. And I can not ignore, you know, a 
promulgated act of Congress even with all the cover in the 
world at some level from a legal standpoint.
    So, you know, it has been a little frustrating because I 
think prior--I mean, this administration several times has 
asked for Congress to step in on the auction delay. There is 
some talk of some members considering statutes. I really do 
think if that is important, now is the time for that to occur 
because I think we will run out at the Commission, even if we 
could find a way on this round, it probably would be the last 
time before we would find ourselves in the D.C. Circuit trying 
to explain why we keep ignoring, you know, statutory deadlines.
    I have said the same thing--the administration itself has 
asked in the context of its budget submission for delays of 
these auctions, making the same arguments. I do not have any 
quibble with the policy reasons, but I sincerely hope that 
Congress acts, if that is its choice.
    Mr. Vitter. Okay. Thank you, Mr. Chairman. I have two other 
questions about broadband service deployment. I am going to 
submit those to you in writing in the interest of time, along 
with my first question, so that you can follow up on that at 
the appropriate time.
    Thank you very much. I appreciate it.
    Mr. Powell. Thank you.
    Mr. Wolf. Ms. Roybal-Allard?

                              Low-Power FM

    Ms. Roybal-Allard. Can you bring us up to date on FCC's 
process of the applications for low-power FM? My understanding 
is that the applications from all of the five regions are in 
and are currently being processed. And in your answer, if you 
could include what the court decision with regard to former 
private broadcasters has had on that processing of those low-
power FM applications?
    Mr. Powell. Sure. It might be useful for the record for me 
to submit to you in writing the specific numbers, which I think 
I could give you--how many we have processed--but we have been 
very aggressive in processing what we have received, and the 
last that I recall, quite a number, maybe in the neighborhood 
of 3,000 applications. I know that five such stations are on 
the air. I am trying to remember the number we actually have 
issued, but a fair amount. And they are working full-time to 
continue to faithfully process the ones that are compliant 
under the terms of the congressional change.
    The court case did throw in a new wrinkle--not necessarily 
a bad or good one, but definitely something we had to sort of 
go back and examine. It is kind of vague answer, but as to 
status, we are still digesting what impact that has on the 
applications that we have received or did not allow in the open 
filing windows--or ones that we now might have to allow into 
the open filing windows.
    So I can get you and will get you the specific status in 
numerical terms very shortly, but I think that the process is 
going on pretty aggressively, and we have issued quite a few of 
them.
    Ms. Roybal-Allard. Do you have some time line in which you 
are going to finalize your assessment of the court decision and 
what actions you will be taking?
    Mr. Powell. I would not venture a guess at it. I do not 
think it will take very long. I mean, I think the court was 
fairly clear in what it was saying, and the reason I am 
hesitant is that I do not know off the top of my head exactly 
what the interplay is of a congressional statute that the court 
finds unconstitutional. Is it immediately void? Or do we have 
some other administrative process for no longer being bound by 
it?
    It is not something that I anticipate would take long at 
all, and I do not know that it will have a dramatic effect 
other than it might precipitate a need to provide an 
opportunity for filers that we would not have permitted before 
now to file. My bureaus may kill me--I am speaking out of 
turn--but that seems to me one of the obvious questions we have 
to resolve, is whether we have provided a fair opportunity for 
those kinds of applications that would have statutorily been 
prohibited before to be filed, and if so, would we have to open 
another window?
    I will try to give you a better sense of the timing but my 
sense is not that long.
    Ms. Roybal-Allard. Okay. Could you tell us what the status 
of the Mitre study is? I believe the Mitre Corporation had been 
hired to develop the testing interference protocol. Has that 
been developed? And I also think that they were supposed to let 
out the first contract--I thought it was this month.
    Mr. Powell. Yes. It has not happened yet, but we still 
think that it will happen this month.
    Ms. Roybal-Allard. Okay. Also, my understanding was that 
the markets that were going to be tested, that they were 
looking at about nine markets. And could you tell me if those 
nine markets have been determined and what criteria was used to 
pick them?
    Mr. Powell. I am sorry. I do not know off the top of my 
head the specific criteria that Mitre developed for what 
markets to select. My recollection is the same as yours, that 
it is the number of markets. I can verify that, but I don't 
know the criteria used to pick which markets those actually 
were.
    Ms. Roybal-Allard. The information is available that you 
could----
    Mr. Powell. I think so. Let me try and find that out for 
you to be certain.
    Ms. Roybal-Allard. I would appreciate that.
    Mr. Powell. Mitre is about to let the contract, so I assume 
that it has progressed to the point of knowing what criteria it 
used to define the terms of the contract.
    Ms. Roybal-Allard. And if you can't answer this now, 
perhaps you could provide it for the record with the additional 
information, but if they have picked nine markets, my question 
is: With your proposed budget, is that enough money for Mitre 
to be able to conduct those----
    Mr. Powell. That is a very good question. It may not be. I 
am trying to remember. It is in the neighborhood of $2.6, $2.8 
million that has been identified for that testing.
    Our judgment, as I recall, is it that will be enough to 
initiate the action, and it is our best estimate. But we have 
been warned and know that as the study continues, depending on 
how it goes and what is found, that it may not be enough to 
bring the whole thing, to a safe landing.
    So, we will continue to monitor that, and we will be more 
than happy to bring it to your attention quickly if we think, 
in some reasonable time frame that there are going to be 
insufficient funds to complete the testing.
    Ms. Roybal-Allard. Once you decide that, I would be 
interested in knowing, for example, if you are going to ask for 
an increase in the budget or if you are going to have to 
eliminate some of the markets. I would also be interested in 
what process would be used to eliminate certain markets.
    Mr. Powell. Sure.
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                         LONG-DISTANCE BILLING

    Ms. Roybal-Allard. I have one final question, and this has 
to do with something that I raised last year with regard to 
consumer telephone bills, where some of the local companies 
were charging $1.50 to provide long-distance billing but were 
not informing the consumer of that charge; it was just 
appearing on their bill. And I understand that a petition has 
been filed by nine consumer groups to give consumers a minimum 
notice requirement about the new charges.
    I am interested in what role the FCC has played in this, if 
any, and what other steps you may be taking with regard to this 
issue.
    Mr. Powell. Sure. There are two things we have done in 
response to our discussion last year. One, we embarked on 
somewhat of a consumer awareness effort, again, using our 
consumer alert functions to try to make the public aware of 
this issue. I think you can find information about that on our 
website and in our printed materials.
    On the more formal side, we put that petition out for 
public notice. I believe the record on that proceeding closed 
at the end of March, so we now have a record, and the 
Commission will consider whether the record demonstrates a need 
for some minimal notification requirement, and if so, what. So 
there is a proceeding underway. There is a record that is now 
at the Commission, and the full Commission will consider 
whether more formal intervention is warranted in light of what 
we learn. But that is in its early stage--since the record just 
closed on that, we are just starting on that formal petition.
    Ms. Roybal-Allard. Okay. Thank you. That is all.
    Mr. Wolf. Mr. Latham.
    Mr. Latham. Thank you, Mr. Chairman, and welcome. A couple 
items relative to discussions I have had recently with the 
local volunteer fire department folks relating to their concern 
about this and brought to light on 9/11; that is, the 
availability of different frequencies to the emergency 
responders. Do you have any comments as to whether or not there 
are going to be more frequencies available for them?

                           EMERGENCY RESPONSE

    Mr. Powell. Yes, since September 11th we have redoubled our 
efforts to be committed to understanding the importance of 
wireless functions in emergency services. And there are any 
number of things we have done.
    Number one, we have created a whole homeland security task 
force so that those issues get their own intense policy focus 
in the context of 9-11, and that organization makes specific 
recommendations.
    We have changed allocations in the last year that were 
going to go for commercial services to make them available to 
public safety for some of the needs that they have long argued 
for, including 4.9 gigahertz band of spectrum, 27 megahertz 
band of spectrum, and some other things that they were anxious 
to get.
    One of the reasons this 700 megahertz issue is very 
important is a lot of that spectrum is earmarked for uses by 
public safety. This is one of the unfortunate consequences of 
its incumbency because much of it is going to go to those 
people that you are mentioning who are desperate to get it, but 
it remains--in some markets will remain unusable as a 
consequence of the broadcasters still operating in it and 
creating an interference scenario. Nonetheless, we are trying 
to find ways to promote early clearing of band so that it is 
more useful by public safety spectrum.
    On a going-forward basis, I think that these issues have 
taken a firm place in the interagency discussions about third 
generation and what spectrum should be found and carved out for 
those purposes and how public safety's needs in the next 
generation are going to to be satisfied as part of that, too.
    I am actually committed to and quite proud of our efforts 
in this regard. Public safety has always had a difficult row to 
hoe competing for attention and interest in this regard, and 
the Commission has always tried to find some support for them. 
But I think we have now put it on another level. I think we 
have placed it foursquare at the top of our policy agenda. We 
have an active discussion of those things every time spectrum 
issues come up. We actually have taken some pretty constructive 
actions to get spectrum to them that, candidly, before 9/11 was 
going somewhere else and now is going to go to those services.
    So we can do better. We will keep looking for ways to do 
better. But the spectrum scarcity problem is a problem for 
everybody, and it will stay a problem for them. We also have 
been exploring ways to create more efficient uses of spectrum 
with public safety, dual-use technologies, ways in which public 
safety can use commercial systems with priority access, for 
example, in emergencies. We have explored ways that 
manufacturers could provide dual-use equipment, software-
defined radios that do not have to be programmed to a certain 
frequency and can dynamically change what we have tried to 
promote. All of these things I think will one day mature as 
solutions for public safety as well.
    Mr. Latham. This probably almost touches on one of my 
questions about articles suggesting that the Commission has too 
many lawyers but not too many engineers, do you have any 
comment on that? Would more engineers or technical people be 
beneficial?

                              RECRUITMENT

    Mr. Powell. You are singing to the choir. We have 
identified the same thing, and that is what I spoke of in my 
opening remarks. We launched an Excellence in Engineering 
program a year ago when I took over, and with the stated and 
direct commitment to improve that technology base.
    Nearly 40 engineers in a single year is just unprecedented 
for a Government institution, and at the most senior levels, 
including a brand new chief engineer.
    That is more--I always get this statistic wrong. They will 
tell me what the right thing is. But that is something like 
more than the FCC has hired in 20 or so years, in one year. And 
I think that is a recognition of the importance of our work, 
probably also helped by a down economy, I will confess, but we 
got them nonetheless.
    The other thing that you all have helped us with is we 
finally got money to restore their playground, if you will. 
Engineers do not like to do work with equipment that does not 
work. We are called on constantly for testing--just like the 
Congresswoman's question pointed out about interference issues 
that are important to policy, and then we find we do not have 
the equipment to do the work that is necessary to make an 
honest judgment.
    We have increased our resources and our equipment in that 
lab dramatically with last year's appropriation, and it is now 
really something that is an attractive work environment for 
those engineers. So I think it has gone well, we are trying to 
make this program a permanent part of the Commission, that it 
is always building and maintaining proficiency on the 
technology level. We still need thelawyers. I am one of them. I 
will not lawyer-bash too much. But the language of this revolution is 
technological, and if we do not have an independent engineering 
capability, we are at the mercy of companies teaching us what they do 
before we decide whether they can do it. It is not a good thing.
    Mr. Latham. You want to grow up and be an engineer.
    Mr. Powell. I would like to, but that calculus course got 
me pretty bad. [Laughter.]
    Mr. Latham. I had my local phone companies in here last 
week and, in Iowa, as you are probably well aware, I think we 
have more individual locally-owned phone companies than the 
rest of the country together. They are concerned that the 
universal access fund will give way to the cellular phone 
companies. Is that a concern they should have, that there are 
people now making claims on the universal access fund?

                           UNIVERSAL SERVICE

    Mr. Powell. Well, I do not know the specific concern, but 
this is one area that is almost sacrosanct, I think, as a 
matter of policy, and certainly at the Commission, we are very 
vigilant about trying to continue to evolve the competition 
objectives and the universal service objectives and make the 
fund what Congress told us it needed to be, which was 
sufficient to provide for affordable services in every part of 
the country.
    And I think this stuff really can make your teeth fall out, 
as complicated as it can get at times. You can often get in the 
weeds about whether this factor or that factor is the right 
one.
    I can tell you this: This is an area that I have never 
found even a smell of dissent within the Commission to be very 
conscious and cautious and vigilant about maintaining the 
sufficiency of those programs in a way that supports rural 
America and rural carriers. There always will be moments of 
change, and I think this is one those moments of change, and I 
think the anxiety with some of the rural carriers is 
understandable. I do not reject it in any way.
    I think that we fully appreciate them and feel confident 
that some of the migrations we are trying to make are ones that 
are going to still leave them in a good position and able to 
serve those areas as they have. And this will get tougher. This 
will get tougher because more and more technologies are 
competing for communications services. Wireless is a very 
legitimate substitute to traditional wire land services, and a 
lot of people want that, and a lot of people want that to be 
affordable.
    And, for the record, wireless does contribute to the fund. 
They pay in. Again, I do not--it does not resonate with me what 
the specific issue they may be raising with respect to them 
but----
    Mr. Latham. There may be a different aspect to it.
    Just a last question, very, very briefly. We had a hearing 
last week with the FTC. Who has jurisdiction over alcohol 
advertising on T.V.?

                       ALCOHOL ADVERTISING ON TV

    Mr. Powell. I think it is quite clear, without any 
equivocation, that they have principal jurisdiction over 
advertising, and I think they would say so, and I think you 
will find agreements between us in the past in which their 
primary jurisdiction is emphasized. The only reason the 
advertising issue gets murky is because the FCC has a very 
overarching, broad public interest obligation for licensees, 
and one have at times made plausible arguments that that could 
breach a broadcaster's responsibility in advertising.
    Candidly, the only areas where the Commission has 
prohibited advertising is only in response to a direct 
statutory prohibition, like tobacco, for example, which is 
prohibited. Those are our rules, but there is a statute that 
directs that that be prohibited, and we just implement the 
statute.
    There are no areas that I am aware of in advertising 
regulation that we handle on our own motion, that we were not 
directed to do. The FCC has a general mandate that reaches it 
all the time.
    Mr. Latham. Just for my own clarification, sometimes, not 
being that jurisdiction ever gets blurred around here. 
[Laughter.]
    Anyway, thank you, Mr. Chairman. I appreciate it.
    Mr. Wolf. Mr. Cramer.
    Mr. Cramer. Thank you, Mr. Chairman. And, Chairman Powell, 
welcome back to the subcommittee.
    Mr. Powell. Thank you.
    Mr. Cramer. I am curious. Do you let those lawyers and 
engineers ever play together?
    Mr. Powell. Yes. [Laughter.]
    Mr. Cramer. If we put them in the same room together, we 
might solve a lot of----
    Mr. Powell. The point is that in this university--the 
lawyers have to go to the engineering classes.
    Mr. Cramer. As a lawyer, I cringe at that. But let me thank 
you for moving out on the recent rulemaking for ultra wide band 
technology, UWB, as we finally call it, and last year I was 
anxious with you about what we might do. It is important for 
the FCC to be responsive, especially to companies that want to 
bring innovative technologies to the market as soon as 
possible.
    I have a bittersweet reaction to that rulemaking, so 
sometimes you have to be careful what you ask for, in that you 
placed extremely tight restrictions on the use of innovative 
technology. Have you released the rule or the text of the rule 
itself yet?

                             ULTRA-WIDE BAN

    Mr. Powell. I do not think we have, Congressman, but I 
would have to verify that.
    Mr. Cramer. I would assume, if you haven't, it would be 
soon.
    Mr. Powell. I am positive we have not.
    Mr. Cramer. So I would assume that will be soon that you 
will release that?
    Mr. Powell. Yes, and the reason an item like this takes a 
little longer than normal is because it is an item that 
requires interagency coordination with the administration, and 
so we wait for their final comments on the draft, which we sort 
of have an obligation to do. And I know that we just received 
those. So we are trying to do it as rapidly as possible, but 
that is why this takes a little longer than some other things 
might.
    Mr. Cramer. And I understand that some FCC Commissioners 
have stated that they intend on further UWB rulemaking, say in 
the next 6 to 12 months. Are you aware of that? Or is there any 
commitment to any kind of timetable like that?
    Mr. Powell. I am not aware of the specifics of what another 
one of my colleagues might have said about that, but one of the 
things that I think that we have considered is that this will 
be something that we continually evaluate because it was a 
bloody battle within the Government about the acceptable 
interference and protection parameters. One of the things we 
know is that once you do a little, you learn a little, and this 
is something that we should keep on at some regular intervals. 
It may nor may not be a rulemaking, but we have to constantly 
evaluate the science--at least the Commission's position is to 
continually look for whether those restrictions can be 
liberalized or whether the arguments that we have heard about 
unacceptable risks are indeed genuine. I would credit both as 
possible. But both sides would be honest and admit that there 
are some gray risk areas in the science that we are not sure of 
and that it is important to get the service moving and get some 
real-world experience, and then hopefully we will learn or 
there will be developers--I say hopefully--that will allow 
greater liberalization of the limits.
    Candidly, we might find that other people were right, that 
there are some unacceptable limits. I just do not know.
    Mr. Cramer. Well, you touted the public safety uses of the 
through-wall or ground-penetrating technology, and that has got 
tremendous potential. But press accounts say that through-wall 
and ground-penetrating radars can't actually be manufactured 
within the guidelines set in the recent rule. So I wondered if 
there had been any consideration of any sort of public safety 
waiver on UWB technology usage.
    Mr. Powell. Yes. You are taxing me now. I am trying to 
remember the specific provisions since they are not out yet. 
But I would love to engage on that when the actual text and the 
actual final parameters of that are available, because it 
certainly was not our intent, I can tell you, to shut down in 
some ways those services. We believed that the judgments we 
have made in conjunction with the administration would permit 
viable markets in some of those services.
    So I think what we are finding is one of the companies are 
reacting, first blush, to the press reports about the limits 
and what they think they are. We have other companies that 
suggest, you know, things are not as bad as they seem.
    There is no question that there probably will be areas 
where a company will be taxed to make some changes in their 
original approach, probably, but we think that in a lot of 
these areas that those will be possible at a relatively modest 
cost.
    Mr. Cramer. Well, I would hope that there could be enough 
flexibility in the reaction by the FCC that if there are 
restrictions that do severely limit public safety applications 
of that technology, that we at least have a chance to review 
that and come back and approach it.
    Mr. Powell. I think that is right.
    Mr. Cramer. And so I would look forward to further dialogue 
with you on that.
    I want to switch no to digital TV. Can you describe the 
plans for our Nation's televisions broadcasters to transition 
to digital broadcast transmission? In Alabama, there has been a 
lot of concern on behalf of the broadcasters about the 
requirement that they use or broadcast a significant number of 
analog signals until there is a sufficient number of television 
sets in their market capable of receiving digital signals.

                           Digital Television

    Mr. Powell. Yes, there is a lot in that question. In many 
ways, this is the pressure of, the deal that broadcasters made, 
which was the agreement to take an additional digital channel 
and operate two channels in order to facilitate a transition. 
The transition is necessarily messy because we are going to 
have a mixed set of viewers for a long time, and at some point 
we will hit the inflection point, and Congress has said what 
that would be, which is 85 percent who knows what we will do 
about those last 15 percent. That will probably be another 
issue one day.
    But the nature of the way the transition was set up was to 
be providing both sets of services so that the full 
constituency would have access to programming while we made the 
transfer. It is a burden on broadcasters because it requires 
them for some period of time to basically be broadcasting two 
sets of signals and all the power and cost issues associated 
with that.
    One of the things that that emphasizes is the importance of 
trying to make that transition as short a period as possible--
in other words, as least burdensome as possible. One of the 
things the Commission has tried to do, we set up last year a 
DTV task force charged with aggressively trying to find ways to 
speed the transition in so that we could contribute the 
progress and lowering some of the burdens. And we did that. We 
changed the replication requirements, which was part of what 
was costing broadcasters a lot of money for duplicating the 
signals. We are told that helps with lowering the burdens and 
the cost.
    Recently, we announced a plan in which we are seeking 
commitments from cable and other important players in the total 
industry to make commitments in ways that would facilitate 
their component so that the transition would go faster. So a 
simple example would be carriage of some of the programming on 
cable televisions so that people who have cable televisions 
will be able to get access to the digital signal, which will at 
least make it somewhat more cost-effective for a particular 
broadcaster who will be able to represent to advertisers that 
there is a set of people that have access to their signal and 
they can pull in some revenue for programming to those 
consumers.
    I will not minimize that it is a burden--that there are 
heavy costs associated with the transition. I think 
broadcasters generally believe it will be in their interest in 
the long run to have done it this way. There will be a very 
rough period in the middle, I think.
    Mr. Cramer. If I could, with the limited time left, 
broadband deployment in rural areas, can you give us a status 
update on the FCC's plans for rulemaking dealing with 
derugulation of broadband services?

                          Broadband Rulemaking

    Mr. Powell. Sure. We initiated the rulemaking at the 
beginning of this year, near the end of the last year, in the 
telephone infrastructure side. That rulemaking is proceeding, 
so it is sort of in the dormant--``dormant'' is the wrong 
word--period but it is out, and we are awaiting the development 
of the record to continue to pursue that. That is something, I 
think, that is on track for being largely completed this year, 
we hope.
    We are doing similar proceedings in cable, part of which 
were released recently when we defined cable broadband services 
as information services, which clarifies its 
regulatoryclassification. There are more questions in that proceeding, 
too, about regulatory issues being developed in the record. It, too, is 
being scheduled in our internal processes as something to be targeted 
for the end of the year as well.
    Mr. Cramer. Thank you.
    Thank you, Mr. Chairman.
    Mr. Wolf. Mr. Kennedy.
    Mr. Kennedy. Thank you, Mr. Chairman.
    I just want to follow up on a question that was already 
asked by Chairman Wolf, and that is about the Excellence in 
Engineering and the Excellence in Economics program having the 
same success as the engineering program. Do you expect that it 
will have the same success?

                       Excellence in Engineering

    Mr. Powell. I think it will. We will not necessarily 
measure it in the same way. We do continue to have fairly good 
success with hiring, recruiting, and retaining good economists 
per se.
    The real challenge there, as we see it, is driving more 
thoughtful understanding of economic principles into the 
general base of the policymakers, that is, the lawyers, really. 
A lot of us do not have as much comprehensive economic training 
as we could. Yet more and more, questions of the modern 
communications marketplace are questions about competitive 
incentives, economic effects, anti-competitive effects. I mean, 
I almost believe every communications lawyer needs to be an 
antitrust lawyer, too, to understand the reality of anti-
competitive activity, because we have to sort wheat from chaff. 
I mean, a good lobbyist can always speculate the worst and 
always speculate the best. We have to have some grounding in 
the probability of these things happening.
    So the program is designed to bring together our economic 
assets and researchers and figure out how to drive more 
consciously that thinking into the rest of the agency, and then 
to create a guild for them, too. They were scattered across the 
agency, and now the chief economist really is the individual 
who reins them all in, makes sure they are developing, makes 
sure that their work is up to, current standards, et cetera, et 
cetera. And so our organizational reform created more 
relationships among the economists as a group instead of them 
just disparately out in the Commission.
    Mr. Kennedy. When you say bring the resources together, do 
you consider bringing in the advisory capacity of others to 
give the expertise that may not be provided indigenously within 
you group?
    Mr. Powell. Yes. That is a good point. We do do it on 
occasion, you know, in many, many forms. I mean, sometimes we 
have en banc hearings where we simply invite economic thinkers 
or specialists in areas to testify. That is usually just cost-
free--sometimes they just present papers.
    We really are in a privileged position because the whole 
world is interested in this future and it is not, quite 
frankly, that hard to--generate interest if anything, I get 
more papers over the transom to my office with an economic 
analysis about something.
    The important part is you can advocate economics just like 
you can law, and you really have to feel confident you have 
independent thinking as opposed to being dependent on parties. 
You will have a hard time in America finding telecom economists 
who are not spoken for by one industry or the other.
    Mr. Kennedy. I wanted you to give me an update on some of 
the proceedings, if you could, about the regulatory parity 
between all broadband providers. As you know, 70 percent of the 
market is the residential broadband market from the cable 
television industry, and these cable providers don't obviously 
have the same regulations as some of the regional Bell 
companies. And as a result, they may be able to move faster in 
signing up residential customers. Can you give me sort of a 
feel for, some of the proceedings that are underway impacting 
this area and what you see?

                         Status of Proceedings

    Mr. Powell. My quick answer would be--it kind of goes back 
to your first question, the same set of proceedings, really. 
What we tried to do is create several proceedings that in total 
integrate those types of questions, including that ones you 
just raised. That is why we try to have them on a 
contemporaneous in ``time schedule'' so that we are actually--
even though they are distinct proceedings, they are being 
considered very holistically. We rarely are talking about one 
to the exclusion of understanding what its implications might 
be for the other. Those are the big telephone broadband 
proceedings that I talked to you about including, the cable 
modem proceeding that is underway. There are other ones that 
are also phone-specific, like an overview for unbundled network 
elements--the dominant, non-dominant proceeding.
    The cable proceeding is fairly comprehensive, and wireless 
components are fascinating because they either live in the 
unlicensed world, are fairly free of reach at the moment, or 
are caught up in the 3-G sets of issues that are going to 
require a lot of intergovernmental work. Those things are 
moving along I think quite nicely, and we do not have a 
comprehensive wireless proceeding, other than the ones we have 
dedicated to third-generation spectrum.
    Mr. Kennedy. You know, economists believe two or three or 
more competitors are needed to have real competition. Do you 
think more are necessary? How many choices should there be 
available for there to be competition.
    Mr. Powell. Oh, I wish I knew. This is the magic question. 
I think the answer is not always the same from market to 
market. Certainly one competitor troubles us. Certainly two is 
50 percent better but still has the tendencies that you are 
concerned about.
    Historically, in industries that require fairly significant 
scale for nationwide provision of services, three is often 
the--magic number--but I am not going to say it is the end all 
because I will be quoted as saying you do not need any more 
than three. Three is when you begin to get comfortable that you 
have the interplay among competitors that lead to the 
discipline that you want. I think history in antitrust sort of 
shows that. But I think there is room for quite a bit more on 
the national scale, even as high as six. I think that the key 
is that is not the complete answer because the united States is 
still a huge country, and there are sub-markets all over the 
place.
    In Washington we have this--I call it ``big guy myopia,'' 
as if the whole space is the big carriers that come see use us 
all the time and the big opponents of them that come see us all 
the time. While we are seeing them there are hundreds and 
thousands of other companies and technologiesand markets going 
on in neighborhoods all over the place that never get on our radar 
screen. I always have believed, no matter how significant the large 
carriers are or are going to be, that there are going to be many, many 
valuable spaces where entrepreneurial, smaller competitors are very 
effective and providing very important value-added services. They will 
not necessarily be doing that in every State of the Union and every 
market in the Union. There might be some of them in this State or that 
State or this market or that market. They will be hard for us to digest 
and take account of because they will be so removed from our perch, it 
will be hard to comprehend.
    But I really believe the markings are there for them to be 
a part of that, too.
    Mr. Kennedy. Okay. Just finally, I know you responded to 
Congressman Latham about what you are going to get in terms of 
more radio spectrum for firefighters in the Homeland Policy 
Council. But in addition to that, what other things do you hope 
that you might be able to get with this $1 million, and do you 
think there should be more money towards this effort:

                     FCC Emergency Response Center

    Mr. Powell. I think the $1 million you are making reference 
to is for our own internal security problems. Every Government 
agency after that date had to take a hard look at its own 
operation, its own building, its own location, its own systems. 
Clearly, government-wide there is an effort to harden, if you 
will, our own security systems. That $1 million that you are 
referring to I think is our request for that purpose.
    Mr. Kennedy. And how is that going? How is that money being 
spent?
    Mr. Powell. I think it is--well, we haven't gotten it yet. 
That is what I am begging you for. [Laughter.]
    It is going well, but to be candid, we have some problems, 
and I mentioned this to Chairman Wolf the other day. We have 
asked the committee for its indulgence to use excess regulatory 
fees from past fiscal years to be released to us to spend in 
this fiscal year because a substantial amount of that is 
earmarked for this internal security, internal security 
expenses, and graciously he said he would take a hard look at 
that. That is very important to us because right now we are 
starting to run out of funds for the internal security work, 
unless we get that influx of funds. Then that $1 million is 
what we anticipate we will need to finish the job as we go into 
the next fiscal year. But we think that will do it.
    Mr. Kennedy. I was able to visit my 911 facility in Rhode 
Island not too long ago, and they are trying to figure out how 
to get redundancy. And I don't know whether--in terms of how 
much that is going to cost to get prepared and be ready, and I 
don't know how much you expect it will be for you all to have 
redundancy in place so that you get more than one location to 
operate out of.
    Mr. Powell. Yes, that is part of what we have planned for 
and tried to budget for and we think is fully accounted for in 
what we have asked for. We are pretty confident that we have a 
pretty good ability to continue to operate under pretty severe 
conditions.
    You know, it is interesting. Our building sits right across 
the river from the pentagon, and, trust me, we looked out the 
back window and saw it all happen and did not particularly 
cherish our location at the moment, particularly when we are 
being told there was another plane in the air.
    I was very proud of the way our operations worked. I mean, 
we vacated our building. We made a decision quickly to get out 
and to continue to run the FCC with virtually no one in the 
building, and we did. We had people in key locations, and we 
had the ability to communicate, and we had the ability to keep 
track, because many companies were asking for emergency 
authority to do things, and we kept processing those all 
through the next into the next several days.
    So I feel pretty good about our ability to do that, but we 
could always be a little better.
    Mr. Kennedy. Well, again, thank you for your service, and I 
look forward to helping, if we can.
    Mr. Powell. Thank you very much.
    Mr. Wolf. Are you part of the shadow government? Is anyone 
from the FCC involved at all? It would seem to me that it would 
not be a bad idea to have someone--is there anyone involved----
    Mr. Powell. I would not want to publicly talk about 
everything we do, but yes.
    Mr. Wolf. I would think they ought to be.
     On the excess fees reprogramming, you submitted a request 
to reprogram $6.7 million in excess prior year regulatory fees, 
which we were just talking about. You would propose to use $1.4 
million for post-September 11th security needs, off-site mail 
processing, building evacuation, enhanced guard services.
    I think you should have an opportunity to talk about the 
other because much of the remaining $5.3 million appears to 
duplicate items in the fiscal year 2003 budget request or is a 
cost that the FCC could absorb in 2002. And that may not be 
accurate or that may be different. It would be helpful for you 
to go into detail now if you want to--that might not be a bad 
idea--but also to have your staff come on up and sit down. I 
want to make sure we give you what you need to deal with those 
issues so that there is not a problem. But there could be a 
little bit of a difference of opinion.

                        Excess Fee Reprogramming

    Mr. Powell. Well, we do not want there to be a difference 
of opinion. We have submitted some of the supporting 
information that we were asked for, but maybe it is more useful 
just to sit down again and hear what the Committee's specific 
concerns are and let us address them. I could call our budget 
director up if you want and we----
    Mr. Wolf. No. Why don't you just have them come on up and 
just sit down.
    Mr. Powell. But we are more than happy to engage on whether 
there is any redundancies, and if so----
    Mr. Wolf. And I know that is important to you because you 
did raise it, and I want to make sure that we are meeting your 
concerns.
    On the cost of digital television sets, do you have any 
comments about that?

                        Digital Television Sets

    Mr. Powell. Still too high.
    Mr. Wolf. Is that anything--how do you see that developing? 
Also, the so-called set-top converters, effectiveness of.
    Mr. Powell. The TVs start out, like most product cycles, 
very, very expensive with limited quantity.I think that they 
took a real surge in the last holiday season and----
    Mr. Wolf. What are they now, do you know, roughly?
    Mr. Powell. Well, I would say average $3,000 or so. I think 
that there are manufacturers about to come up with products 
that have integrated tuners, that is, do not require a separate 
set-top box as you were alluding to, that will be under $3,000. 
I have seen 36-inch RCA sets packaged with separate boxes for 
less than $3,000. Pretty dramatic improvement over the last 2 
years.
    The push now is to create more products that have 
integrated tuners as opposed to requiring separate boxes. Many 
of the manufacturers have publicly committed that their next 
manufacturing cycle will have more of that kind of product 
available.
    Informally--and the Consumer Electronics Association 
probably can speak more directly to this but we definitely see 
an increase in product line and availability and more choices. 
If you walk into Circuit City, you certainly will see a healthy 
component of them.
    I think they are dropping on the kinds of curves one would 
expect to see for a consumer electronics product, and as they 
understand the manufacturing efficiencies and lower the cost of 
integrating the components, things have been coming down at a 
pretty steady rate. That is really important to us because, you 
know, that trigger, the congressional trigger, is set and you 
have got to get them to buy them before you even count against 
whether there has been a transition.
    So part of our plan is to try to convince the consumer 
electronics industry to step up to the plate even more and 
commit to more products that will include some integrated 
components so that consumers will have the full package and 
that will stimulate set sales, hopefully.
    Mr. Wolf. Now, most of those companies are foreign-owned, 
are they not?
    Mr. Powell. I do not think there is an American television 
company left in the world.
    Mr. Wolf. No, there is not. Emerson I think was the last.
    Mr. Powell. I think that is right.
    Mr. Wolf. So is this a problem? How are they in their own 
countries, in Japan or wherever the case may be?
    Mr. Powell. I do not know for certain off the top of my 
head, though it is important to note that in places like Europe 
and Japan they use very different high-definition TV standards. 
So the product--in many of these places, the product, the 
television, is a different technological solution than the 
standard in the United States. You might hear about this as the 
eight VSB versus COFDM debate. But COFDM standards are used in 
other parts of the world, and our standard is different in that 
regard. So, Sony or someone like a Sony manufactures sets for 
both markets.
    There is no question that maybe sets would be cheaper 
faster if there was a standard that was the same all over the 
world by making one set of sets. But that genie left the 
bottle, a long time ago, I think. But they don't seem to be----
    Mr. Wolf. Are they ahead of us or behind? ``Ahead'' is not 
the word, but is there more digital TV viewing in Japan than 
there is in the United States?
    Mr. Powell. I am not positive. I think not for Europe. I am 
fairly confident of that. Japan, just off the top of my head, I 
am not entirely certain.
    They had had a few fits and starts on their own standard. 
They were the leader initially in high-definition television 
and pushed the standard very aggressively and that ultimately 
was unsuccessful, so they had to go back to the drawing board.
    Mr. Wolf. I remember that, yes.
    Mr. Powell. In many ways, technologically the United States 
sort of leaped ahead. People forgot the HDTV originally was 
analog, not digital. It was in the United States where the 
breakthrough was made to make them digital. So that led to a 
stimulation--but in terms of consumer penetration, I just do 
not know.
    Mr. Wolf. The National Do Not Call Registry, the FTC, as 
you know, is considering it. They are moving ahead. You have 
oversight of telemarketing by telecommunications companies. How 
are you working with them on the issue, and how will the 
program work? And, lastly, if more than one agency has 
enforcement, how would this do-not-call list be enforced, and 
how would the violations be punished?

                     NATIONAL DO-NOT-CALL REGISTRY

    Mr. Powell. I think a lot of those questions are unresolved 
at the moment. Chairman Muris reached out to us almost 
immediately when he wanted to do this, and we have been working 
with them at a informal level in most of this process. It was 
sort of agreed that, this was really his baby, he wanted to do 
it. We thought it was a good idea initially but said, look, you 
have most of the world, and he was proposing to run a database 
and have the funds to run it, which I do not know much about. 
But we committed to having our staff work with their staff as 
they are proceeding and their efforts develop to see how and 
where there might need to be or merit an FCC counter-response 
to fill those spaces.
    We know that the common carrier area is one where they do 
not have the jurisdiction that they are concerned about. So 
what we have done is set up liaison staffs that are working 
with them as they go through this to see what proposals they 
will make to the FCC as to what we might do that complements or 
reinforces their efforts.
    I think that the conceptual model is that they basically 
will, own, operate, fund the database, but they want, in 
essence, to borrow jurisdictional enforcement from us on those 
areas where they can not reach them. We probably would have 
enforcement authority with respect to common carriers because 
they did not.
    Mr. Wolf. Is this unusual to have--it is almost like the 
DEA giving its drug authority to the Fairfax County----
    Mr. Powell. No, because we would not really give it to 
them. We would basically attempt, if this all worked out, to 
mirror their rules in our rules for our limited piece, and we 
would administer our piece in parallel with their piece.
    This is not that uncommon. This has been a consequence of 
this gap in the jurisdiction for a long time. So slamming rules 
and other things regularly we have figured out ways to plug the 
holes through parallel provisions. I think we have done that 
before. This is a new experiment. We will see if we can make 
this work as well.
    Mr. Wolf. Good. Telework, how may people are teleworking in 
the agency?

                                TELEWORK

    Mr. Powell. Well, we are proud that the FCC is largely a 
model that often is cited. Generally, 100 percent of 
ouremployees are eligible, with the exception of some people, 
receptionists and those who really have to be part of the face of the 
Commission. It has been offered to virtually everybody; 315 regularly 
do it, and about 100 do it on an ad hoc or as-needed basis.
    Mr. Wolf. Well, that is good.
    I am going to see if Mr. Serrano has any other questions. 
We will have a couple other questions that we will submit for 
the record. The emergency response center, but we can cover 
that too for the record.
    Just a couple of questions that I had in listening to your 
testimony. One is the shadow government question. We asked you 
that.
    Two, how familiar are you with the work going on that the 
Committee funded for the communications system here in the 
Washington, D.C., area after 9/11? There was $19 million put in 
by the Congress for communications in the Washington, D.C., 
area based on what took place on 9/11. I think the University 
of Maryland is developing a system. Is anyone from the FCC 
involved in it at all?

                       D.C. COMMUNICATIONS SYSTEM

    Mr. Powell. That is new to me. I am not aware of our 
involvement in that initiative, but that is not to say we are 
not at some initiative, but that is not to say we are not at 
some level that I have not been keeping abreast of. I will 
check that. That is a first for me. I have not heard about that 
one.
    Mr. Wolf. I also heard there was something being developed 
for governmental agencies that, if something were to happen, 
every telephone would ring. If something were to happen in a 
certain area, there would be an automatic ring with a message 
to all of the emergency response teams, all the hospitals. Is 
there anything like that taking place, do you know, for this 
region?
    Mr. Powell. Not that I know of, Congressman. I have only 
heard this discussed as an idea. I have never heard or seen it 
pursued in any tangible or formal way. It is the idea sort of a 
telecom version of the emergency alert system that somehow you 
could activate the telephone system.
    I do not know what the technical issues are involved in 
that, how viable that is. I do not know that it has proceeded 
much past general discussions about it. I am not unaware of any 
efforts specifically in that area. I have said on a lot of 
these things that, with regard to the intergovernmental 
security matters. But I don't recall hearing about that being 
pursued.
    Mr. Wolf. What ever happened and when--give me a little 
history of the Fairness Doctrine, a number of years ago.
    Mr. Powell. The Fairness Doctrine which exists----
    Mr. Wolf. Not the Monroe Doctrine. [Laugher.]
    It was a little bit after the Monroe Doctrine.

                           FAIRNESS DOCTRINE

    Mr. Powell. Let's see, I was only 15, so I do not--well, 
the Fairness Doctrine which existed as a Commission policy for 
the fair coverage of issues of controversy--I am trying to 
remember now--had two components, as I recall. The first 
component was a general obligation to cover controversial 
issues, sort of vague and undefined, but, a duty to do that. 
That rarely led to any actions or interplay much because of its 
vagaries.
    The other components were the opportunity to provide people 
response time for allegations by the station, or someone you 
had on the station that might have impugned you or covered an 
issue in some way. Not the same as the equal time rules, that 
we are familiar with today, but a more general obligation for 
even regular citizens, not just political candidates.
    I think in the 1980s--I am trying to remember the specific 
dates--maybe mid-1980s--in 1987, the Commission did a very, 
very extensive report on the Fairness Doctrine to see whether 
the purported objectives of it were actually effectuated by 
this rule and policy, and in a large measure concluded that, in 
the context of the report, indeed it seemed to have some 
countervailing impacts, such as that the fear of having to 
provide those responses were actually chilling speech by many 
broadcast properties because they would, rather than cover 
these controversial things and potentially embroil themselves 
in Fairness Doctrine litigation, they would just choose to back 
off of them. So there was this real issue about whether the 
thing was serving its purposes.
    This became a very big court case as well, I think, by the 
name of Syracuse Peace Council at some point in which the court 
was quite aggressive in challenging the Commission's previous 
interpretations. The long and the short of it, the doctrine was 
ultimately repealed because there was a big legal issue about 
whether it was statutorily mandated or was a Commission rule.
    The Commission itself had anxiety about this. They believed 
it was a Commission rule--it is all coming back. They believed 
it was a Commission rule----
    Mr. Wolf. You mean they actually got Congress being 
involved?
    Mr. Powell. There you go. That Commission, I think, in 
their heart believed it was a Commission rule, but there was an 
issue as to whether it was statutorily mandated. I think that 
the court answered that question, that it was not statutorily 
mandated; it was in the Commission's discretion. And in light 
of the Commission's finding, why does it maintain the rule? It 
was ultimately repealed.
    It became a little bit of a political issue for a 
whilebecause there was an anger that it should have been statutorily--
the interpretation should have been that it was statutory. There was 
some talk about reviving it as a legislative matter, I think in the 
very beginning of President Clinton's administration, but it never took 
root.
    So it went away, and there were some corollaries to it, the 
political editorial rule and the personal attack rule, which 
remained, interestingly enough, though they were rooted in the 
same analysis. The D.C. Circuit, after 17 years, ordered the 
Commission to eliminate them because it continued to refuse to 
justify why they continued to be valid in light of the repeal.
    That is the best I remember it in a nutshell.
    Mr. Wolf. When you have consumer alerts or when you make 
consumers aware, how do you do that? You mentioned that several 
different times today, and how are they eon in a way that gets 
to the average person? You talked about doing a consumer alert 
on this fat fingers issue, how does Mr. and Mrs. Smith living 
in Des Moines, Iowa, both working and having a hard time 
keeping things together, find out about it?

                      Issuance of Consumer Alerts

    Mr. Powell. It is not easy, but I will tell you what I know 
we do. There are probably other things.
    Number one, we put together a bulletin. This is a copy of 
one, but we have an actual physical bulletin that we make 
available upon request, because sometimes--these issues rarely 
come to us in a vacuum, meaning at our call center we will be 
getting complaints. We will hear from consumers that have 
issues, and what will happen is that the consumer alert 
information will now be available. So our consumer affairs 
people who are on the phones will then know that we have 
information related to that concern that we can make available 
to a consumer who has an issue that he is concerned about. And 
we make it available online as well. We have a whole area 
dedicated to consumer affairs and consumer issues that can 
easily be checked, fairly regularly, and we try to make known 
that this is a function that we serve.
    The other thing is we sometimes have dialogues with State 
and local authorities who are closer to consumers in various 
jurisdictions. A State public utility commission in some ways 
is very different than the FCC. They really do have a front-
line consumer component that is very different than ours. So we 
often are alerting those Commissions to issues so that they are 
aware of them, and then let them be aware of our resources. 
Sometimes those commissions will publish links to our material, 
or they will ask for written copies, as well as consumer groups 
who usually are made aware about issues that they advocate on 
the part of consumers about some of the things that we have 
done in this regard.
    We do not have any way that we know of to do anything like 
radio advertisements or, we do not do anything like that that I 
am aware of.
    Mr. Wolf. Are they sent out to the press?
    Mr. Powell. I think they are sent out to the press, yes.
    Mr. Wolf. I am just thinking about the poor person who does 
not have the Washington representative office, isn't part of a 
particular group, isn't part of an organization. How do they--
the fat fingers issue, how do they know? So when they know they 
have that type of a card, they have got to be very careful that 
they don't make a mistake, just a public interest point of 
view. Obviously, most people are honest and ethical and most 
companies, but when you find a case like that, how does the 
average person know?
    Mr. Powell. I could not pretend for a moment to suggest 
that from Washington and our building we were able to get to 
the vast number of consumers out there. What we do try to do is 
disperse, distribute, and delegate to ever more institutions 
that are closer and closer, more disaggregated and closer to 
consumers across the country in the hope that availability 
makes a difference. Then we try to set up our own call 
complaint operation so that we can feed them. There is no 
question that we can not possible reach everyone.
    The other thing we have done on occasions--but there are 
very severe limits on that--is when there are really big issues 
that we take regulatory action on, sometimes we have bill 
insert obligations. That is rare, but it has to be foursquare 
within something that we clearly----
    Mr. Wolf. So you can mandate that they put it in?
    Mr. Powell. I am hesitating because, no, not on everything. 
There are a bunch of Supreme Court cases about rights on bills 
and what they govern. We sometimes have required, in the 
context of settling enforcement disputes or through rulemakings 
that are really specifically directed at Congress, 
informational material in bills to help consumers understand, 
particularly if it is bill-related, that this charge exists.
    So, yes, we have done that at times. We do not have a 
general ability to do it, but some instances we do.
    Mr. Wolf. I think in two areas, that area where there is 
consumer fraud and where there is the exploitation of people, 
being a Republican, very strong free enterprise and all the 
things that we traditionally talk about in my party, I also 
think that Government can play a role to make sure that people 
are not exploited, the poor are not exploited. I think there is 
an opportunity, as you see those things to move out, when this 
type of thing or something like this is taking place.
    The other area--I was very frustrated when NBC broke with 
their long-term policy to allow hard liquor ads on television. 
The report that came out a week and a half ago showing that 
1,400 young people die and there are 70,000 date rapes as a 
result of the drinking on college campuses, and NBC was moving 
ahead.
    Now, to their credit, they rescinded that, and I wrote them 
a latter and thanked them. I think they are a good network. I 
happen to watch Brokaw. They do a good job. But I was really 
disappointed to see that, and I think the good news is, ABC did 
not join; CBS did not join; Fox News did not join. But 
everywhere I went in the Government, I got no response. I wrote 
to a number of agencies. They said, ``We can't do anything; we 
won't do anything.''
    I got no response from Secretary Thompson at the Department 
of Health and Human Services, whose agency did this latest 
report that came out last week. And we had a good voluntary ban 
in effect. It was voluntary, which I think is purely the best 
way. If you can do something voluntarily and not have more 
Government regulation coming in, it is better.
    And so I would urge you--and I think you do a good job, 
too, and I think the Powell family from a public servicepoint 
of view--nobody will ever be able to say that your family hasn't paid 
its dues. Both of you could go out and make a lot more money in the 
private sector than you certainly are doing now and your dad is doing 
now. I would encourage you, particularly on this area of fraud and scam 
but also on the area of pornography and things that are coming into 
homes, not that people are seeking them out but they are just coming 
in, to really think in terms of there are times that you can use the 
bully pulpit. The Bible talks basically, the eye is the window to the 
world, and garbage in, garbage out. And what is coming in uninvited, 
not asked for, not subscribing, not part of, not getting involved in 
the First Amendment, if you will, but purely in a person's house. I 
would urge you to see if there are occasions whereby sometimes the 
bully pulpit, speaking out on an issue without having a law can 
sometimes really have a tremendous impact, because most companies want 
to do the right thing. Most people are honest. I think sometimes when 
they know, the fact that there will be consequences for going through a 
red light, generally means even at 3 o'clock in the morning when no one 
is around, people stop at red lights. And I think knowing that people 
are watching can go a long way to helping mothers and fathers for the 
future, their kids. And I know your father, and you can understand 
this.
    So I would encourage you to use the opportunity for the 
bully pulpit, and you are very capable. It is a powerful 
position that you have, and there is the passage in Luke, ``To 
whom much is given, much is required.'' For me, for Mr. 
Serrano, for all of us who get the opportunity to serve, but 
particularly in this area of what is clearly, no question about 
it, the definition in the Miller case of pornography and 
community standards and you knew it when you see it.
    I think someone in a position of authority--and this is not 
directed now toward you. Someone has to say this is too much, 
enough is enough. We as a system, as a Government, have to deal 
with this. We don't want to get involved in the First Amendment 
in doing it, but you can't, allow this type of activity to come 
in whereby mothers and fathers are literally losing control. 
They are not in the marketplace. This is not a movie that 
somebody is going to and paying for, and making that choice 
whereby mom or dad could elect, no, don't go to the mall and 
see that, okay to go see this, but literally being thrust upon 
them. I think Government has to be there and be a participant 
in that debate and not say, that we can't deal with that. 
Because I can assure you that one side will be very active, 
they will hire the best law firms in town. Moms and dads, they 
have no big law firms downtown on K Street, they have no 
lobbyists. I was a registered lobbyist before I got elected to 
Congress. They have nobody as their advocates.
    And so you become their advocate, and Mr. Serrano becomes 
their advocate, and I get to be their advocate, and also with 
the idea that never when all three of us leave these positions, 
which someday will happen as the time has passed, we never say, 
``Oh, if I had only spoken out on an issue, I think I could 
have saved some young people or could have done something that 
really would have helped on that case.''
    Unless Mr. Serrano has any last questions, I will yield to 
him, and I want to again thank you for your testimony and thank 
you for your service, and we look forward to working with you 
and trying to help. If your staff can get together with the 
staff, if you can make the case on that I want to make sure, 
because budget numbers are tight.
    So, with that, I thank you very much, and I recognize Mr. 
Serrano.
    Mr. Serrano. Thank you. I will be very brief, Mr. Chairman, 
because in listening to the testimony and waiting for my turn 
again, I did come up with some questions.
    If you notice, I had my Blackberry on, and I wasn't being 
rude. I was reading about 15 articles on the Venezuela crisis 
that I am paying a lot of attention to, which prompts a 
question, interesting how this comes about.
    There is an article here saying that in Venezuela, the 
media is doing a lot of soul searching, the owners of the media 
outlets, because they participated very strongly in what 
happened this past weekend. They were President Chavez's 
biggest opposition. In fact, the media met with the interim 
President before his ministers were sworn in and as he was 
dissolving the assembly and the constitution.
    Why is this a question for you? Because in the group that 
met was Univision. And this was not a press conference. This 
was a meeting of media moguls, if you will, trying to set up a 
new government.
    So my question to you, Mr. Chairman, is, and something I 
should know: Is Univision an American-owned company or is it a 
company owned outside this country with functions inside this 
country? I really never paid attention to that so I never knew 
the answer to that. If they are an American-based or -owned or 
-licensed company, then what the heck were they doing sitting 
in during a coup in a Latin American country where the military 
were overthrowing a democratically elected President? That is 
the only reason I would bring up a question like this, because 
it is clear----

                          Broadcast Ownership

    Mr. Powell. I would like to check for you, but if they own 
broadcast properties in the United States that are licensed, 
they have to be an American company because the statute forbids 
foreign ownership of a broadcast entity.
    Mr. Serrano. Right. And they own plenty of stations 
throughout the country, right?
     Mr. Powell. Well, then for those purposes, at least, they 
must be, an American licensee or have been found to be for that 
purpose. And I don't know how to answer what purpose they 
were----
    Mr. Serrano. I understand. So let the record then show, Mr. 
Chairman, at least that there is one outraged Member of 
Congress who, as this story unfolds and we find out--not 
withstanding what anyone thinks about Mr. Chavez, you know, if 
I had him in front of me, I would give him a hard time about a 
lot of things he has done. But I certainly would give the 
military leaders a harder time about trying to overthrow him 
that way. And I think our Government may be slightly 
embarrassed soon about what we did or didn't do. But now one 
thing that sticks out, Univision, the Univision Caracol, and 
other franchises, but hose are all local. If this is an 
American company, then I think we have to know that--and please 
clear that up for me, because I would like to ask them what the 
heck they were doing in the middle of a coup and what was the 
role that they intended to play in the next government.
    Mr. Powell. Well, this we will find out for you quickly.
    Mr. Serrano. Thank you.
    Very quickly, XM radio, that is the latest toy on the 
market. I can't wait to get it, unless you are telling me not 
to get it.
    Mr. Powell. No, I will not. [Laughter.]
    Mr. Serrano. My understanding is I go to Radio Shack or 
whatever and buy the actual radio, it gets installed in my car, 
and then I buy the service for under $10 a month or something.
    Now, one, is this regulated the same way other radio 
stations are, if you will, or is what comes through the radio 
regulated or supervised by you? And, secondly, because Circuit 
City and those folks can't really explain it to the consumer 
yet, could you then help us out here? Is it all programmed 
radio that the XM people put out, or can you actually pick up 
some live--what is the technological word?--real-time, live 
stream radio?

                            Satellite Radio

    Mr. Powell. They are not regulated precisely like a 
broadcaster because they are, if they are careful to stay 
within their parameters, an entirely different animal in the 
sense that they are a satellite company offering satellite 
services. They are not locally originating broadcast content 
and broadcasting within a community of broadcast license. So, 
they are new thing, unclear exactly how we would characterize 
them, but almost more like a cable company version or a DBS 
version of broadcast television. They are similar to a DBS 
version of radio, if you will.
    You describe it correctly. They have a hardware component, 
$200 or $300, and they have a monthly subscription component. 
Some of their channels are advertising-supported, as I recall, 
but they also promote that they have channels that are 
absolutely advertising-free, because like a cable company, they 
have subscription revenues, so they are making a value package 
out of both.
    That is not just their programming exclusively. They 
partner with content providers. I think that they have things 
like CNN radio, in which they have a partnership with CNN to 
provide CNN-oriented content. I suspect CNN is doing the 
development of that content and providing it to XM for 
distribution.
    It can be live in the sense that it is dynamic. I mean, CNN 
radio might be useless if it could not tell you news events 
that were going on at the moment. It is not broadcasters sort 
of locally originated, station----
    Mr. Serrano. I could not pick up a station from L.A., for 
instance?
    Mr. Powell. No.
    Mr. Serrano. Right.
    Mr. Powell. No, no.
    Mr. Serrano. So there go the Dodger games. [Laughter.]
    Mr. Powell. That is where we are going.
    Mr. Serrano. No, no, that is not where we are going. That 
is where I used to be. I am in the Bronx now.
     Mr. Powell. No, there are very careful limitations about 
it crossing over into broadcast spaces.
    Mr. Serrano. Well, I do have other questions, but I will 
just submit them for the record. Once again, thank you for your 
testimony. You have been more than patient with us, and just 
keep doing that, and please find out about Univision. We could 
be on to a major story here, Mr. Powell.
    Thank you.
    Mr. Powell. Thank you.
    Mr. Wolf. Thank you very much. The hearing is adjourned.
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                                         Wednesday, April 10, 2002.

                        FEDERAL TRADE COMMISSION

                                WITNESS

TIMOTHY J. MURIS, CHAIRMAN
    Mr. Wolf. The committee will come to order. I want to thank 
Chairman Muris for appearing before the subcommittee this 
morning to discuss the Federal Trade Commission's fiscal year 
2003 budget request.
    The mission of the FTC is to enforce a variety of Federal 
antitrust and consumer protection laws. The FTC seeks to ensure 
that the Nation's markets function competitively and are 
vigorous, efficient, free of undue restrictions. The FTC also 
works to protect business and consumers from unfair and 
deceptive practices.
    A few of the issues that are of particular concern to me 
are the hard liquor advertisements on television and the 
expansion of gambling on the Internet. I would like to hear 
what the FTC has been doing to address these issues. I don't 
know if you saw the study that came out yesterday with regard 
to drinking on college campuses. 1,400 students die each year 
as a result of drinking. There are also sexual assaults. It was 
unbelievable. I never thought the deaths and the degree of the 
problem so large. The FTC may want to review this study.
    In regards to the liquor advertising, I would like to 
congratulate and thank NBC for reversing their previous 
decision and deciding not to air these ads on their network. I 
also want to thank ABC and CBS and Fox for continuing their 
longstanding ban on hard liquor advertisements. Their decision 
not to follow suit is validated by the study that came out 
yesterday. The decision to continue the ban will undoubtedly 
reduce the incidence of drunk driving by young people, saving 
lives and keeping families together.
    On the issue of on-line gambling and children, we 
understand that the FTC has found that minors can easily access 
on-line gambling and are frequently exposed to advertising for 
on-line gambling on nongambling Web sites. We would like to 
hear what you are doing to address this problem.
    With that, I would just like to recognize Mr. Serrano for 
any opening comments, and then you can proceed either by 
reading your entire statement which--I have read--or you can 
summarize.
    Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman.
    Good morning, sir. Those who would want to classify or 
stereotype conservatives and liberals would say that I am not 
supposed to make an opening statement that disagrees with 
anything the chairman said, and we agree especially on this 
whole issue of advertising liquor on TV. And I would like to 
add one point to it, to see how you would respond to it or see 
if you could do some research on it.
    NBC just purchased Telemundo, or is in the process of 
purchasing Telemundo, which, as you know, is a Spanish 
television network. Does the behavior they now subscribe to, 
which the chairman and I approve of, now mean they will also 
impart that behavior in Spanish, or is that a whole different 
world? Because I remember years ago we had a situation where, 
Mr. Chairman, the networks had agreed not to advertise alcohol, 
but then you were getting live commercials from Mexico and 
other places, Spanish TV live, where they were doing just the 
opposite, and there was no voluntary control over that.
    So I would like you to comment on that.
    Other than that, I really appreciate the work that the FTC 
does. I know it tackles a lot of very important issues, 
especially these days. And I have always said the good news is 
that we have always had a pretty good economy in this country, 
sometimes a great economy. The bad news is that that opens the 
door for a lot of people to misbehave, and we have to make sure 
there are folks who keep an eye on them.
    So thank you and welcome.
    Mr. Muris. Well, thank you both very much. Let me briefly 
summarize my testimony and submit the full statement for the 
record.
    I certainly appreciate the opportunity to be here today to 
support our fiscal year 2003 appropriations request. I 
especially want to thank the subcommittee, particularly you, 
Mr. Chairman, for your strong leadership and support for the 
FTC in both antitrust and consumer protection.
    As you know, we are the only Federal agency with broad 
jurisdiction in both antitrust and consumer protection over 
large parts of the economy. We have a very dedicated staff, and 
I think the FTC's record of protecting consumers is impressive. 
We are going to continue to build on that strong record.

                                MISSION

    I have said before, many times publicly--and I have been at 
the FTC now 10 months--the watchword is continuity. We will 
build and address competition and consumer protection issues 
with the same expertise and commitment as my predecessor, my 
long-time friend, Bob Pitofsky.
    We have asked for $176,509,000 and 1,074 FTE. I think that 
will allow us to continue protecting American consumers. Let me 
just give you a few highlights of our two missions.

                                 FRAUD

    First, starting with consumer protection: Fighting fraud, 
especially on the Internet, remains a key priority. We 
recently, after September 11, for example, have cracked down on 
the sale of bogus bioterrorism-related products. We sent 
warning letters to marketers of these products. Most of the 
sites have eliminated their claims. The most egregious 
remaining marketers we have targeted for law enforcement, and 
we recently announced settlements with marketers of a home test 
kit for anthrax and an on-line seller of a purported anthrax 
treatment product.
    We are also continuing to be very aggressive about bogus 
claims for diet supplements that frequently appear on-line and 
off-line. We announced one of the largest settlements in 
Commission history a few weeks ago, $60 million, against First 
Alliance, involving deceptive lending practices in the sub-
prime market. We have had many other successes and returned a 
large amount of money to consumers.

                          TELEMARKETING FRAUD

    Last fall, we had a case involving telemarketing and the 
misuse of what is called preacquired credit card information 
against a company called Triad, where we have gotten over $8 
million for consumers. We recently received a court order for 
$39 million against Discount Buying Services, which is the 
largest Telemarketing Sales Rule order. We are certainly 
planning many more fraud cases.
    We are also working to try to put the career fraudsters in 
jail. We don't have criminal authority, but we are increasing 
our cooperation with those who do have criminal authority. 
Cross-border fraud has become a bigger problem, and we are 
increasing our efforts, particularly with the Canadians.

                                PRIVACY

    Privacy is a very important area for us. I announced a new 
privacy agenda last fall, and this year we will spend 50 
percent more resources on privacy than we spent last year. We 
proposed a national Do-Not-Call-List that is in rulemaking 
right now. We have already received about 40,000 comments.
    For the first time, the Commission has proceeded against a 
company for an inadvertent disclosure of information. A few 
months ago, we took a settlement against Eli Lilly. Eli Lilly 
had sent an e-mail containing the e-mail addresses of over 600 
individuals taking Prozac. We charged them with not taking 
proper procedures to protect the information when they promised 
they would.

                                  SPAM

    We are also moving against deceptive spam for the first 
time. We are the only place in the country that likes to 
receive Spam. We have over 10,000,000 spam in something we call 
``the refrigerator'' in our computer lab, and for the first 
time we are looking at those Spam and bringing cases. We 
brought several rounds of cases and very soon will announce a 
case particularly pernicious, Mr. Chairman, that involves a 
spam that promises individuals a free good and, through 
deception, in four clicks of your mouse, you are on a 
pornographic Web site being billed to your phone number. And we 
are stopping that practice.

                             MEDIA VIOLENCE

    We have been particularly vigilant, I think, regarding 
children. As requested by the committee, we are continuing to 
monitor the marketing of violent media directed toward 
children. We issued our third report last December and will 
issue another this summer.

                            ONLINE GAMBLING

    You mentioned gambling, and I wanted to thank you, Mr. 
Chairman. You first raised this issue with me last summer, and 
I am grateful to you for doing so. We conducted what we called 
a ``surf'' of on-line gambling sites, and we revealed that 
minors can easily access on-line gambling. They are also 
frequently exposed to general use advertisements for gambling 
on other nongambling Web sites.
    We have met with representatives of the gambling industry. 
We are working to seek corrective action. We have also met with 
consumer advocates and industry representatives. We are going 
to launch a consumer and business education campaign warning 
about the dangers of underage on-line gambling. The industry 
has also told us they are devising a guide to best practices, 
which will include clear and conspicuous disclosures of 
warnings against underage gambling, effective blocking methods, 
and restrictive placements of industry ads.

                                ALCOHOL

    We are certainly aware of the alcohol situation. I was 
glad, as a parent in particular, that NBC reversed its course. 
The Commission has a history of protecting underage consumers 
in alcohol and other areas, and we are continuing to be 
vigilant.

                               ANTITRUST

    Our other mission is antitrust, and we are continuing there 
I think, as well, with the continuity of our predecessors. One 
thing that has happened is the merger wave has declined. We are 
still active in the merger area. This fiscal year, so far, we 
have taken action in 17 merger cases.
    With the decline in the merger wave, we are able to return 
to a more historical balance between mergers and nonmergers in 
antitrust. We have doubled our nonmerger investigations. Let me 
mention a few important areas there.

                            PHARMACEUTICALS

    Pharmaceuticals are a very important area. We have had what 
I call two generations of cases. The first generation involved 
agreements between branded and generic pharmaceutical companies 
to keep the generic products off the market. The Commission has 
three cases in that area, and we have now begun a second 
generation of cases where the branded companies take steps that 
we think violate the antitrust laws to keep the generics off 
the market.
    These cases involve very large dollars for consumers. We 
have a consent agreement that we signed recently that will be 
made public. We have other investigations under way. We had an 
excellent result with an amicus brief that we filed in a case 
where we thought a branded company had abused FDA procedures to 
keep a generic off the market, and the judge agreed with us.

                  INTELLECTUAL PROPERTY AND ANTITRUST

    We are also having hearings on another important topic, 
which is to explore the relationship of intellectual property 
and antitrust. Our intellectual property system, I think, is 
one of the foundations of our economy, but increasingly 
antitrust cases are involving the intersection of intellectual 
property and antitrust. We are holding a set of detailed 
hearings in cooperation with the Justice Department and the 
Patent and Trademark Office, and we will be issuing a report 
after the hearings.

                               ANTITRUST

    We are also working to make our agency more efficient, for 
example, by trying to reduce compliance burdens on businesses. 
As part of that, as part of being more efficient and to reduce 
the delay in investigations and friction with the Antitrust 
Division, we entered the so-called ``clearance agreement,'' 
which I want to talk about briefly because it was quite 
controversial in my hearings with Senator Hollings.
    Just to be very brief, we have two antitrust agencies, the 
FTC and the Department of Justice's Antitrust Division, which 
enforce the exact same merger statute that applies the exact 
same standard. But the law says, when it comes to a specific 
merger, only one of us can investigate. Well, for decades, the 
agencies have had a process by which either would not 
investigate unless the other, quote, ``cleared it to them'', 
hence the word ``clearance.''.
    This process has worked very well for most of the history 
of the two agencies. For example, in the 1980s, when I was at 
the FTC, there were only about 10 disputes annually. But with 
the convergence of industries, the process began to break down. 
There were over 80 disputes annually in the 1990s. There was a 
great amount of delay and friction. When I arrived at the FTC 
last June, there had been an investigation that neither side 
could do for over a year because the two agencies were fighting 
over who should do it. That was quite contentious.
    We resolved it. Our predecessors, Bob Pitofsky and Joel 
Klein, tried to reach a global clearance agreement, and they 
failed; we succeeded. I think it is a good government 
initiative and one that has wide support. We have received 
letters of support from antitrust officials from the last four 
Presidential administrations. We have received letters of 
support from the business community. Several Members of 
Congress have supported us. And so I think it is the kind of 
thing where we should spend our resources investigating 
wrongdoing, not fighting with the Antitrust Division.
    That is just a brief summary. I think our role is vital for 
American consumers. This is my fourth job at the FTC and the 
third time I have been here. I am an FTC guy. I think it is a 
great agency, and I think we do excellent work.
    I would be glad to answer your questions.
    [The statement of Mr. Muris follows:]
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    Mr. Wolf. Sure. Thank you, Mr. Chairman.
    I have a number of questions, and we are going to show you 
the video that I mentioned to you, but before I do, on the 
letters on the merger agreement, could you share those letters 
with the committee? The letters from the four previous 
Chairman, please?
    Mr. Muris. Yes, sir.
    [The information follows:]
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    Mr. Wolf. I know this will be an issue of contention, and I 
would like to learn as much as I possibly can about it. I 
noticed in reading your testimony and the testimony of others 
that there was a dissension by two Commission, one was very 
brief, and the other was a little more detailed.
    If you could, provide the subcommittee with an explanation 
in writing on how this clearance agreement is helpful.
    If you can make the most honest presentation of why you 
think this is a good agreement for consumer protection.
    [The information follows:]
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    Mr. Muris. Yes, sir.
    Mr. Wolf. We are going to show you a video.
    I encourage you to be aggressive in cracking down on those 
who are ripping off the consumer--and we are going to show you 
one case in the video.
    I would urge you to be more aggressive, cracking down on 
those you think are taking advantage of consumers; and at the 
same time, I encourage you to be flexible and to be a little 
less aggressive with honest companies. That balance is very, 
very difficult, and you are going to see an example on this 
video which I think has to be addressed.
    And there was a person from the FTC quoted saying, ``you 
don't have the authority to deal with this issue.'' Well, this 
is really a consumer protection issue. So if you don't have the 
authority, someone from the administration has to tell us who 
has the authority, or somebody from the administration has to 
raise their hand and say, I am going to accept the 
responsibility for being active in this area.
    I have a couple of questions we will ask you on alcohol 
advertising. The frustration that I had, as a Republican, as a 
conservative Republican, and as a strong supporter of the 
administration. I wrote letters to people in the 
administration. Now, we have had an anthrax problem, and I mean 
that seriously, because the mail is not very good. I am still 
getting Christmas cards.
    Mr. Muris. Yes, sir.
    Mr. Wolf. And, honestly, I never heard from anybody in the 
administration. I wrote Secretary Thompson and asked him to 
speak out, to use the bully pulpit, and that is your ability to 
use the bully pulpit. I never heard from Thompson. Never even 
got a letter from the Deputy Assistant Secretary for External 
Affairs at the Department, who just said, your letter is here 
and somebody is looking at it.
    Yet the report that came out yesterday about the alcohol 
problem on college campuses, 1,400 people dying and sexual 
assaults. Not just somebody breaking a glass or breaking a 
banister, but death. Where was the Department?
    So I think on this issue and other issues we just cannot 
lie in the grass if it is not our responsibility and say, okay, 
it is not mine, with the idea that somebody else will see to 
it. Leadership means someone has to lead and come forward.
    I sense the issue on the video may not be completely yours. 
We are going to raise the issue with Chairman Powell of the 
FCC. But I would hope the administration would say, if they 
think this is a serious problem, if it is all true--and of 
course this is just a news report, and there may be some 
questions about it--I cannot make a judgment now. But somebody 
should say, okay, we are going to step forward, we ought to at 
least call a group together and deal with the issue.
    With that, let us show you this. This was on NBC, I mean 
the Today Show, sometime last week.
    [Video shown.]
    Mr. Wolf. I would like to get your comments on it, because 
I think it is representative of the whole consumer protection 
issue.
    If you are going to tell us what you plan to do to address 
this issue. This is not meant as any criticism of the FTC. As 
you know, I think the agency has to see who should be 
responsible. If the rapid change of technology means there is 
no one out there that has any ability, then somebody has to 
move forward and say, we are going to move into this area and 
seek legislation and come to the Commerce Committee, or 
whatever committee has jurisdiction.
    With that, I would hear your response.

                        COMMON CARRIER EXEMPTION

    Mr. Muris. I want to make clear, for the record, to the 
Commerce Committee that I have been pushing that we should have 
jurisdiction in this area. So I want to make sure that this was 
your idea and that I didn't use this as an opportunity.
    Mr. Wolf. Just for the record, I called you out a minute 
before the hearing to tell you we were showing this.
    Mr. Muris. Correct.
    Mr. Wolf. I didn't want to surprise you; I don't think that 
is appropriate. And I was not here to embarrass you or to 
aggressively grill you, so I didn't know this was an area you 
wanted to get involved in.
    Mr. Muris. Absolutely. I have been pushing. I made a major 
speech a few weeks ago where I said that we need jurisdiction 
in this area.
    What happened is, when we had one phone company, it made 
sense not to have the FTC involved. Our statute says we cannot 
investigate common carriers, and in the era of one phone 
company, that probably made sense.
    In the era now, where you have all these long-distance 
companies and all these consumer--potential consumer protection 
problems, to exclude the expert agency in fraud and deception, 
I think, does not make any sense. So that is why I called for 
jurisdiction.
    And if this is true, and I obviously don't know if it is 
true, but if this is true, it is exhibit A as to why the FTC 
should have jurisdiction.
    Mr. Wolf. Now, what would the process for that be? Would it 
be to work with OMB?
    Mr. Muris. Sure. Obviously, the administration would be a 
key player in any legislative issue.
    Mr. Wolf. My sense is, probably no one in the 
administration knows this is going on. I didn't know it was 
going on until the other day. But now that we all do, what is 
the process for addressing this issue?
    Mr. Muris. I think the process is that, having spoken to 
the authorizers, we need to try to move legislation that would 
remove that lack of jurisdiction that we have. I made that 
recommendation publicly.
    Mr. Wolf. Well, will you pursue it?
    Mr. Muris. Yes, sir.
    Mr. Wolf. And let the committee know what you are doing?
    Mr. Muris. Yes, sir, it is one of our priorities.
    Mr. Wolf. We will get a copy of the video and send it to 
Mr. Tauzin and Mr. Hollings.
    Mr. Muris. Yes, sir.
    Mr. Wolf. On the issue of intellectual property, we 
understand the FTC and the Antitrust Division have been 
conducting hearings to examine the relationship between 
antitrust law and intellectual property rights.
    What is the purpose of those hearings and what have you 
found?

              INTELLECTUAL PROPERTY AND ANTITRUST HEARINGS

    Mr. Muris. We found, Mr. Chairman, increasingly, antitrust 
cases occur at the intersection of antitrust issues and 
intellectual property. Because we have had several cases in 
that area, we thought it would make sense to step back in a 
nonadversarial setting, deal with the people in the Patent and 
Trademark Office, deal with leaders in industry, in the 
intellectual property bar and in the antitrust bar, and have 
hearings to try to discuss some common ground and common 
issues.
    I think, as I stated, our intellectual property system is 
the crucial foundation of the strength of our economy, but you 
can have situations where intellectual property is misused and 
in ways that violate the antitrust laws. And for us to really 
make sure we are applying our laws in an appropriate way, I 
think these hearings will be very helpful. We are just in the 
middle of the hearings now.
    Mr. Wolf. When are they? Where are they? How many hearings? 
Who has been there?
    Mr. Muris. Well, we started, I think it was in the middle 
of February that we had our first session. We had three former 
heads of the Patent and Trademark Office, myself, Bob Pitofsky, 
and the president of Yale University, who is leading a study 
for the National Academy of Sciences on intellectual property 
issues. We have held a series of hearings in Washington.
    We went out to the University of California at Berkeley, 
because obviously there is that whole Silicon Valley area and 
then northern California and other parts of the country there 
are high-tech leaders. What we are doing is having sessions 
with industry leaders to talk about how they use intellectual 
property and the kinds of antitrust problems that they might 
see. We have had sessions with academics. We have had practice 
sessions with lawyers. We are having continued hearings.
    We will try to wrap those hearings up in the next few 
months, and then I think we will take a little while to try to 
digest what we have. We will probably have a few more days of 
hearings, maybe in September, and then we will try to issue a 
report probably early next year.
    I think a long-standing function of the Commission has been 
not to do just law enforcement, but to address public policy 
issues through reports, and that is our purpose here. Because 
of the growing number of cases that involve the intersection, 
we thought it was appropriate to step back and try to talk 
about the issue in a big picture sense.
    Mr. Wolf. Well, the committee is going to have a hearing 2 
weeks from now. On intellectual property, we would like to be 
kept informed of your effort.
    Do you have any hearings scheduled here for Washington?
    Mr. Muris. Yes, we have quite a few hearings.
    Mr. Wolf. If you can let the subcommittee know the days and 
dates, I would appreciate it.
    Mr. Muris. Sure.
    [The information follows:]
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    Mr. Wolf. What can you do to address the issue, other than 
a report? Because this is a major issue; it is our economy. 
With regard to the number of companies, there are some in my 
district, but also around the country, and this is our 
standard, our opportunity. We are less and less making hard 
things with steel and materials. We do not want to lose our 
intellectual property rights.
    What do you think the FTC can do? What do you think the 
government can do? Are you going to come up with 
recommendations?
    Mr. Muris. We didn't go into this hearing with any 
preconceived ideas of where we were going to come out. We want 
to let the evidence speak for itself. But if the evidence 
warrants, there are several places where we might go. The 
Antitrust Division of DOJ and the FTC issued joint intellectual 
property guidelines in terms of antitrust in 1995. If we find 
ways those guidelines should be modernized, we would certainly 
do that.
    We have a series of cases that I mentioned involving the 
relationship between generic and branded drugs. Some of the 
hearings will deal with that. We have cases dealing with the 
standard-setting process. And we are hoping to gather 
information that will help us understand the background for 
those cases, so when we do our investigations we will be even 
more informed.
    We obviously are looking at issues in terms of the Patent 
and Trademark Office, about how the patent process works. They 
have been extremely cooperative. Jim Rogan, the new head----
    Mr. Wolf. He has already testified.
    Mr. Muris. Yes, well, he made a speech at our first 
hearing. He has been extremely cooperative with us, and so has 
his staff.

                               ANTITRUST

    Mr. Wolf. Before I recognize Mr. Serrano, on the antitrust 
enforcement and mergers and your agreement, tell us a little 
bit about it. We are going to look at your paper, but tell us 
why you think this makes sense and tell us why two 
commissioners submitted dissenting testimony. Can you tell us 
what their concerns are?
    Mr. Muris. Sure. Thank you. Because we have two antitrust 
agencies that enforce the same law, and because the law says 
only one of us can look at it, we have to have a process by 
which we clear mergers to each other.
    For decades, that has been a secret process where the 
Commission and the Justice Department haven't told people 
precisely how the process occurred and which industries went to 
which agency. Because the process began to break down----
    Mr. Wolf. You mean when the merger was filed, you didn't 
know if FTC was going to review it?
    Mr. Muris. Many lawyers in Washington received a lot of 
money beforehand by trying to predict where the merger would 
go. Now, in many cases, it was clear. The Justice Department 
has always done agriculture and it has always done steel. The 
FTC has always done automobiles, for example. But as industries 
began to converge, the FTC historically or more recently, has 
done hardware, and the DOJ has done software. That is not a 
very clean distinction. Lots of mergers involve that. As 
industries began to converge, more and more fights would occur.
    Probably one of the most prominent examples of these fights 
was, FTC always did all of energy except for electricity, and 
that was fine, as long as you didn't have electricity companies 
and natural gas companies merge. When they started to merge, 
both agencies would fight over clearance. And the fights were 
real fights. There would be essay writing contests, people 
would argue with each other, and it would poison the 
relationship between the two agencies.
    The fight over the AOL-Time Warner case, I think, was one 
of the most bitter fights in the history of the clearance 
process. This all went on under the radar screen, because 
obviously both agencies didn't want to let the world know they 
were spending resources fighting with each other.
    When we arrived, I found out from Bob Pitofsky that he and 
Joel Klein had tried hard to settle this problem and to say the 
FTC will do this and the DOJ will do that and we will stop 
fighting. The fights caused a poisonous relationship and they 
also caused delay.
    We found that in about a quarter of the matters in the last 
2 years before we arrived there had been delay in the clearance 
process. And the delay causes a problem because, one, you are 
not investigating; and two, in the merger area, the two 
agencies have--and this is a technical law--but the two 
agencies have 30 days to decide who is going to investigate.
    If you spend those 30 days fighting with each other instead 
of investigating, you come up against the time where on the 
30th day you have to decide whether you issue a request for 
additional information. That request for additional information 
is extremely burdensome to business.
    If you can use the 30 days to decide whether you should 
issue the request or not, there are occasions when we decide 
not to issue a so-called ``request for additional 
information.'' Well, if you are spending the 30 days fighting 
with the Antitrust Division, then neither of you can 
investigate before the 30th day is up, and you are left--on 
rare occasions the agencies were left--at the end of the period 
where they had no choice but to issue a so-called ``second 
request.'' So we thought when we arrived that we would put that 
to an end.
    Charles James, the head of the Antitrust Division, and I 
were close friends, and we found this dispute which I 
mentioned, that had gone on for over a year, that dispute was 
one that we resolved quickly. But that meant for one whole year 
neither agency could investigate a potential antitrust problem 
because they could not agree on who would do it.
    I don't think that makes a lot of sense. That is why I 
think we have broad support from the business community, we 
have broad support from former heads of the antitrust agencies, 
including Bob Pitofsky and Joel Klein, who signed a letter 
saying they thought this was a good thing.
    The issue in controversy is that Senator Hollings would 
prefer the FTC review media mergers. Well, historically, the 
Antitrust Division has done almost all of the media mergers. 
But because the FTC had done one of the last media mergers, the 
AOL-Time Warner case, Senator Hollings wants the FTC to do 
those.
    Now, because the AOL-Time Warner case was so contentious--
and this shows you how convoluted the process got--Bob Pitofsky 
promised that in the future, when you had disputes over who 
should do media mergers, the FTC would not claim that it had 
done the AOL-Time Warner case. So for purposes of deciding who 
would do future cases, we pretend that the FTC had never done 
AOL-Time Warner.
    Well, those kinds of promises became increasingly necessary 
because the process had become so contentious, so we decided to 
start over again. We have a process now where clearances are 
done in 2 days. We have announced to the world how the process 
works. We have announced to the world who has what industries, 
and Senator Hollings would prefer that we do media mergers. One 
of the reasons that Justice has done media mergers is because 
Justice does not have this common carrier exemption. And, 
increasingly, telecommunications and media firms are merging. 
It was the Justice Department that broke up AT&T.
    In the criteria for doing mergers before the agreement that 
we just reached, there was a 1993 agreement that said mergers 
should be done on the basis of experience. Because the Justice 
Department has so much experience in telecommunications, and 
telecommunications and media are merging, that is one of the 
reasons why the Justice Department has overwhelmingly handled 
this area and not the Federal Trade Commission.
    So that is a long-winded answer, but it is, unfortunately, 
a complex issue.
    Mr. Wolf. No, that's okay.
    Mr. Serrano.
    Mr. Serrano. Mr. Chairman, thank you.
    Well, I don't know that you were prepared to comment on NBC 
going back on the alcohol ads, and how that affects their 
purchase of Telemundo in terms of, will they then be behaving 
the same way on Telemundo?
    And this is an issue Ms. Roybal-Allard had been a leader 
on. I wanted her to know I asked that question.

                          ALCOHOL ADVERTISING

    Mr. Muris. Yes, sir. I was certainly glad, and because 
legally I think it would have been extraordinarily difficult to 
treat hard liquor separate from beer and wine, I think as a law 
enforcement agency, our hands were tied. As a parent, I was 
certainly very glad that NBC reversed its decision. I do not 
know what NBC's policy is, but I will be glad to check, in 
terms of Telemundo.
    [The information follows:]

    Question. (Rep. Serrano/Tr. 5, 28-29) NBC has purchased 
Spanish language cable station Telemundo. Will Telemundo follow 
NBC's alcohol advertising policy?
    Answer. On April 15, 2002, NBC finalized its acquisition of 
Telemundo. NBC has made no announcement regarding its 
commercial advertising plans for these stations.

    Mr. Serrano. Okay.
    One quick question. Do you know historically why you were 
not given jurisdiction at all over common carriers?

                        COMMON CARRIER EXEMPTION

    Mr. Muris. I think it was probably because when the law was 
passed, the one phone company was heavily regulated already and 
there was not all this competition. Historically, until the 
last 30 years or so, you had long distance, where a lot of 
these problems have occurred, being performed by AT&T and AT&T 
was heavily regulated, both locally and by the FCC.
    Of course, that is the world in which the statute was 
created, the exemption was created, and that world bears no 
relation to the world we have now. And I think that TV show 
really demonstrated the potential problems.
    Mr. Serrano. I was looking at the list of the areas that 
were divided up between DOJ and FTC, and I noticed, for 
instance, you have computer hardware and they have software; 
you have grocery manufacturing and they have agriculture. Now, 
I see a similarity between those, but then, why on earth did 
you give up beer? But anyway, that is subject for another day. 
A lot of sports fans will be asking that question.

                               ANTITRUST

    Mr. Muris. If I can just comment, most of these allocations 
were based on, historically, who has done the particular area. 
And the DOJ have, by historical accident as much as anything 
else, had several investigations involving beer, including 
mergers. Now, obviously, this agreement doesn't affect consumer 
protection, it just affects antitrust.
    Mr. Serrano. Well, I have no feelings on that one. Just 
trying to score some funny points with the chairman. We have a 
sense of humor here.
    But hardware or software, there is a relationship. Why not 
under one umbrella?
    Mr. Muris. Absolutely. And, frankly, the agreement almost 
cratered over hardware and software, and we created a committee 
called the convergence committee because we could not agree on 
how to define hardware and software. This is an area of 
constant dispute between the two agencies. And, quite frankly, 
in our agreement, we have separate paragraphs devoted to 
hardware and software. We could not really agree, but rather 
than blow up the whole possibility of an agreement over that, 
we decided to punt it to what we called a ``convergence 
committee.'' .
    Because, quite frankly, you are absolutely right. That 
distinction is not a distinction that will resolve who does 
what.
    Mr. Serrano. Yeah, just like agriculture and groceries. I 
grew up in New York City. I thought all food grew in 
supermarkets anyway. I found out later it was different.
    Okay, I understand what the problems are. You are probably 
doing a great job of trying to settle all these disputes and 
trying to do this; but I just think, that hardware and software 
one just doesn't make any sense.
    Mr. Muris. You are absolutely right.
    Mr. Serrano. Let me take you to another issue. On this 
national Do Not Call List, if you could, just kind of briefly 
tell us what the issue is here and what you are trying to 
accomplish.
    And let me tell you that I am one who feels somewhat guilty 
when I get upset at people calling me, since we are in a 
profession where we mail, we call, we stop people in front of 
subway stations and beg them to vote for us, at supermarkets, 
at malls. I guess I know when to stop. When a person looks at 
me, I say, okay, drop it.
    These folks don't know when to drop it. Maybe that is the 
difference.

                             TELEMARKETING

    Mr. Muris. Well, when I went through my confirmation 
process and became chairman, it was clear the FTC had become a 
very prominent player in the consumer privacy issue. But during 
my confirmation process, something I thought was very odd 
happened. Privacy was defined as dealing with notice and choice 
legislation on the Internet. And however important one thinks 
that issue is, I think privacy has a wide variety of 
dimensions.
    So we are focusing not on telling Congress what it should 
do, but on what we can do. And that is why we are bringing a 
lot more cases, and that is why in this area we have the 
authority to do this national Do Not Call List. If you look at 
the hierarchy of problems in the privacy world, I think what 
people care about is consequences of privacy violations.
    Obviously, the worst kinds of problems are problems that 
involve physical security with stalking, things like that. You 
have economic security problems with identity theft. But you 
also have just a disruption in your life that can occur from 
privacy violations; and in the aggregate, the disruption that 
can occur from the telemarketing calls is significant.
     So I thought it made a lot of sense to make this proposal. 
We are in rulemaking now and we will decide, based on our 
rulemaking records, exactly how we should proceed.
    Mr. Serrano. But how do you envision this Do Not Call List 
working? Who gets on the list?
    Mr. Muris. Well, it would be up to individuals. We 
fortunately have many states that already have such lists and 
we have been able to talk to them about how their lists work.
    We are now in the process of dealing with contractors. We 
are working on the mechanics. Like I say, this is all in the 
rulemaking record. We don't have the ability to reach all of 
the calls because of the common carrier exemption; the FCC 
would have to adopt a similar rule. We hope, if we adopt a 
rule, the FCC would as well.
    The Patriot Act gave us more power over charities in terms 
of their calls. The one area where we clearly don't have 
jurisdiction, and I would be surprised if we got it, was the 
area you mentioned in terms of calls involving political 
campaigns. But we think in the aggregate that we will probably 
be able to reach, assuming the other agencies like the FCC go 
along, about 80 percent of the phone calls.
    Mr. Serrano. Now, your budget assumes a new fee, a Do Not 
Call Fee, to offset the continuing cost of the Do Not Call 
List. Who would be assessed this fee and how much would the fee 
be?
    Mr. Muris. That is something we are asking for comments on 
in the context of rulemaking. There are thousands of 
telemarketers. We think it would be a fairly small amount and 
it would be assessed to the telemarketers.
    Mr. Serrano. All right. I have no more questions at this 
time, Mr. Chairman.
    Mr. Wolf. Ms. Roybal-Allard.
    Ms. Roybal-Allard. Thank you, Mr. Chairman. My line of 
questioning is going to deal with the whole issue of underage 
drinking. But first I really want to commend Chairman Wolf for 
his leadership and strong advocacy against underage drinking 
and those issues that contribute to the seriousness of this 
problem. You have really been a champion Mr. Chairman.
    As you know, our children are continuously bombarded with 
alcohol advertising; and in fact, in the year 2000, the beer 
industry spent over $700 million on advertising. The very 
glitzy and hip beer commercials often provide an extremely 
powerful and primary source of education on alcohol for our 
young people.
    In the FTC's report of 1999, which was entitled Self-
Regulation in the Alcohol Industry: A Review of Industry 
Efforts to Avoid Promoting Alcohol to Underage Consumers, the 
FTC recommended strengthening and improving measures in the 
alcohol beverage industry's advertising practices to ensure 
they do not appeal directly or indirectly to underage 
consumers. Among those recommendations was the establishment of 
a third-party review mechanism and the tightening of current 
lenient, voluntary industry standards for the placement of ads 
that might reach a substantial number of underage consumers.
    I think the recommendations are good. However, to the best 
of my knowledge, the FTC really has not followed up on these 
recommendations; and my question is, what is the FTC doing in 
that area and why hasn't it been more aggressive in pushing for 
the adoption of these recommendations?
    [The information follows:]

    Question. (Rep. Royball-Allard/Tr. 34-35) Why hasn't the 
FTC been more aggressive in encouraging alcohol advertisers to 
adopt the 1999 Alcohol Report's recommendations?
    Answer. Following the 1999 issuance of the Alcohol Report, 
the Commission staff encouraged alcohol companies to adopt the 
Report's recommendations. The staff spoke to industry members 
and others regarding the importance of the Report's 
recommendations for improvement in self-regulation. In addition 
to meeting with individual alcohol companies and the major 
trade associations, the staff made several presentations at 
regional and national alcohol regulatory conferences. Although 
no segment of the industry implemented the third party review 
program the report recommended, individual companies did 
respond to the report by making other improvements in their ad 
placement and advertising review process. Among other things, 
some adopted or reiterated policies specifying a higher adult 
audience composition standard and requiring post-placement 
audits, and the Wine Institute modified its advertising code in 
response to the Report, including adopting of a provision 
specifying that the audience for alcohol ads should contain at 
least 70 percent adults.
    In addition, this past week, Coors Brewing Company 
announced that it will implement a dispute resolution program 
through the Counsel of Better Business Bureaus under which the 
CBBB would review unresolved consumer complaints about Coors' 
advertising against an advertising pledge adopted by Coors. I 
commend the BBB and Coors for their efforts and believe that 
the program will provide valuable information about the 
feasibility of this approach.

                          ALCOHOL ADVERTISING

    Mr. Muris. I actually had a meeting last week. We had a 
meeting with one of the beer companies and with the Better 
Business Bureau. I do think that at least one of the companies, 
one of the major companies, is going to move on adopting some 
of those recommendations.
    I think it is quite sensible to have more third-party 
resolutions. There is a whole system that is done through the 
Better Business Bureau looking at complaints about non-alcohol 
advertising; and I think we are hoping that if one of the major 
companies adopts it, then that will put more pressure on the 
others.
    Ms. Roybal-Allard. Your recommendations concerning the 
placement of alcohol ads include tightening the current 
industry standards pertaining to the percentage of underage 
viewers that are likely to view the ads. The Beer Institute 
standards presently allow that half of the audience could be 
underage. Mothers Against Drunk Driving recently recommended 
guidelines that would set a standard of 90 percent adult 
viewers during any alcohol advertising.
    Could you tell me what FTC considers to be a fair standard?
    Mr. Muris. I certainly haven't looked at the implications 
of the Mothers Against Drunk Driving standard. I know the FTC 
report, and I cannot recall the exact numbers, the FTC report 
recommended further tightening, as you mentioned, but I would 
have to go back and look at the report to see what we said 
about that.
    Ms. Roybal-Allard. Could you get back to me on that?
    Mr. Muris. Sure, be glad to.
    [The information follows:]

    Question. (Rep. Roybal Allard/Tr. 36) What percentage of an 
audience for alcohol ads should be underage?
    Answer. The Commission has not set any particular audience 
percentage as appropriate for the marketing of age restricted 
products like alcohol. The FTC has considered whether 
advertising appears to be directed to an underage audience 
based on a combination of its content and placement. Among the 
relevant facts are the percentage of the audience under 21; the 
total number of minors reached; whether the content is youth-
oriented; and the popularity with minors and apparent ages of 
the characters or performers.
    When the Commission issued its 1999 Alcohol Report, it 
looked at the self-regulatory codes of the beer, spirits, and 
wine industries. At that time, the codes required that no more 
than 50 percent of the audience for alcohol advertising be 
under 21. Noting that several alcohol companies already 
followed stricter internal standards, restricting ad placement 
to media with an adult composition of 60 to 75 percent (i.e., 
25 to 40 percent underage), the Alcohol Report urged industry 
members to raise the standards for placement of alcohol ads and 
to follow other ``best practices'' designed to limit underage 
exposure to alcohol ads. Alcohol Report at 9-10.
    Since that report, individual alcohol companies have 
adopted or reiterated policies specifying a higher adult 
audience composition standard, and the Wine Institute revised 
its advertising code to specify that adults should comprise at 
least 70 percent of the audience. Companies also have improved 
informal audits designed to ensure compliance with these 
internal standards. The report notes that underage audience 
composition limits are more likely to be effective if coupled 
with other ``best practices'' identified in the 1999 Alcohol 
Report, that is, periodic reviews of past placement together 
with a prohibition on placement of ads on the weekly television 
series most popular with teens.

    Ms. Roybal-Allard. Also, in the same 1999 report I cited 
earlier, it found that half of the alcohol companies included 
in the report violated their own industry standards by 
repeatedly showing ads to audiences with a majority of underage 
audience, or that they failed to provide adequate information 
to determine whether or not they were in compliance. Yet, in 
spite of this report, the FTC concluded that the industry 
generally complies with existing self-regulatory standards.
    Can you explain this conclusion, in light of the fact that 
the report also cites these other two points?
    Mr. Muris. Yes. I was certainly not a member of the 
Commission when that report was issued, so it would be 
difficult for me to say exactly what they were thinking. But 
having read the report, I think that they thought that, on 
balance, the provisions of the self-regulatory code were 
followed.
    But I would be glad to have the people who were involved in 
writing the report communicate with you as to what they thought 
the basis for their conclusion was.
    Ms. Roybal-Allard. I really would appreciate that, because 
just in looking at the report and the conclusion, it doesn't 
seem to make sense.
    Mr. Muris. Sure.
    [The information follows:]

    Question., (Rep. Royball-Allard/Tr. 37) The 1999 Alcohol Report 
concluded that in the majority of instances alcohol advertisers 
followed their self regulatory codes, but it does not appear that this 
conclusion was supported by the text of the report or the underlying 
data. What is the basis for this conclusion in the Alcohol Report?
    Answer. The FTC report Self-Regulation in the Alcohol Industry: A 
Review of Industry Efforts to Avoid Promoting Alcohol to Underage 
Consumers (September 1999), conducted at the request of the House and 
Senate Appropriations Committees, evaluated alcohol industry compliance 
with voluntary self-regulatory policies pertaining to placement and 
content of advertising, as well as product placement in programming, 
online advertising, and college marketing. The Report sets forth both 
its conclusions and basis for those conclusions.
    I was not a member of the Commission when the report was written. I 
understand, however, that following review of special reports submitted 
under oath by eight alcohol companies, the Commission found that in 
general self regulation plays an important role in the industry's 
efforts to address concerns that alcohol advertising not be directed to 
an underage audience. More specifically, the report concluded that:

          The [alcohol] company special reports make clear that most 
        industry members seek to comply with current code requirements. 
        They instruct those that prepare and place the ads, design the 
        web pages, and handle the product placements, that it is 
        important to comply with the code provisions. Despite their 
        efforts, however, compliance is not universal. Indeed, in the 
        preparation of this report, a number of instances of code 
        violations were uncovered.

    For example, the Alcohol Report noted that four of the eight 
companies surveyed had data demonstrating compliance with the industry 
standards for advertising placement, two did not have such data, and 
two others submitted data showing that they were not in compliance with 
the standards. Accordingly, the Report recommended not only that 
companies set higher standards for ad placement, but that they conduct 
regular audits of a sample of past placements to verify compliance with 
policies.

    Ms. Roybal-Allard. The FTC report also recommends that a 
third-party review mechanism be put in place. Do you believe 
that a board created and approved by the alcohol companies 
themselves would truly be independent and given the powers to 
engage in meaningful enforcement; or do you believe that it 
would take an executive order or some kind of legislative 
action to create a truly independent review board with real 
power and enforcement authority?

                     ALCOHOL ADVERTISING CONTINUED

    Mr. Muris. Well, it obviously would depend on the nature of 
the board. But as I mentioned, the Better Business Bureau 
already has this self-regulatory system that I think works 
quite well in an independent sense and I think has real promise 
in this third-party self-regulatory arena.
    Ms. Roybal-Allard. Okay. In terms of this self-regulatory 
board, the board itself, what would ensure it would be not so 
much independent but that it would be unbiased in its actions?
    Mr. Muris. Let me tell you how the Better Business Bureau 
process works now, because it really was an early example of 
self-regulation, and I think it works very well.
    Companies frequently complain about each other's 
advertising, and they have a procedure where it is less formal 
than a court, but people go and they make presentations. There 
are some former FTC Commissioners. They have lots of people who 
are potential panelists to review the ads. And the people tend 
to be from a wide variety of walks of life. They are 
independent of the companies that are being reviewed.
    There is a review process, an appeals process, and because 
it involves so many different companies and people who have a 
tie to one of the disputants are removed, I think the process 
works quite well.
    Ms. Roybal-Allard. The Office of National Drug Control 
Policy has a successful antidrug media campaign that is 
targeted at our Nation's youth, which is funded at close to 
$200 million every year. Unfortunately, this campaign does not 
include alcohol, even though it is the drug of choice for the 
majority of our young people.
    Do you think there should be a similar government media 
campaign on alcohol to counterbalance the messages that kids 
are getting from alcohol ads promoting drinking?
    Mr. Muris. Well, I don't know the specifics of those 
funding decisions, but I do know that the evidence shows that 
public service announcements aimed at things like safe driving 
activities have an impact; and I do know the evidence shows, in 
terms of cigarettes, that public service announcements on 
television that talked about the problems with cigarettes had 
an impact.
    Again, I don't know about these funding issues, but I would 
think that evidence shows that would be a very good thing to 
do.
    Ms. Roybal-Allard. I have another question, but I will wait 
until the second round.
    Mr. Wolf. Let me just follow up and say I think it does 
make sense. Ms. Roybal-Allard offered an amendment in the 
committee 2 years ago, which I supported and would support 
again. It is a gateway. The amendment was a very moderate 
amendment, modest, if I might say. It only would allow the 
advertising for those age 13, not 14. We are not targeting 15 
and 16. It is still against the law, but only 13.
    So I think you might want to look at that and give her an 
answer because that may give her the inspiration or the 
information to come back and look at the issue again because of 
this report. I think you ought to take this report home and 
read it. It is pretty frightening, far beyond what I thought.
    I had been in an accident with a drunk driver. My wife and 
one of my children were in the accident with me. So I had been 
thinking in terms of drunk driving, but when you read this 
report, it also discusses date rape. It is violence.
    So the gentlelady has a very good idea, I think you have a 
good record. You probably know these issues better than 
anybody. I think there can be difference of opinion in all 
those issues, but if you were to look at it and say that would 
make a difference, I would think that would certainly give Mrs. 
Roybal-Allard a lot of additional information on this issue if 
she were ever to offer her amendment again.
    Mr. Muris. I will be glad to do that.
    [The information follows:]

    Question. (Chairman Wolf/Tr. 16-17, 40-43). Have you read 
the Post story on college drinking and what should be done 
about it? Should there be a government media campaign, like the 
``Truth'' campaign, to counterbalance alcohol advertising?
    Answer. The Post reported on a study providing estimates 
about the prevalence of injuries due to college drinking. This 
study was issued to accompany a significant new report of the 
National Institute on Alcohol Abuse and Alcoholism's Task Force 
on College Drinking, published April 9, 2002.
    The report of the NIAAA Task Force, ``A Call to Action: 
Changing the Culture of Drinking at U.S. Colleges,'' marks the 
completion of a four year study of college drinking conducted 
by NIAAA. The report makes recommendations for college 
administrators and researchers seeking to address high-risk 
college drinking. Its primary recommendation is that 
organizations conduct scientifically valid research on the 
effectiveness of alcohol prevention programs, and that colleges 
rely on strategies shown by research to be effective. 
Additionally, while noting that research on prevention programs 
is incomplete, the report ranks the effectiveness of current 
strategies to reduce high-risk college drinking.
    High-risk college drinking takes a heavy toll of students 
and the community as a whole. NIAAA and its Task Force on 
College Drinking are to be commended for the completion of this 
important effort. I support the recommendation that 
policymakers focus on prevention policies that valid research 
shows is effective.
    Several government entities, including NIAAA and the 
National Highway Transportation Administration (``NHTSA''), as 
well as many private entities, currently disseminate a 
substantial amount of information on this subject. NHTSA data 
that drunk driving deaths among youth are down in part because 
young people are less likely to drive after drinking indicate 
that prevention efforts are important. The FTC is a strong 
believer in the value of consumer education, and the NIAAA 
report stated that ``conducting marketing campaigns'' was a 
promising approach to ``correct student misperceptions about 
alcohol use on campus.''

    Mr. Wolf. Mr. Cramer.
    Mr. Cramer. Thank you, Mr. Chairman, and I want to say on 
this issue of underage drinking issue that you and Ms. Roybal-
Allard have taken such a strong position on it. I want to make 
sure I understand this. The 1999 FTC report, did that look at 
the advertising practices of all alcohol, beer, wine, spirits, 
all alcohol?

                          ALCOHOL ADVERTISING

    Mr. Muris. Yes. Though obviously there is much more 
advertising on a national level, in particular, of beer, but my 
understanding was, the report was before I was a member of the 
Commission, that it was addressed broadly.
    Mr. Cramer. And in that same study, when advertising 
occurs, it can occur on TV, it can occur on radio, newspapers--
--
    Mr. Muris. Magazines.
    Mr. Cramer. Magazines as well. Was any advertising medium 
treated any differently in that report? Was TV treated 
differently than radio, magazines, newspapers in the evaluation 
of advertising issues?
    Mr. Muris. I do not think so. I think they were 
addressing--like the questions that were just asked in terms of 
the placement, they were looking at the placement. There are 
services that can give you some idea of the readership of 
magazines, just as with the viewership of television.
    Mr. Cramer. Obviously the impact of TV is much greater, but 
nevertheless, all focus could be moved from one to the other--
--
    Mr. Muris. Yes.
    Mr. Cramer. I want to move now to the privacy issue. In 
your prepared statement, you address three categories that you 
are working on to increase privacy protection. I want to talk 
about the Children's Online Privacy Protection Act. Could you 
expand on what plans you have to increase the enforcement of 
that Act?

                CHILDREN'S ONLINE PRIVACY PROTECTION ACT

    Mr. Muris. Well, we have--it is an important statute, a new 
statute as you know. We have just, in the last year, brought 
several cases, received civil penalties, and we have a 
multifaceted strategy. The strategy is to bring cases and to 
educate people. We are doing both of those. Compliance has 
increased dramatically. We have a report which we are about to 
issue on that. We have an active staff in the area and we will 
continue to do that.
    Mr. Cramer. I want to stay on the issue of children and 
this time, on-line gambling. We have the voluntary action that 
the on-line gambling industry is taking, which is a good start, 
but I don't think that is enough. What do you think about that 
and what do you have in mind to curb on-line gambling by 
children?

                            ON-LINE GAMBLING

    Mr. Muris. That is where we started with the industry. We 
will see what sort of compliance that increases. A problem on 
the Internet that is generic to all sorts of issues, and why I 
mentioned in my testimony that we are increasing our efforts 
internationally is that more and more problems on the Internet 
are coming from outside the United States, and I think it is 
going to be a long haul, but in the antitrust world, it took 
about 15 years to really have good international cooperation on 
cross-border price fixing.
    I am hoping we can do the same thing in the consumer 
protection world, but that it won't take 15 years, but only 3 
to 5 years. We are starting with bilateral cooperation and we 
have done this with Canada. And in the telemarketing world, the 
U.S. is very successful in crackdowns on telemarketers. Many of 
them went to Canada and we are now cooperating with Canadian 
authorities. I think, unfortunately, the same thing would 
happen in other fraud areas and on issues like gambling.
    Mr. Cramer. The operation in top ten dot coms, that 
involved other countries as well, did it not?
    Mr. Muris. Sure.
    Mr. Cramer. Did that involve Canada?
    Mr. Muris. Yes.
    Mr. Cramer. Do you feel like the Internet law enforcement 
efforts of the FTC--as I understand, since 1994, you brought 
222 Internet-related law enforcement actions against 688 
defendants. Is that adequate? Do you plan to increase that?

                  INTERNET LAW ENFORCEMENT TO INCREASE

    Mr. Muris. We do plan--one of the things that has happened 
in the last few years, the Commission is growing. This current 
budget would keep us at a level of about 1074 FTE, but last 
year, fiscal year 2001 was the first fiscal year the FTC had an 
FTE over 1,000 since 1988, and one of the priorities is to go 
after Internet fraud. And one of the things we are also asking 
for is the ability to upgrade our computer facilities.
    The Commission has now created a database, for both 
identity theft and other areas, where we record complaints from 
all over the country and some from outside the United States. 
We have over 400 law enforcement agencies that can access that 
database, and quite frankly if we don't take steps to improve 
how we are keeping that database, it is going to be in danger 
of collapsing. So one of the things we have asked for is more 
money. I think this is an enormously effective enforcement tool 
and we are a leader in providing the information to law 
enforcement agencies.
    We have trained hundreds of law enforcement officials on 
how to go after fraud on the Internet and how to go after 
specific problems. I think it is one of the best things the FTC 
has done and in the computer world it requires money and that 
is one of the things we have asked for.
    Mr. Cramer. It is a very difficult category enforcement. I 
was a prosecutor in my prior life, and this is a new category 
of crime that would be very difficult, and probably time 
consuming and expensive for prosecutors to be involved in.
    Mr. Muris. Yes. And we have an excellent career staff. The 
woman that was talking about the common carriers on TV earlier, 
has been at the FTC for over 20 years. She is head of the 
marketing practices unit, and she is very good in this whole 
area. We have put someone new in charge of our whole computer 
area, and I think she will do an outstanding job. But I think 
the future of FTC law enforcement is really going to be using 
these high-tech tools to do a better job, and the Commission 
has made a great start, but I think it needs to put a lot of 
effort into it.
    Mr. Cramer. Thank you, Mr. Chairman.
    Mr. Wolf. Thank you, Mr. Cramer. The Do Not Call List 
program requested in your budget, how would the program work 
and how would you enforce the Do Not Call program?

                       PROPOSED DO-NOT-CALL-LIST

    Mr. Muris. The way we envision it to work--and as I said, 
we are still in rule-making. These comments will go on our 
public rule-making record. The way we envision it to work is 
that individuals, either through the telephone or on-line, will 
sign up for the list. We are exploring whether to offer 
consumers an intermediate option where perhaps we are 
discussing various options.
    Right now they can get calls about 13 hours a day, 7 days a 
week. Maybe they just want to receive calls one or two nights a 
week; so we are exploring that option as well. But individuals 
who telemarket will have to comply with the Do Not Call list.
    So they will have to exclude these phone numbers, and under 
the Telemarketing Sales Act, the States themselves can actually 
enforce the Act. So we are hoping, through our own enforcement 
and through the active participation of the States, to be able 
to quickly enforce the law. We have had very good luck under 
the other parts of the telemarketing sales rule.
    Mr. Wolf. Some States have had these laws. How would you 
work with the States? Would your program preempt State laws?
    Mr. Muris. That is one of the issues. I don't believe in 
preemption for preemption's sake, and it may be possible to 
work out an arrangement where we can have very close 
cooperation. One of the advantages that we have of being on the 
timeline we are on now is, many States have biannual 
legislatures. We will finish our rule, if indeed we decide to 
promulgate the rule this year, and whatever needs to be done by 
the States or whatever the States choose to do--many of the 
States may choose, that do not have Do Not Call, may choose to 
make it their own law so that they can enforce it locally.
    Their legislatures will be in session early next year, 
virtually all the States, where they will be able to take those 
steps. But we are spending a lot of time on the issue of how to 
coordinate with the States.
    Mr. Wolf. Does the FTC have jurisdiction over the 
intrastate calls?
    Mr. Muris. No.
    Mr. Wolf. So would a consumer have to sign up on a list to 
be protected from intrastate calls?
    Mr. Muris. My understanding is that there is very little in 
the States now, and there are about 20 States that have do not 
call lists. Very little enforcements involves intrastate calls. 
Obviously, if the State wants to, it could have a separate list 
dealing with intrastate calls, but my understanding is that the 
vast majority of what the States are doing now is interstate 
calls.
    Mr. Wolf. Your budget request assumes you will collect $3 
million to offset the costs of operating this program, and if 
the cost of the program is $5 million, why wouldn't you set the 
fee to collect $5 million?

                                Funding

    Mr. Muris. Well, when that number was put together, quite 
frankly it was with OMB last November and December. As we go 
through the process, we are going to have a much more refined 
estimate, and we certainly would propose that we pay for the 
entire program.
    Mr. Wolf. Okay. In fiscal year 2003, CBO estimates that 
$150 million in premerger filing fees will be available for the 
FTC. However, the FTC is requesting $171 million. What is the 
justification for requesting funding in excess of the level 
fees anticipated to be collected? You commented earlier that 
mergers were down.

                         Antitrust Enforcement

    Mr. Muris. I understand. One thing that had happened with 
the merger wave, the FTC historically, in its antitrust 
mission, has had about a 50/50 split between mergers and 
nonmergers. Because of the merger wave, mergers crowded out 
nonmerger cases. So we think that it would be more appropriate 
to return to the more historical split----
    Mr. Wolf. So 50 percent of your work has been mergers?
    Mr. Muris. Historically it would be about half and half. 
But with the merger wave it became, close to three quarters was 
mergers. So the FTC was really doing less nonmerger 
enforcement, and we think there are lots of good things in the 
nonmerger area. One thing I didn't mention is we just took our 
first consent involving physician price-fixing. We are finding 
at all levels of health care, health care costs are exploding 
again, and we are now putting very large resources into the 
health care area, and we haven't been able to do that outside 
of pharmaceuticals because of the merger wave.
    In terms of mergers, despite the decline in the merger 
wave, complex merger investigations are still occurring, and we 
have a very high level of enforcement underway. We don't 
require quite the resources we had in the past, but the 
resources we require are still significant in that area. And 
finally, the whole budget had been funded entirely by these 
fees, including consumer protection.
    Obviously, our consumer protection work has nothing to do 
with the level of merger activity in the economy, and I know 
this would the first time in a while that the committee would 
fund the FTC outside of the fees, but we would hope you would 
do that because of most of our work has nothing to do with the 
level of mergers.
    Mr. Wolf. A couple more questions and then I will recognize 
Mr. Serrano. Building security, your budget requests $2.1 
million for physical security upgrades to the FTC headquarters 
building. While security, including the protection of Federal 
employees, residents, people working and the visiting in the 
area should be the highest priority, I am concerned that we are 
balkanizing the city. In some places, there are jersey wall or 
planters; other places have concrete pipe that they have cut in 
half, other places they have metal barriers.
    Are you going to coordinate your security efforts? Right 
now you can't go in front or in back of the White House. I 
happen to live in the area, and my constituents come into town. 
You can't go down 9th Street by the FBI, which I understand. 
You can't go up to Capitol Hill in certain areas. You have to 
go through security, jersey barriers, and I know that the 
Architect of the Capitol has done a good job but there doesn't 
seem to be any coordination in the city as to style of 
barriers.
    So you are getting jersey barriers, concrete pipe, metal 
barriers? There doesn't seem to be anyone in the city looking 
at how all this gets tied together. I hope the committee will 
be able to fund this need. We certainly want to protect your 
people, the people at the FTC. But as the head of the agency, 
how will you look at what kind of barriers you have, and what 
you do for your building, both with how it fits in from a 
visual point of view, but also for safety and from a traffic 
pattern point of view?

                                Security

    Mr. Muris. One of the surprises as Chairman in the post-
September 11 world is how much time I have had to spend on this 
security issue. It is not something I would have expected a 
year ago. It is an important issue. My understanding from 
talking to the people at OMB and the meetings we have been in 
is that they are trying to coordinate these issues, and I will 
go back and check on that. Because of where we sit at the tip 
of the Federal Triangle----
    Mr. Wolf. You are right there.
    Mr. Muris. Yes. We are in a pretty volatile position, and 
an explosion, a serious God-forbid explosion up here could blow 
out a lot of windows down where we are, and one of the things 
we are doing is trying to get glass that will prevent injuries. 
Some of the barriers that you are talking about, but I 
certainly understand the problem of balkanization, and I would 
hope that that will not occur. We are working with GSA. My 
understanding is that GSA is trying to coordinate the sort of 
planters, which is one of the things we are----
    Mr. Wolf. Can you tell us who is doing that? I sent a 
letter to the White House several weeks ago asking that they 
appoint someone either in the White House or in the 
administration to look at the issue both from a safety and 
anti-terrorism aspect, and also from an appearance aspect. Last 
Monday I came downtown, and I took two of my grandkids to the 
Smithsonian. We went all over the city and each agencies' 
security is all different. Every agency has a different 
barrier, a different planter, this street is closed, you can't 
go up that street. I think one person from GSA and maybe from 
the White House should bring it together. I shouldn't get into 
evacuation plans, but, I mean, who is responsible for what 
agency? How do you know whether you should evacuate or not? Do 
you know? Does St. James call you on the phone?
    Mr. Muris. I can remember we certainly didn't receive a lot 
of guidance on September 11.
    Mr. Wolf. Has it increased since then?
    Mr. Muris. I was in a meeting recently on that subject, and 
I am told again by our internal people that we think we have 
good coordination there. We have our own internal evacuation 
plan, of course. And on your more general question, my 
understanding, and I will get back to you, is that the planters 
that we have requested will be in a coordinated way through 
GSA, but I will check on that.
    [The information follows:]

    Question. Who at GSA is coordinating the FTC's perimeter 
security to assure it aesthetically blends with the Archives, 
Smithsonian and other related Federal Triangle projects?
    Answer. Pending the appropriation of requested funds in FY 
2003, FTC staff have had preliminary discussions with General 
Services Administration on perimeter security of our 600 
Pennsylvania Avenue building.
    A contact with GSA regarding security is Wendell Shingler, 
Assistant Commissioner, GSA's Office of Federal Protective 
Service, at (202) 501-0907.
    A second contact is John Cogbill, Chairman of the National 
Capital Planning Commission, at (202) 482-7200. The NCPC is 
apparently working with GSA and other Federal agencies on an 
``Urban Design and Security Plan.''
    The NCPC has informed us that the ``Plan'' will identify a 
design framework for security measures around federal 
facilities in the federal triangle. We understand that the 
GSA's use of jersey barriers and planters is an interim measure 
that will be better coordinated when the ``Plan,'' scheduled to 
be completed later this year, is approved and funded.

    Mr. Wolf. Your location is particularly important for both 
location, if something happens, but also because millions of 
people go by your building. When was your building built?
    Mr. Muris. It was built in the 1930's, part of the 
Depression work projects.
    Mr. Wolf. People see your building and you want it to blend 
in with other buildings in the area. You are not very far from 
the Smithsonian?
    Mr. Muris. Sure. We are right across the street.
    Mr. Wolf. Across from the Archives?
    Mr. Muris. Sure.
    Mr. Wolf. We will try to write a letter, maybe a call. We 
will wait for you to tell us what GSA is doing on this issue. 
Perhaps we will try to get everyone to come together. We will 
certainly try to meet your needs with regard to security.
    Mr. Muris. I appreciate that, Mr. Chairman.
    Mr. Wolf. And I would encourage, obviously, that you pick 
security measures that fit in with the building next door and 
the one across the street. I think across the street at the 
Smithsonian is jersey barriers.
    Mr. Muris. I think that is what they have up now. I think 
those are going to be coordinated, and they are temporary, but 
I don't know that for a fact.
    Mr. Wolf. I want to discuss the on-line sale of Oxycontin 
and then I want to recognize Mr. Serrano, and Congressman 
Rogers, who has done a lot of work in the area of drugs and 
Oxycontin.
    Oxycontin is a miracle drug that is beneficial for someone 
dying of cancer. Clearly it does amazing things with regard to 
alleviating pain. You just have to take one a day rather than 
every four hours or more often. Mr. Rogers pointed out and he 
had some examples here on-line pharmacy advertisement on the 
Internet showing that Oxycontin is available without a 
prescription. Given the FTC's jurisdiction to regulate 
marketing practices that cause, or are likely to cause, 
substantial consumer injury, have you looked at the Oxycontin 
issue? Have you looked at the purchasing of these prescription 
drugs which are very powerful? They have devastated two 
communities. The other side of the coin is that this is a very 
good drug that can help someone who is dying of cancer and is 
in severe pain. It can be a Godsend. The other side of the coin 
is in southwest Virginia. It is coming into my congressional 
district, Loudoun County, quite extensively. I think you live 
in Virginia, don't you?
    Mr. Muris. Yes sir, Oakton.
    Mr. Wolf. You are actually a constituent. You can exercise 
your rights and vote against me.
    Mr. Muris. I wouldn't do that. I am actually still getting 
mail from both you and Mr. Davis.
    Mr. Wolf. You are still in my congressional district until 
January 3 of next year. Loudoun County had four robberies a 
month ago during one weekend. The Target pharmacy in Reston was 
robbed on a Sunday afternoon for Oxycontin. That is how 
powerful the drug is. So if you could look at this issue and 
make some comments.
    Mr. Muris. Yes, sir. I will be glad to do that.
    Mr. Wolf. Can you deal with this issue?

                           Online Pharmacies

    Mr. Muris. We certainly have authority on on-line 
pharmacies in terms of deceptive advertising and fraudulent 
marketing practices. Obviously in terms of the issues of 
whether a prescription is required or not, we don't have that 
authority in terms of the medical profession, but----
    Mr. Wolf. Oxycontin is a drug that requires a prescription. 
If you can look at it and maybe let Mr. Rogers' office know.
    Mr. Muris. Yes, sir.
    [The information follows:]

    Question. What is the FTC's position to the illegal sale of 
OxyContin on the Internet?
    Answer. OxyContin (oxycodone HCI controlled-release) is a 
prescription drug indicated for the management of moderate to 
severe pain when a continuous, around-the-clock analgesic is 
needed for an extended period of time. It also is a Schedule II 
controlled substance under the Controlled Substances Act. 
Accordingly, although the Federal Trade Commission (FTC) has 
the authority to act against an Internet website making false 
or misleading marketing claims,\1\ at the federal level, the 
Drug Enforcement Agency (DEA)\2\ and Food and Drug 
Administration (FDA) \3\ have primary responsibility for the 
regulation of the online prescribing and dispensing of this 
drug.
---------------------------------------------------------------------------
    \1\ See 15 U.S.C. Sec. Sec. 45(a) and 52. As an example, in FTC v. 
Rennert (CV-S-00-0861JBR)(D.Nev.)(July 6, 2000), the Commission alleged 
that defendants falsely represented that their customers were served by 
a clinic with physicians and an on-site pharmacy. According to the 
Commission's complaint, defendants' customers were not served by a 
medical clinic or an on-site pharmacy. Defendants employed one 
physician in another state to review customers' medical questionnaires.
    \2\ See 21 U.S.C. Sec. Sec. 822, 829, 841, 958. The DEA has 
addressed the issue of the sale of controlled substances online, 
stating that ``[i]t is illegal to receive a prescription for a 
controlled substance without the establishment of a legitimate doctor/
patient relationship, and it is unlikely for such a relationship to be 
formed through Internet correspondence alone.'' DEA-19N, Dept. of 
Justice, Drug Enforcement Administration; 66 Fed. Reg. 21181 (2001).
    \3\ See 21 U.S.C. Sec. Sec. 331(a), 353, and 353(b). The Federal 
Food, Drug, and Cosmetic Act provides that prescription drugs may be 
dispensed only with a valid prescription under the professional 
supervision of a physician or other practitioner licensed to administer 
the drug.
---------------------------------------------------------------------------
    The FTC staff has conducted a limited search for websites 
purporting to sell OxyContin. We identified a number of 
websites purporting to offer services or publications that 
offered to provide consumers information on how to order 
prescription drugs, including OxyContin, from foreign 
pharmacies without a prescription. This was not an exhaustive 
search and we did not find any domestic sites purporting to 
dispense OxyContin. Because OxyContin is a controlled 
substance, we did not attempt to order it over the Internet. 
The information we have collected will be forwarded to the DEA 
and FDA.
    The online sales of prescription drugs have been of concern 
for a number of years. In March 2000, the Department of Justice 
issued a report entitled, The Electronic Frontier: The 
Challenge of Unlawful Conduct Involving the Use of the 
Internet: A Report of the President's Working Group on Unlawful 
Conduct on the Internet which, in part, outlined the 
application of existing laws to online sales of prescription 
drugs. The relevant sections of that report are attached for 
your information.
    In addition, a number of Federal agencies, including the 
FTC, FDA, DEA, Department of Justice, and U.S. Customs, formed 
an interagency working group to coordinate and share 
information concerning the online sales of drug products. The 
next scheduled meeting of the working group is April 25th. The 
FRC has requested that the issue of the online sale of 
controlled substances be included on the agenda for that 
meeting.
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    Mr. Wolf. Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman. Mr. Chairman, forgive 
me if I am incorrect, but I don't think you fully addressed the 
issue of two dissenting views.
    Mr. Muris. You are absolutely correct. I am sorry I 
interrupted you.
    Mr. Serrano. Are you saying you purposely did that?

                         Antitrust Enforcement

    Mr. Muris. No. I was going to say I pulled out Commissioner 
Anthony's statement, with which I agree with every word. When 
she said that it does not fully maximize the unique makeup, 
experience and institutional assets of the Commission, I agree 
with that, but Congress has created two antitrust agencies and 
we have to share the work. Like I said, I am an FTC partisan. I 
would be glad if we could do more, but under the institutional 
structure we have, we cannot.
    Now, Commissioner Thompson has actually recommended not 
here, but in another statement that he made that we eliminate 
the Antitrust Division in terms of its civil work. That would 
obviously solve the problem, it would solve the problem in the 
long run but it doesn't solve the problem in the day-to-day 
dealings with the Antitrust Division. I can hardly go to the 
Antitrust Division and take the position that they shouldn't 
exist, and for that reason, I think with Commissioner 
Thompson's zeal, he goes even farther than I do in supporting 
the FTC here, but that is not a position that can solve this 
day-to-day problem. This has always been an issue that the 
Chairman has handled.
    The other commissioners have not been involved, and the 
contentious nature of it, I can tell you Mr. Serrano, is very 
poisonous. In this music clearance dispute, I was extremely 
surprised that virtually no one in the Federal Trade Commission 
was willing to concede that the Department of Justice was 
acting in anything other than bad faith. And when you have to 
deal with people on a day-to-day basis, as we do, you have this 
hostility and suspicion. Remember, we are dealing with lawyers 
in both agencies, and these are people who are aggressive.
    And I think that aggression should be turned on dealing 
with these fraudulent practices, anticompetitive mergers and 
price fixing and not on each other. So I thought this was an 
important agreement and that is why I think officials from the 
last four presidents who have been at the agencies have signed 
a letter saying it was a good thing to stop the clearance 
fights, and I appreciate the opportunity to address that.
    Mr. Serrano. So you don't disagree with them. You just feel 
like your hands were tied when the time had come to make this 
distinction.
    Mr. Muris. Absolutely. That is an excellent way to put it.
    Mr. Serrano. I am sorry I said it. Somebody will be upset 
with me. The privacy issue, it has been reported that despite 
the proliferation of communication technology and the sharing 
of information by public and private sector entities, you do 
not believe that more stringent privacy legislation is required 
to protect our citizens. Is this an accurate characterization 
of your views? In some ways, this seems counter to the 
interests of business and consumers. Many consumers will not 
shop on-line due to privacy concerns, and you have spoken to 
this whole issue before. So could you comment on the comments 
made about you?

                                Privacy

    Mr. Muris. Sure. I think there has been a misperception of 
my views on legislation. What I said is on this narrow issue I 
mentioned of notice and choice legislation dealing with on-line 
only and not applying to off-line, I didn't think we were ready 
to do that. Quite frankly, we have one experience with notice 
legislation which are these Gramm-Leach-Bliley notices, over a 
billion of them went to the American consumers.
    I stated recently that for most people those notices were 
about as useful as socks on a rooster. I don't think that 
experience has been very salutary. We in the federal government 
are not very good at telling people how to do notices. That 
doesn't mean that other legislation might not be beneficial. We 
are looking hard at the Social Security numbers issues and 
identity theft. I think some additional legislation might be 
helpful there. We are trying to figure out exactly how to draft 
it. We have a handful of recently passed pieces of legislation 
that I think we need to get on to doing a better job of 
enforcing.
    We have the Children's Online Privacy Protection Act that 
we mentioned. We have new identity theft legislation, we have 
changes in the Fair Credit Reporting Act; we have the Gramm-
Leach-Bliley legislation. So I think that our efforts ought to 
be on that area, but some legislation, narrower legislation 
than this broad-based on-line legislation, with notice and 
choice, I think might be appropriate.
    Mr. Serrano. My next question I think you have answered 
already, but if you care to go further--I was going to ask, in 
your opinion, what are the new threats that consumers need to 
be aware of? I suspect many of the threats are in terms of 
being ripped off, but all Americans should be concerned these 
days about threats that have to do with our war on terrorism 
and the fears and everything that has happened since September 
11. Could you care to comment on that?

                          Consumer Protection

    Mr. Muris. Yes, sir. We have found--it is an unfortunate 
fact of life with the concerns after September 11 that people 
are trying to prey on those concerns. That is why I think one 
of things we do best is we got together in working with law 
enforcement officials all over the United States, with the 
State attorneys general and with local officials, and we in a 
coordinated way went after a lot of the bogus bioterrorism 
products . We are looking at other issues.
    As I mentioned to Mr. Cramer, our tools need to be 
sophisticated. Unfortunately the crooks we are dealing with are 
sophisticated as well and we are in something of an arms race 
with them. But I think it is, like with a lot of other 
problems, you are never going to eliminate crime, but we have 
done an excellent job in being the cop on the beat and I feel 
very proud about this. 20 years ago when I ran the FTC's Bureau 
of Consumer Protection, we started the Fraud Program.
    Surprisingly it was controversial. People thought the FTC's 
role should be in drafting legislation. The FTC 20 years ago 
was called the second most powerful legislature in Washington. 
Well, the House of Representatives in a revolt led by members 
of the then majority party really slapped the FTC down because 
I think that is an inappropriate role for a bunch of unelected 
bureaucrats, but I think going after fraud in the way we do it 
is an excellent role for us.
    We started it--Bob Pitofsky and his consumer protection 
director, Jodie Bernstein really went a long way toward 
perfecting it. And now I think we can build on that record and 
do even better.
    Mr. Serrano. You mentioned something like a home kit for 
anthrax; right? What other things are happening out there that 
we should be aware of, aiming to take advantage again of the 
pain we are all going through?

                                 FRAUD

    Mr. Muris. Well, we certainly have people trying to sell 
things on-line that protect you, gas mask-type things, pills. 
We have the whole variety of both before and after September 11 
of medicines and magic claims that people are making. Another 
thing which I am astonished that I forgot to mention is for the 
first time we are reaching out in terms of Spanish-speaking 
issues. I authorized several hundred thousand dollars to 
translate our consumer education materials into Spanish.

                       SPANISH LANGUAGE MATERIALS

    I grew up in southern California and lived in southern 
Florida for 4 years. There were very large Spanish speaking 
populations. I lived in Chicago for a year and they had a large 
Spanish-speaking population. We are now also, for the first 
time, aggressively trying to hire people who are bilingual, and 
we are actually going to bring cases involving Spanish speaking 
claims as well as the consumer protection issues. So that is a 
new initiative for us.
    Mr. Serrano. I am probably going to get into a lot of 
trouble for bringing this up, but you opened up something here. 
Where do you draw the line on what is considered fraud? If I 
tell you that this water will cure cancer, you can obviously 
come after me because there is no proof that this water can 
cure cancer. That would be consumer fraud, fraud against 
consumers. But on Spanish TV, and Ms. Roybal-Allard can attest 
to this, we do have guys and women who come on there and tell 
you that if you wear this particular cross that they swear once 
touched the Wailing Wall--of course, they are selling 10,000 of 
them--you will never suffer from any disease. I know that 
touches on this religious thing, except these guys are not 
officials of any church. Where is that line?
    Mr. Muris. Well, obviously----
    Mr. Serrano. You notice that I am stumbling over my words 
not because I am short of them, but I am being careful not to 
step----

                                 FRAUD

    Mr. Muris. Obviously there are serious first amendment 
issues. When people write books and sell thousands of copies of 
books that claim miracle diets, miracle cures, that is 
protected by the first amendment; but when they get into 
advertising and selling specific products, we can do something 
about that. We recently sued the practices of Ms. Cleo, which 
she didn't see it coming, and what the problem was--I 
apologize. I had to say that.
    Mr. Serrano. Very good.
    Mr. Muris. What the practices there involved was--we 
weren't saying that if people wanted to have psychic readings, 
we weren't attacking psychic readings, but the ad said you got 
a free reading, and in fact you didn't. They hemmed and hawed 
on the line and by the time you got to the reading part of it, 
they were billing you. It is not a case against psychic 
reading. California, particularly in northern California, there 
were palmists everywhere. The first time I ever drove past the 
grapevine up in California, I was surprised to learn that was 
so prominent, at least in northern California, and if people 
want to do that, we are not attacking that. But if someone uses 
the word ``free'' and it is not free, we can attack that.
    Mr. Serrano. So Ms. Cleo, what is it that says a lawyer has 
a fool for a client? So psychics should not advise themselves. 
There is an indictment somewhere here. Mr. Chairman, I have a 
couple more questions which I will submit for the record unless 
you have three more rounds.
    Mr. Wolf. No, we are not.
    Mr. Serrano. Then I will submit, and I thank you for the 
testimony today.
    Mr. Muris. Thank you, sir.
    Mr. Wolf. Ms. Roybal-Allard.
    Ms. Roybal-Allard. I have a couple more questions dealing 
with alcohol advertising. A new product that contains alcohol, 
known as ``Alcopops'', are sweetened, premixed malt beverages 
such as Mike's Hard Lemonade and Doc Otis. Research has shown 
that because of their sweet taste and packaging, which is very 
similar to that of fruit punch and soft drinks, coupled with 
hip youth-oriented marketing campaigns that these products have 
special appeal to young people and potentially could move young 
people as entry level consumers from soft drinks towards 
experimentation with these types of alcoholic beverages.
    The Center for Science and Public Interest and other 
consumer groups have complained that these new sweet drinks may 
violate section 5 of the FTC Act, which prohibits deceptive 
advertising practices. Are you taking steps to monitor or to 
restrict the advertising of these types of products?
    [The information follows:]

    Question. (Rep. Roybal-Allard/Tr. 66, 67) What is the 
status of the petition by the Center for Science in the Public 
Interest regarding flavored malt beverages? Will the FTC 
restrict the advertising for these products?
    Answer. This petition is under review and we hope to have a 
response in the near future. The question we are examining is 
whether the advertising or marketing of these products in 
directed to underage consumers.

                          ALCOHOL ADVERTISING

    Mr. Muris. I will probably have to get back to you with 
more details, but I understand that there were--what we deal 
with is the marketing. The existence of the product is not 
something that we can regulate. But we can deal with issues of 
whether it is sold in a deceptive way or whether it is targeted 
toward young people in a way that violates our statute. In that 
case we would look at the marketing, look at how it is placed 
in the stores and my understanding is those were the issues 
raised by this petition, and I would be glad to get back to you 
on the----
    Ms. Roybal-Allard. But you are looking at this----
    Mr. Muris. Yes. We received this petition and we have 
certainly looked into it.
    Ms. Roybal-Allard. There also has been a proliferation of 
liquor-branded Alcopops such as Smirnoff Ice, Bacardi, Sky 
Blue, Captain Morgan Gold, among others. These products are 
malt-based, and although they contain alcohol, they don't 
contain hard liquor. Therefore, they are heavily advertised on 
television under the same voluntary standards that apply to 
beer, standards that the FTC itself has criticized in the 
September 1999 report, which I referred to earlier.
    Don't liquor-branded Alcopops constitute a form of stealth 
advertising for liquor brands and what does the FTC plan to do 
to monitor or to restrict the advertising for these kinds of 
products so that they don't substantially reach or appeal 
underage consumers?
    Mr. Muris. This is a scenario where we share jurisdiction 
with the Bureau of Alcohol, Tobacco and Firearms, which I guess 
must be in the Treasury Postal Subcommittee, and they look at 
the labels. My understanding is that just Monday they came out 
with some restrictions on the marketing. We work closely with 
them. We have done consumer research with them in the past, and 
my understanding is that they are now have told those companies 
to restrict what they have been saying about their products.
    Ms. Roybal-Allard. I have one more question that has to do 
with the outreach to Hispanic Americans. I understand that the 
FTC is taking steps to address issues that are of particular 
concern to Hispanic Americans. Have you discovered special 
consumer problems related to Hispanic Americans, or are the 
problems basically the same but have been complicated because 
of language barriers?

                 HISPANIC AMERICAN CONSUMER PROTECTION

    Mr. Muris. Well, so far, and I have only been there 10 
months and we just started to do this, but for better or for 
worse, they are being targeted by the same sorts of scams that 
other people are and we have started the consumer protection 
front. We are moving to the case front. We have a leading 
publication which we have done hundreds of thousands of copies 
of identity theft, and we have translated it into Spanish. We 
are now distributing that. Identity theft appears to be a major 
problem throughout the country. And I would certainly be glad--
one of the things we have done in the past in congressional 
districts all over the country is outreach in terms of lots of 
scams and issues, and we are hoping to be able to do this now 
in Spanish as we increase our ability. We are not there yet. We 
are still hiring people, but that is one of my goals.
    Ms. Roybal-Allard. With regards to the hiring, do you have 
a need for additional resources to hire additional bilingual 
staff?

                               RESOURCES

    Mr. Muris. If we got lower than our request, it would 
certainly make it difficult to do that because quite frankly, 
this is a good program, but it is on top of our other programs, 
and if it has to compete with other programs, then obviously we 
will have to do some paring back.
    Ms. Roybal-Allard. Thank you. Thank you, Mr. Chairman.
    Mr. Wolf. One last question and you can maybe comment for 
the record. How well are you doing regarding telework? As you 
know, it is now the law that Federal employees who have jobs 
that are eligible to participate in telework be given that 
opportunity. How many people are teleworking in the FTC?

                              TELEWORKING

    Mr. Muris. I don't know the answer. I will get back to you. 
I do know that we are very flexible, but I do not know the----
    [The information follows:]

    Mr. Wolf. Do you participate in flex time and job sharing?
    Mr. Muris. Yes. And I think we are particularly good. In 
our Bureau of Consumer Protection, for example, a majority of 
the employees, in fact, the vast majority, are female. We have 
many women with young children who don't work full-time. I am a 
strong supporter of that. I work at home. I have always worked 
at home myself.
    Mr. Wolf. You telework? I would encourage you to take a 
Friday and stay home.
    Mr. Muris. I appreciate that.
    Mr. Wolf. Obviously, you would be working and probably more 
productively. You wouldn't have to come down Route 66 and fight 
the merge and go over the TR Bridge and swing down Constitution 
Avenue and come to the parking lot. To have a leader of an 
agency, and obviously you can't do this very often, but once or 
twice a year, to say I am going to be at home teleworking and 
to get on line and be dealing with your office, I think it 
raises the comfort level of people who work for you to say 
okay, it is okay. I am not advocating that you telework every 
day or anything like that, but once or twice a year would not 
be a bad idea.
    Mr. Muris. I keep very bad hours and people frequently get 
phone messages from me at 3:00 or 4:00 in the morning and----
    Mr. Wolf. So you are working and teleworking. You have a 
very important job. The last thing, and it is not a question, 
is I think you have to do more, to tell people what you are 
doing. My sense is the public does not have knowledge of what 
FTC does. The FTC did have a reputation in the old days of 
being out there and moving around. I am impressed by what you 
say, for the record, and I think it is important not to hide 
your light under a bushel basket, but to let people know that 
you are out there and doing these things. The Public Affairs 
Office might be more aggressive in letting people know. Also, I 
think it is important to crack down on those who are doing bad 
things.
    That helps the overwhelming number of businesses that are 
honest and decent and not violating the laws. Letting people 
know that when you are bringing a case against Ms. Cleo or 
alcohol or advertising, whatever the case may be, that the FTC 
is aggressively moving ahead and the public can see it because, 
one, you are letting people know you are working, but secondly 
it also would put a little bit of fear of God into somebody who 
is thinking they may try something else. With that, I thank you 
and your people for their hard work.
    Mr. Muris. Thank you.
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                                         Wednesday, March 13, 2002.

                     SMALL BUSINESS ADMINISTRATION

                                WITNESS

HECTOR V. BARRETO, ADMINISTRATOR, SMALL BUSINESS ADMINISTRATION

             Opening Remarks of Subcommittee Chairman Wolf

    Mr. Wolf. Welcome. The committee will convene.
    We are pleased to welcome today Mr. Hector Barreto, 
Administrator of the Small Business Administration. The 2003 
budget request for SBA totals $798,253,000, an increase of 8 
percent from fiscal year 2002. Hower, the budget reflects a 
reduction of nearly 50 percent in loan capacity of the 7(a) 
general business loan program. A reduction of this magnitude in 
what is considered your flagship business loan program is not 
desirable, particularly if we are coming out of this recession 
and headed toward a period of economic recovery, when people 
begin to try to expand and do certain things.
    I understand that you have proposed an option for 
augmenting the 7(a) program, and we look forward to hearing 
about this proposal. There are a number of other issues which I 
will just submit for the record, and then I will recognize Mr. 
Serrano. Your full statement will appear in the record as if 
read. You may summarize or proceed as you see appropriate.
    Mr. Serrano.
    Mr. Serrano. Thank you so much, Mr. Chairman.
    I want to welcome the Administrator also. I am very much 
interested in hearing your comments on the whole issue of the 
New York recovery and how the world has changed for your agency 
since September 11th. I have always been a strong supporter for 
your agency, and I work very closely with my sister, 
Congresswoman Velazquez, who is the Ranking Member of the 
authorizing Committee, so you have two friends, and we in New 
York certainly need a friend for all the problems that we have.
    So I welcome you and we stand ready to hear your testimony.
    Mr. Barreto. Should I read the statement?
    Mr. Wolf. Whatever you think is appropriate. The full 
statement will appear in the record as if read. You may read it 
in its entirety or you can summarize, whatever you think is 
appropriate.
    Mr. Barreto. I will read it quickly then.
    Mr. Chairman, Ranking Member Serrano, and members of the 
Committee, thank you for inviting me here today to discuss the 
President's budget request for the SBA for fiscal year 2003.
    To paraphrase President Bush, there are no Democratic 
solutions to small business issues, nor are there Republican 
solutions. There are only solutions. Year after year the 
members of your committee have recognized this, and have 
consistently reached consensus instead of conflict. America's 
small businesses are better off today as a result of your 
working together. I know we can continue that tradition. It is 
in that spirit that I respectfully ask for your support of the 
President's budget request of $798 million for the SBA.
    The President has increased the SBA's budget to provide 
capital and technical assistance to small businesses and 
disaster victims so that the SBA may continue making services 
available to those who need them most. This budget reflects the 
President's commitment to economic security through its support 
of small businesses and their creation of new jobs. It supports 
the President's role of Government, a role which is not to 
create wealth but is instead to create an environment in which 
entrepreneurs can thrive.
    Before we continue our discussion on fiscal year 2003, 
please permit me to take this opportunity to commend the many 
Federal Disaster Relief workers for their role after the 
attacks of September 11th. Through the dedication of SBA 
employees we have delivered, as of March 11th, more than $570 
million in disaster loans nationwide: approximately $315 
million in disaster loans in New York, $12 million in Virginia, 
and $243 million elsewhere throughout the country. I am proud 
to lead an agency that employs such loyal, dedicated and caring 
employees, that made distribution of this aid possible. I know 
you join me in the sentiment and share our commitment to 
continue in the important work on behalf of the impacted small 
business men and women across our country.
    I would like to address in greater detail funding for the 
7(a) loan guarantee program, the flagship program for the SBA. 
Many might see the stated 7(a) funding as problematic. We at 
the SBA, instead, see it as an opportunity for us to refine the 
program to ensure that it retains its relevance and vitality 
for future years. In the interim our budget request will allow 
us to continue meeting demands for 7(a) for fiscal year 2003.
    Let me elaborate. In fiscal year 2003, for the first time 
in many years, the SBA and the Office of Management and Budget 
worked to make the subsidy rate calculation method more 
accurately reflect changes in the program. While the interim 
calculation produced a rate that may not be the rate that any 
of us would like to see, it shows our commitment to move to 
produce the most accurate method possible. This is not an empty 
commitment as has been made in the past. We actually have a 
contract with the Office of Federal Housing Enterprise and 
Oversight, and work has begun on creating an econometric model 
for the subsidy rate in fiscal year 2004.
    In the interim our calculation for fiscal year 2003, which 
weights preferred lender loans in proportion to participation 
in the program, lowered the subsidy rate by one-fifth, all the 
way down to .88 percent. That is a 20 percent decrease. With 
the requested appropriation of $85.36 million for fiscal year 
2003, this would have resulted in a 9 percent increase in loan 
volume, producing a record level of loan authority. However, 
recently passed legislation subsequently reduced the fees paid 
by borrowers and lenders for a two-year period beginning in 
fiscal year 2003, resulting in a double subsidy rate of 1.76 
percent, and a 7(a) program level of $4.85 billion.
    While the statutory change poses a significant challenge to 
the SBA in satisfying increasing loan demand, we believe that 
other recent legislation will help us meet this demand. The 
combined budget authority for the 7(a) program in fiscal year 
2002 equals the program level of $13.84 billion. Adding this 
amount to the fiscal year 2003 program level produces a two-
year program level with an annual average of $9.34 billion. 
This is consistent with historic levels. While we anticipate an 
increased program level of $10.5 billion in fiscal year 2002, 
this would leave an additional $2 billion in guarantee 
authority to support nearly a $7 billion program level in 
fiscal year 2003.
    The current challenge creates an opportunity to examine the 
7(a) program to ensure its continued relevance in the 
marketplace. One of our concerns is the relationship between 
the 7(a) program and the 504 certified development company. 
7(a) and 504 in some ways compete with each other. The 504 
program, formed specifically for job creation, provides 
financing for real estate and major fixed assets. We have 
determined that the 504 program is not reaching its full 
potential.
    For example, over 40 percent of the dollar volume of loans 
provided under 7(a) are provided through large real estate 
loans, many of which our 504 program could accommodate. 
Steering those larger real estate loans to 504 will assist our 
goal in reducing the 7(a) loan size from roughly $244,000 per 
loan to a more desirable $175,000. Our aim is to increase the 
proportion of smaller loans, the type of loans often the most 
difficult for small businesses to receive. We're looking at 
ways to encourage lenders to make smaller loans. Doing so will 
enable us to better provide loans to small businesses, the 
businesses that represent 99 percent of all employers and 52 
percent of the private workforce. We are confident that our 
lending partners will work with us to ensure that more 
businesses which need 7(a) assistance will be able to receive 
it.
    As with 7(a) we hope to use OFHEO's econometric model for 
the 504 program subsidy rate. We will implement the results in 
fiscal year 2005, a year later than implementation for the 7(a) 
subsidy rate, to give us time to evaluate the results of using 
this model on the 7(a) program before using it in additional 
programs.
    As we attempt to implement these and other reforms to our 
finance programs, we will work closely with you in Congress to 
ensure that these programs retain their crucial role in 
assisting small businesses. In keeping with the President's 
management goals, we are restructuring the workforce at the 
SBA. We are investing in the workforce now to produce future 
savings. The structure we developed to deliver our services to 
our customers was developed in the 1960s and is in drastic need 
of updating. We in Government need to do things as modern 
private organizations do them. Our restructuring agenda 
includes more use of telecommuting and contracting out of 
services, as well as other means to reduce overhead and rent 
and use of technology to improve productivity.
    Managing for results, working with partners to ensure the 
effectiveness of programs is another of the President's 
management goals. And I have taken steps to deal with the 
management issues raised by the General Accounting Office and 
the Inspector General.
    Regarding telecommuting, we have made great strides at the 
SBA in expanding our telecommuting program. Currently 12 
percent of currently-eligible employees are taking advantage of 
our telecommuting program. I have signed a comprehensive 
telecommuting policy for the SBA which includes an electronic 
telecommuting tracking system.
    The system will allow managers to transmit specific program 
data used for reporting internally and to the Office of 
Personnel Management. We have also developed a tiered approach 
to phasing in the remainder of our telecommuting program. I am 
confident that an ever-growing number of our employees will 
take advantage of the tremendous benefits of telecommuting in 
the upcoming fiscal year.
    And I would like to thank you, Mr. Chairman, for 
spearheading congressional action in this area so important to 
employee satisfaction and retention.
    This budget includes $1 million for the new Native American 
Economic Development program, an initiative to establish 
partnerships with tribes engaged in economic development 
activity. The SBA is dedicated to ensuring that all Native 
Americans who seek to create, develop and expand small 
businesses have full access to the necessary business 
development and expansion tools available through agency 
programs. This program is a comprehensive initiative designed 
to meet specific cultural needs and result in small business 
creation.
    The SBA will celebrate its 50th anniversary in July 2003. 
In its half century in existence, the SBA has assisted hundreds 
of thousands of businesses in their formative stages. Many of 
those companies have names with which you all are quite 
familiar, names like Federal Express and Intel and Nike, just 
to name three. We are working hard at the SBA to ensure that 
the agency retains its leadership position as it looks forward 
to another half century, and will continue to provide crucial 
assistance to the next Federal Express or the next Intel.
    As I have taken a close look at our programs and services 
throughout my first year as Administrator I have seen what the 
SBA can do and what the SBA needs to do to keep its programs in 
tune with the ever-changing economy. We cannot do this alone. I 
know that I have spoken with some of you individually, but I 
want to take this opportunity, while we are all together, to 
enroll you in these efforts. We have an opportunity together to 
look back at successes, to identify weaknesses where they 
exist, and to position the SBA whereby it can assist in 
creating an environment in which entrepreneurship can continue 
to flourish.
    As I mentioned at the beginning of my testimony, the SBA's 
fiscal year 2003 request is a good one for small businesses and 
offers a beginning point for us to work in tandem with our 
partners in Congress to ensure that the SBA remains effective, 
relevant and provides 21st century service for the small 
business community's needs. We ask for your support of this 
budget.
    We thank you for the opportunity to appear here today. I 
would be happy to answer any questions you may have. Thank you, 
Mr. Chairman.
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                   7(A) GENERAL BUSINESS LOAN PROGRAM

    Mr. Wolf. Thank you, Mr. Administrator. What is your 
definition of a small loan? What is the amount?
    Mr. Barreto. Our average size has been $225,000. We would 
like to get that down closer to $175,000. I am not saying that 
is a small loan to every small business. ``Inc. Magazine'' 
recently did a study and said most small businesses are 
capitalized with as little as $50,000. We need to do a better 
job of reaching more small businesses. One of the ways that we 
need to do that is to get that loan size down to a level where 
small businesses can take advantage of it.
    Mr. Wolf. You have requested $85.3 million in budget 
authority for the 7(a) business loan account. That is a 9 
percent increase. Nevertheless, given the rise in this year's 
7(a) subsidy rate from 1.07 to 1.76, the program level has been 
cut almost in half from $9.3 billion to $4.6 billion. We 
understand that the subsidy rate change was made after your 
budget was submitted to OMB, but you also received $75 million 
in the supplemental funds for emergency business loans.
    How do you propose to keep the 7(a) program at a 
sustainable level that meets the demands of the marketplace?
    Mr. Barreto. As I mentioned in my beginning testimony, Mr. 
Chairman--and you are absolutely right in what you stated--the 
subsidy rate last year was about 1.07. We actually lowered it 
to .88, and at .88, the amount of money that we have requested 
would have given us budget authority something in the 
neighborhood of $9.7 billion for 7(a). On December 21st 
legislation was enacted that actually reduced the fees that we 
have on this loan, and when you reduce the fees, you increase 
the subsidy rate.
    The effect of that legislation basically doubled the 
subsidy rate which hence is reducing the size of our budget 
authority by half.
    Mr. Wolf. Was that a good idea?
    Mr. Barreto. We didn't have a strong role in that 
legislation. Obviously, we didn't anticipate the effects of it. 
The budget was put to bed by that time.
    Mr. Wolf. Does that reduce the amount of loans you can----
    Mr. Barreto. Here is what is happening. If nothing happens, 
if we didn't do anything, with a subsidy rate at 1.76, we are 
going to have a budget authority of about $4.85 billion. But we 
are not going to not do anything. One of the things that we 
anticipate is going to happen is we are going to have a 
rollover this year in the 7(a) program of at least $2 billion. 
That is even with the higher subsidy rate.
    Mr. Wolf. A rollover or carryover?
    Mr. Barreto. Carryover, I am sorry. A carryover in our 7(a) 
program. That is going to get us pretty close to $7 billion. We 
think that by pulling out some of those large real estate loans 
that are happening in 7(a), and putting them in the program 
where they really deserve to be, which is the 504 program, we 
think by doing that, that is going to give us probably an 
additional $2 billion of carryover. That is going to get us 
then really close to $9 billion in budget authority, and we 
think like I said, historically, the program has been running 
somewhere in that $9 to $10 billion level. We think with some 
of the things that we can do with banks, getting some of those 
loans smaller, we think we are going to be okay.
    As I said, we don't choose to look at this as a problem 
that is insurmountable for the agency. We truly see it as an 
opportunity for us. It is an opportunity to re-look at the way 
that we do things, re-look at the way that we service our 
constituents, which are small businesses, and reach more small 
businesses than we are currently reaching.
    Mr. Wolf. But, availability will be more limited? Is there 
a possibility that some will be foreclosed because of this?
    Mr. Barreto. Not necessarily, and let me mention to you 
why. We have a lot of these larger loans again that are 
happening in the 7(a) program. We have not fully expended the 
authority inside of our 504 program. We usually have about $2 
billion left over in the 504 program. If we can get more of 
those big real estate loans out of the 7(a) program and over 
into the program where it belongs, the 504 program, we think 
that we're going to be okay. We don't believe that there is 
going to be a lot of companies that are going to be falling 
through the cracks or not receiving necessary loans from the 
SBA.
    Mr. Wolf. What if the carryover that you are projecting 
doesn't occur?
    Mr. Barreto. This year we are on pace to do about $10.5 
billion. We have way in excess of authority in that, so I mean 
even in a best case scenario we don't think that we are going 
to exacerbate the budget authority that we have in 7(a) program 
this year. So there is no way that we can see that we are going 
to use up all the budget authority that we have for this year.
    Mr. Wolf. What if you did, and what if the carryover wasn't 
as much as you thought?
    Mr. Barreto. Then I think that we have really got to drill 
down on some of the things that we were talking about with 
getting the loans smaller, taking some of the loans that we 
have outside of our program. We figure that is about $2 
billion. Still we are not going to be where we are at now at 
$4.85 billion. We think we could be closer to the $7 billion 
level.
    Mr. Wolf. But you are taking it from some other place.
    Mr. Barreto. It is not so much that we are taking it. It 
would be left over from this year, and we have the ability to 
carry over that authority to next year.
    And with regards to the other issue, those loans, I don't 
think that is what the intention of the 7(a) program is. We are 
intending to help small businesses with starting new businesses 
with the working capital that they need. I mean we have some 
multimillion dollar loans that come out of that 7(a) program to 
buy hotels or large warehouses and large pieces of equipment. 
There is nothing wrong with that. Small businesses should be 
able to do that as well. But we think that the 504 program is 
really intentioned to do that.

                            OPERATING BUDGET

    Mr. Wolf. Okay. You have requested a substantial increase 
of $56.3 million, an increase of 35 percent in your 
administrative operating expenses. Of this increase, $15 
million is for restructuring and workforce transformation. This 
funding is intended to support what the budget described as a 
five-year workforce restructuring plan to relocate employees to 
locations where they can best serve the small businesses.
    Has the SBA briefed the committee or the staff or anybody 
up here with regard to this? I don't think you have briefed 
this committee. Have you briefed the Small Business 
Administration Committee?
    Mr. Barreto. We have had our budget hearings with them 
already. These issues did come up. The full amount of this 
involves a whole host of initiatives that we are dealing with. 
Obviously, workforce transformation is $15 million, $5 million 
for e-Government----
    Mr. Wolf. But have you briefed anybody up here on it?
    Mr. Barreto. In this committee, sir?
    Mr. Wolf. Yes.
    Mr. Barreto. We have had staff discussions, but I am not 
sure that there has been any other formal briefing.
    Mr. Wolf. Have you briefed Mr. Manzullo's committee?
    Mr. Barreto. Yes, we have.
    Ms. Hontz. Yes, and the Senate.
    Mr. Wolf. Staff indicates that they haven't received any 
specific information on the reorganization.
    Ms. Hontz. We promised to give them that by Friday.
    Mr. Wolf. Oh by Friday. So you haven't as of yet?
    Ms. Hontz. No, sir.
    Mr. Wolf. Are you looking at closing offices?
    Mr. Barreto. No, sir, not at this time. One of the benefits 
of the SBA is that it has a wide distribution system. We have 
offices in every State. But one of the things that we are 
looking at, as we are looking into the future, is we have to 
position the SBA for the next 50 years, and one of the things 
we want to try to do in some of this workforce restructuring is 
making sure that a small business in a State doesn't just have 
one office that they can go to. I think there are opportunities 
for us to do things, to spread out people, to have better uses 
of some of our personnel, especially as the SBA continues to 
change.
    Some of the things that we were doing 20 years ago, 30 
years ago, we are not doing any more. We may still have some 
people that are specialized in certain areas, but we could use 
them much better in other areas. So we are not looking at 
closing offices, but we are definitely looking at working 
smarter. I always tell our folks we can't work any harder, but 
we can always work smarter. And so that is what is going on, 
and that is what I think that this workforce transformation is 
going to allow us to be able to do.
    Mr. Wolf. So you don't expect to be closing offices?
    Mr. Barreto. No.

                             TELECOMMUTING

    Mr. Wolf. Two other questions, then I will recognize Mr. 
Serrano.
    Regarding telecommuting, the law requires that 25 percent 
of those eligible particpate in the program. Your figure is 12 
percent. Is this 12 percent of your entire workforce or 12 
percent of those eligible?
    Mr. Barreto. 12 percent of the entire workforce. We were 
briefed before I came over here, we could pretty safely say 
that we are close to 50 percent right now.
    Mr. Wolf. If you could break it down based on that, as to 
eligibility and all.
    Mr. Barreto. Sure. I will be happy to provide you the 
breakdown on all of that. We do have an aggressive plan on 
that. We think it is a smart way of doing business for us. 
Definitely it is going to be something that is going to be much 
more efficient and cost effective for us to be able to do. So 
as we are looking at all of these transformation issues, this 
is a big part of our plan as well.

                  NATIVE AMERICAN OUTREACH INITIATIVE

    Mr. Wolf. Good. Last question. On page 9, you said the 
budget request includes $1 million for the new Native American 
Economic Development Program, an initiative to assist tribes 
with small business development activities. I would urge that 
this initiative not be with tribes that have gambling.
    Mr. Barreto. I am sorry, sir?
    Mr. Wolf. Not with tribes that have gambling. Only 2 
percent, very few Indians have actually received any revenue 
with regard to gambling, and what you are finding is that 
gambling is occuring on the East Coast, and there is some on 
the West Coast. Have you been on any Indian reservations?
    Mr. Barreto. I have not.
    Mr. Wolf. Well, they are terrible and the conditions are 
horrible. Very little of that economic help is going to the 
real people that need it. It is almost as if Congress has said, 
``well, they can just have their gambling'' and not provide 
additional help. Native Americans are suffering dramatically. 
None of this money ought to go to any tribe that has a gambling 
operation. In fact, if it has a gambling operation, it ought to 
automatically be excluded. You ought to be going to South 
Dakota, Nevada and New Mexico and some of the States where 
Indians are really suffering. Quite frankly, maybe you ought to 
be increasing that, but not to Indian tribes that have gambling 
operations, because that would be almost criminal.
    Mr. Barreto. We agree, Mr. Chairman. I am somewhat familiar 
with some of those gaming tribes.
    Mr. Wolf. Gambling. Gaming is Monopoly. Gaming is like 
jacks and checkers, Monopoly. I play games with my kids. 
Gambling is when you go into casinos and play the slot 
machines. It is gambling, and for the record it is gambling. We 
ought not be calling it gaming.
    Mr. Barreto. One of the things that we have done at the 
SBA, we have had Native American outreach programs for a long 
time. Tribal Business Information Centers was a program that we 
have had up until recently. And those TBICs, which we call 
them, were exactly in those kinds of reservations, the 
reservations where there was abject poverty and no opportunity 
whatsoever. What we have done with this initiative is really 
tried to create a better response to those types of 
reservations, and as we go through this process in our program, 
we want to be working with those kinds of Indian nations that 
are really committed to doing this kind of development work for 
people who need it the most. So I couldn't agree more.
    Mr. Wolf. I think you ought to be putting even more money 
into that. With telecommuting and with technology, a lot of the 
economic development, I think, could be done on Indian 
reservations by bringing in some of the high-tech jobs where 
you don't have to actually be at the workplace. I would urge 
you to even spend more than you are particularly looking at the 
tribes that are having the most difficult time, and they are 
probably the ones that are in the location that it is harder to 
get to. People generally don't go to a tribal area in North 
Dakota in January.
    Try to find tribes in North Dakota, South Dakota, New 
Mexico, and reach out. Don't wait for them, because they may 
not be aware of what programs are available. I think you ought 
to be checking with BIA to find the tribes that have the most 
difficult time, and try to do something creative. See if we can 
with the high technology community.
    There are actually a lot of programs now that are going 
into State prisons. Many of them could be put on Indian 
reservations, because the unemployment rate on many of these 
Indian reservations is very, very high. I would urge you, don't 
wait for it to be a grant program. I would try to seek them 
out, particularly those that are in the hardest areas.
    Mr. Barreto. Yes, sir.
    Mr. Wolf. Mr. Serrano.

                             DISASTER LOANS

    Mr. Serrano. Thank you so much. Let me just comment on the 
Chairman's last comments. I respect the fact that he feels very 
strongly about the whole issue of gambling on the Native 
American reservations. However, I would just caution that it 
may not have been gambling that caused those problems, but a 
couple hundred years of neglect and indifference that created 
that situation. In fact, some would argue that gambling has 
actually generated some revenue in the economy for those 
communities.
    Having said that, let me just move on to my community. 
Usually you try at these hearings not to bring district 
specific questions like your neighborhood. But the city I come 
from happens to be in the situation that you are involved in 
and one that this whole country is involved in, the recovery of 
New York City.
    So after September 11th, Mr. Wolf and I worked to make sure 
that there were extra dollars put into SBA to do the work they 
had to do in New York. Can you tell us basically how that is 
going? What kind of requests are you getting for loans? How 
many people have you qualified for these loans? It seems to me 
that among the complaints we hear of how things are not moving 
fast enough, one of them is the issue of the work that SBA has 
been doing. So if you could just tell me what the situation is 
in New York and how it is going.
    Mr. Barreto. Thank you, Congressman Serrano.
    We were in New York very, very soon, the day after 
September 11th we were there. We have taken something in the 
neighborhood of 30,000 referrals from the FEMA registration 
line. SBA has directly assisted 40,000, over 40,000 individuals 
and businesses with loan applications and inquiries. We have 
received 9,240 disaster loan applications. We have approved 
close to 4,000 disaster loans in excess of $309 million. Our 
approval rate has been in excess of 53 percent, which is 
historically a pretty good rate.
    You know, oftentimes people will look at that approval rate 
and say, ``Well, you only approve 53 percent.'' You have to 
understand that oftentimes people that are applying for these 
loans may not qualify for a whole host of reasons. One is they 
may not be a small business. Sometimes that happens. Or they 
may not have the ability to be able to pay back the loan, but a 
53 percent rate for us has been very good, especially in light 
of this disaster. This is really unprecedented for us. Usually 
when we respond to disaster, 80 percent of the individuals or 
the cases that we are dealing with are homeowners. I mean a lot 
of people don't know that. When SBA responds to disasters, 80 
percent are homeowners, and only about 20 percent are 
businesses.
    In this disaster it was completely the reverse. In this 
disaster, 80 percent of the cases that we have been dealing 
with are small businesses, only 20 percent are homeowner 
because there was so little residency around where the major 
damage has occurred.
    Not only did we do that, but we have also taken the 
unprecedented step of changing our regulations so that we could 
do economic injury disaster loans outside of the declared 
disaster area, all throughout the surrounding areas of the 
city, the State, and really nationwide. We have done an 
additional $200 million in these kinds of loans, 4 percent 
loans over 30 years for small businesses.
    The other thing that we have done is we have extended the 
deadline. What we realized is that there still were a lot of 
people that didn't know about these programs. So we have 
extended it to April the 22nd for these disaster loans.
    And we have done a tremendous amount of outreach. We have 
done a lot of PSAs. In fact, I don't know if you saw it, but 
last week we had a large insert in the ``New York Times.'' It 
was an entrepreneurial insert that gave a lot of information 
with regards to what the SBA was doing, how people could get 
help. That was the first part of a series. There are going to 
be three of those articles in the ``New York Times'' to be able 
to do that.
    So we have done a lot, and we are real proud of our 
disaster team. There is more to do. There are still a lot of 
people out there that are hurting. A lot of times with small 
businesses, they don't know what they don't know. And so it is 
up to us to not wait for them to come to us but to reach out to 
them. We have done a lot of canvassing in New York, going door 
to door, going into neighborhoods, and that has all been really 
helpful. We have worked very closely with the whole 
congressional delegation in New York, especially with 
Congresswoman Velazquez, and we continue to work hard and make 
sure that we are helping as many people as we possibly can.
    Mr. Serrano. Now, the 47 percent that were not approved, 
what would you say was the main reason for not approving?
    Mr. Barreto. 27% of those declined were a result of being 
found to be ineligible, i.e., they were a large business, they 
weren't a small business; they had no physical or economic 
loss. In other words, you have to be able to determine that you 
have some kind of a damage, and that has to be validated. Or 
the other one--which is not the largest part of it, but 
oftentimes there may be problems with the credit history, that 
they maybe defaulted on loans in the past or still have 
judgements against them. It could be something as simple as, 
you know, somebody owes child support or has some other kind of 
a claim against them. So sometimes those things go into the 
case.
    We look at it two or three times. Sometimes when somebody 
is declined the first time, we will look at it again and see if 
there is another way we can do it. Sometimes maybe what happens 
is they are not able to initially get the level of the loan 
that they were looking for. They can, however, get a smaller 
size loan, and then if they are able to prove that they need 
more, we are always willing to take a look at it and expand it 
at that time.
    Mr. Serrano. Based on your experience in New York and 
Virginia, do you believe the funding we have appropriated is 
adequate to meet all the applications that you have now?
    Mr. Barreto. I think to this point it has. I think that we 
still have quite a bit of authority left, and, again, we are 
doing everything that we can to get the word out there. 
Sometimes small businesses wait to apply.
    Mr. Serrano. You have quite a bit of authority left, in 
other words, dollars?
    Mr. Barreto. We have dollars left to loan, especially in 
our STAR program. By the way, we are also working very closely 
with our banking partners, making sure that they are fully 
utilizing some of the programs that we already have in place to 
ensure that we get as much of it out as possible.
    Mr. Serrano. Now, as you said in your opening statement, 
this was different, this was unprecedented. Do we need, or do 
you feel that we need, legislation to reflect the fact that you 
are now for the first time dealing with a response to terrorism 
rather than to natural disasters?
    Mr. Barreto. We haven't at this point. What we have seen is 
that the programs we have and the authority that we already 
have are sufficient. For example, we were able to change this 
rule for economic injury disaster loans without getting any 
additional legislation. We were able to make an internal 
administrative decision that allowed us to be able to do that.
    So far, I think that we have been okay, and I think that we 
have a pretty good reach across the country and have 
communicated what is available to small business. Again, we 
continue to do that. That job is never done. But, I think we 
feel pretty good about where we are right now, and we continue 
the effort to make sure that we help more people.
    Mr. Serrano. Are you asking for any additional funds in the 
supplemental that is currently being prepared?
    Mr. Barreto. I don't believe that we have made any request 
for any additional funds at this time, Congressman.
    Mr. Serrano. That is strange. You may be the only agency 
that hasn't done that. Do you think that is what is going to 
happen?
    Mr. Barreto. We are looking at this all of the time.
    Mr. Serrano. I am not asking you to ask for more money, but 
some people may argue that if you have money left over, you 
didn't do the job of allocating the dollars. So how do you 
answer that?
    Mr. Barreto. Well, I think it is a combination of things. I 
think you can make the case that we need to do more outreach. 
Obviously, in our regular loan programs, SBA is not making the 
loans directly. We are working through our banking partners. 
Our banking partners sometimes will tell us that they need some 
changes in the program so they could be more competitive. So we 
are constantly working with that, making sure that we are being 
competitive in the way that we price our program and the way 
that we do our business. And we don't want it to be onerous for 
the banks to do SBA loans. We don't want it to be onerous for 
the small business person when they are applying for a small 
business loan.
    There is an old saying in small business: Tell me yes or 
tell me no, but the maybe's kill me.
    Too often, I think, Government agencies are put in the 
position where they are giving a lot of maybe's, and we want to 
do a much better job on that.
    I think again, the example that I gave in the testimony is 
that in our 504 program we have not utilized the full authority 
that we have, and so we need to look at what we are doing. It 
is not that we are not doing real estate loans. We are doing 
some big real estate loans, but we are doing them maybe in the 
wrong place. We are doing it in 7(a), steering some of those to 
504 could allow more of the 7(a) working capital loans to small 
businesses. So we are looking at that and looking at everything 
that we do.

                              8(A) PROGRAM

    Mr. Serrano. Mr. Chairman, I have one more for this round, 
a general question here.
    Would you bring us up to date on your proposed rule change 
to 8(a)?
    Mr. Barreto. Absolutely.
    Mr. Serrano. What it means, why, and who is affected.
    Mr. Barreto. Absolutely. We were requested by Congress to 
look at the rule change. There was some confusion with the two 
programs that we have. We have two contracting programs. One 
program is the HUBZone program, the other program is the 8(a) 
program.
    They are very different. The HUBZone program is for low- to 
moderate-income areas, and it is really a job-creator-type of 
initiative. It is designed to go into those communities, and 
incentivize companies to go into those communities and create 
jobs. The 8(a) is a business development program for 
disadvantaged small business, primarily a minority small 
business. So they do different things.
    But there is some confusion out there. Some people think 
that HUBZones should have the priorities so that when a 
contracting officer of the Federal Government is making a 
decision, that they give priority and preference to the HUBZone 
program. Other individuals feel that the 8(a) programs should 
have the preference. So there is almost this ongoing 
competition.
    Our general counsel told us we need to clarify this because 
there was too much confusion on it. And when they looked at it, 
they felt that the law said that neither one of them had a 
priority over each other. And so they declared--the general 
counsel wrote up his opinion on this, that they really have 
parity.
    That is what the Senate Small Business Committee has said 
that they agree to. They believe that these two programs have 
parity.
    And the key thing here is this: I think both of those 
programs are underutilized. I think that small businesses 
should be doing more business with the Federal Government, with 
the private sector. It is not a zero sum game. One program 
doesn't have to win and another program has to lose.
    I think what we have to do is that we have to make both of 
those programs more effective. I think that there is legitimate 
criticism sometimes that these programs are working for too few 
people. And that wasn't the intention of putting these two 
programs together or developing these two programs.
    So we are committed to making them both effective. If we 
are going to have a program, it should work. It should do what 
it said it was going to do. It should be measurable. We think 
that both of these programs can be effective.
    Our Business Development Contracting Division has put 
together two very aggressive action plans on how we can empower 
these programs even further.
    So, again, I think that there is a misconception. I talked 
to a Hispanic business group last week, and there was a lot of 
confusion about this, and I clarified this for them. We are 
committed to both programs, and we are going to work really 
hard with them to make sure that they both succeed.
    Mr. Serrano. Well, there is--you are right--a lot of 
confusion, and there is a lot of concern. You represent--you 
head an agency that is seen in many communities as the one 
agency that can help them. And it has also been an agency that 
has been seen throughout different administrations as turning 
its back on them or not doing enough to assist them. You have 
people in my community, businessmen, who, when you mention SBA 
to them, say, No, no, I am not going to go there, they don't 
want to talk to me, whatever the reason may be.
    Now, the contract share of 8(a) firms has declined 34 
percent over the past 3 years. How do you see this rule 
improving these statistics? And why has----
    Mr. Barreto. Well, I am not sure that the rule is going to 
improve the statistics, but I think that we can do a better job 
in making sure that small business gets Government contracts.
    What has hurt 8(a) has not been the HUBZone program. What 
has hurt 8(a) contractors is contract bundling, supply 
schedules, additional credit card purchases from the Federal 
Government. And so those are the things that have a very 
onerous effect.
    One of the things when we looked at the 8(a) program and 
that we decided to do is that we have got to do a much better 
job is that it has gotten top-heavy. There are 6,000 firms that 
are 8(a) contractors. Of those 6,000 firms, only 3,000 of them 
have ever gotten any business. Only 50 percent of the people 
that are inside that program have ever gotten any business 
whatsoever. A few hundred of them have gotten 40 percent of all 
the contracts.
    When we look at that, we say, wait a second, this is top-
heavy, and it is not fully distributed across the country. In 
my opinion, if you are going to have a program like that, 
somebody in San Diego should have as much chance as somebody in 
St. Louis should have as much chance as somebody in New York, 
somebody in West Virginia, or wherever it is, to be able to go 
after these contracts.
    And so one of the things that we have to do--and I think we 
have to do this on a parallel track--we have to fix the program 
that we currently have in place, and we have to create the 
program for the future. And so we are doing that right now.
    One of the things that I did is that I hired a small 
business guy that was very familiar with contracting programs, 
Fred Armendariz, a very successful small business guy, to be 
the Associate Deputy Administrator for Business Development and 
Government Contracting. He is doing an excellent job. He gets 
it. He understands the struggles that small businesses go 
through.
    And I agree with you. I was in the private sector all my 
life, and I was very familiar with SBA. But SBA needs to change 
the perception. It needs to be a strong partner. It needs to be 
perceived as an advocate. It needs to be perceived as an agency 
that will really respond to the needs of small businesses so we 
can get away from small business people saying `I don't even 
want to try,' or `it is painful for me to even think about 
getting into one of these programs or applying for one of these 
loans.'
    We have got to change the way that people think of the SBA. 
We are going to do that by our actions. We are going to do that 
by the results that we get. And I think that we have got a lot 
of opportunity to do that.
    I am optimistic about the future. I am optimistic about the 
opportunities for small business, especially minority small 
business, which is the fastest-growing segment of small 
business in the United States.
    Mr. Serrano. Thank you.

                    7(A) BUSINESS LOAN SUBSIDY RATE

    Mr. Wolf. Mr. Mollohan?
    Mr. Mollohan. Thank you, Mr. Chairman.
    Mr. Barreto, overall the funding request for SBA under this 
administration for some programs has been reduced dramatically 
from the previous year. It really concerns me about the overall 
viability and effectiveness of the agency's programs, and 
starting with the program that you characterize as the flagship 
program of the SBA, the 7(a) loan guarantee program.
    You suggest that some people might see the state of the 
7(a) funding as problematic and you at the SBA see it as a 
challenge. I see it as both problematic and a challenge. And 
your attitude with regard to it probably would be pretty 
powerful as to how this all comes out. It concerns me a little 
bit that you are touting your cooperation with OMB for the 
first time in many years working together to make the 
calculation method more accurate to reflect changes in the 
program.
    So let me start just with that statement. What changes in 
the program are you contemplating that makes the calculation 
for the subsidy more accurate?
    Mr. Barreto. Thank you, Congressman. And this is fresh on 
my mind. We did a subsidy rate hearing this morning to the 
House Small Business Committee, so we just came from that not 
too long ago.
    Mr. Mollohan. Are they worried?
    Mr. Barreto. Well, I think there was a very useful 
discussion. We had the National Association----
    Mr. Mollohan. Are the committee members, did they express 
worry?
    Mr. Barreto. What they expressed is that this is not a 
recent phenomenon. What they expressed is that this has been 
going on for years and years and years.
    This administration, and you know, I just got in here in 
August, has already reduced the subsidy rate 20 percent.
    Mr. Mollohan. What is the phenomenon that has been going on 
for years and years?
    Mr. Barreto. The phenomenon or the issue has been 
calculating an accurate subsidy rate. That has been the issue.
    Mr. Mollohan. That is what has been going on and on for 
years?
    Mr. Barreto. Well, the----
    Mr. Mollohan. Attempting to calculate it accurately?
    Mr. Barreto. Right.
    Mr. Mollohan. Okay.
    Mr. Barreto. And there was a lot of discussion on what the 
best way to calculate that is. It is pretty simple, actually. 
We look at the money that is outflowing versus the money that 
is incoming, and then we make a determination on what that 
subsidy rate calculation----
    Mr. Mollohan. What your loss rate is going to be, right?
    Mr. Barreto. I am sorry--yes----
    Mr. Mollohan. What your loss rate is going to be.
    Mr. Barreto. Exactly, what the loss rates are going to be.
    The other thing that is kind of difficult is that we have 
gone through this period of unprecedented growth. We are proud 
of that. The 1990s was the strongest economic period, in our 
history. And so when you are looking back at a period like 
that, it is very difficult to pick any certain year and say, 
well, that is what it is going to be in any future year. It is 
difficult to put your finger right on what it is going to be. 
You are making some assumptions.
    One of the things that enabled us to get that subsidy rate 
down from 1.07 to 0.88 is that we started looking at very 
important weighting aspects. For example, our preferred 
lenders, the larger lenders, have a lower default experience 
than some of our other lenders. So what has happened is by 
factoring that, by putting more weight on that, we were able to 
get that subsidy rate down.
    We are not done yet. By going forward, one of the things 
that we have done is we have contracted with OFHEO, the Office 
of Federal Housing Enterprise Oversight. They are developing an 
econometric model for us which GAO and OMB feel is one of the 
more accurate ways that we can do this measurement. We have got 
a contract with them already, and we believe that going forward 
we are going to have a much more accurate reflection of what 
that is.
    Now, I am not satisfied with where the subsidy rate is 
right now, and I think those were a lot of the comments that we 
were getting from Congress. But in a very short period of time, 
we have already made some progress. We are committed to 
continue working on this.
    It is difficult for us to say what the previous 
administration was doing in any given year over those 10 years. 
We know that when you look at that, the subsidy rate was higher 
than a lot of people wanted it to be.
    Mr. Mollohan. Well, I know where the subsidy rate is going 
if your 2002 request had been approved. It is going to zero at 
some point in time. Right? You are not going to have the 
program?
    Mr. Barreto. Well, we hope to have a program.
    Mr. Mollohan. I understand, but that is where it goes if 
your request were zero, right?
    Mr. Barreto. If our request was zero----
    Mr. Mollohan. In 2002, your 7(a) loan program request, you 
requested zero, did you not, in 2002?
    Mr. Barreto. Okay.
    Mr. Mollohan. And this year, when we enacted $100 million, 
for fiscal year 2003 you are requesting $85.34 million, right?
    Mr. Barreto. Yes.
    Mr. Mollohan. Okay. In any measurement, that is a 
significant reduction in your lending capability.
    Mr. Barreto. You are absolutely right, but that was not 
what the intention of this budget was. We actually asked for 
more money than what we received for last year based on what 
the new subsidy rate would have been. That would have given us 
$9.7 billion in 7(a) authority. That was the intention of our--
--
    Mr. Mollohan. You are saying the authorizing legislation 
changed that, so----
    Mr. Barreto. December 21st, the legislation that passed 
reduced those fees, which increased our subsidy rate. It 
doubled the subsidy rate, which decreased the level of our 
program in half. But that was not our intention. I mean, I 
think there is a misconception----
    Mr. Mollohan. What changes in the program--and I know you 
spoke to them a little bit in your testimony, what changes in 
your program make your subsidy rate request valid or accurate?
    Mr. Barreto. I want to make sure that I understand----
    Mr. Mollohan. What programmatic changes----
    Mr. Barreto. What programmatic changes----
    Mr. Mollohan. It must be resulting in lower loss rates or 
something.
    Mr. Barreto. Right. May I have, with your permission----
    Mr. Mollohan. Sure.
    Mr. Barreto. I have the benefit of having an expert here. 
Our chief operating officer is Dr. Lloyd Blanchard, and he was 
at OMB working on the subsidy rate before he came over to work 
for us. So we really have the benefit of having somebody that 
really has the dual experience.
    Mr. Mollohan. We just love having OMB at the table. 
[Laughter.]
    Mr. Barreto. Dr. Blanchard?
    Mr. Blanchard. Yes, Congressman, thank you. I believe the 
changes that you are referring to that helped us improve the 
subsidy rate was our recognition that the PLP loans do indeed 
come in at a better performance than the non-PLP loans. And so 
previous to this year, for the 2003 budget, the PLP loans were 
treated just like the non-PLP loans. When we saw that there was 
indeed a programmatic change back in 1992 or so to implement 
this PLP program, and that it did indeed produce better 
performance, meaning lower defaults, and that we were cheating 
the PLP loans in our calculation method, we decided to weight 
that more strongly.
    Mr. Mollohan. Who out there in the small business 
communities who had been getting loans through their 
institutions, guaranteed under this program, are not going to 
be receiving them with these guidelines?
    Mr. Blanchard. No one. No one. This only changes the 
subsidy rate. This doesn't change the available lending.

                         BUSINESSLINC AND PRIME

    Mr. Mollohan. Okay. All right. Your request intends to 
reduce funding and to cut funding for the BusinessLINC and 
PRIME and the survey of women-owned businesses. I guess you are 
eliminating the PRIME and the BusinessLINC program.
    One of the best programs, one of the best initiatives that 
we have undertaken is to create mentor-protege relationships 
particularly in the defense contracting area. And it would 
concern me that you are proposing to eliminate that program 
here, not that it was funded with any great amount of money to 
begin with. But could you just speak to that?
    Mr. Barreto. Sure, I would be happy to.
    The SBA is very fortunate. One of the things that the SBA 
does very well is it leverages its resources. We have 1,000 
small business development centers that we work with across the 
country. We have 12,000 Service Corps of Retired Executives. We 
have business information centers. We have a whole host of 
technical assistance that is available to small business. Last 
year, we helped 1.3 million small businesses through these 
programs.
    You know, we----
    Mr. Mollohan. If they are so tremendous, why are we cutting 
them?
    Mr. Barreto. We are not cutting those programs. Those 
programs have continued----
    Mr. Mollohan. The ones that you mentioned you are not 
cutting?
    Mr. Barreto. Exactly. But, what happens oftentimes, 
Congressman, to be perfectly honest with you, is sometimes I 
think people get confused as to, which program to use. It is 
like they really don't know what they don't know. And sometimes 
what we find in our programs, there is duplication.
    One program may be doing something very similar to what 
another program is. We don't have funding for those programs. 
But our intention is not to let people fall through the cracks. 
We are going to make sure that they have access to some of----
    Mr. Mollohan. Well, BusinessLINC is helping somebody, and 
PRIME is help somebody, aren't they?
    Mr. Barreto. They are technical assistance programs, 
absolutely. We do--some of the mentor-protege work that you are 
talking about is occurring right now in SCORE, for example, 
that I----
    Mr. Mollohan. And so your theory is that this is duplicated 
in other areas of your program, but some people aren't being 
helped here. Have you increased funding? I assume you are 
shifting the responsibility for the functions of BusinessLINC 
and PRIME to other programs?
    Mr. Barreto. It is not so much that we are shifting the 
responsibility of that program. It is just that there are other 
opportunities for small business. If a small business wants 
mentorship, there are ways to be able to get that. If they want 
a very specific----
    Mr. Mollohan. Well, where do they do that?
    Mr. Barreto. If they wanted that mentorship, a great way to 
do it is through our SCORE program, the Service Corps of 
Retired Executives.
    Mr. Mollohan. Are you increasing the funding in SCORE to 
accommodate that additional activity?
    Mr. Barreto. The SCORE program remained level, but last 
year that SCORE program helped 450,000 small businesses.
    Mr. Mollohan. I understand. I understand. But you are 
moving other responsibilities over to it, are you not? Or you 
are assuming it is going to absorb other responsibilities.
    Mr. Barreto. What we want to do is we want to make sure 
that nobody falls through the cracks.
    Mr. Mollohan. I understand. I will stipulate to that. But 
are you not moving the responsibilities or assuming that the 
service provided in these programs, the slack will be picked up 
in these other programs? In other words, you are cutting 
BusinessLINC, you are cutting PRIME, and you are assuming other 
programs are going to absorb this activity?
    Mr. Barreto. The intention is that.
    Mr. Mollohan. Are you increasing the funding in those other 
programs to accommodate that----
    Mr. Barreto. We are not----
    Mr. Mollohan. Excuse me. To accommodate that expectation?
    Mr. Barreto. I am sorry. No, sir. We are not.
    Mr. Mollohan. Okay. Thank you, Mr. Chairman.

                  NATIVE AMERICAN OUTREACH INITIATIVE

    Mr. Wolf. Mr. Serrano had to go to a New York delegation 
meeting with the mayor of New York City on the issue of 
disaster relief. I just wanted to make sure that, for the 
record, you knew that he had gone to that meeting.
    Mr. Barreto. Thank you, Mr. Chairman.
    Mr. Wolf. Also, for the record, I wanted to share with you 
the findings of a Boston Globe study. Eighty percent of all 
Native Americans receive no financial benefit from gambling, 
That was my previous point. And, I think, you might even want 
to increase that initiative and conduct a special outreach, 
because there really isn't any organization or any part of the 
Government--I worked at the Department of Interior for a number 
of years, and there really aren't a lot of programs that help 
Native Americans. So you might want to even plus this up a 
little bit and think in terms of how you can go out and link 
with some of the companies that are off the reservation and 
back East or whatever to help them. I think it would be helpful 
to check with BIA to find out what tribes are having the most 
difficult time, and that they would be the ones that you would 
work with.

                     DEFINITION OF A SMALL BUSINESS

    What is the definition of ``small,'' ``small business''? I 
know it varies. You could be the smallest auto manufacturer. 
Would you be eligible for a small business loan?
    Mr. Barreto. The traditional rule is anything less than 500 
employees, especially for a manufacturing concern, is 
considered a small business. In some industries, a small 
business could have very few employees, but their revenues 
could be so huge that they are not really considered a small 
business anymore. So sometimes it depends on the industry, 
especially when you are talking about a non-manufacturing 
concern.
    Mr. Wolf. So it just varies, depending.
    When you mentioned in your answer to Mr. Serrano about--I 
think you said there were $12 million in loans to Virginia and 
some to New York City, how many individual loans was that to--
--
    Mr. Barreto. To New York or----

                             DISASTER LOANS

    Mr. Wolf. To Virginia.
    Mr. Barreto. Let me see if I can pull that up for you, sir.
    Mr. Wolf. A lot of people were having a very difficult 
time, as a result of the many companies that were affected in 
that corridor on Route 1. I was just wondering why the figure 
was so low. If you don't have it there, maybe tell me for the 
record how many loans and how many applications there were and 
how many were denied.
    Mr. Barreto. I will make sure that you have that exact 
information. We will provide that to you.
    I am sorry. I have it. In Virginia, as of March 6th, SBA 
has issued almost 600 applications. As of November the 2nd, SBA 
has directly assisted 748 individuals or businesses with loan 
applications. In other words, we are working with them on their 
loan applications or other inquiries that they may have.
    SBA has right now so far received 164 disaster loan 
applications. So far, SBA has approved, 82 for $11 million. 
Eighty-one loans have been closed, 70 disbursements have been 
made. So it is an ongoing process that we have with them.
    We have already done one ceremony where we were able to 
give out some of the small business checks. We did that with 
Congressman Moran, I believe. That was early on. But we 
continue doing that, which, again, a lot of times small 
businesses don't realize that these kind of programs are 
available to them. But we have done some PSAs in the area. We 
have done interviews.
    Our district office here is very active and is also out 
there canvassing and talking to business groups all the time 
about this. And we are also trying to encourage people, if you 
are not sure, just call us on the 800 number, or you can log 
online to our website. Our website right now is getting 1.5 
million visitors--not hits. We are getting 15 million hits, but 
1.5 million visitors a week right now. And all of the 
information on our disaster loan programs and all of our 
programs is located on the website.
    Mr. Wolf. In an average case, from the day the person 
contacts the Small Business Administration, assuming a loan is 
granted, how long does the loan process take?
    Mr. Barreto. It has been running about 2 weeks--2 weeks 
from the time that we receive the application to the time a 
decision is made. In New York, we were doing loans in some 
cases in shorter amounts of times than 2 weeks.
    Sometimes it will be prolonged, if the case is complicated, 
if they don't have all their documentation in place, or if they 
are not sure what their need is going to be. All of those 
things can be factored into delaying the process.
    We try to do it as quickly as we can, and our disaster loan 
people tell us that we are far ahead of any schedule that we 
have ever had before inside the agency as far as turning them 
around.
    Now, if an individual applies for a loan and doesn't get a 
loan for one of the reasons that we have already discussed, 
obviously SBA's disaster loan program had no benefit to that 
person. But, by and large, I think that most of the folks that 
initially qualified for these loans are getting them, and they 
are getting them quickly.
    Mr. Wolf. What is the profile? Have they generally applied 
to a bank, or what----
    Mr. Barreto. No, no. These disaster loans----
    Mr. Wolf. No, not disaster loans. We are leaving the 
disaster loans.
    Mr. Barreto. I am sorry, sir.
    Mr. Wolf. Those who generally get small business loans, 
what is the profile?
    Mr. Barreto. There is a variety of different ways that it 
occurs, but obviously, these loans are going primarily through 
our banks, small banks and large banks.
    The big banks, our preferred lenders, they do the bulk of 
the business. In about a couple of weeks, we are bringing them 
all in to talk to them to see how they can even do more than 
that.
    Mr. Wolf. Bringing the banks in?
    Mr. Barreto. Yes, we are bringing the banks in to talk to 
them about new products and new processes that we can put in 
place to even streamline the process even further.
    But, there is a variety of things. Sometimes people will 
come into the SBA office and the SBA office will work with 
them, get their business plan together, tell them how the loan 
program works, and then refer them over to a bank. Sometimes 
the bank is marketing the SBA loan themselves. The client will 
go right into the bank, sit down with somebody, and go through 
the whole process. So it depends.

                            OPERATING BUDGET

    Mr. Wolf. We obviously have a series of votes, so we will 
try to finish up.
    The budget requests $21.3 million for ``other operating 
budget changes necessary to re-establish appropriate current 
service level operations.'' We understand that approximately 
$13 million is accounted for by annual compensation and benefit 
increases.
    Can you comment on how the balance of the requested funds 
would be utilized?
    Mr. Barreto. Of the $21.3 million?
    Mr. Wolf. Right.
    Mr. Barreto. With your permission, sir, would it be all 
right if I had our chief operating officer to go through this?
    Mr. Wolf. Sure.
    Mr. Barreto. Because I think there are a number of items 
that are included in that.
    Dr. Blanchard. Thank you, Mr. Chairman. The increases in 
the salary and expense administrative budget category include 
both the President's management agenda items as well as other 
initiatives and also standard increases in salary and expenses.
    Another thing that it includes is the fact--we now, and 
other agencies throughout the Federal Government--have taken on 
the responsibility for the pension funds that were transferred 
to all agencies from OPM. For us that represented about a $18 
million increase. So of that increase that you mentioned, $18 
million is just that new responsibility for taking care of 
pensions. Fifteen million is for our workforce restructuring 
program that the Administrator referred to earlier. Five 
million is for the e-Government initiative that is a big part 
of the President's plan to provide services to citizens and 
businesses more easily. And then we have other initiatives. We 
already mentioned the Native American initiative. Also, we need 
some IT, security, and infrastructure upgrades that were 
highlighted across the Government in response to 9/11.
    But with regard to the regular operations, regular salaries 
and expenses, we are looking at about a $21 million increase, 
and that covers the basic increases due to inflation and pay 
raises on about $180 million worth of pay.
    Mr. Wolf. And what would it cost you, assuming we have 
parity on pay, civilian and military, and you are required to 
absorb that? What will that cost you?
    Dr. Blanchard. I don't know what the military is being 
paid, sir, so I don't think I can make a statement----
    Mr. Wolf. I think it is 4.1 percent.
    Dr. Blanchard. It would probably take us up more. I 
couldn't say exactly how much. I think our increase is only 
around 2 to 3--yes, 3 percent area.
    Mr. Wolf. I think it is 2.7 percent. I am just wondering 
how much it will require if that provision passes the Congress. 
How much would you have to absorb? What would be the cost if 
you get the military pay raise versus what the Administration 
has recommended for civilians?
    Dr. Blanchard. I couldn't do the math right here.
    Mr. Wolf. Well, can you just do it for the record?
    Dr. Blanchard. I can get it back to you.
    [The information follows:]

    For each additional 1.0% change to employee pay, SBA's 
costs increase by $2 million.

                             CREDIT UNIONS

    Mr. Wolf. Okay. Credit unions. You stated in your testimony 
the SBA is seeking ways to encourage smaller loans and 
considering allowing credit unions to participate. Last year, 
there was an inquiry about this. What are you doing to 
encourage or utilize credit unions as lenders for the 7(a) 
program?
    Mr. Barreto. It is interesting to note that credit unions 
already participate as 7(a) lenders. We have about 71 credit 
unions that are already involved in the 7(a) program, and we 
have been in some pretty intensive discussions with a couple of 
the major credit union organizations in the United States. In 
fact, I addressed one of them a couple of weeks ago.
    The thing that we are looking at and we are trying to get a 
legal ruling on, Mr. Chairman, is the fact that our regs 
basically say that we cannot discriminate against anybody that 
wants to get a 7(a) loan. And oftentimes what you find with 
certain credit unions is because that membership is closed----
    Mr. Wolf. Like Navy Credit Union, something like that?
    Mr. Barreto. Yes, that we need to make sure that we can 
change our reg and, if we are going to change it, what change 
is needed to allow it.
    But we think this could be a big opportunity. We think this 
is another distribution channel. A lot of these credit unions 
are already working with small businesses, so there may really 
be a significant opportunity here for us and provide another 
distribution channel for our 7(a) loan program.
    Mr. Wolf. Mr. Mollohan, do you have anything else?
    Mr. Mollohan. No, Mr. Chairman.
    Mr. Wolf. We are down to about 9 minutes, and that will be 
it. We have a few additional questions that we will just submit 
for the record.
    With that, rather than keeping you for three votes, we will 
adjourn.
    Mr. Barreto. Thank you very much, Congressman. I appreciate 
the opportunity. Congressman Mollohan, I appreciate it. Thank 
you.
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                                         Wednesday, April 17, 2002.

                   SECURITIES AND EXCHANGE COMMISSION

                                WITNESS

HARVEY L. PITT, CHAIRMAN, SECURITIES AND EXCHANGE COMMISSION

                              Introduction

    Mr. Wolf. The subcommittee will come to order.
    We want to thank you, Chairman Pitt, for appearing before 
the subcommittee this morning to discuss the Securities and 
Exchange Commission's fiscal year 2003 budget request. The 
Administration's budget request for the SEC is quite troubling. 
The fiscal year 2003 budget request is 466.9 million. This is a 
29 million or 6.6 percent increase over fiscal year 2002. The 
fiscal year 2003 request does not include any funding for pay 
parity implementation.
    As you know, I sent a letter to the President requesting 
that he submit a fiscal year 2003 budget amendment to fully 
fund your pay parity needs and to provide additional oversight 
staff. We are pleased that the Administration's latest 
supplemental request includes funding for 100 additional SEC 
staff. However, I am disappointed that no funding has been 
requested to fund pay parity in fiscal year 2003, which I 
understand will cost approximately 76 million. We are 
interested--and there will be a number of questions in hearing 
whether you feel an additional 100 positions is an adequate 
increase in light of the recent Enron and Global Crossings 
bankruptcies.
    Your mission to protect investors and maintain the 
integrity of the securities market has become increasingly 
difficult as business transactions and financial markets have 
become more complex. The need for effective regulation of the 
securities and accounting industry has become increasingly 
apparent in light of the failure of companies such as Enron and 
Global Crossings. These bankruptcies have left investments and 
employee retirement plans, in some respects worthless, while 
some corporate executives have become multimillionaires. The 
future success of the markets is dependent upon investor 
confidence that companies are accurately disclosing financial 
information, that auditors are independently auditing financial 
statements, and that investment advisors are not 
inappropriately influenced by their company's investment 
activities.
    The SEC must do all it can, obviously as you agree, as I 
have been reading your statements in the press, to prevent 
future Enrons and Global Crossings from occurring, and to 
ensure that investors have confidence in the security industry.
    With that, I would recognize my colleague, Mr. Serrano, for 
any comments, and then your full statement will appear in the 
record, and you can proceed any way that you see fit.
    Mr. Serrano.
    Mr. Serrano. I just want to welcome Mr. Pitt here today, 
and just take this opportunity to tell you that your folks 
really did a great job in getting up and running again after 
September 11th.
    When all is said and done and a full study of intent is put 
forth by our government, I am sure that part of what those 
folks wanted to do was disrupt our financial institutions as 
much as possible. And you really did a good job.
    And as a fellow New Yorker, in terms of where you are 
situated and where the financial capital of the world is, I am 
very proud of the fact that we all came together under your 
leadership, and in that sense the administration did a great 
job.
    It also should not go unnoticed that you have seltzer water 
on the table there, which is a sign of a true New Yorker, and--
--
    [Laughter.]
    Mr. Serrano. I almost expected a knish and a potato pancake 
also, and I would get into celery soda, but the chairman 
wouldn't understand that.
    But I am very glad to see you here, and again, very proud 
of the work that you have all done to get us back where we 
should be.
    Thank you, Mr. Chairman.
    Mr. Wolf. Thank you very much.

                            Opening Remarks

    Mr. Pitt. Chairman Wolf and Congressman Serrano, 
Congressman Miller, I appreciate this opportunity to testify on 
our fiscal year 2003 appropriations. This is my first 
appearance before this subcommittee since I became chairman of 
the SEC 8 months ago, and I want to express my sincere 
gratitude and that of the entire commission for the bipartisan 
support this subcommittee, under the leadership of Chairman 
Wolf and its staff, have given over the years. And I look 
forward to continuing this strong and positive working 
relationship.
    The President's fiscal 2003 budget sought an appropriation 
of $466.9 million for us. Since that budget was formulated pay 
parity legislation passed and we have confronted three major 
crises. Those events require us to seek additional funds, first 
to enable us to phase in what I would characterize as a modest 
pay parity plan for fiscal 2003, estimated at an additional $76 
million. And second, to add, as the Chairman noted, 100 new 
staff members to address pressing immediate needs, estimated at 
approximately 20 million for the full fiscal year.
    A staffing increase of 100 positions would help us meet our 
immediate enforcement needs, as well as address initiatives we 
are undertaking to improve financial reporting and disclosure.
    In the coming months I will be closely examining our need 
for resources throughout the agency for the fiscal 2004 budget, 
identifying efficiencies we can employ, and also additional 
resources we may require. Given current events, we likely will 
need to come back asking for resources beyond what I have 
requested today.
    I really appreciate this opportunity to testify, Mr. 
Chairman, and your personal support. I ask that my formal 
testimony be a part of the record, and I am happy to try to 
respond to any questions the subcommittee may have.
    [The statement of Mr. Pitt follows:]
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    Mr. Wolf. Sure. Your full statement will appear in the 
record.

                           ATTRITION OF STAFF

    For the past several years we have been hearing about 
excessive attrition rates at the SEC, primarily accountants, 
attorneys and examiners. We understand that over the past three 
years, one-third of your staff, 1,000 employees' have left the 
agency. Is that an accurate number?
    Mr. Pitt. Yes, sir, it is accurate.
    Mr. Wolf. Could you tell us what the exact number is? Is it 
1,000? Do you have that exact number?
    Mr. Pitt. Yes.
    Mr. Wolf. If you can submit it for the record.
    Mr. Pitt. Yes, I will.

                               PAY PARITY

    Mr. Wolf. In order to address this problem Congress passed 
the Investor and Capital Markets Fee Relief Act which 
authorized SEC staff to be paid at levels comparable to other 
Federal banking regulators. In March, the subcommittee approved 
a reprogramming of prior year balances to bring implementation 
of the SEC's pay parity plan this fiscal year. When will the 
plan be implemented and how is it expected to resolve your 
employee attrition problems?
    Mr. Pitt. Well, let me say that we are in the process of 
starting to implement pay parity for the remainder of fiscal 
2002, thanks to the efforts of this subcommittee and the Senate 
subcommittee and OMB's approval. We have $25 million with which 
to fund the start of a pay parity program for about 4 months in 
fiscal 2002. It is our goal to implement that as quickly as 
possible. About 3 weeks ago we advised the National Treasury's 
Employee's Union that we were ready to start discussions with 
them, and they have told us that they think they will be ready 
to commence serious negotiations next week.
    Our problem is not with fiscal 2002, therefore, our problem 
is with fiscal 2003. At the present time, I have not been 
successful in persuading OMB to fund an additional $76 million. 
That is over and above $19 million that would be in the 2003 
budget for special pay which we will apply to pay parity 
compensation. The program we have is a very modest one. It is 
an effort to start along the process of providing parity 
between the SEC and other financial service regulators.
    Mr. Wolf. For the record, tell us what other ones. Now, if 
you can tell us?
    Mr. Pitt. I am sorry?
    Mr. Wolf. What other agencies are you seeking to have pay 
parity with?
    Mr. Pitt. Well, you have the Federal Deposit Insurance 
Commission. You have the Federal Reserve Board, and you have, I 
believe, the Office of Thrift Supervision, and the Office of 
the Controller of the Currency. All have a higher and a 
different pay level from the SEC, significantly higher and 
different.
    Mr. Wolf. Will other banking regulation's pay plans still 
be higher after you implement your pay parity plan?
    Mr. Pitt. Yes. In many cases it will still be higher. What 
we have attempted to do is find a middle ground, and in 
addition, I strongly believe that the government should operate 
on the notion of performance, rewarding performance. So there 
is a substantial merit-based component that we intend to 
include in our pay parity program. I don't want simply to give 
everyone and across-the-board pay raise for all of the money. 
There will be some across-the-board pay raises because I think 
all of our employees are deserving. And then they will have the 
opportunity to earn more based on their performance, which 
hopefully will give the public good service.
    Mr. Wolf. How much of a salary increase would each employee 
receive, using the across-the-board, not the bonus, but just 
across the board?
    Mr. Pitt. The numbers vary because some offices have 
geographic allotments.
    Mr. Wolf. Are you talking locality pay, there is a higher 
cost of living in New York City versus----
    Mr. Pitt. New York City, for example, our employees--
Congressman Serrano, you will be happy to hear--will get a 
higher allowance for the cost of living there. But the numbers 
of sort of an absolute pay scale raise would range from between 
6 to 15 percent. I think New York has the highest level. There 
are some areas where the cost of living is actually quite 
favorable, and in those situations, those staff people will be 
at the lower end of the scale. But that is just the first layer 
of raises.

               APPLYING PAY PARITY TO HIGH TURNOVER AREAS

    Mr. Wolf. Will the specialized employees with the highest 
attrition rates be compensated at a higher rate? How will you 
target it then? Of these 1,000 that left, are there certain 
areas or certain categories, and will those areas be addressed. 
If Department A has had a higher attrition than Department B, 
will you put greater emphasis on A or will you do it on A and 
B?
    Mr. Pitt. There are two responses to that. First, it is our 
belief that all of our employees need to receive increases, but 
with respect to the more specialized individuals we have 
basically provided for higher increases for attorneys, 
accountants and other expert individuals.
    Mr. Wolf. Where are your people going? Have you done an 
exit survey to see where they went this past year?
    Mr. Pitt. We have done some, and the places vary. Some have 
gone to other agencies, other financial services agencies. Some 
have gone to self-regulatory organizations that we oversee but 
of course can pay much more than the government pays, and some 
have gone directly into the private sector, law firms, 
accounting firms and the like.
    Mr. Wolf. What percentage of the people that left are 
lawyers?
    Mr. Pitt. I don't have that number off the top of my head, 
but I would be happy to supply it for you.
    Mr. Wolf. Do you have exit interviews though, to find out 
why they have left?
    Mr. Pitt. We attempt to--our personnel group attempts to 
ascertain why people leave and to conduct exit interviews. I 
cannot tell you that in every case we have managed to succeed 
in that, but it is our effort to find out why people are 
leaving.
    Mr. Wolf. And is pay mainly the reasons?
    Mr. Pitt. Pay and pay parity have been at the top of the 
list. We have repeatedly been told that our staff would like to 
stay. The work that we are doing now is challenging, 
stimulating, exciting, and I believe we could hold people for 
modest additional amounts of money, but pay has been the major 
reason for people leaving.
    Mr. Wolf. It will be interesting to see next year how many 
employees leave, assuming pay parity is implemented as we would 
hope it would. You recall the statement President Kennedy, made 
``ask not''. Government service is much more rewarding than 
sitting in a big 300-person law firm downtown can be sometimes, 
where you may not even know the partner of the firm if they sat 
next to you on the bus or on the subway or in the shuttle. To 
make a difference, and know you did make a difference in life.
    My sense is that particularly in this time, the SEC is not 
an agency of boredom and not an agency of irrelevancy. There 
may have been a dry period as every agency goes through dry 
periods at certain times, but this is a period of a lot of 
activity and a lot of interest in the securities markets. If 
you are out for the dollar, obviously you have got to go where 
it goes, or if you have a particular problem, but the sense of 
working in public service, and for the SEC certainly meets that 
test at this time. As you know, I am a strong supporter of pay 
parity. There are a lot of lawyers that leave law practices and 
open up bed and breakfasts in Maine because they are absolutely 
bored with what they were doing. And so you are probably not 
bored at the SEC, and I would hope that that would be made 
clear to people, that people recognize this is an opportunity 
to really make a difference.
    Mr. Pitt. I have said on other occasions, but I will 
reiterate, I completely agree with the Chairman's comments, and 
say I know for me serving the public, serving public investors 
are the best clients I could have, and this is the most 
rewarding job I could imagine, and I think that a lot of the 
people that work at the Commission are there because they feel 
exactly the same commitment to the investing public. We want to 
use that commitment and not lose that commitment.

                   FUNDING FOR PAY PARITY IN FY 2003

    Mr. Wolf. We understand that the pay parity is anticipated 
to cost $76 million in fiscal year 2003. However, as you said, 
the Administration has not provided any funding for its 
continuation in fiscal year 2003. Can you explain why OMB would 
support, your reprogramming request to begin pay parity 
implementation in fiscal year 2002 without providing a source 
in fiscal year 2003?
    Mr. Pitt. Well, let me say one thing. I have felt that we 
have enjoyed very good relations with the personnel at OMB. I 
have made it my business to make sure that OMB knows what we 
are doing, why we are asking for certain things. That does not 
mean that we do not have disagreements, and on pay parity we 
have a significant disagreement. I cannot tell you why OMB has 
not yet funded it or seen fit to agree to fund it. But one of 
the things that I have said at my confirmation hearings and 
that I have reiterated is I believe the SEC has to be a part of 
one government, and we expect to work with both Congress and 
the Administration to make sure that our needs fit within 
national priorities. I place a very high priority on pay 
parity, and I think OMB, which is preoccupied with some very 
serious issues, puts that a little bit lower on their priority 
list.
    Mr. Wolf. Well, the bill passed 440-22, which meant it had 
the overwhelming support. Secondly, I am sympathetic to the 
Administration's concerns on the deficit. And I think President 
Bush is accurate in warning the Congress not to go back to the 
days of ``porking everything up.'' I am sympathetic to what he 
said. On this issue though, I think it is a little bit 
different. I encourage you, and if the committee could be of 
any help, to set up a meeting with OMB and us, because I think 
this issue has to be dealt with or else you are going to be 
faced with a continuing problem that may actually get worse, 
particularly as the economy is improving.
    Mr. Pitt. We would welcome any assistance that the 
subcommittee would want to give us.

                    ALLOCATION OF 100 NEW POSITIONS

    Mr. Wolf. Okay. I am going to have one more, and then I 
will recognize Mr. Serrano.
    With regard to the staffing, we understand that since the 
Enron and Global Crossing bankruptcies, the SEC's workload has 
dramatically increased, including additional enforcement 
actions, financial reporting inquiries, companies seeking 
disclosure advice, and companies wanting to restate earnings 
statements. In order to address your workload, your fiscal year 
2002 supplemental request provides for 100 additional staff. 
How will you allocate these additional staff between 
enforcement, disclosure activities and accounting activities?
    Mr. Pitt. We basically have allocated it with 35 lawyers 
and accountants for the enforcement division. We need both, 
obviously. We have roughly allocated 30 additional personnel to 
our corporation finance with the expectation that the large 
bulk of those people will be reviewing files. The Commission, I 
think, has to improve its selective review process, and we have 
made efforts to do that.
    One of the things Enron taught us, I might add, is that you 
cannot ignore the Fortune 500. You can't make assumptions about 
the size of the company in terms of where you provide selective 
review.
    And the third would be another 35 people that would be 
spread--mostly again attorneys and accountants--to assist and 
help implement. We also have our Office of Chief Accountant, 
that would get more accountants so that it could do a better 
job of overseeing accounting principle developments and the 
like, and that is how we see the broad allocation of the 100 
people.
    Mr. Wolf. And is that enough, is 100 enough?
    Mr. Pitt. Is that?
    Mr. Wolf. 100 is enough?
    Mr. Pitt. Let me say that 100 seems to be the minimum. I 
cannot say whether it is enough. By the same token, I also feel 
an obligation to see whether we can introduce efficiencies into 
the way we are performing, and we have undertaken a major four-
month study, which is the first I think in the Commission's 
history, a top to bottom review of how we are using our 
resources, because if we can save personnel and resources and 
reapply them elsewhere, I feel we have an obligation to do 
that. My guess is that the 100 are not going to prove 
sufficient, but again, numbers alone won't do the trick. We 
have to make sure that we can get first-rate people and then we 
can integrate them into the Commission's existing programs.
    Mr. Wolf. How long will it take you to hire them?
    Mr. Pitt. It varies, although----
    Mr. Wolf. Have you started? I mean are you interviewing and 
have people getting ready to come on?
    Mr. Pitt. We have a constant flow of applications, resumes 
of professionals that come into the Commission, and we have a 
good source of people who we would be prepared to hire and hire 
quickly if we have the slots. So I believe that we can move 
quite rapidly. The only thing I would say is we are not going 
to hire 100 people overnight. We really have to make certain 
that we maintain the level of quality, that we do the 
appropriate checks, and then that we give them the proper 
training, but I believe that we could get the 100 on board in a 
very minimal amount of time.
    Mr. Wolf. Mr. Serrano.

                        VENEZUELAN STOCK MARKET

    Mr. Serrano. Thank you, Mr. Chairman.
    I have some questions I want to ask you, but before I do, I 
heard something on the radio this morning on one of the Spanish 
radio stations in New York, which comes out of left field here, 
but I just want to know if you have any information as to how 
this could have happened. The report is that during the 24 or 
48 or 72 hour period that the problem existed in Venezuela, 
Venezuela-related stocks--whatever that means--went up. And 
then the minute that the presidency was restored, they went 
down. Same situation with oil prices. Now, usually, supposedly 
when there is a sign of instability, stocks go down, and when 
stability returns, stocks go up. This was totally opposite.
    First of all, do you know anything about that? Have you 
heard anything about that, because I hadn't heard it anywhere 
else? And if so, did those guys know something that we didn't 
know here?
    Mr. Pitt. I had not heard that report, and it surprises me 
for exactly the reasons that you have indicated. I must say, a 
very long time ago I learned that my ability to predict which 
way the markets would go was really quite minimal, and that is 
why I became a lawyer.
    [Laughter.]
    Mr. Serrano. Okay. If there is any chance that you could 
sort of, when you go back to the office, have someone just 
check to see if this was just a made-up report, which wouldn't 
be the first time I heard something from somebody's 
imagination, but that is what was coming over some of the 
Spanish stations in New York.
    Mr. Pitt. I will look into it, and if we have information 
we can pass along, I will be happy to get that to you.

                RENOVATING THE NEW YORK REGIONAL OFFICE

    Mr. Serrano. Sure. On September 11th, more than 300 of your 
employees were working in the New York Regional Office in 
Building 7 of the World Trade Center. They all evacuated before 
Building 7 collapsed, and SEC was one of the first tenants to 
relocate downtown, within blocks. I believe you lease space at 
the Woolworth Building.
    Mr. Pitt. Yes.
    Mr. Serrano. A building we all know. In fact, in one of my 
other lives I was a banker for Manufacturer's Hanover Trust. 
They refused to give me a $5 raise, and I left and went into 
politics.
    [Laughter.]
    Mr. Serrano. Really, some day I should go back and give 
them a plaque or something, but it is a true story.
    Mr. Pitt. Clearly their loss.
    Mr. Serrano. Thank you. And I took all my banking courses 
at the Woolworth Building, at AIB, the American Institute of 
Banking.
    Now, my understanding is that you need to do some 
renovations in that building. But also my understanding is that 
some of the dollars you had asked to be included in this budget 
were rejected by OMB. Is that correct? And how do you intend to 
deal with that? Please stay at that building. That is a 
permanent site for you at this moment, right?
    Mr. Pitt. It is a permanent site. We, of course, wanted our 
employees in New York to have a major say in where they would 
relocate. I was quite pleased that they chose to relocate in 
the financial district, and to me I thought it was a very 
important, both symbolic and realistic judgment. That is where 
the SEC should be in New York.
    We have about $18 million or so, between $18 and $19 
million to finish up the renovation and the movement into new 
space and security in New York. We have not been given that 
authorization yet by OMB, and the way I propose to deal with 
that is the way I deal with all of these issues. We meet with 
OMB. We talk to them constantly. And being an eternal optimist, 
I believe eventually either I will be able to persuade them or 
I might wear them down.
    I think I have to say on our supplemental, the figure I 
gave you of $18 million was for the entire supplement. The New 
York Regional Office recovery is $9.3 million, so I sort of 
conflated the two figures, but for the New York Office it is 
$9.3 million.
    Mr. Serrano. So you intend to try and wear OMB down on this 
particular issue?
    Mr. Pitt. Well, I said that somewhat facetiously, but----
    Mr. Serrano. No, but I respect that and I applaud you for 
it. I am not for creating havoc within the administration, but 
it is interesting to note that the former chairman of this 
subcommittee, Chairman Rogers, would open up every hearing by 
asking the person in front of him if they had gotten from 
Clinton's OMB the money they wanted. And everybody would skirt 
around the issue. And so it is very refreshing to hear you say, 
``Yeah, I think we should have more money,'' and there is 
nothing un-American or un-Bush administration about saying 
that.
    Mr. Pitt. I appreciate your saying that. As I have said, I 
think that we have an excellent working relationship with OMB. 
Frankly, I would think it would be somewhat better if we got 
all the money that we would like.
    [Laughter.]
    Mr. Pitt. But I believe I owe it both to the country and to 
the agency to make sure that I am completely candid in my 
expression of views to OMB, and that they know why I think I 
need something. We have had, as I say, very good discussions, 
and when we told them we needed 100 more people, in less than 
the blink of an eye, they agreed to support that, which was 
very gratifying.

                            STAFF DIVERSITY

    Mr. Serrano. Well, let me for the record say that I love 
Congress, but if they don't give New York City all the money 
promised, I will love it a little less, so I understand that.
    Let me also go on record, Mr. Chairman, in supporting you 
in the issue of pay parity. I think that is such an important 
issue. It is one that I strongly believe in from top to bottom. 
And I claim that we have lost throughout the years some very 
good people here in this body because there were less stressful 
better offers outside. And I know that in the judiciary and in 
other places throughout our government, we just will never get 
the people we should get because we don't pay and we don't 
compete. So even within government agencies I think it is 
important to do this.
    Which brings me to a question. And that is, we are always 
asking folks who come before us to do more to hire minorities, 
to hire African-Americans, to hire Hispanics, hire more women 
and so on. Do you find that the pay issue is a problem? You 
know, in your line of work there are not that many, it seems at 
times, minorities graduating from college, and that is the bad 
news. The good news for some of them is that corporate America, 
trying to catch up to where it should be, sometimes offers the 
kind of deals that you can't even go near. Have you noticed any 
of that? Is that still a problem?
    Mr. Pitt. Let me say a few things about that. Diversity is 
a very strong principle in which I believe. And I guess I would 
also say that if we cannot achieve it in the government, I 
don't know where we can achieve it, so I believe government has 
to be a leader.
    In my administration, I have tried to emphasize to the 
maximum extent possible, that I want to see us recruiting so 
that we get the benefit of a diverse set of experiences, 
viewpoints and the like.
    Our diversity is a strength. I do not believe that the 
issues, in terms of finances, are any different for minority 
lawyers, minority accountants, in a sense. I think what is an 
issue is that there is a pool of very qualified minority 
professionals, and the competition is extremely stiff among 
very smart-thinking people, and that puts us at a disadvantage 
when we do not have pay parity.
    So I believe it would help, but I think that, again, the 
major issue is I think twofold: first, to persuade people that 
the work is of important public interest, which I believe we 
can do and that in some ways, tragically, but in some ways 
fortunately, we are now even better able to do; and then the 
second is to believe that people will be fairly compensated. 
Professionals coming out of professional school usually have 
very large debts, and if the Government cannot provide an 
attractive pay scale, we lose the opportunity for diversity, 
and we lose the opportunity to get some of the most qualified 
people coming out of our schools. I think, at the end of the 
day, that hurts the country because it means we are missing out 
on some very qualified people who will not come to the SEC.
    Mr. Serrano. One of the things I have noticed, Mr. 
Chairman, and I think I mentioned it in another hearing, is 
that since September 11th there is a desire by a lot of people, 
certainly in my community in the Bronx, to work for the 
Government. You do not know how many people, for instance, come 
to my office now from something as important and as basic as, 
for one reason or another, I have had trouble joining the Army, 
can you help me?
    I used to get people saying, ``You know, I got in, and that 
is a mistake. Can you get me out?''
    [Laughter.]
    Mr. Serrano. And people who want to be FBI agents. I mean, 
I come from a community where there was always a lot of 
suspicion about the FBI, for many reasons, and now people are 
wanting to join. So I am sure it runs across the whole line of 
Government service, and this would be a great opportunity to 
bring some people in.
    Mr. Pitt. I completely agree with you, and I have said I 
could not be happier to be in Government at this time. We have 
some dramatic and difficult issues, but I really value the 
opportunity to be part of the solution, to be working for what 
I think are the best interests of this country. I agree with 
you, this time, perhaps more than at any other time in recent 
years, Government service should be attractive to all 
Americans. It is a wonderful opportunity.

             RELOCATION OF FINANCIAL INSTITUTIONS FROM NYC

    Mr. Serrano. One last question, Mr. Chairman, before we 
give my friend, Mr. Miller, an opportunity.
    There is always a fear in New York City of the financial 
institutions moving out. There was always a fear of the Yankees 
moving out. I do not think that is going to happen now, except 
if they start losing, then we may want them out, but right now 
they are not going anywhere.
    After September 11th, the relocation question and the old 
question of is New York viable for us--has that changed in any 
way or is it, if you will, un-American, at this time, to even 
suggest moving out of New York City?
    Mr. Pitt. Before I respond to that, I have to impose on the 
subcommittee and digress for one second. When I was 11, the 
Brooklyn Dodgers left New York City, and I still have not 
gotten over that.
    Mr. Serrano. I remember.
    Mr. Pitt. So I understand----
    Mr. Serrano. Yes, but do you remember the song? ``Keep the 
Dodgers in Brooklyn. O'Malley, won't you take them away? What 
would Brooklyn be without Campy, Duke and Gil? Please keep the 
Dodgers in Brooklyn.''
    There you go. I am the king of information you do not need. 
[Laughter.]

                     BACKUP FOR EXISTING FACILITIES

    Mr. Pitt. Well, I have pictures of the old Ebbets Field in 
my office. Old loyalties die hard.
    I would say that there is a dual and, in a sense, 
conflicting set of pressures operating on firms. One of the 
things we learned from September 11th is the critical need for 
replication of existing facilities. My concern, as a regulator, 
is that the securities industry and the securities markets be 
able, in a nanosecond, to resume trading if the principal 
trading locations or trading computer systems go down.
    I have to say that the securities industry has been quite 
diligent about that. Some of the firms have relocated 
processing units outside of New York. I think most of the firms 
have maintained the same strong commitment to being in the 
financial center of the world, as they had and, indeed, in some 
cases, it is even stronger.
    The New York Stock Exchange I know has taken the position 
it will not leave New York City, and we have supported that 
decision. We have also supported the development of facilities 
that will enable the stock exchange, which is a floor-based 
market, to replicate that market in the hopefully unlikely 
event that something were to happen to its floor.
    So I think people feel a commitment to the city. I know we 
do, and a commitment also to making sure that investors do not 
skip a beat in the event of any tragedy of the kind we saw on 
September 11th.
    Mr. Serrano. Thank you.
    Mr. Wolf. Mr. Miller?

                            ENRON BANKRUPTCY

    Mr. Miller. Good morning.
    Let me ask some questions relating to Enron, such as, and I 
am not a lawyer or a finance person, but--and I know this is an 
appropriations committee, not an authorizing committee, and 
there are a lot of committees involved in this issue, and I 
know we maybe even have a bill on the floor to change some 
laws, but with the existing laws, I am trying to figure out 
what went wrong with the regulatory system in our country that 
Enron, and Global Crossing, and Arthur Andersen were allowed to 
get to the stage that affects so many people so personally that 
our Government was not able to keep something from happening, 
at least the scale that it did.
    Mr. Pitt. Well, I think that is the right question, and I 
am not foolhardy enough to tell you I have the pat answer. I 
can tell you that there are a number of factors that I believe 
created this situation.
    First, the Enron investigation is still going on, and I 
cannot comment specifically on any of that. I am not involved 
in that investigation, but until it is completed, it is not 
appropriate for me to comment on it.
    From things I have read in the paper and from documents 
that have been published, it appears that there were two types 
of problems; one, were problems that were individual to that 
company, people who misbehaved, violated existing rules and 
obligations, but it also seems to me, and this is the part of 
Enron that I believe we must deal with now, it seems to me that 
there are systemic problems, and that is where I take your 
question.
    I think the problems arise in a number of areas, and I 
caution one thing when I outline them. There are many people 
who are looking for quick and uncomplicated answers, but the 
problems that gave rise to Enron are incredibly complex and 
complicated, and they do not allow for simple solutions, but I 
would, in a number of ways, say, systemically, the following 
problems:
    First, I think that our system of promulgating accounting 
standards became much too cumbersome, much too slow, much too 
detailed and allowed people to adopt a check-the-box mentality, 
when what you want is people thinking what is in the public 
interest? What are we trying to achieve here, instead of 
saying, how can I get by with something? So I think that was a 
major problem.

               FEDERAL REGULATION OF ACCOUNTING STANDARDS

    Mr. Miller. What role did the Federal Government have in 
that, I mean, regulatory agency? What Federal regulatory 
agency, on accounting standards and such?
    Mr. Pitt. Well, accounting standards are set in the private 
sector subject to SEC oversight, and that gets to the second 
element of this.
    I think that the Commission needed to revise its oversight 
of the setting of accounting standards for a number of years, 
and that had not been done. I think, in addition, the 
promulgation of better standards needed to be a principal 
issue. That had not been done. I think that the disciplinary 
mechanism, the oversight of the accounting profession was 
theoretically interesting and potentially valuable, but in 
reality it did not work.
    We had a private-sector body, the Public Oversight Board, 
that was unable to do any discipline itself, was funded on a 
voluntary basis by the accounting profession itself. There is 
nothing wrong with being funded by the accounting profession, 
as long as it is involuntary, not voluntary. They had no 
disciplinary powers, and they relied on other accounting firms 
to do peer review. So we had no discipline, no quality control 
of any major involvement, and the SEC was not aggressive and 
active, in my view, in overseeing that.
    I would say there are two other areas. One is the 
disclosure system we have. Part of my concern--and this existed 
before Enron. I testified about this at my confirmation 
hearings, which predated Enron--is that disclosure had become 
an effort to avoid liability, not to inform. Disclosure's 
purpose is to tell people information they need. That did not 
exist. The disclosure system and the financial reporting system 
need significant improvement. We have the best system in the 
world, but that does not mean that it is not in need of 
significant improvement, and that is one of the things that was 
on my agenda even before Enron, but Enron has sped it up.
    The final issue is corporate governance. To me, the goal 
always has to be that corporate directors and management have 
to have, as their principal goal, identical interests to the 
people who invest in the company. The minute you allow a 
divergence of interests, you wind up with public investors 
coming out, if you will, on the short end of the stick.
    One of the things that we are now pushing for is an 
improvement in the methodology of corporate governance, a 
realignment of the views of corporate managers, so that there 
is no question that their interests are identical with the 
interests of public investors. Those will not mean that there 
will never be another Enron. I wish I could tell you there will 
never be another one, but long, long ago, even before 
consulting by accountants and the public oversight board, we 
had other Enrons.
    The system will always, I think, attract a hopefully very 
small number of people who want to take advantage of others and 
of the system. But I think if we improve this system, the 
confidence that investors have had in our markets and 
justifiably had, will be able to be improved and strengthened 
because the opportunities for mischief will be minimized.

                        REACTION OF SEC TO ENRON

    Mr. Miller. Are you, I gather, shaking up the system? As 
you point out, so many of the failings of the past, that it was 
not aggressive, and it was too passive, I assume by that that 
you are doing a major shake-up on the role and the challenges 
that the SEC faces in correcting and trying to avoid those 
problems?
    Mr. Pitt. The answer is most assuredly yes. Sometimes when 
a tragedy occurs, some people look to find someone to place the 
blame on. My view is I would rather place the responsibility 
squarely on our shoulders. We have the ability to solve these 
problems, and I believe now we have the will. So I am not 
looking for scapegoats. I am looking to shake the system up, as 
you say, in a way that improves it.
    What is good about our system should not be tinkered with, 
but we are not afraid, either, to use enforcement powers or 
regulatory powers to make sure that everybody looks at our 
system and says this continues to be the best in the world. We 
will do that.
    Mr. Miller. Thank you.
    Thank you, Mr. Chairman.

                       INTERNAL STUDY OF THE SEC

    Mr. Wolf. In March, you announced the commencement of a 
four-month internal study to examine the Commission's 
operations, efficiency, productivity and resources. Who is 
conducting the study?
    Mr. Pitt. I am sorry. Who is conducting the study?
    Mr. Wolf. Yes.
    Mr. Pitt. The study is being conducted under the auspices 
of Jim McConnell, who is our Executive Director, and Jack Katz, 
who is the Agency Secretary and is the repository of much 
stored knowledge.
    We have secunded a working group of very bright younger 
people who have worked in more than a single division, and we 
have hired a consultant, a management specialist consultant, to 
make certain that we do not overlook any issues.
    Mr. Wolf. Can you tell us who the consultant is?
    Mr. Pitt. It is McKenzie & Company.
    Mr. Wolf. When will it be completed?
    Mr. Pitt. Well, we are working on a continual basis, and I 
am getting, in a sense, some feedback and factual input on a 
weekly basis, but the ultimate study is expected to be 
concluded in about four months, which would put it probably 
around the end of July.
    Mr. Wolf. And will it have recommendations?
    Mr. Pitt. It will, and it will form the basis for our 
submission to OMB of our 2004 budget request. Its purpose is to 
see how we are doing our job and try to figure out whether we 
can do it better. We may be able to do it better if we do it 
differently, and we may be able to do it better if we have more 
people. We are looking at everything, but the major point is 
that there is nothing that is sacrosanct or sacred. Everything 
is open for discussion and review.

                          SEC'S STRATEGIC PLAN

    Mr. Wolf. A recently completed GAO study of the SEC 
recommends that the SEC broaden its strategic planning process 
to determine its regulatory priorities and the resources needed 
to fulfill its missions. What are you doing with regard to that 
recommendation?
    Mr. Pitt. Well, we agreed with that recommendation by GAO, 
and we have sought to implement it. In the first instance, I 
think, doing the strategic review of our systems, and our 
capabilities, and our functions is the first step to that.
    In addition, one of the things that I would like to do is 
to create a risk management group at the SEC. I believe that 
sometimes the rote fashion that we make some decisions; for 
example, which of the 20,000 public companies we will 
selectively review in terms of their filings, can be done on a 
much better basis if we have the competence of risk managers 
who can tell us where the emerging trends are in our society 
and where the next problems are likely to come from. That is 
only one place where we can use that.
    Plus, we are working on a strategic plan so that the agenda 
items we have will be thought about, formulated and then 
published so people will understand where we are headed and the 
types of things we want to accomplish.

         PURPOSE OF ADDITIONAL $9.3 MILLION FOR NY RENOVATIONS

    Mr. Wolf. On the New York issue that Mr. Serrano mentioned, 
is there a funding shortfall with regard to the New York 
office? It was 9-point-something million dollars.
    Mr. Pitt. It is $9.3 million for the build-out. I think we 
have six floors. We have been able to build out two of them 
thus far. We have security needs and upgrades that we are 
looking for, and that is a shortage that we are working to 
persuade OMB we would like to replace.
    Mr. Wolf. If you can keep the committee informed with 
regard to that, we would appreciate it.
    Mr. Pitt. I would be happy to do that.

                  BUSH ADMINISTRATION'S 10-POINT PLAN

    Mr. Wolf. In March, the President outlined a 10-point plan 
to improve corporate responsibility and help protect American 
shareholders. The President's plan is intended to provide 
better information to investors and make corporate officers 
more accountable and develop a stronger and more independent 
audit system. What has the SEC done to implement the 
President's plan?
    Mr. Pitt. We have indicated that the Commission fully 
supports the President's 10-point plan, and we have taken a 
number of steps to implement the various phases of the plan. 
These include an overhaul of the system of regulation and 
discipline of the accounting profession. We are in the process 
of creating a private-sector regulatory body, which will be a 
fearsome overseer of both discipline and quality control within 
the accounting profession.
    Mr. Wolf. Give us an example. What do you mean by that?
    Mr. Pitt. We believe that the world, in terms of accounting 
oversight and regulation, needs to be modified so that there is 
a private-sector group fully funded that has the power to 
discipline accountants for incompetence or unethical behavior 
that has the capacity to do quality control review so that, 
even if a firm is within the law and is within accounting 
principles, but it is not at the highest standards, there will 
be the ability to discipline the firm and take clients away 
from the firm. We will set that up on a regulatory basis----
    Mr. Wolf. Who will head that? Who will be in charge?
    Mr. Pitt. We would appoint, in the first----
    Mr. Wolf. Personnel is policy.
    Mr. Pitt. These would be private individuals the 
predominant majority of whom, would be outside and unaffiliated 
with the accounting profession. In my view, having one or two 
people who have current knowledge of accounting and the 
accounting profession will enhance the ability of this entity 
to operate, as long as they cannot control the discipline 
decisions, and we have worked for a vehicle to provide that in 
our proposed rulemaking. We expect to have rules out in the 
not-too-distant future that would propose the creation of this 
private-sector regulatory body.
    In addition, we have tasked the New York Stock Exchange and 
NASDAQ to revisit their listing agreements and to come up with 
more stringent requirements for corporate governance, they are 
in the process of doing that and we are very gratified by the 
willingness that they have taken to try and upgrade the 
standards of corporate governance for American companies.
    We have also put out for consideration a number of rule 
proposals that would get investors more timely and more 
relevant information under a new system that differs from the 
existing system, including such things as insider trading.
    Another area that the President identified, with which we 
agree quite strongly, is the notion of holding CEOs and senior 
management responsible for the disclosures and the financial 
accuracy of the reporting of public companies. We have already 
commenced actions in which we are seeking to have corporate 
officers disgourge bonuses and salaries that they received for 
economic performance that they never delivered.
    So we have a very full program underway.

                 LEGISLATION REQUIRED FOR 10-POINT PLAN

    Mr. Wolf. Can you do all of this without legislation?
    Mr. Pitt. I believe all of this we can do without 
legislation. The one piece of legislation that we do believe we 
need is to have the authority administratively to bar people 
who engage in serious misconduct from ever being able to serve 
as officers or directors of public companies again.
    Mr. Wolf. Is that in the bill that was reported out of 
committee yesterday?
    Mr. Pitt. It is. It is in Chairman Oxley's bill that was 
reported out. That would give us that authority. We can go to 
court to get that, but the courts have adopted a much narrower 
approach to our entitlement to that relief than we believe is 
appropriate, particularly in light of current events.

                       TIMING OF SEC INITIATIVES

    Mr. Wolf. When will all of the rulemaking proposals be in 
place?
    Mr. Pitt. My hope is that the major initiatives that we 
have undertaken, in response to both the President's 10-point 
program and the so-called Enron situation, will be in place 
before the end of the year. We have, on our agenda, a number of 
additional items. We want to reform the capital-raising system. 
We want to move to a current disclosure system, instead of the 
periodic disclosure system. Those will take a little longer, 
but we still would hope to have proposals out to the public by, 
hopefully, the end of the year.
    Mr. Wolf. And has this been well received by industry?
    Mr. Pitt. I think that it has been well received. There are 
obviously people who have their own ideas and some who have 
their own agendas, so I cannot tell you that we have achieved 
universal support. But I think if you look at all of the 
proposals that are now around, all of the legislative proposals 
and the like, everyone is basically working off, in my view, 
the model that we were the first to set forth, which is the way 
I think it should be. The Commission should lead, and then it 
should be informed by public reaction, and we are paying very 
close attention to what people say and the criticisms that they 
bring to our attention.

               REVIEW OF FORTUNE 500 FINANCIAL STATEMENTS

    Mr. Wolf. We understand the SEC is in the process of 
reviewing the financial statements of all Fortune 500 
companies. How is the review proceeding, and should we be 
concerned that there are other companies out there, like Enron 
and Global Crossings, that are about to fail?
    Mr. Pitt. Well, my strong hope is that there are no Enron's 
and Global Crossings out there, but I am unable to give you a 
guarantee on that.
    What I can tell you is that we believe we have to be more 
diligent and more intelligent in our selective review process, 
and we are effectively making certain that the types of warning 
signs that could have alerted folks to an Enron or a Global 
Crossing are things that we are looking for now, and that is 
why, after Enron, I directed that our staff do a review for 
2002 filings of all Fortune 500 company filings.

                 INCREASE IN ENFORCEMENT CASE WORKLOAD

    Mr. Wolf. I have one more question for this round, and then 
I am going to recognize Mr. Serrano, and then I will come back 
to these.
    In the first 2 months of this year, your Enforcement 
Division opened 49 cases. We have been told this is more than 
twice the number of cases opened over the same time last year. 
What is the cause of so many new cases, and is this issue more 
whistleblowers coming forward or more reporting? Is it accurate 
that there are 49 new cases?
    Mr. Pitt. In the first 2 months, I think the number was 49, 
and these are financial fraud cases.
    Mr. Wolf. Is that more than twice the number opened the 
same time last year?
    Mr. Pitt. In the first 2 months of last year, I think the 
number was 18, which was a record for last year.
    Mr. Wolf. A record. So what do you attribute this to?
    Mr. Pitt. I think there are a couple of things. First of 
all, I think people's attention to the issues have become 
heightened. It is rare, if you look at the country's history, 
for typically dull and boring accounting issues to be on the 
front pages of our newspapers day after day, but suddenly 
everybody now is aware of the issues. That, in some sense, is a 
big help to us.
    In addition, one of the things that we have done is to 
encourage public companies to bring their issues to us, to work 
with us, so that we can help protect investors. We are getting 
good cooperation now from companies that are self-reporting. We 
are finding more whistleblowers. We are also looking more 
closely at accounting changes that companies announce and the 
like, and we are making certain that we try to act instantly 
when we learn of something that may be of concern.
    One of the demands on us, which is why we have asked for 
100 new people, is we have moved to an enforcement program of 
real-time enforcement, where the Commission is now in court 
quite rapidly in the hope of protecting assets and monies that 
investors have been defrauded out of so that we can actually 
return monies to investors and do some real good for our 
principal constituency.

                       ADEQUATE STAFFING FOR SEC

    Mr. Wolf. Well, I am going to recognize Mr. Serrano for a 
couple of questions. But it does seem to me, just listening, 
and I made a couple of comments and I will get back to them 
later, just listening to the increased new activities that you 
have, 100 employees is almost a minimum, it would seem. I mean, 
these are complicated issues. This is not like cutting grass, I 
am not demeaning the issue of cutting grass because this is one 
of the more difficult things that I have to do, but this is 
just not cutting grass. This is doing very complex work. I made 
some comments while reading your testimony. Your budget is so 
small. I am a fiscal conservative. I am a conservative 
Republican member. I was one of the members who was elected in 
1980 with President Reagan who came here to do things, and I 
think we were successful. I agree with President Bush on most 
of the issues, on almost all of the issues and do not want to 
see us overspend. I think we should get a handle on spending. I 
would like to see us have a balanced budget in the years 2004-
2005 as far as we can.
    I think this area, though, is one of those exceptions, in 
light of the fact that so many people have lost. There has been 
so much pain and suffering in those who were stockholders in 
Enron and those who were stockholders in Global Crossing, and 
to establish the credibility and the confidence in the markets 
is so important. I mean, sometimes reading the Business page is 
like reading the Style section lately.
    I think a 100 additional staff may not be enough. As you 
look at this study that you are preparing, you may very well 
find that 100 really is not enough, and in order to protect the 
teachers, and policemen, and firemen, and bookkeepers, and 
doctors, and lawyers, and everyone who sets aside that money 
with regard to the future, I think you really may have to ask 
for more, and I would hope the committee would be open to that. 
We are not talking about another military base in somebody's 
district or another.
    I think this is analogous on the civilian side. We cannot 
ask the men and women in the military to go to Afghanistan and 
to be in Yemen, and the Philippines, and places without giving 
them the necessary resources because this is not a battle that 
we can afford to lose. And I believe under the leadership of 
President Bush we will not lose it. We will win it.
    And I think the same thing holds true here because of the 
nature of the circumstances of being the number one world power 
economically. Your job is very important and to make sure that 
you have the resources to maintain--I do not use the word 
``restore''--but to maintain the confidence in the market 
systems, and in capitalism. So I would hope because the end 
result, and I am going to recognize Mr. Serrano, when this is 
all over, my sense is that you, rightly or wrongly, will be 
given the blame or the credit as to how this thing goes over 
the next couple of years.
    I wrote some other comments down as you were speaking. With 
your background, some people were very suspicious when you were 
appointed. I was in that category. We had a conversation. But 
Lyndon Johnson was not a civil rights Senator when he served in 
the United States Senate, and yet when you look at the record 
of Lyndon Johnson, he goes down in history as a President, who 
was very committed to civil rights.
    My sense is, with your background and understanding of the 
system, you may be in a better position because, unfortunately, 
in this environment we sometimes go out of our way to find 
people who know nothing about anything to come in to oversee 
what is very complex and very difficult. The jury is still out, 
obviously, because you are at the beginning of your term, but 
you may be in a better position to do what has to be done to 
maintain the confidence for the stockholders, coming from your 
background and understanding. My sense is it will be very 
difficult for someone to pull the wool over your eyes.
    My sense is that you are not committed to go back out and 
practice law, and make a lot of money, and doing all of these 
things. You are coming in here in the spirit of public service.
    The committee does not want to put you in the difficult 
position of differing with OMB, but let us know what the study 
recommends. We can work with you and work with the good people 
of OMB. They have got a difficult problem, too, to make sure we 
can get to the budget balanced. But OMB needs to know the level 
of resources you need to do the necessary work to ensure that 
people can invest and feel confident. Every dollar is important 
that we spend for the taxpayer, but this is such a small 
segment, even of this committee's budget, let alone over the 
overall spending.
    Mr. Pitt. First of all----
    Mr. Wolf. And you know a lot about this.

                        ROLE OF THE SEC CHAIRMAN

    Mr. Pitt. First of all, let me say how grateful I am for 
your support, and the committee's support and for your very 
kind comments. As I have told you privately, for me, this is 
the only job that I have really ever coveted. It is a wonderful 
opportunity, and you are right, I will, I am certain, be blamed 
if our solutions are not good enough. I am used to that. In our 
family, the rule always is if anything goes wrong, it is my 
fault.
    [Laughter.]
    So I am prepared to accept that responsibility. But I have 
no intention of going back and practicing law, so I do not have 
an interest in currying favor with potential clients and so on. 
There are obviously many cynical people and people with other 
agendas who want to cast aspersions, but without seeming 
immodest, I would say to you I appreciate your statement.
    I believe that I do have the knowledge and the 
determination to help solve these problems. I do not believe I 
have all of the answers, and I do not always believe that my 
answers are right. It has been proven far too often that my 
initial responses can be improved, and I am open to that, but I 
would like this committee to know that I have absolute 
determination, and I believe the Agency does, to work on these 
very complicated issues and to solve them. I want the American 
public to feel that the future of our capital markets is rosie 
and that the regulation of our capital markets is in very firm 
and knowledgeable hands, not afraid to take whatever steps need 
to be taken.
    On the economic basis, I share your philosophy. I do not 
always believe that the solution to every problem is to throw 
more money or more people or more regulations at the issue. On 
the other hand, I believe that one cannot be afraid to seek 
more people, more money and more rules when they can do good 
for the public, and I am committed to doing that and doing that 
not only vigorously, but efficiently.
    I believe that you are right, that the 100 people we have 
designated are a minimum. I deliberately did not want to ask 
for a much larger number until I was satisfied that we could do 
our internal review, and I could make sure that we are using 
every device that we can to maximize public protection and 
minimize public cost. That's why, for example, I support a 
private sector disciplinary body for the accounting profession 
that is subject to rigorous oversight. We could not afford as a 
government to do the vigorous job I think we want to do, but we 
can afford to oversee it.
    And the last point I would make is the Commission, even 
with the fee reduction part of the bill that accompanied pay 
parity, generates multiples of dollars beyond what it spends, 
and I think in fiscal 2003 we will generate about $1.3 billion 
in fees, and we are talking about a budget at the moment of 
$466.9 million. My view is that we have to accommodate 
ourselves to other national interests, but we also should avoid 
being pennywise and dollar foolish. A few extra dollars can go 
an amazingly long way, I believe, in our hands to provide 
maximum protection for investors. I will continue to work with 
OMB and continue to work with this subcommittee to make certain 
that I am always telling you what I think we need and why and 
that you have the opportunity to test whether we are doing 
enough, too much or whatever. We welcome that.
    Mr. Wolf. Thank you.
    Mr. Serrano?

                        SEC AUTHORIZATION MARKUP

    Mr. Serrano. Thank you, Mr. Chairman.
    You are familiar with the markup that the House Financial 
Services Committee just completed?
    Mr. Pitt. I am.
    Mr. Serrano. What can you tell us about what came out of 
there? There are some members who are not happy with the 
result, and around here we find out that when members are not 
happy with the results of an authorizing committee, that means 
they try to get it done on an appropriations bill. So, in 
anticipation of that issue, what can you tell us about the 
results out of that markup?
    Mr. Pitt. Well, I think that the legislation that came out 
of the House Financial Services Committee has a very sound 
approach to problems, and it is intended to provide a very 
meaningful legislative improvement to the current system of 
laws without writing things in stone. There are two 
philosophical views that are diametrically opposite one 
another. There are some people who think that the only way that 
you can fix a problem is to write it into legislation in stone, 
and then nobody can wheedle out of the requirements, and I 
understand that concern, but I don't agree with it.
    There are others who believe that Congress should state 
what its objectives are. It should give direction and it should 
give content to how problems should be solved, but then it 
ought to trust to an expert administrative agency like the SEC 
to implement its will, and if we do not do a good job of it, to 
call us up here on the carpet and make sure that we do do the 
job that you want. To the extent that those different 
approaches exist, the bill that was passed by the House 
Financial Services Committee adopts the latter approach. It 
tells us what they want to achieve, and it gives us the tools 
to achieve it, but it does not write things in stone, and I 
give you one example of that.
    In 1933, it was thought that there ought to be a separation 
of commercial banking from investment banking, and the Glass-
Steagall Act was passed. Pretty much after about 1945, Congress 
spent 50 years laboring to undo writing that separation in 
stone. That is not to say that that separation did not serve 
very valuable purposes when it was enacted, but when it became 
time to try and move away from that, there was no flexibility 
left in the system, and so finally Congress was able to pass 
the Gramm-Leach-Bliley Act. In my view, writing things into 
stone is not the best use of legislative time and effort. I 
think writing principles in stone and then allowing an agency 
to implement them is the more effective way.
    The bill is now out and will go on the floor. We have 
testified about it and commented on it. As with any piece of 
legislation, there are always things that any nonparticipant 
thinks he or she could modify, but our general reaction is----
    Mr. Serrano. Such as? Do you have any----
    Mr. Pitt. I am sorry?
    Mr. Serrano. Do you have any specific concerns about that 
bill?
    Mr. Pitt. I think there are things in the legislation that 
we hope will be reviewed and worked out, but I guess my view is 
that if there is to be legislation, I am very supportive of the 
efforts of the House Financial Services Committee. I believe it 
is a bipartisan effort, and I believe that it was done in a 
very thoughtful way. As I have said previously, with the 
exception of Officer and Director bar abilities for the 
Commission to do administratively, I believe we can do 
everything that needs to be done within our existing power. 
That does not mean that there will not be or should not be 
legislation, it just means that we do not believe we need 
legislation to do what needs to be done.
    Mr. Serrano. So part of my question would have been what 
happened to that which you proposed, either in private 
conversations or officially, but since you are happy with the 
result, I guess that which you proposed has been dealt with in 
the bill to your satisfaction.
    Mr. Pitt. We are supportive of the direction and the 
approach of the bill, and if we are asked for assistance, and 
we have been asked previously for assistance----
    Mr. Serrano. You still will not volunteer what may be wrong 
with the bill at present time. I mean, you are supportive of 
the bill.
    Mr. Pitt. We are supportive of the direction----
    Mr. Serrano. Right. I support bills where I single out some 
problems with them, and I was interested in noting that you do 
not like things set in stone. That is what we are telling the 
other party about the tax cuts this week. We are hoping that 
they would not be set in stone, but I guess they are going to 
set them in stone.
    But, all right, I am not going to badger you with it, but I 
think this would be helpful to all of us. You are telling us 
you support the direction of the bill, but I do not think there 
is anything wrong with saying, however, there are one or two 
things that should be straightened out. I think that helps 
those who support the bill, and it helps those who oppose the 
bill because they do not see it as a one-sided issue. They see 
the fact that you have some problems with it. So you should 
reconsider that.
    Mr. Pitt. Right.
    Mr. Serrano. Let me ask you a question that I do not know 
if an answer has been put forth. The World Trade Center, those 
buildings that we, as typical New Yorkers, took for granted, 
you know, as we take for granted so many structures in that 
city. I remember the next day, I was in New York September 
11th, that was primary day, and I was playing hookey that day. 
My son was running for the City Council. In a Chicago-New York-
type story, I can tell you that there it was 10:00-something in 
the morning or whatever, and all of the police started coming 
out of the polling sites. And the first thought was not there 
is something wrong, but who is going to make sure the votes are 
counted properly? [Laughter.]

                LOSS OF SECURITIES DUE TO SEPTEMBER 11TH

    Mr. Serrano. But everybody left us, you know, and then the 
election was canceled. Someday somebody will write that part of 
the attempt of these folks was to disrupt so many things, and 
one they accomplished, you know, they stopped momentarily our 
electoral process, something that is unheard of in this 
society.
    But, anyway, the next day when I left, I saw that emptiness 
and the smoke rising, and for the first time I actually looked 
to see where the towers used to be as I drove on the turnpike, 
because it was the only way out of New York City that day, 
driving.
    But in those buildings, I imagine or I had read somewhere, 
that there was gold, actual physical gold, there was currency, 
I imagine there were stock certificates. All of that was lost 
or most of it was lost. First of all, how do people account for 
that, if they do? Since there was stock, some of the people 
holding the stock had the stocks in those buildings, some of 
the people that knew you were holding the stock were also in 
that building. How did that reconcile later? I mean, I cannot 
go around now claiming that I had, you know, a thousand shares 
of IBM or Sony, and somebody is going to say, ``Okay, you 
did.'' What happened to those records? I remember there was 
that big fear of all of this stuff just falling out on the 
street, a lot of paper and so on.
    And, secondly, do we have any understanding of how much was 
lost, and the people who had cash, and gold and other things? I 
know there was a lot of artwork, but you do not deal with that.
    Mr. Pitt. Not on a Government salary, I do not. But I guess 
I would say this. In terms of securities, securities are held 
either in the owner's name or in the street name, and there is 
a registration, and all of the brokerage firms were required to 
keep track, and we have records of where there are stock 
certificates, although we are hopefully moving to a 
certificateless society, but where there are stock certificates 
and so on, the certificates are numbered, the owners are 
recorded, the firms have records, and so while there was a fair 
amount of dislocation that was caused by this, no one should 
have been in a position where their assets that may have been 
held by brokerage firms and others could not be replaced and 
restored.
    I cannot speak for some of the other items that were there. 
Currency, of course, I think there is nothing that can be done 
when currency is held, but gold is often earmarked in very 
similar ways and the like. So that my understanding is that the 
amount of loss and confusion based on those activities for 
people who were not in the building but had their assets in the 
building, the fallout from that has been minimal.
    Mr. Serrano. I see. I see.
    Mr. Chairman, I have no further questions. I just want to 
thank the chairman for his presentation today and join the 
chairman in continuing to work to make the work you do easier.
    I still would encourage you to say at least something bad 
about that bill that came out----
    [Laughter.]

                           NEW YORK BASEBALL

    Mr. Serrano. So that we can have something on the record to 
guide us through the difficult weeks.
    Let me just, so that you do not leave this place thinking I 
am a turncoat, I am originally a Dodger fan, but I lived two 
blocks from Yankee Stadium, right? So, in the 1960s, I said I 
can only root for the Yankees if I ever see them, as a typical 
Dodger fan, in last place. [Laughter.]
    Mr. Serrano. As you know, they did that in the 1960s, so 
now I tolerate them, but do not ask me what I do during a 
Dodger-Yankee World Series.
    Mr. Pitt. I have to admit, when I was growing up in New 
York, the chasm between Dodger fans and Yankee fans was 
enormous.
    Mr. Serrano. The Yankees were Republicans. The Democrats 
were----
    [Laughter.]
    Mr. Serrano. It is true.
    Mr. Pitt. There is no doubt that my sports loyalties are 
not really necessarily consistent with my political loyalties, 
but I suppose that explains why I am still a rabid Mets' fan.
    Mr. Serrano. Yes, I understand. Well, just in closing, 
again, I want to thank you, Mr. Chairman. You know that during 
the Subway Series, they did some poll. They realized, I think 
to my amazement, most Republicans were rooting for the Yankees 
and most Democrats were rooting for the Mets. But the Yankees 
won, you will be happy to remember.
    Mr. Wolf. They do wear pinstripes. [Laughter.]

                           SHADOW GOVERNMENT

    Mr. Wolf. Following up on the question Mr. Serrano asked 
about the losses, were you part of or are you part of the 
Shadow Government? Is SEC part of that at all?
    Mr. Pitt. To the extent that you mean that----
    Mr. Wolf. I mean that there was a group that----
    Mr. Pitt. That was moved out.
    Mr. Wolf. Yes.
    Mr. Pitt. No. We were in touch through the President's 
working group at all times, and I spent a lot of September 11th 
and the days after that on the phone. Unlike Congressman 
Serrano, I was not in New York on the 11th, but I was there on 
the 12th and the 13th, et cetera. But, no, we are not part of 
that Shadow Government.

                       IMPACT OF ARTHUR ANDERSEN

    Mr. Wolf. Arthur Andersen audits nearly 20 percent of the 
public companies. What will be the impact on the accounting 
industry and the securities market if it were to go out of 
business? I have seen different comments in the paper, and I 
know that Mr. Volcker has a proposal, and there appears to be a 
negotiation. What would be the impact if it were to go totally 
out of business?
    Mr. Pitt. I think the one thing I want to say is what will 
happen to Arthur Andersen, what its fate will be in light of 
some of the things that have occurred is still yet to be 
learned, and so I do not want to be understood as suggesting 
that I already believe I know----
    Mr. Wolf. It was not meant----
    Mr. Pitt. No, I know. I just wanted to preface my remarks 
by saying that.
    In my view, the diminution in the number of accounting 
firms as a general proposition is not in the public interest. 
More competition is always better. Having expertise spread out 
is better. On the other hand, there are many, many other 
accounting firms, and none of the public companies that 
Andersen audited will be left without access to very competent 
auditors if something should happen to Andersen.
    As I know you're aware, when we became aware of the 
potential problems with an indictment, we put out rule 
proposals that gave temporary relief to companies that were 
audited by Andersen. We made certain to be neutral in the sense 
that some of those clients of Andersen wanted to stay with 
Andersen and some of them might not want to stay with Andersen. 
So we adopted rules that would permit of either alternative and 
yet ensure that the public would still get a flow of necessary 
information.
    I think that as the process has evolved and as firms are 
making decisions about whether to stay or leave, that the other 
firms are showing capacity to take on Andersen clients where 
those clients seek to leave.
    You mentioned the Volcker proposals, and I just want to say 
I guess two things about that. One is I have enormously high 
regard for Paul Volcker----
    Mr. Wolf. I do, too.

                           VOLCKER PROPOSALS

    Mr. Pitt. And I think that he has taken on a very difficult 
mission, but I think it is wonderful that there are people of 
Paul Volcker's stature who could be doing many other things 
with his time--he has certainly earned the right to do many 
other things--to undertake this kind of effort, and I think 
that the public owes people like Paul Volcker an enormous debt 
of gratitude.
    Having said that, the proposal to create a stripped-down 
audit firm has a number of potential problems that we are not 
at the stage of looking at, but nonetheless create issues. If 
the only thing that an accounting firm does is audit and it 
does nothing else, the first concern is that it becomes more 
dependent on its audit clients, not less.
    The second concern is if the firm does not have adequate 
capacity in certain areas such as tax, then the firm may not be 
capable of performing the kind of rigorous audit that we 
demand. So we watch with great interest what Mr. Volcker is 
coming up with, but as a general proposition, not related to 
Anderson, I have said publicly, and I reiterate to you, that 
the notion of an absolute separation of auditing and consulting 
functions I think is not in the public interest and could lead, 
over the next several years, to a diminished quality in audits, 
as opposed to an improved quality of audits, and that is 
something that is not the most popular view in the world, but I 
am not going to shirk from making sure that people understand 
that it is the quality of audits that we have to worry about.
    Mr. Wolf. I agree with your comments about Mr. Volcker. 
Actually, if my memory serves me, there was a Volcker 
Commission a number of years ago with regard to attracting 
people to public service.
    Mr. Pitt. Yes.

                       WALL STREET INVESTIGATION

    Mr. Wolf. He made a number of recommendations, so I wish 
him well. I think he is a very, very good choice, and I agree 
with your comments about him.
    The New York attorney general is investigating allegations 
that stock analysts at several Wall Street investment firms 
misled investors to promote companies that paid fees to their 
firms' investment banks. Is the SEC involved in this 
investigation?
    Mr. Pitt. Let me say a few things.
    First, there is an investigation which we have all read 
about in the press by the New York attorney general, and the 
notion of having state investigations of entities that are also 
subject to Federal regulation is not unusual, and it does go 
on. And so I cannot comment, and I ask your indulgence on----
    Mr. Wolf. Sure. Absolutely. We are not trying to put you in 
an inappropriate position.
    Mr. Pitt [continuing]. As to what confidentially----
    Mr. Wolf. Without question.
    Mr. Pitt [continuing]. What we may be doing.
    But we have been, for quite some time, interested in and 
concerned about the existing regulatory scheme for analysts. It 
is why we encourage and facilitated the New York Stock Exchange 
and the NASD to come up with very comprehensive new regulations 
which are not yet in effect to deal with some of the very 
issues that I think have concerned Attorney General Spitzer. We 
have put those out for comment, and in addition to the comments 
we get back, we are obviously going to be informed by whatever 
factual matters come out of any of the ongoing efforts so that 
when we finally act on the self-regulatory rules, we will be 
satisfied that they give the public the best protection we are 
capable of giving them.

                 FOREIGN CORRUPT PRACTICES ACT OF 1977

    Mr. Wolf. We understand that in the 1970s, the SEC 
implemented a voluntary disclosure program for questionable or 
illegal foreign payments. Was this program a success? How did 
it work?
    Mr. Pitt. It was. Unfortunately, I am old enough to say I 
was there as part of it.
    Mr. Wolf. You were at the SEC, and at the time of that 
program.
    Mr. Pitt. I was general counsel of the SEC. The notion was 
that there were a lot of reports about bribery and political 
grease payments and the like which raised serious questions 
about the integrity of accounting books and records.
    The Commission provided that if companies would self-report 
and if they would declare that they were not going to be doing 
that again in the future, certainly not without board approval 
and full and fair disclosure, that they would not take action, 
the Commission would not take action against those firms that 
reported voluntarily.
    The program was an enormous success. It encouraged many, 
many companies to come forward and to report on what they had 
done. In a number of cases, the Commission nonetheless brought 
action, in part, because some of the cases the Commission was 
already investigating, the company had already become aware of 
it. As always, if you become aware of conduct that is 
sufficiently egregious, you cannot negotiate the public 
interest. You always have to make certain that you do what the 
public requires.
    It ultimately led to the passage of the Foreign Corrupt 
Practices Act in 1977. It is a device that can work provided 
that investors are the first priority and that they are thought 
about when you adopt a moratorium on enforcement actions, but 
it was a very successful program.

                      SEC CHIEF TECHNOLOGY OFFICER

    Mr. Wolf. In March the subcommittee approved your request 
to establish an Office of the Chief Technology Officer. Has 
that person been selected?
    Mr. Pitt. We are actively now in the process of 
interviewing candidates, and we hope to fill it very shortly, 
but it is not yet filled.

                       INTERNET COMPLAINT CENTER

    Mr. Wolf. There are a lot of talented people throughout the 
country in IT industry. So I would hope you would find someone 
who is very talented.
    The FBI brought in a gentleman for the ``Trilogy Program.'' 
I think from IBM who has done a pretty good job. So I would 
hope you would really find the very best person and not be 
limited by salary. Because if you never ask, you may never know 
whether or not they would accept.
    We were told the SEC got an all-time high of 12,000 e-mail 
messages at the Internet Complaint Center in March. How does 
the Office of Internet Enforcement respond to these complaints?
    Mr. Pitt. How do we respond? Yes. Well, I think we respond 
in several ways. When we get complaints or questions from 
investors, our goal is to try and answer all of those. We have 
an intake group in our Internet Enforcement area that looks at 
the complaint to decide, first, whether there may be a 
violation and, second, whether either we or one of the self-
regulatory bodies should pursue it, and then we go after what 
we find.
    The Internet has proven to be a very fertile ground for 
fraudulent activities, unfortunately. It has the advantage of 
immediacy, cheapness and anonymity in many cases, and I think 
our program has been very successful, but we are not willing to 
rest on our laurels. We are pursuing this.

              POST SEPTEMBER 11 MANIPULATION OF SECURITIES

    Mr. Wolf. Right after 9/11, there were a number of stories 
that certain groups had used the attack against our government 
as a way of manipulating stocks. Did any of that pan out? Are 
you still investigating that?
    Mr. Pitt. We worked with Treasury and the FBI, and we have 
done a fair amount of investigation. To my knowledge, the 
investigation has not been terminated, but as I think we are 
all aware, the Commission has not brought any actions up to 
this point, but we have, and we continue to work with the FBI 
to supply them whatever information we can to assist their 
review.
    Mr. Wolf. There were even some reports that al Qaeda had 
been involved in some stock purchases. None of that has panned 
out or is that still being investigating.
    Mr. Pitt. There are still efforts ongoing, but again I 
think the most pertinent statement is the one that has not been 
made, which is that no charges have thus far been brought 
against person or entity based on that review.
    Mr. Wolf. But if you did find, al Qaeda or whatever, you 
would?
    Mr. Pitt. With alacrity.

                    FY 2003 E-GOVERNMENT INITIATIVES

    Mr. Wolf. Two last questions, and then I will see if Mr. 
Serrano has any last thought, and then we will end.
    You were requesting $4 million for e-Government initiatives 
to disseminate information. Do you want to tell us just a 
little bit about that?
    Mr. Pitt. I am sorry. I did not----
    Mr. Wolf. You have a program increase of $4 million for e-
Government initiatives. Tell us how that will work. That is to 
disseminate information to the public. What do you have in mind 
there?
    Mr. Pitt. Well, we have a bunch of things. I want to 
enhance dissemination of information with respect to our mutual 
fund series and classes, as well as helping our staff review 
filings and conduct exams. We want to enhance our website and 
applications. We want to add new features to our electronic 
blue sheet system to support our enforcement and market reg 
programs.
    We also need to enhance our intrusion detection 
capabilities because we find that people try to hack in and 
provide additional information security. So this is a minimal 
amount. I digress for one second to say that, as you may have 
read, our agency initiated a scam in a false website. We 
actually have about six of them, but we published one of them--
the McWortle site. The entire cost of that effort for our 
agency was $50 to set up the website, and we got, within the 
first few days, about 1.5 million hits.
    Mr. Wolf. Wow.
    Mr. Pitt. We have gotten over 500 e-mails from investors 
thanking us for showing them what a fraud would look like.
    We believe that the SEC has to be at the forefront of 
information technology, particularly if we want to move to a 
system of current disclosure. So these programs which deal with 
our use of the Internet and technology are quite important to 
us, but I am very committed to increasing our ability to use 
these new technology devices to further our protection of 
public investors.

          FOREIGN CORPORATIONS' EFFECT ON HUMAN RIGHTS ABUSES

    Mr. Wolf. An issue that I have spoken to you about and I am 
very concerned about is foreign corporations that play a direct 
role in human rights abuses in Sudan offering securities to 
American investors and, as a result, these investors are 
unwittingly helping to subsidize the atrocities such as 
slavery, including 2.1 million Christians and, some Muslims in 
Sudan. Osama bin Laden lived in Sudan from 1991 to 1996. There 
are training camps surrounding Khartoum that HAMAS and other 
terrorist groups actively participate in. HAMAS actively visits 
Khartoum on almost a daily basis. It sometimes takes over 
hotels for their training camps there.
    And so one of the steps the SEC has taken to require these 
corporations, because these corporations are giving money that, 
in essence, keeps the Sudan Government afloat, and enables it 
to purchase helicopter gunships to kill innocent people, 
particularly those that live along the pipeline. Where are you 
in your rulemaking process to implement this mandate?
    And, number two, how will electronic filings enhance the 
information provided to U.S. investors on the activities of 
foreign companies like this?
    Mr. Pitt. Well, Mr. Chairman, before I answer the specific 
question, I do want to say, as a personal matter, I know that 
you have been a forceful advocate in opposition to these 
atrocities and other things, and I just want to say both as a 
citizen, as well as a public official, that I admire and 
commend your efforts in this regard.
    I think what has been taking place in a number of spots is 
unacceptable and having somebody of your stature speak out 
against this I think is a real assistance to the American 
public. So we support you, and we support your initiatives.
    One of the first things that I----
    Mr. Wolf. I would say, unfortunately, the New York Stock 
Exchange has really not been that supportive, and so I really 
think it will take, and I appreciate your comments, I really 
think it will take your help. I do not want to cut off your 
answer, but when I think in terms of reading some of the 
history of some of the companies that were involved with Nazi 
Germany. I was in Italy this past summer, where I took my wife 
for our 40th wedding anniversary, and I picked up a newspaper 
and saw--and I will not mention the company now--had been 
involved.
    I realize that you and all of your people with the SEC, 
will be looked at by history. We saw the entire Dutch 
Government fail yesterday because of the Dutch forces that 
allowed the atrocities, the killing of people in Srebrenica. It 
took 5 to 7 years. That was 1995. People are going to do it in 
Rwanda to find out what took place.
    When you and I are long gone, hopefully still alive, people 
are going to come back and do analysis of what took place in 
Sudan in the year 2001 and 2002, and 2003. And so we really do 
need your active help.

                  EDGAR FILINGS FOR FOREIGN COMPANIES

    Mr. Pitt. Well, one of the first things that I promised you 
was that I would make good on a commitment that had been made 
earlier to extend the EDGAR filing system to foreign issuers. 
One of the benefits of that would be that it would make it 
easier to search foreign filings for activities and investments 
in countries that might be of interest.
    We proposed a rule. We have gotten back a lot of comments, 
and it is my expectation that by no later than the middle of 
May, we will finalize that rule and put it into effect so that 
we will have made good on my commitment to you on that.
    In addition, we have done reviews of filings by foreign 
companies looking for disclosures or issues where there might 
be material concerns about doing business in certain countries. 
I have to say that in light of some of the economic 
considerations, we have seen a diminution in the number of 
companies that might even be subject to that, but we continue 
to look for that.
    Mr. Wolf. Have there been any with regard to Sudan?
    Mr. Pitt. I have not heard of any, although that does not 
necessarily mean that I would because that is done at the staff 
level and so on, but I am not aware at the moment of any recent 
indications of disclosures that have risen to a level of 
concern or what have you, but I do know that we are looking for 
those issues, as we told you that we would.
    And we continue to make ourselves available, both to you, 
and to the Congress and to the administration in any way that 
they think we can be helpful.
    Mr. Wolf. I appreciate this. We are going to stay 
interested in it, and I appreciate your help. It is both a 
moral issue, and I would maintain that morality plays a very 
large portion of how all of these things operate on the New 
York Stock Exchange and other markets. But if you were an 
individual that cared very deeply about this issue and found 
out that your retirement fund had purchased stock of a Chinese 
company that was operating an oil pipeline in Sudan that was 
resulting in the killing of individuals and the development of 
slavery, you would be very, very upset.
    So this information is important, and I appreciate the 
sooner you are able to provide it. I think it will discourage 
people from investing in companies that support these 
countries. I think particularly with Sudan and with the country 
of China, but also there are some others that are involved. As 
you know, there was a Canadian company that was involved in all 
of this. I think history will go back and look at this and say 
this was a good thing to do. I think it actually strengthens 
markets and not weakens markets.
    The last question, then, is telecommuting, and you can just 
briefly comment on how it is going at the SEC. Are your people 
catching a vision or are many people teleworking now?

                      SEC'S TELECOMMUTING PROGRAM

    Mr. Pitt. We have been mindful of the opportunities that 
are created by telecommuting, and we have dealt with that 
issue, both programmatically and on an ad hoc basis. This is an 
issue that we are on the way to resolving with the NTEU because 
it is a negotiating issue.
    The one thing I will tell you is that we have allowed staff 
to do telecommuting work. We obviously are mindful of all of 
the issues, as well as all of the benefits, and we continue to 
work toward making this available, where it will really do some 
good, both for individuals who may have a need for that, as 
well as for the public that we serve.

                               CONCLUSION

    Mr. Wolf. And traffic, and families, and moms and dads to 
be more available. Someone who is ill, someone who is 
recovering from a serious health problem, rather than being at 
home not working can be at home working. This will improve 
their morale. The tele work and the telecommuting concept is 
one that almost does not have any downsides if you have a 
certain type of job. That does not mean you do it 5 days a 
week, obviously. Unless you were recovering from a stroke, 
maybe you would for a period of time. It really makes a big 
difference in productivity.
    We have a number of other questions. Some we are just going 
to submit for the record.
    With that, I recognize Mr. Serrano. I just want to thank 
you for your testimony, and thank you for the hard work of your 
people. We will try to help the best we possibly can.
    Mr. Pitt. Thank you for your support.
    Mr. Wolf. Mr. Serrano, if you have any questions----
    Mr. Serrano. Just once again to thank you for your 
testimony today.
    Mr. Pitt. Thank you, sir.
    Mr. Wolf. The hearing is adjourned. Thank you.


                           W I T N E S S E S

                              ----------                              
                                                                   Page
Barreto, H. V....................................................   337
Heyburn, Judge J. G., II.........................................     1
Kennedy, A. M....................................................    81
McCoun, Magistrate Judge T. B., III..............................     1
Mecham, L. R.....................................................     1
Muris, T. J......................................................   215
Pitt, H. L.......................................................   551
Powell, M. K.....................................................   127
Smith, Judge F. M................................................     1
Thomas, Clarence.................................................    81


                               I N D E X

                              ----------                              

          The Federal Judiciary and the Administrative Office

                                                                   Page
Opening Remarks..................................................     1
Written Statements...............................................     5
Funding for Court Security.......................................    48
Judiciary's Relationship with the U.S. Marshals Service..........    49
Impact of Anthrax Screening on the Judiciary.....................    50
Judiciary's Role in the Protection of Civil Rights in the 
  Aftermath of 9/11..............................................    51
Role of the Judiciary and the U.S. Marshals Service in Providing 
  Court Security.................................................    52
Shadow Government................................................    53
Off-site Facility for Administrative Office Operations...........    54
Judiciary Participation in Shadow Government.....................    55
Increase in Bankruptcy Filings...................................    56
Impact of Gambling on Bankruptcies...............................    56
Impact of Threats on Federal Judges..............................    57
Integrity of the Federal Judiciary...............................    58
Location of Administrative Office Off-site Facility..............    59
Panel Attorney Rates.............................................    59
Increase for Fees of Jurors......................................    61
Impact of Enron and Global Crossing Bankruptcies.................    61
Pro Bono Efforts of Law Firms....................................    62
Progress of Recruitment of Minorities in the Judiciary...........    63
Potential Workload Increase on the Northern Border...............    66
Judicial Vacancies...............................................    67
Programs and Services Provided to Released Offenders.............    67
Increase in Oxycontin Cases in Federal Court.....................    68
Educational Programs on Special Needs Offenders..................    69
Hard Liquor Ads on TV............................................    70
Judicial Education Program.......................................    71
International Education Programs.................................    72
Relationship with OMB............................................    73
Family-Friendly Benefits.........................................    73
Questions for the Record.........................................    78

                 The Supreme Court of the United States

Opening Statement................................................    81
Written Statement................................................    86
Police Pay and Working Conditions................................   101
Security and Visitor Transportation..............................   101
Contingency Plan.................................................   103
Shadow Government................................................   104
Civil Liberties During National Crisis...........................   105
Court Automation.................................................   106
Hiring Minorities as Law Clerks..................................   108
Russian Judicial System..........................................   111
Contingency Plan.................................................   112
Court Automation.................................................   112
Law School Debt..................................................   113
Electronic Filing................................................   114
Consulting.......................................................   116
Anthrax/Mail Screening...........................................   116
Police Pay Parity and Overtime...................................   117
Projected Obligations for Modernization Project..................   117
Dialogue for Freedom.............................................   119
Books Illustrating the Meaning of Freedom........................   121
Telecommuting....................................................   122
Books Illustrating the Meaning of Freedom........................   123
Civil Liberties During National Crisis...........................   123
Questions for the Record.........................................   126

                   Federal Communications Commission

Opening Remarks..................................................   127
Written Statement................................................   131
Fat-Fingers Dialing Scams........................................   152
Indecency in Broadcasting........................................   153
Supreme Court Decision on Child Obscenity........................   155
FCC Rulemaking...................................................   155
Increases for Technology and Retention...........................   156
FTC Jurisdiction Over Common Carriers............................   157
Broadcast Indecency Enforcement..................................   158
Broadband Deployment.............................................   159
Baseball Coverage in New York....................................   161
Northpoint.......................................................   163
700 Megahertz Auction............................................   164
Low-Power FM.....................................................   166
Long-Distance Billing............................................   172
Emergency Response...............................................   172
Recruitment......................................................   173
Universal Service................................................   174
Alcohol Advertising on TV........................................   175
Ultra-wide Ban...................................................   175
Digital Television...............................................   177
Broadband Rulemaking.............................................   178
Excellence in Engineering........................................   178
Status of Proceedings............................................   179
FCC Emergency Response Center....................................   180
Digital Television Sets..........................................   182
National Do-Not-Call Registry....................................   184
Telework.........................................................   184
D.C. Communications System.......................................   185
Fairness Doctrine................................................   185
Issuance of Consumer Alerts......................................   186
Broadcast Ownership..............................................   190
Satellite Radio..................................................   190
Questions for the Record.........................................   192

                        Federal Trade Commission

Opening Remarks..................................................   215
Written Statement................................................   220
Clearance Procedures for Antitrust Matters.......................   261
Common Carrier Exemption.........................................   267
Intellectual Property and Antitrust Hearings.....................   268
Antitrust........................................................   281
Alcohol Advertising..............................................   283
Common Carrier Exemption.........................................   284
Antitrust........................................................   284
Telemarketing....................................................   285
Alcohol Advertising..............................................   287
Children's Online Privacy Protection.............................   291
Online Gambling..................................................   291
Internet Law Enforcement to Increase.............................   292
Proposed Do-Not-Call List........................................   292
Funding..........................................................   293
Antitrust Enforcement............................................   293
Security.........................................................   294
Online Pharmacies................................................   297
Antitrust Enforcement............................................   307
Privacy..........................................................   308
Consumer Protection..............................................   308
Fraud............................................................   309
Spanish Language Materials.......................................   309
Alcohol Advertising..............................................   311
Hispanic American Consumer Protection............................   311
Resources........................................................   312
Telecommuting....................................................   312
Questions for the Record.........................................   314

              United States Small Business Administration

Opening Remarks..................................................   337
Written Statement................................................   341
7(a) General Business Loan Program...............................   355
Operating Budget.................................................   356
Telecommuting....................................................   357
Native American Outreach.........................................   358
Disaster Loans...................................................   359
8(a) Business Development........................................   362
7(a) Business Loan Subsidy.......................................   364
BusinessLINC, PRIME..............................................   367
Definition of Small Businesses...................................   369
Disaster Loans...................................................   369
Operating Budget.................................................   370
Credit Unions....................................................   372
Questions for Record.............................................   377

                   Securities and Exchange Commission

Introduction.....................................................   551
Opening Remarks..................................................   552
Written Statement................................................   554
Accounting Standards:
    Enron Bankruptcy.............................................   573
    Federal Regulation of Accounting Standards...................   574
    Impact of Arthur Andersen....................................   585
    Reaction of SEC to Enron.....................................   575
    Review of Fortune 500 Financial Statements...................   578
    Volcker Proposals............................................   586
Authorization Markup.............................................   582
Conclusion.......................................................   592
Effects of September 11th:
    Backup for Existing Facilities...............................   573
    Loss of Securities due to September 11th.....................   584
    Post September 11th Manipulation of Securities...............   589
    Renovation of the NY Regional Office.......................570, 576
Foreign Companies:
    EDGAR Filings for Foreign Companies..........................   591
    Foreign Corporations' Effect on Human Rights Abuses..........   590
    Venezuelan Stock Market......................................   569
Increase Workload in Enforcement.................................   579
Internet Complaint Center........................................   588
Introduction.....................................................   551
New York Baseball................................................   585
Pay Parity:
    Applying Pay Parity to Higher Turnover Areas.................   566
    Funding for Pay Parity in FY 2003............................   567
    Status of Pay Parity.........................................   565
Relocation of Financial Institutions.............................   572
Role of the SEC Chairman.........................................   581
SEC Initiatives:
    FY 2003 E-Government Initiatives.............................   589
    Internal Study of the SEC....................................   575
    Timing of SEC Initiatives....................................   578
Shadow Government................................................   585
Staffing:
    Adequate Staffing Level......................................   579
    Allocation of 100 New Positions..............................   568
    Applying Pay Parity t Higher Turnover Areas..................   566
    Attrition of Staff...........................................   565
    SEC's Chief Technology Officer...............................   588
    Staff Diversity..............................................   571
Strategic Plan...................................................   576
Ten-Point Plan:
    Bush Administration's Ten-Point Plan.........................   576
    Legislation Required for Ten-Point Plan......................   577
Wall Street Investigation........................................   587

                                
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