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




 
    H.R. 5215, CONFIDENTIAL INFORMATION PROTECTION AND STATISTICAL 
                         EFFICIENCY ACT OF 2002

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

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,
                        FINANCIAL MANAGEMENT AND
                      INTERGOVERNMENTAL RELATIONS

                                 of the

                     COMMITTEE ON GOVERNMENT REFORM
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                                   ON

                               H.R. 5215

TO PROTECT THE CONFIDENTIALITY OF INFORMATION ACQUIRED FROM THE PUBLIC 
 FOR STATISTICAL PURPOSES, AND TO PERMIT THE EXCHANGE OF BUSINESS DATA 
  AMONG DESIGNATED STATISTICAL AGENCIES FOR STATISTICAL PURPOSES ONLY

                               __________

                           SEPTEMBER 17, 2002

                               __________

                           Serial No. 107-227

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform


                                 ______

88-326              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida         EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York             PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California             PATSY T. MINK, Hawaii
JOHN L. MICA, Florida                CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia            ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
BOB BARR, Georgia                    DENNIS J. KUCINICH, Ohio
DAN MILLER, Florida                  ROD R. BLAGOJEVICH, Illinois
DOUG OSE, California                 DANNY K. DAVIS, Illinois
RON LEWIS, Kentucky                  JOHN F. TIERNEY, Massachusetts
JO ANN DAVIS, Virginia               JIM TURNER, Texas
TODD RUSSELL PLATTS, Pennsylvania    THOMAS H. ALLEN, Maine
DAVE WELDON, Florida                 JANICE D. SCHAKOWSKY, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
ADAM H. PUTNAM, Florida              DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho          STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia                      ------
JOHN J. DUNCAN, Jr., Tennessee       BERNARD SANDERS, Vermont 
JOHN SULLIVAN, Oklahoma                  (Independent)


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                     James C. Wilson, Chief Counsel
                     Robert A. Briggs, Chief Clerk
                 Phil Schiliro, Minority Staff Director

    Subcommittee on Government Efficiency, Financial Management and 
                      Intergovernmental Relations

                   STEPHEN HORN, California, Chairman
RON LEWIS, Kentucky                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                 MAJOR R. OWENS, New York
ADAM H. PUTNAM, Florida              PAUL E. KANJORSKI, Pennsylvania
JOHN SULLIVAN, Oklahoma              CAROLYN B. MALONEY, New York

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
                      Bonnie Heald, Staff Director
                           Dan Daly, Counsel
                          Chris Barkley, Clerk
           David McMillen, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on September 17, 2002...............................     1
Text of H.R. 5215................................................     5
Statement of:
    Haver, Maurine, Ph.D., Chair, Statistics Committee, National 
      Association for Business Economics; William D. Nordhaus, 
      Ph.D., Sterling professor of Economics, Department of 
      Economics, Yale University; Ralph Rector, Ph.D., research 
      fellow and project manager, Center for Data Analysis, the 
      Heritage Foundation........................................    54
    Kroszner, Randall S., member, Council of Economic Advisers, 
      Executive Office of the President; Kathleen B. Cooper, 
      Under Secretary for Economic Affairs, Department of 
      Commerce; and Kathleen P. Utgoff, Commissioner, Bureau of 
      Labor Statistics, Department of Labor......................    33
    Sawyer, Hon. Tom, a Representative in Congress from the State 
      of Ohio....................................................    24
Letters, statements, etc., submitted for the record by:
    Haver, Maurine, Ph.D., Chair, Statistics Committee, National 
      Association for Business Economics, prepared statement of..    56
    Horn, Hon. Stephen Horn, a Representative in Congress from 
      the State of California, prepared statement of.............     2
    Kroszner, Randall S., member, Council of Economic Advisers, 
      Executive Office of the President, prepared statement of...    36
    Maloney, Hon. Carolyn B., a Representative in Congress from 
      the State of New York, prepared statement of...............    83
    Nordhaus, William D., Ph.D., Sterling professor of Economics, 
      Department of Economics, Yale University, prepared 
      statement of...............................................    62
    Rector, Ralph, Ph.D., research fellow and project manager, 
      Center for Data Analysis, the Heritage Foundation, prepared 
      statement of...............................................    70
    Sawyer, Hon. Tom, a Representative in Congress from the State 
      of Ohio, prepared statement of.............................    26
    Utgoff, Kathleen P., Commissioner, Bureau of Labor 
      Statistics, Department of Labor, prepared statement of.....    45


    H.R. 5215, CONFIDENTIAL INFORMATION PROTECTION AND STATISTICAL 
                         EFFICIENCY ACT OF 2002

                              ----------                              


                      TUESDAY, SEPTEMBER 17, 2002

                  House of Representatives,
  Subcommittee on Government Efficiency, Financial 
        Management and Intergovernmental Relations,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 1:32 p.m., in 
room 2154, Rayburn House Office Building, Hon. Stephen Horn 
(chairman of the subcommittee) presiding.
    Present: Representative Horn.
    Staff present: Bonnie Heald, staff director; Henry Wray, 
senior counsel; Dan Daly, counsel; Chris Barkley, clerk; David 
McMillen, minority professional staff member; Jean Gosa, 
minority clerk; and Earley Green, minority assistant clerk.
    Mr. Horn. A quorum being present, the subcommittee on 
Government Efficiency, Financial Management, and 
Intergovernmental Relations will come to order.
    Today, the subcommittee will consider a bill which I 
introduced on behalf of myself and Representatives Tom Sawyer 
of Ohio and Carolyn Maloney of New York. The bill is H.R. 5125, 
the Confidential Information Protection and Statistical 
Efficiency Act of 2002. H.R. 5215 has primary objectives. One 
objective is to enable the Federal Government's three principle 
statistical agencies, the Bureau of the Census, the Bureau of 
Labor Statistics, and the Bureau of Economic Analysis, to share 
the business data they collect. Such data sharing would 
substantially enhance the accuracy of economic statistics by 
resolving serious inconsistencies that now exist. It would also 
reduce reporting burdens on businesses that must now supply 
data separately to the individual agencies.
    The bill's second and equally important objective is to 
ensure that the confidential data that citizens and businesses 
provide to Federal agencies for statistical purposes are 
subject to uniform and rigorous statutory protections against 
their unauthorized use. Currently, confidentiality protections 
vary among agencies and are often not based in law. This bill 
would raise confidentiality standards for all Federal 
statistical agencies to the highest standard that now exists.
    The administration strongly supports H.R. 5215. This bill 
is similar to another bill I had introduced in the 106th 
Congress, H.R. 2885, the Statistical Efficiency Act of 1999. 
That bill received strong bipartisan support, and passed the 
House under suspension of the rules. H.R. 5215 differs from its 
predecessor by narrowing the data sharing provisions and 
broadening the confidentiality protections.
    H.R. 5215 is a bipartisan, common-sense bill that we should 
enact this year. Therefore, the subcommittee will hold a markup 
on the bill immediately following the hearing.
    The Heritage Foundation has raised a concern that the 
confidentiality provisions in H.R. 5215 could be misconstrued 
to prevent the release of some data that is now available to 
the non-governmental researchers. This information is released 
in a form that does not directly or indirectly reveal the 
identity of the data provider. That is not the intent of H.R. 
5215. With the support of the administration, I will offer an 
amendment at the markup to clarify the language of the bill in 
this regard. My amendment also will strengthen the bills 
oversight provisions.
    [The prepared statement of Hon. Stephen Horn and the text 
of H.R. 5215 follow:]

[GRAPHIC] [TIFF OMITTED] T8326.001

[GRAPHIC] [TIFF OMITTED] T8326.002

[GRAPHIC] [TIFF OMITTED] T8326.038

[GRAPHIC] [TIFF OMITTED] T8326.039

[GRAPHIC] [TIFF OMITTED] T8326.040

[GRAPHIC] [TIFF OMITTED] T8326.041

[GRAPHIC] [TIFF OMITTED] T8326.042

[GRAPHIC] [TIFF OMITTED] T8326.043

[GRAPHIC] [TIFF OMITTED] T8326.044

[GRAPHIC] [TIFF OMITTED] T8326.045

[GRAPHIC] [TIFF OMITTED] T8326.046

[GRAPHIC] [TIFF OMITTED] T8326.047

[GRAPHIC] [TIFF OMITTED] T8326.048

[GRAPHIC] [TIFF OMITTED] T8326.049

[GRAPHIC] [TIFF OMITTED] T8326.050

[GRAPHIC] [TIFF OMITTED] T8326.051

[GRAPHIC] [TIFF OMITTED] T8326.052

[GRAPHIC] [TIFF OMITTED] T8326.053

[GRAPHIC] [TIFF OMITTED] T8326.054

[GRAPHIC] [TIFF OMITTED] T8326.055

[GRAPHIC] [TIFF OMITTED] T8326.056

    Mr. Horn. I welcome all of our excellent witnesses, and 
look forward to their testimony. I am particularly pleased that 
our colleague, Representative Tom Sawyer from Ohio, he is a 
very distinguished legislator and we are sorry to see him leave 
after this Congress. He has been an outstanding leader for many 
years in many efforts to improve in this issue, to improve the 
Federal statistical activities. And if Mr. Sawyer would like to 
come forward and make his statement, and if you wish to, after 
your statement, come to the dais. And you are welcome to answer 
questions and all the rest of it. So, Tom, we are looking 
forward to it.

STATEMENT OF HON. TOM SAWYER, A REPRESENTATIVE IN CONGRESS FROM 
                       THE STATE OF OHIO

    Mr. Sawyer. Thank you very much, Mr. Chairman. And thank 
you for those very kind words. It has been a pleasure to work 
with you over all the years that we have worked here together, 
and on no topic more than the one that brings us here together 
today.
    You are right, I have spent a lot of my time in Congress in 
working on ways to improve Federal statistical systems so that 
the policies that we struggle over and the formulas that we 
agonize over have some meaningful life when they go forward in 
the real world and distribute dollars and lead to changed 
policies.
    I am really pleased that you are moving forward on this 
legislation today. As you point out, this measure has been 
several years in the making. It builds on your approach to 
provide limited data sharing among agencies for the efficiency 
of the work of those agencies and my bill to strengthen the 
confidentiality of Government statistics. Together, these two 
approaches, I believe, will reduce statistical errors in many 
important arenas of Federal endeavor. Both parts of this bill 
are worthwhile, but I will focus my remarks on confidentiality 
today.
    In that regard, the bill provides a clear and consistent 
standard for the use of confidential statistical information, 
and prohibits its use for any non-statistical purpose. It 
ensures that data gathered under a pledge of confidentiality 
are used only for statistical purposes, and imposes penalties 
for the willful disclosure of confidential information. It 
would replace the current patchwork of rules, and extend those 
protections to all individually identifiable data collected for 
statistical purpose, and in that way, encourage greater public 
cooperation with Government surveys and improve the quality of 
Federal statistics.
    This measure, Mr. Chairman, I think is both timely and 
necessary. Confidence in Government data-gathering is fragile 
at best. In the 2000 Census, more than a quarter of the 
occupied housing units in this country did not respond to the 
mailed questionnaire. And while that was an improvement over 
the previous Census, it is an enormously difficult problem to 
overcome. There are many reasons for this. One is the growing 
unease about confidentiality that has grown with the 
unprecedented surge in the immigrant population. While there 
are no known cases of Federal agencies misusing such personal 
information in exactly this way, the risk is real. The 
temptation to diminish civil liberties in the name of national 
security leaves ordinary people and businesses feeling 
vulnerable to disclosure.
    We saw that risk in the post-Pearl Harbor anti-Japanese 
tide. At that time, the Census Bureau worked closely with the 
War Department to help locate Japanese Americans. They didn't 
turn over actual records or violate the less stringent 
standards of the time, but the appearance of complicity 
acknowledged only 2 years ago shook the confidence of many 
immigrant communities, especially Asian American communities. 
Now, after September 11, the firewalls between individually 
identifiable information and aggregate statistics appear to be 
at risk.
    I am pleased that the House Homeland Security bill made 
clear that it would not alter existing law on information 
collected for statistical purposes. However, in too many cases, 
existing law does not ensure that such personal information 
will remain confidential. More than 70 Federal agencies or 
statistical units collect such data, but only 12, as you 
suggest, Mr. Chairman, are covered by regulations to protect 
personally identifiable information from disclosure, and only a 
handful of those have the stronger protection of law.
    Some of these uncovered units collect information on highly 
sensitive topics ranging from health care and substance abuse 
and mental health. It involves millions of dollars of sensitive 
data, and deserves the most stringent of protections from 
disclosure.
    While agency policy may have once been enough, real public 
trust requires that information be shielded by the force of 
law. Statutory protection under H.R. 5215 would prevent any 
regulatory or law enforcement misuse of these data. This 
recommendation was first made under the Privacy Act of 1944. 
However, that act has several loopholes that allow for the 
disclosure of personally identifiable information without the 
informed consent of those who supplied the information.
    There are 12 categories of such exemptions, and the act 
fails to distinguish between data collected for research 
purposes and that collected for administrative purposes, and so 
offers minimal protection from improper disclosure.
    The commission at that time that arose from the Privacy Act 
recommended that no record or information collected for 
statistical purpose be used in identifiable form to make any 
decision or take any action directly affecting the person to 
whom the record pertains. H.R. 5215 embodies the commission's 
recommendation in that regard.
    In summary, these improvements, Mr. Chairman, are long 
overdue. They are needed to protect the public and ensure 
continued public participation in essential governmental 
research. Informed public policy relies on it. Thank you, Mr. 
Chairman, for the chance to be here.
    Mr. Horn. Thank you. And if you wish to come up here, why, 
without objection we are delighted to have you with us.
    Mr. Sawyer. Thank you, Mr. Chairman.
    [The prepared statement of Hon. Tom Sawyer follows:]

    [GRAPHIC] [TIFF OMITTED] T8326.003
    
    [GRAPHIC] [TIFF OMITTED] T8326.004
    
    [GRAPHIC] [TIFF OMITTED] T8326.005
    
    [GRAPHIC] [TIFF OMITTED] T8326.006
    
    [GRAPHIC] [TIFF OMITTED] T8326.007
    
    [GRAPHIC] [TIFF OMITTED] T8326.008
    
    [GRAPHIC] [TIFF OMITTED] T8326.009
    
    Mr. Horn. We will now go to the panel two, and that is the 
Honorable Randall S. Kroszner, member, Council of Economic 
Advisers, Executive Office of the President; the Honorable 
Kathleen B. Cooper, Under Secretary for Economic Affairs, 
Department of Commerce; the Honorable Kathleen P. Utgoff, 
Commissioner of the Bureau of Labor Statistics, Department of 
Labor. And since it is a big table, and three more--we will 
throw in panel three, if you would like to come up to the table 
and just grab one of the chairs if we are missing them. And 
Maurine Haver, doctorate, Chair, statistics committee, 
representing the National Association for Business Economics; 
William D. Nordhaus, Sterling professor of economics, 
Department of Economics at Yale; Dr. Ralph Rector is the 
research fellow and project manager, Center for Data Analysis, 
the Heritage Foundation.
    And we have to swear witnesses. If you will stand and raise 
your right hand. And if you have anybody supporting you there, 
get them behind you, too, so we don't have to do it halfway 
through the panel.
    [Witnesses sworn.]
    Mr. Horn. And the clerk will note that all six affirmed. 
And we will start then with what it is on the agenda, and that 
is the Honorable Randall Kroszner, member, Council of Economic 
Advisers. Those were people that were authorized by law under 
President Truman; and the old humor that the President had, he 
said he was tired of somebody saying on this bit and that bit 
and so forth, I want some people that can give me some good 
economic data and not just tell it on the right, he is saying, 
and then the left hand. And this is the Council of Economic 
Advisers.

STATEMENTS OF RANDALL S. KROSZNER, MEMBER, COUNCIL OF ECONOMIC 
   ADVISERS, EXECUTIVE OFFICE OF THE PRESIDENT; KATHLEEN B. 
  COOPER, UNDER SECRETARY FOR ECONOMIC AFFAIRS, DEPARTMENT OF 
COMMERCE; AND KATHLEEN P. UTGOFF, COMMISSIONER, BUREAU OF LABOR 
                STATISTICS, DEPARTMENT OF LABOR

    Mr. Kroszner. Thank you very much, Mr. Chairman, and 
members of the subcommittee. And I am very, very pleased to be 
speaking before you today on what I consider an extremely 
important initiative that has very big implications, but one 
that has no budget implications. And so what I am going to 
argue is that this is a very, very valuable piece of 
legislation that does not take any additional costs on the--for 
the public sector, and actually can reduce burdens on the 
private sector. And of course, since I am on leave from the 
University of Chicago, our main theme there is, ``there ain't 
no such thing as a free lunch.''
    So, why hasn't this happened before? Well, members of the 
staffs of all of the agencies that have been involved as well 
as the leaders of those can tell you that this was not a free 
lunch. It required a lot of work to make sure that we could get 
the language correct, to make sure that we had the appropriate 
ideas in there, appropriate scope. And we got just fabulous 
support and cooperation among the different agencies and with 
Capitol Hill.
    So I am extremely pleased to be able to speak to you about 
this very important issue.
    As we well know, Federal statistics in the United States 
are among the best, if not the best, in the world. But that 
should not make us complacent. We can still improve them. The 
U.S. economy is an extremely dynamic one, and one in which we 
must respond to changes, constant changes. And that requires 
constant improvement in our statistics. As we well know, 
Government statistics play an important role not only for 
Government decisions, whether they be Social Security 
decisions, budgetary decisions, monetary policy decisions, 
small errors can have very large effects when we do our budget 
projections. And this is something that is extremely important 
to the Council of Economic Advisers in providing information to 
the President to be able to provide accurate forecasts.
    The private sector, of course, relies very heavily on 
statistics for their own budget and planning purposes, and, of 
course, academics around the world rely on U.S. statistics to 
be able to do an appropriate analysis of both the effects of 
policy as well as more fundamental research. And so what we 
need to do is to improve those statistics in a way that will 
help to reduce some of the data problems that we have seen 
recently.
    We have had very large revisions of GDP. We have different 
estimates of productivity, one of the most important aspects of 
our economy going forward. Depending on which measure you use 
from the income and project accounts versus other accounts, the 
difference can be 35 basis points. Now, that is about a third 
of a percent. That doesn't seem like very much, but that is a 
third of a percent difference in growth every year going out 
into the future. That makes an enormous difference for our 
well-being over time, it makes an enormous difference to our 
budget projections. There is an approximate effect of about 
$200 billion for every point 1 percent difference in GDP growth 
over a 10-year budget horizon. So we are talking real money 
here.
    Also, when we think about the classification of firms, a 
very limited study was done a few years ago looking at the 
differences between the Census and the Bureau of Labor 
statistics on how they classified firms. They found about a 30 
percent difference in which industries firms are classified 
into. This has led to very big differences in the estimates for 
the size of particular sectors of the economy, the chemical 
sector, high-tech sector. And in particular, in the new 
sectors, in emerging sectors it becomes very difficult to try 
to classify these firms.
    And that is how these data anomalies and these areas creep 
in. Even though I think all the agencies do a superb job, just 
trying to look over something as large as the U.S. economy is a 
very difficult thing, given the very limited budgets they have. 
By being able to talk with each other and say, well, we have 
classified this firm this way, but you've classified it that 
way, let's try to understand what would be the best 
classification, that is a very simple, straightforward thing 
that is basically impossible to do now. And if we can allow for 
that, we can improve our Government statistics and improve the 
numbers that we get out of that process and be much more 
accurate.
    What this act would allow us to do is do that through two 
means, through formal data sharing through a variety of 
memoranda of understanding among the different agencies, but 
also by having consistent high confidentiality protections 
amongst all of the agencies. And this is very valuable for 
allowing the data sharing to occur, because there has to be the 
same level of protection, and we want to make sure that it is a 
high level of protection if the data is going to move from one 
agency to another. And so that becomes an extremely important 
part of the legislation itself.
    And what this will also do is reduce the burdens on the 
private sector. If the agencies can coordinate with each other, 
eventually they may be able to reduce duplicative surveys, they 
can, in general, just reduce the burdens on the private sector.
    And so I consider this something that is a triple win. 
First, by improving these statistics directly through improved 
business lists, we get better data from what is provided to the 
statistical agencies. But by boosting confidence and by 
lowering the burdens on the private sector, we are likely to 
get much more accurate data from the private sector so we also 
have more efficient Government, we have lower burdens on the 
private sector, we have no budget cost. I consider this a 
triple win.
    I think this is something that should have bipartisan 
support going forward for everyone's agenda because it is 
something that I think clearly improves the Government, 
improves the private sector, has no budget costs, and I see 
very little--actually, absolutely no downside. Thank you very 
much, Mr. Chairman.
    Mr. Horn. Thank you. We appreciate your fine succinct 
presentation, and we will wait and go with your colleagues and 
then we will start the question period.
    [The prepared statement of Mr. Kroszner follows:]

    [GRAPHIC] [TIFF OMITTED] T8326.010
    
    [GRAPHIC] [TIFF OMITTED] T8326.011
    
    [GRAPHIC] [TIFF OMITTED] T8326.012
    
    [GRAPHIC] [TIFF OMITTED] T8326.013
    
    Mr. Horn. We now have the Honorable Kathleen Cooper, Under 
Secretary for Economic Affairs at the Department of Commerce.
    Ms. Cooper. Thank you very much, Chairman Horn, Congressman 
Sawyer. I am very pleased to be here with you today to discuss 
H.R. 5215. I need to get the--better volume. Is that better? 
All right. I hope it is not too loud. But I also want to thank 
you, Congressman Horn--I mean, Chairman Horn and Congressman 
Sawyer, but certainly Chairman Horn, for your leadership on 
this issue for a good number of years. As Under Secretary for 
Economic Affairs of the Department of Commerce, I have the 
privilege of overseeing the fine work of two of the jewels of 
the Federal statistical system, the Bureau of Economic Analysis 
and the Census Bureau.
    And our economic statistics from these Bureaus are 
calculated by experts and professionals who produce the most 
accurate numbers possible with the tools available to them. The 
President has made enhancing our economic data a priority and 
wants to give the Bureaus the tools they need to measure the 
twenty-first century economy. He appreciates that better 
information is fundamental to better public and private 
decisionmaking. With the President's budget request for the 
Census Bureau and BEA, you will see a range of economic data 
sooner. The release of international trade data, for example, 
will be available 20 days earlier. We plan to implement an 
annual measure of investment in information technology and 
quarterly measures of the services sector, the Census Bureau's 
first new economic indicator in 50 years.
    Unfortunately, while these agencies are striving to improve 
economic statistics, the fiscal year 2003 funding level 
approved by Senate appropriators is significantly below the 
President's request, and we simply will not be able to 
undertake these important improvements with the Senate's flat 
funding level.
    But today, I would like to discuss one way to improve our 
Federal statistics at next to no cost. If enacted, this 
legislation will help us improve the measurement of 
inventories, one of the most volatile components of GDP. We 
will develop more efficient samples, reduce the reporting 
burden, improve regional and State data, and reduce revisions. 
And I would like to share with you some real-life examples of 
gaps in our Federal statistical system the data-sharing bill 
would close.
    Most of BEA's data comes from elsewhere, the Census Bureau 
and the Bureau of Labor Statistics being the main building 
blocks for BEA products. The Census Bureau, BLS, and BEA 
already work hand in hand. BEA is the Census Bureau's most 
important customer, and the two agencies are in contact every 
day. The staffs at BLS and the Census Bureau meet routinely 
with their counterparts at BEA. Throughout the year, managers 
collaborate and ensure that our statistical infrastructure is 
efficient and productive. However, H.R. 5215 would allow BEA, 
the Census Bureau, and BLS to work even more efficiently 
together, to share knowledge, and to borrow strengths. The most 
important result would be, as my colleague mentioned, 
consistent classification of businesses by the Census Bureau 
and BLS. BEA would be the first to stand and cheer such an 
accomplishment. The Census Bureau and BLS place one third of 
the businesses in different boxes, and the BEA has to sort out 
the resulting data.
    In determining real output, for example, BEA looks at 
shipments from Census and prices for BLS, and must untangle the 
classification confusion. With the data-sharing bill, the 
statistical agencies could cross-validate their company lists 
and determine the most appropriate classification. By comparing 
corporate financial reports with BLS and Census surveys, BEA 
can improve estimates of profits and of wages and salaries. 
This would help to reconcile the near $100 billion statistical 
discrepancy between gross domestic income and gross domestic 
product.
    At the end of July, we saw large revisions to profits that 
indicated that corporate profits had peaked in 1997 rather than 
in 2000, and that other incomes were weaker than earlier 
estimated. If BEA were able to access the firm level data from 
the Census Bureau, if you compare that information with 
corporate return data from the IRS and publicly released 
financial reports and in this way BEA could better capture the 
impact of corporate activity where there is a difference 
between tax and financial accounting methods.
    I would like to see an improvement in the accuracy of State 
personal income as well. For the year 2000, estimates of growth 
and payrolls for Delaware vary from a BLS estimate of 6 percent 
to Census Bureau's 14 percent estimate. Likewise, for Virginia, 
there are sizable differences. Even for New York where the 
differences in growth are smaller, the difference in dollars in 
over $7 billion in wages or $380 million in State and local 
taxes for the State.
    Amid the dynamic economy, how can our statistical agencies 
keep track of businesses that come and go? The Census Bureau 
and BLS have different sources of information that provide 
insight into companies births and deaths. Combining the two 
measures should give us better information than from either 
source alone.
    Other legislation under congressional consideration would 
allow the agencies limited access to IRS data. Today, Census 
and BEA have access to difference set office tax data. Enhanced 
access to IRS material would allow BEA to make its measure of 
corporate profits and other business income all the more 
accurate.
    As you will hear and have heard in part already from my 
colleagues, my fellow panelists, this bill also builds on the 
agency's unmatched record of confidentiality. It provides 
equally stringent protection for all data, and avoids any 
perception of inappropriate use.
    Finally, Mr. Chairman, I would like to alert you to a 
concern that I have about the most basic step in our data 
gathering, voluntary participation in our surveys. In April, 
reporting by large semi-conductor companies in the Census 
Bureau's monthly survey--in the Census Bureau's monthly survey 
of manufacturing activities dropped to the point where the 
Bureau had to discontinue publishing data on semi-conductors. 
As a result, the Census Bureau could no longer produce 
bellwether sales and inventory data for this very important 
industry.
    The Census Bureau and the semi-conductor industry have 
agreed to a test to determine whether the industry can provide 
the desired data. The results will not be known for 5 months, 
and in the meantime, gaps in our data persist. We will continue 
to work with businesses to find efficient means for them to 
report. Ultimately, Congress and the administration must 
encourage participation that yields information vital to 
informed decisionmaking.
    I thank you, Mr. Chairman. I appreciate your efforts to 
improve the quality and the efficiency of our Nation's 
statistics while protecting its confidentiality. Thank you.
    Mr. Horn. Thank you. We are delighted to have you with us.
    And we now will have the last part on panel one, and that 
is the Honorable Kathleen Utgoff, Commissioner of the Bureau of 
Labor Statistics.
    During the Eisenhower administration, I was assistant to 
the Secretary of Labor, and the first thing he said to me was: 
Nobody around here fools with the commissioner of Bureau of 
Labor Statistics. And all of us were told he is untouchable. 
Now, you are untouchable. So.
    Ms. Utgoff. Thank you for that piece of history, Mr. 
Chairman. Good afternoon and--good afternoon, Mr. Chairman, 
Congressman Sawyer. I appreciate the opportunity to testify in 
support of H.R. 5215. Having come on board as BLS commissioner 
just last month, I am particularly pleased that my first chance 
to appear before Congress is an opportunity to support 
something that is so important to the BLS. There are three main 
reasons we believe the proposal currently before the 
subcommittee is a good one, and you will hear the other 
panelists give similar reasons.
    First, all data users, researchers, analysts, policymakers, 
private citizens, Government agencies, corporate decisionmakers 
will benefit from a higher quality economic statistics. Second, 
the major Federal statistical agencies will be able to operate 
more efficiently. Third, the protections of confidential 
statistical information will be enhanced.
    This carefully crafted bill is designed to meet all these 
aims. It has come about through an extraordinary level of 
cooperation among representatives from the Council of Economic 
Advisers, the Bureau of the Census, the Bureau of Economic 
Analysis, the BLS, the Office of Management and Budget, and the 
Internal Revenue Service, coupled with outstanding 
congressional collaboration. The bill is a testament to hard 
work and a shared belief in better Government.
    Because BLS has an extensive network of cooperative 
arrangements with the State's statistical agencies to produce 
State and subcommittee--sublabor market estimates, I would like 
to note that the intended benefits from data sharing will also 
extend to the States. In addition to being large producers of 
their own economic data, State governments are large consumers 
of federally produced data, and therefore have an interest in 
Federal program improvement.
    The enhanced data sharing that would be permitted under 
Title 2 will improve the ability of BLS, BEA, Census, and the 
States to track rapidly changing trends in the U.S. economy. It 
will facilitate joint projects among the agencies to improve 
data quality and to reduce the reporting burden and costs of 
programs. In particular, both the Federal and States' 
statistical agencies will be better able to classify business 
establishments in appropriate industries, they will be able to 
resolve data anomalies and correct reporting errors more 
quickly and more efficiently.
    Reconciling discrepancies between the BLS and the Census 
Bureau business registers is one critical example of why 
enhanced data sharing matters. The tangible benefits will 
include improved employment, unemployment, and income measures, 
better survey sampling frames, improved payroll data for 
forecasting State government revenues, and a better foundation 
for economic development plans. More accurate business 
classification will ultimately allow for the production of more 
accurate industry statistics, a vital part of our national and 
State economic intelligence picture.
    Another important area of potential improvement to BLS data 
series is the measurement of multifactor productivity. These 
data series track the contributions of capital, technology, and 
labor to output. Productivity is widely regarded by analysts as 
a key ingredient of economic performance and the standards of 
living. By linking BLS work force and occupational data to 
Census Bureau production inputs and outputs data, better 
measures of productivity can be developed. These better 
measures allow more complete research into understanding the 
factors that cause productivity change particularly at the firm 
level.
    Having access to data the Census Bureau collects on firm 
revenues by specific product lines would allow BLS to improve 
sampling and reduce respondent burden for the producer price 
index, or the PPI. The PPI is one of the Nation's most watched 
economic indicators. It measures price pressures at the 
wholesale level of the economy.
    Turning now from the data-sharing provisions of the bill to 
the confidentiality provisions, I would like to emphasize the 
importance of Title I to Bureau of Labor Statistics. The BLS 
has long needed the explicit statutory confidentiality 
protection that this legislation offers for the data it 
collects. The fact that BLS lacks the specific comprehensive 
protections already in place with the Census Bureau, to cite 
one example, is a historical omission that needs correcting. 
BLS has been successful in protecting the confidentiality of 
the data it collects through an amalgam of statutes, 
precedents, rules, and practices. A clear example--a clear, 
explicit, and comprehensive statutory assurance of 
confidentiality is essential to maintain and improve our 
response rates by increasing respondent confidence in improving 
our ability to protect their data.
    In fact, it is not an overstatement to say that 
confidentiality is the lifeblood for Government statistical 
agencies like BLS that depend upon the voluntary participation 
of survey respondents. We rely on individual citizens in their 
private households and on companies of all sizes in all 
industries and across all States to entrust us with their vital 
economic data. The voluntary transmittal of citizens to the 
Government of private information on, for example, job status 
or earnings, or by a company of its core business information 
such as employment wages and revenues is a remarkable example 
of public/private partnership. Without the trust of our survey 
respondents, the BLS surveys and the important statistics they 
gen-
erate would be in jeopardy. H.R. 5215 will strengthen that 
trust.
    Thank you, Mr. Chairman. I would be happy to answer any 
questions that you have.
    Mr. Horn. Thank you.
    [The prepared statement of Ms. Utgoff follows:]

    [GRAPHIC] [TIFF OMITTED] T8326.014
    
    [GRAPHIC] [TIFF OMITTED] T8326.015
    
    [GRAPHIC] [TIFF OMITTED] T8326.016
    
    [GRAPHIC] [TIFF OMITTED] T8326.017
    
    Mr. Horn. We will ask a few questions before we get to the 
next panel, and then if you could all stay around, why, we 
would appreciate it. And that way we would have a better look 
at it.
    Could you elaborate on how the bill will reduce data 
disparities. For example, how will it solve the problem of 
inconsistent standard industrial classification codes? Let's 
just go right down the way.
    Mr. Kroszner. Thank you very much, Mr. Chairman. As I had 
mentioned in my earlier remarks, a limited survey or limited 
study that had been done in 1994 trying to compare the 
classifications of firms by BLS versus the Census found about a 
30 percent difference in the classifications. And so that's a 
very, very concrete illustration of how, by working together, 
they can try to work out some of the inconsistencies in the 
classification of firms.
    Now, part of this is because firms change in a dynamic 
economy and it is very difficult to keep up as rapidly with 
them. So the Census may have done their classification in 1995. 
That firm today may still have the same name, but it may be 
doing something completely different that may be in a new area. 
Also, it may be doing something that wasn't even part of the 
classification codes from 5 to 10 years ago. And that is why it 
is very important to do this. And also, I want to emphasize 
that I think the agencies do a superb job of this, but it is 
just hard to keep track of such a vibrant entrepreneurial 
economy that we have.
    And so I think it is extremely important to allow for this, 
and we can reduce the anomalies and inconsistencies by allowing 
the data to be shared, the different agencies to talk to each 
other to keep up with our very dynamic economy.
    Mr. Horn. Can you give us an idea of how much duplicate 
data collection now occurs among the three agencies?
    Ms. Cooper. How much? I'm sorry?
    Mr. Horn. Just give us an idea of how much duplicate data 
collection now occurs among the three prime agencies here.
    Ms. Cooper. Well, I think it's hard to give a general 
statement. My fellow panelist, Mr. Kroszner, mentioned with 
regard to classification of business firms. I think we also 
have to think about what will happen over time among the three 
agencies. I think it is just a very difficult question to 
answer; but we think that over time, we will reduce the 
duplication, and that clearly is a plus for the reporters, for 
businesses out there in this economy. It will lower the burden 
on them. And with the comparisons that we could make of cross 
agencies, that has to be a very real plus. But it is one of 
those numbers that is very difficult to figure out.
    Mr. Horn. Well, this next question is about the same as the 
last one. But can you estimate the time and resources that this 
bill will give the agencies by reducing duplicate information 
collection?
    Ms. Utgoff. Again, I don't think we could give you a 
numerical answer to that question. But there are many 
instances. For instance, the International Price Program. If we 
are able to use the Census data, we will be able to reduce the 
number of people who have to respond to the survey, and we will 
be able to reduce the information that we get from each 
respondent.
    Ms. Cooper. I might just add there, from the Census 
Bureau's point of view, that if we were able to reduce one 
survey across our broad set of businesses that we tend to 
survey, that, in and of itself, would save us some $2 million. 
So I think we can begin to see that there are some real savings 
out there as we go forward, but it is just very difficult to 
come up with a precise number.
    Mr. Horn. Now I am going to yield 10 minutes, to start 
with, with the gentleman from Ohio on any questions you want to 
ask.
    Mr. Sawyer. Thank you very much, Mr. Chairman.
    Ms. Cooper, it's my understanding that the Census Bureau is 
currently conducting research on matching data from household 
surveys with data from business surveys and censuses. The idea 
is to use them to model changes in labor force composition, 
future pension demands, and a variety of other important 
economic conditions. It's my understanding that under the terms 
of this legislation, that those data could not be shared with 
researchers at BLS or BEA, despite the fact of the substantial 
expertise in those agencies and the work that they might be 
able to do to understand those data. Can you explain why the 
legislation has been changed to exclude those data? Or am I 
incorrect in my understanding of it?
    Ms. Cooper. That this legislation has been changed to 
exclude it?
    Mr. Sawyer. I believe so.
    Ms. Cooper. I honestly don't know the answer to that one.
    Ms. Utgoff. There were questions--this bill deals only with 
the information for firms. It does not deal with individual 
household response. In the previous efforts to have this 
legislation passed, the household response became very 
controversial, so it was not included in this round of the 
bill.
    Mr. Sawyer. I would simply hope that as we gain experience 
with this kind of information sharing, that we could find a way 
to enable that kind of sharing. It is important. I couldn't 
agree with you more about the sensitivity of personal 
individual household information. But where it can be used to 
shape policy in important ways, I think it would valuable to 
do.
    It leads me to my second question: Does the administration 
have a plan of action with regard to how, in future, this kind 
of legislation might be expanded to include sharing household 
data in order to improve our understanding of the changing 
nature of poverty, access to early childhood education, pension 
coverage, and a myriad of other kinds of social statistics that 
shape an awful lot of the debate that characterize our work 
here?
    Mr. Kroszner. There is no specific plan right now. I think 
what we want to do is gain experience with the data sharing 
with the business data to avoid the concerns and controversies 
that had been raised with the individual data. And I think as 
we have the experience with that, both the researchers outside 
of the Government and internally, we will be able to see how 
best to shape the memoranda of understanding to make sure that 
no data--no confidentiality agreements are violated.
    And so I think it is an important foundation and first 
step. Much like we had some experience with sharing some 
international data back in 1990, I think that provides the 
basis for how well the agencies can work with that data to show 
that this will be functioning very well. And then perhaps in 
the future we can take it another step, but there is no 
particular plan right now for that next step to be taken.
    Mr. Sawyer. Go ahead.
    Ms. Cooper. And could I just add, Congressman Sawyer, going 
back again to your question before and tying it to this one. I 
agree that the work that is being done that ties the labor 
market and other information together, the Census Bureau, is 
innovative and can be very helpful longer term, but as long as 
we--at this stage we can only do that in the confines of the 
Census Bureau. But as my colleague has indicated, once we can 
demonstrate that there will not be concerns longer term--I am 
not sure how long that takes, but we are all hopeful that it 
will be sooner rather than later--then perhaps this could be 
considered later, much later.
    Mr. Sawyer. I appreciate the concerns that you have for 
confidentiality, which is what led me to my half of this 
legislation. I don't want those concerns, however, to stand in 
the way of serious innovation that can come about as a result 
of better sharing.
    Let me ask each of you to respond to the fact that the 
administration sought and was granted a provision under the 
PATRIOT Act that provides the Attorney General access to 
individually identifiable survey records held by the National 
Center for Education Statistics. If the administration sought 
access to similar records held by the Census Bureau or BEA or 
even the Council of Economic Advisers, would you support or 
oppose access to survey records for law enforcement purposes? 
Each of you, please.
    Mr. Kroszner. Well, we have no records at CEA. So, for our 
data, we are happy to share what we have with anyone. 
Certainly, that's one issue that has arisen about maintaining 
confidentiality versus collecting data for law enforcement 
purposes, and there can sometimes be a tension there.
    Mr. Sawyer. They are very much in tension, and I appreciate 
that. I shouldn't interrupt. Go ahead.
    Mr. Kroszner. No, no. And so we have tried to ensure that 
nothing that we have done in this legislation would, in any 
way, inhibit the ability of the Department of Justice to mete 
out justice to wrongdoers. But I don't think we at CEA have a 
particular view on that broader question.
    Mr. Sawyer. Others?
    Ms. Cooper. I don't think I have more to say on that, 
either. I think that is something that has to be settled 
elsewhere, and that is a very real tension and concern.
    Ms. Utgoff. I agree with the other panelists on this point.
    Mr. Sawyer. Let me touch on something that the chairman 
touched on. This is kind of off the track. Nearly 20 years ago 
when I was a mayor in Akron, Ohio, we had gone from an--about 
80 years where our signature industry was in the tire and 
rubber industry. It was 1984, and we hadn't made a passenger 
car tire in Akron since 1979. And the truth is, we were trying 
to chart a new future for ourselves as a community with some 
sense of realism.
    We had done a great deal of work in expanding the product 
applications of synthetic materials and other kinds of 
polymeric applications in a wide range of different kind of 
product fields. And, but before we committed ourselves to that 
kind of work and to bringing together resources, as a city we 
decided we wanted to get a sense of the current state of play 
in what we were loosely referring to as the polymer industry, 
and discovered to our frustration that it was very difficult to 
track that because standard industrial codes simply did not 
reflect the way in which the industry had shifted its field, 
not just individual companies--B F Goodrich, by the middle of 
the 1980's, was no longer a tire company, they were a chemical 
and aerospace company. But that's different from when an entire 
industrial field shifts its ground.
    Can you talk to me just briefly about the how the ability 
to share data will help you track not the changing character of 
companies, but the changing character of large-scale enterprise 
in the United States?
    Mr. Kroszner. By being able to--actually, in some sense, by 
being forced to resolve anomalies between the different 
agencies when they've classify one firm one way and another 
firm another way, that forces the agencies to address exactly 
that issue much more head-on than they otherwise would have to, 
because suddenly they now have the same firm classified in two 
different ways, and neither of those classifications is 
appropriate for that firm anymore. And so by talking to each 
other, they'll say, well, maybe our classifications aren't 
appropriate. We have to try to build on our standard industrial 
classifications to take into account this dynamism.
    And so I think that is one of the ways in which could help 
to have the agencies speak with each other, because they can 
then use their expertise together to say there is something 
wrong here, we've both misclassified this firm, it should be 
something new, and we have to innovate to come up with a new 
classification for it.
    Mr. Sawyer. Thank you, Mr. Chairman.
    Mr. Horn. Thank you. About 5 years ago, probably at maybe 
the same relevant question of this, I wanted, when I had all 
those brains looking at me, and I knew you had the answer. And 
that is, how does the OMB have one set of assumptions for their 
accuracy of Federal statistics, and the CBO on Capitol Hill use 
different assumptions? And is there any way we can get both of 
those wonderful, powerful operations that they can agree on a 
base? And how can we handle that? I realize that might have 
nothing to do with what you are saying. But I just want that 
now that I have got a few bright economists.
    Mr. Kroszner. Well, I think it is a very important issue, 
because it is sharing of a different type of sense of data and 
different types of assumptions across different groups. I think 
this is certainly an area of--in which reasonable people can 
differ about looking out, let's see, 10 years hence about what 
economic growth will be.
    Actually, the long-term economic forecasts which we 
developed through the process of CEA and OMB and Treasury, much 
of the economics is actually quite similar to what we find in 
the CBO forecasts for--especially for the long-range growth 
assumptions? There is some differences on how the business 
cycle will move over the short-term and then differences on 
views on how you turn GDP into revenues. And so I think 
increasing the dialog between our groups would be very--would 
certainly be very valuable, but I don't unfortunately have sort 
of the magic bullet that can make us all agree. And if you look 
at private sector forecasters, they often have very different 
assumptions that they make, and in some sense that's 
appropriate that people have different views, and those should 
be taken into account. I am not sure that we want to have just 
one single view. I think we are relatively close; we're not too 
far apart, but I think further dialog would certainly be 
helpful.
    Mr. Horn. Ms. Cooper.
    Ms. Cooper. I might just add that indeed they certainly 
have been fairly close in the last year, 2 years. They 
operate--the two organizations operate under different rules in 
terms of what the CBO's goal is and what the OMB's goal is. And 
the timing of their forecasts clearly is slightly different, 
not largely different. So I am impressed that they are as close 
to one another as they are, especially after they have a little 
bit of time to readjust.
    But I would agree with my colleague that it's good to have 
not just one view going forward. It would be surprising if we 
had terribly different points of view on potential GDP growth 
and we actually don't. It's trying to wrestle at this point 
more than anything else with what level of revenues come with 
each dollar of GDP.
    Mr. Horn. Ms. Commissioner.
    Ms. Utgoff. I don't have anything to add to that. I agree 
with what the panelists have said.
    Mr. Horn. Well, maybe we will get something out of the next 
panel. Because up here--and, you know, various presidents have 
said, well, gee, I've got OMB; at that point it is what the 
President wants to have done. And then up here, we'd like to 
having something because, we are trying on spending and we are 
trying on not spending. And so everything we do, going through 
the appropriations, we have got to show them that this is going 
to be in either 5 years or whatever. And that tightens up 
things quite a bit around here. And so I still think there 
ought to be some way that they get together and they say, look, 
this is what is here and this is what we ought to know, and 
deal with it.
    So, then in other administrations, why, they say, gee, we 
like what CBO did and so forth. And it's all back and forth. 
It's like a tennis game and little people return running every 
day over the, with getting the ball halfway over the net. So, 
anyhow, that's one little gripe I have. And I don't think it 
will ever be solved, but it would be nice if we had sort of a 
treaty of Versailles here for economics and, you know, maybe 
the mirrors in the palace of Versailles would do it with all 
the things they can get it through the sun, through the windows 
and everything.
    Mr. Sawyer. That was as remarkable of a mixed metaphor as I 
think I've heard all day. I just thought maybe we could think 
of these guys as line judges in your game of tennis.
    Mr. Horn. My colleague here and I have both been dealing 
with the European parliament since we got here, and he's very 
good with that group. And so I will leave it right there.
    OK. Is there anything that we should have asked you that we 
didn't ask you? Well, that's to make a good conscience 
somewhere.
    But we will get the next panel up. And then if we could get 
all--if you can stay, we can get the questions with all of you 
there.
    We have Maurine Haver, William D. Nordhaus and Ralph 
Rector. They were previously sworn. Let's take Dr. Haver, start 
with her. She is the chair of statistics committee of the 
National Association for Business Economics.

     STATEMENTS OF MAURINE HAVER, PH.D., CHAIR, STATISTICS 
COMMITTEE, NATIONAL ASSOCIATION FOR BUSINESS ECONOMICS; WILLIAM 
D. NORDHAUS, PH.D., STERLING PROFESSOR OF ECONOMICS, DEPARTMENT 
 OF ECONOMICS, YALE UNIVERSITY; RALPH RECTOR, PH.D., RESEARCH 
   FELLOW AND PROJECT MANAGER, CENTER FOR DATA ANALYSIS, THE 
                      HERITAGE FOUNDATION

    Ms. Haver. I am pleased to testify today in support of H.R. 
5215. I am speaking in my capacity of chair of the statistics 
committee of the National Association for Business Economics, 
on behalf of our 3,000 members. The members of our association 
have a keen interest in the quality of economic statistics 
produced by the BEA, Census and the BLS. We use these 
statistics daily in our work to help our companies and clients 
make informed business decisions that have real dollar 
consequences.
    We believe that passage of this legislation will protect 
the confidentiality of our companies' proprietary information 
supplied to the Government. It will minimize the burden imposed 
on our companies by the statistical agencies because duplicate 
surveys can be eliminated. And, finally, it will improve the 
quality of our national economic information, especially 
statistics at the industry level, because of more complete and 
consistent source data.
    The business community and financial markets derive 
significant benefits from the collection and dissemination of 
economic data. Complaints of respondent burden are often 
misinterpreted. Most companies recognize the value of 
Government statistics and actively use statistics produced by 
these agencies for the basis of many operation and planning 
decisions. Companies need industry and national statistics to 
have highest quality and are willing to do their part as long 
as confidentiality of their proprietary information can be 
assured and data collection is done efficiently.
    This bill is important because it extends confidentiality 
protection for respondents to all Federal agencies that collect 
data for statistical purposes under a pledge of 
confidentiality, and it prohibits the use of those data for any 
other purpose. It also specifically prohibits disclosure of 
information under the Freedom of Information Act. This uniform 
set of confidentiality protections will do a great deal toward 
reducing concern about reporting to national Government 
agencies.
    I believe the prior witnesses have devoted sufficient time 
to talking about the improvements that data sharing will make 
in our statistics. Let me just say that current statutory 
barriers to the sharing of business data do result in duplicate 
surveys that not only increase respondent burden, but also 
introduce classification errors that reduce accuracy. This bill 
will address both of these obstacles.
    In summary, we believe this bill will encourage business 
participation in Government surveys and will improve the 
quality of the statistics available to business and 
policymakers.
    We strongly urge passage of H.R. 5215. I would like to 
thank you, Mr. Chairman, for your invitation to participate in 
this hearing today, and also for your efforts ever since 1995, 
when I was President of the NABE. You were there to help us 
work toward a more efficient Federal statistical system, and we 
greatly appreciate that. I would be happy to answer your 
questions.
    [The prepared statement of Ms. Haver follows:]

    [GRAPHIC] [TIFF OMITTED] T8326.018
    
    [GRAPHIC] [TIFF OMITTED] T8326.019
    
    [GRAPHIC] [TIFF OMITTED] T8326.020
    
    Mr. Horn. Thank you, and we will pursue the questions with 
the two our presenters here.
    William D. Nordhaus, Dr. Nordhaus, Sterling Professor of 
Economics, Department of Economics at Yale.
    Mr. Nordhaus. Thank you very much, Mr. Chairman. I would 
like to--I have some prepared remarks which I would like to 
submit for the record.
    Mr. Horn. That is automatically put in the record.
    Mr. Nordhaus. I will summarize those briefly. I am 
delighted to have the opportunity to discuss the proposal for 
the sharing of statistical data in H.R. 5215. I think it is an 
important and useful bill and urge its passage.
    I am involved with a number of different groups that are 
involved with economic statistics. I won't go over all of 
those, but they do include one that is closely related to the 
statistical agencies that I am the chair of the advisory 
committee of the Bureau of Economic Analysis. That committee 
has--actually saw an early draft of the data sharing proposal a 
couple of times in its oversight meeting and discussed those.
    I emphasize that the remarks I am making are only my own 
and don't implicate any other organizations who like to have 
their own views. But I did do a nonscientific sample of a 
number of statisticians and economists and they are highly 
enthusiastic of this bill.
    Good economic statistics, as you know, are important 
because they are critical inputs into the decisions of public 
and private decisionmakers, the Congress in its budgetary 
decisions, companies on their investments, State and local 
governments on their infrastructures, and the private sector 
and households on their financial decisions. All of these 
issues involve and require good statistical information.
    Earlier this year, the Commerce Department conducted a 
brainstorming session of leading academic and business 
economists to consider improvements in the national economic 
accounts. And then earlier this year, the Joint Economic 
Committee held some hearings where it inquired into some 
different proposals for improving the Federal statistical 
system.
    I appended at the end of my testimony a summary list of the 
recommendations that I made to the JEC. One of the major 
recommendations I made was that the Congress should move ahead 
expeditiously with improved data sharing among statistical 
agencies.
    Now, the Federal--I would just say one word about source 
data. This is one of the less romantic parts of the statistical 
system that people don't really know much about. We see 
published in the newspaper every day the data on the GDP or the 
inflation rate or the balance of trade.
    But these are really just the visible tips of the 
statistical icebergs, and below the surface lies vast volumes 
of source data from all corners of the economy, and they are 
collected by the Census Bureau, the Bureau of Economic 
Analysis, the Bureau of Labor statistics, the IRS, the Federal 
Reserve and many other Federal agencies, and the quality of our 
economic statistics depends crucially on accurate, timely and 
comprehensive source data.
    Now, this bill--there are many ways to improve source data, 
but this bill proposes one that is extremely economical and 
useful, and that is solving the difficulties that arise from 
the decentralized nature of our Federal statistical system.
    The current system has many advantages, but one big 
disadvantage is that agencies have a variety of statistical 
data that they cannot share. In a sense the Government has 
imported data in its left pocket, but that data cannot be moved 
to the right pocket, and that restriction just make no sense 
and should be lifted.
    There are many examples of how data sharing will improve 
the quality of Federal economic statistics. I will concentrate 
on the national income and product accounts, which is the 
system I know best. I will just mention four briefly.
    One is that early estimates of our gross domestic product 
are subject to large revisions because the source data are 
sparse and often based on voluntary reporting.
    With data sharing, BEA will be able to use statistical 
techniques to correct the data for omissions to get more 
accurate early estimates of quarterly GDP.
    A second problem is annual revisions which come in the 
middle of every year. And these are often large because many 
monthly Census surveys are based on voluntarily supplied data. 
The July 2002 revisions were particularly large because some of 
the data that came in during this year showed revisions that 
were far different from the preliminary data.
    By working with individual company data and comparing them 
with publicly available data, BEA can identify discrepancies 
earlier and thereby reduce annual revision.
    A third example is the statistical discrepancy between the 
product and income side of our accounts. This is currently 
running at $166 billion in the last quarter, which is more than 
1\1/2\ percent of total GDP.
    The source of the statistical discrepancy is still a 
mystery. But by comparing IRS, Census, and public data, BEA may 
be able to sharpen its estimates of different sources, 
particularly of income, and narrow that discrepancy.
    A final example, and one that has been very much in the 
news, involves data on corporate profits. These are one of the 
most important and hard to measure of the statistics. And 
accurate measures of total corporate profits are produced only 
with a 3-year delay, and this is because it takes that amount 
of time to gather all of the different tax returns and tabulate 
them completely.
    Inaccurate profit data may well have contributed to the 
boom and bust cycle of stock prices in the last few years. I 
believe that by triangulating data from tax returns, quarterly 
financial reports and publicly available financial statements, 
BEA can develop statistics on corporate profits more accurately 
and in a more timely fashion, and this, of course, can help 
investors gauge the true movement of profits in an era when 
financial reports are not always reliable.
    As Dr. Kroszner noted, these statistical innovations can 
improve the quality of Federal statistics with little, no or 
even negative cost.
    So, in summary, I think the proposal for data sharing 
contained in H.R. 5215 is a small but important step toward 
improving the efficiency and the use of Federal statistical 
resources, and I support strongly its enactment.
    [The prepared statement of Mr. Nordhaus follows:]

    [GRAPHIC] [TIFF OMITTED] T8326.021
    
    [GRAPHIC] [TIFF OMITTED] T8326.022
    
    [GRAPHIC] [TIFF OMITTED] T8326.023
    
    [GRAPHIC] [TIFF OMITTED] T8326.024
    
    [GRAPHIC] [TIFF OMITTED] T8326.025
    
    [GRAPHIC] [TIFF OMITTED] T8326.026
    
    Mr. Horn. Dr. Ralph Rector, is the research fellow and 
project manager at the Center for Data Analysis at the Heritage 
Foundation. Welcome.
    Mr. Rector. Thank you. Chairman Horn, thank you for 
inviting me to testify today. My name is Ralph Rector. I am the 
Project Manager of the Heritage Foundation's Center for Data 
Analysis. It should be noted that the following testimony is my 
own view, not necessarily that of the Heritage Foundation or 
any other organization.
    Today, I would like to discuss three standards I believe 
should guide any proposal to improve America's statistical 
system. These standards are, first, protection of individual 
identity for the respondents who provide data; second, 
production of useful, timely information for data users; and 
third, independent evaluations of data for decisionmakers. I 
think of these as the three I's of statistical policy: Identity 
protection, information value, and independent evaluation.
    The sections concerning statistical efficiency contained in 
title II of H.R. 5215 are examples of measures that can enhance 
information value by improving the accuracy and timeliness of 
economic data.
    My testimony will focus primarily on the issues related to 
title I, Standard 1, identity protection. Those who provide 
data to statistical agencies should not have to worry that the 
data they provide to the Government will be used against them. 
In addition, statistical agencies must protect the identity of 
individuals who provide data that may eventually be released to 
the public. Provisions for protecting individual identities can 
be found in plans such as H.R. 5215, which clearly distinguish 
between statistical and nonstatistical data.
    Also, these prohibit the release of data in a form that 
could reasonably be expected, either directly or indirectly, to 
yield the identity of the respondent.
    Standard 2, information value. Although necessary, 
procedures that protect confidentiality also tend to reduce the 
amount and the value of data that can be released. It is not, 
however, necessary to adopt such extreme forms of data 
suppression as those found in H.R. 5215.
    As currently written, this bill states that agencies cannot 
disclose data in identifiable form. The bill further defines 
identifiable form to mean representation of information that 
permits information about a respondent to be reasonably 
inferred through either direct or indirect means.
    This method of protecting confidentiality precludes the 
disclosure of all individual level information that respondents 
would provide, despite the use of safeguards that protect the 
identify of the respondents. The problem with H.R. 5215 arises 
because it does not clearly distinguish between the identity of 
the individual respondent and the information they provide.
    Denying researchers access to all individual level data 
would drastically reduce the value of publicly available 
information and would undermine the quality of important 
research conducted in the United States.
    Standard 3, independent evaluation. Although valuable, it 
is not enough for Government statisticians to approach data 
availability solely in terms of the amount of data they 
provide. In addition, the data should be sufficient so that 
researchers outside the Government can respond effectively to 
evaluate the proposals, either to validate them or challenge 
them.
    My written testimony includes two examples that may help 
clarify why the distinction between the amount and the form of 
data accessibility is so important to nongovernment researchers 
who provide public policy analysis.
    To implement three statistical standards described in my 
testimony, I believe Congress should, with regard to identity 
protection and information value, provide guidelines similar to 
H.R. 5215. However, the guidelines should be modified to 
clearly indicate that confidentiality applies to the identity 
of the respondent. The current version of H.R. 5215 is not 
sufficiently clear in this respect.
    With regard to independent evaluation, Congress should 
require that whenever possible Federal agencies provide data to 
independent researchers in a form that permits them to conduct 
complete and independent evaluations.
    Thank you.
    [The prepared statement of Mr. Rector follows:]

    [GRAPHIC] [TIFF OMITTED] T8326.027
    
    [GRAPHIC] [TIFF OMITTED] T8326.028
    
    [GRAPHIC] [TIFF OMITTED] T8326.029
    
    [GRAPHIC] [TIFF OMITTED] T8326.030
    
    [GRAPHIC] [TIFF OMITTED] T8326.031
    
    [GRAPHIC] [TIFF OMITTED] T8326.032
    
    [GRAPHIC] [TIFF OMITTED] T8326.033
    
    [GRAPHIC] [TIFF OMITTED] T8326.034
    
    Mr. Horn. Thank you. Let's go to a few questions here. 
Where in the bill would you like, Dr. Rector, to solve that 
problem?
    Mr. Rector. I believe that the problem exists in the 
definition of identifiable form, and I have provided specific 
line numbers to the staff so that they can see exactly what the 
language would, I think--it would need to be in order to very 
clearly distinguish between the individual respondent, their 
identity and the information that they provided.
    Mr. Horn. And my staff has provided you a copy of the 
amendments I intend to offer at today's markup on H.R. 5215. 
Does this amendment satisfy your concerns with the original 
language of the bill?
    Mr. Rector. I have read the substitute amendment to H.R. 
5215 provided by your staff, and I do believe that the new 
version does correct this problem.
    Mr. Horn. So that solves that problem, good. Something is 
happening today anyhow.
    Let me ask you a few questions that my colleague didn't 
have a chance to do it, Dr. Sawyer, who was needed elsewhere. 
And he and I both worry about the Attorney General, who has 
sought access to survey information provided by individuals. 
What would be the effect on economic statistics of information 
collected from businesses for statistical purposes if it was 
used in legal proceedings by the Government against the 
businesses and the executives that provided that information? 
How do you feel about that one way or the other?
    Ms. Haver. I am only speaking for myself now, because we 
certainly haven't queried our members. But I would not be 
supportive of the Attorney General having access to information 
that is provided to the Government for statistical purposes.
    Mr. Horn. Dr. Nordhaus.
    Mr. Nordhaus. My own view again, it depends a little bit on 
the context. But it seems to me that whether it is a person or 
a business responding to a survey for statistical purposes, I 
think it would be very chilling for--to get good responses to 
that if there were the possibility of it being used in legal 
proceedings. I think that is particularly applicable for 
voluntary surveys. For mandatory then the person would have 
some--would have a tug of war between which of the two 
provisions were more--he was more fearful of.
    But in the case of voluntary surveys, people would say, 
well, it is voluntary, why should I fill it in if there is any 
chance that this would be used against me in a legal 
proceeding. So I think that is a serious, serious concern.
    Mr. Horn. Dr. Nordhaus, the Federal Economic Statistics 
Advisory Committee is a unique committee in that it is charged 
with addressing the interaction among these three statistical 
agencies. Would you please comment on the role that the 
committee might play in advising those agencies in carrying out 
the intent of this legislation?
    Mr. Nordhaus. The FESAC, as it is called, is an agency or 
was a group that was set up a couple of years ago. The Bureau 
of Labor Statistics was the lead agency on that, although the 
Census Bureau and the Bureau of Economic Analysis were also 
participants. I was--I have met with that as--in terms of my 
advisory capacity of the BEA.
    I think all of these advisory committees can play a very 
useful role in terms of reviewing proposals like this. As I 
think I mentioned in any oral remarks, the BEA advisory 
committee actually discussed the proposal that Dr. Kroszner 
brought before it earlier this year. I think it was a very 
useful discussion among the different people, because people 
from different points of view, from business, from the research 
community and from Government, all had something to say.
    So I think this is a useful forum, these are useful forums 
for discussions of those kinds of issues. It has been useful in 
the past, and I hope it can be again in the future.
    Mr. Horn. Mr. Sawyer's question is to Dr. Nordhaus. While 
this bill provides a mechanism to bring the collective talents 
of these three agencies to bear to improve economic statistics, 
it does not provide a mechanism to draw on the expertise in 
universities and private research organizations.
    Do you have thoughts on how we can take that next step?
    Mr. Nordhaus. Well, I--there are two separate issues here. 
One is the actual production of statistics. I regard producing 
the GDP and the CBI as production. I mean it is a very 
intellectual and high level production, but it is like 
producing cars in the sense you have got to roll them out every 
month.
    There is a separate question, which is the research that 
lies behind those statistics, and there is where a very useful 
role can be played. Some of the agencies, particularly the 
Census, has taken the lead on this, have basically taken 
researchers as employees of those statistical agencies to help 
do research on behavior, on the behavior of particular series 
or relationships, and I think those have been very useful in 
bringing academic research to bear on the questions.
    But for the most part, actually I think the research staffs 
of those agencies are very high level, and I think the data 
sharing will go a long way in improving some of the easily 
fixed problems with the statistics.
    Mr. Horn. Dr. Haver, do you agree with him?
    Ms. Haver. Yes, I do. I think that certainly the production 
of the statistics is something that requires compromises that 
sometimes our academic colleagues would prefer not to see. We 
occasionally find the theory is wonderful, but then there is 
the application of that theory, and that sometimes becomes much 
more difficult. But I think that the academic community has a 
lot to contribute and is doing so, for example, through 
organizations like the BEA Advisory Committee which Professor 
Nordhaus chairs and other organizations like these.
    Mr. Horn. Dr. Rector, would you agree with both of those 
colleagues?
    Mr. Rector. I would, but I would like to followup on a 
comment just made about the compromises. As I had indicated in 
my testimony, I think that there is a tradeoff between 
protecting individual identity and information value.
    The protection of identity tends to reduce the quality and 
the value--the amount of information that can be released. I 
believe that the agencies' data disclosure review boards, the 
boards that make many of the compromises that were just 
described, they do not work closely enough with data users to 
produce compromises that are needed, and I would encourage 
Government statisticians to work with users more closely as 
they go through their normal effort to review these tradeoffs, 
make the decisions, and to involve data users earlier on in 
that process.
    Mr. Horn. Well, I think that makes sense. As a user of 
Government data, what suggestions would you give to the Federal 
statistical agencies as they implement the provisions of this 
bill?
    Mr. Rector. Well, again my focus is more on the title I 
aspects, and those are very wide ranging. They don't just deal 
with the business data. I think that there are many data bases 
that the Government produces, not only that have to do with 
statistical reports and the activities of the statistical 
agencies, but there are many data bases that are produced in 
conjunction with reports that Congress has mandated for policy 
evaluation, policy review.
    It is difficult, sometimes impossible, for independent 
researchers, whether it is in a think tank, or whether it is in 
the Academy, to gain access to these data bases. I would 
encourage agencies, again not just the statistical agencies but 
all Federal agencies that collect data, to require as part of 
that, particularly the program evaluation studies, to include a 
mechanism for the timely release of these data bases to 
independent researchers.
    Mr. Horn. I learned about 30 years ago that it was very 
difficult to get faculties involved with the politicians, now 
that I am one, and the problem is time, and we need it in 24 
hours. They need the sabbatical every 7th year, and they will 
think about it. So that is a little problem that we have got 
there.
    But what do you feel should be done by the Government side, 
although you touched some of it, what can be done with these 
data?
    Mr. Rector. Well, specifically with regard to policy 
evaluations, because so many of those are mandated by Congress, 
I would like to see that data dissemination actually be built 
into the requirement when a report is released, that the data 
be made available at that point in time for independent review, 
peer review, evaluation by other researchers, that just be part 
of the grant process.
    Mr. Horn. What do you see as the greatest hurdle in trying 
to improve response rates from private sector companies?
    Ms. Haver. I think it is a very big problem actually of--
certainly as corporations are having more and more financial 
difficulties or are not performing as well as they might like, 
they are looking at all corners of their business and trying to 
make sure that every person in that company is doing something 
that enhances profitability.
    So clearly filling out Government forms isn't on that list, 
or isn't high on that list. So it really is important that the 
data that is released by the Government really accurately 
reflect the industry, if it happens to be industry data, that 
companies might actually find useful.
    I think we will go a long way toward improving response 
rates if in fact companies do believe that the information 
reported on their industry is accurate.
    We had a reference earlier today to the semiconductor 
reporting problem. That was very simply that the companies did 
not think that those statistics accurately reflected their 
business. And so I think it is very important that we improve 
those statistics. And, as was explained earlier, part of 
improving our industry data is simply getting establishments 
put into the right classification. And if our--if the study 
that was done with 1994 data is accurate today, and I think it 
is probably worse rather than better, then we have to believe 
that only 70 percent of single establishment companies are 
classified correctly.
    And, therefore, you know, we have a lot of mistakes going 
into that information, which explains why companies often don't 
think they truly reflect the reality that is out there.
    Mr. Horn. Dr. Haver, you indicate that data users in 
industry are strong supporters of H.R. 5215. Do you know what 
industry data suppliers think of the bill?
    Ms. Haver. Well, after I was asked to testify today I 
called up a variety of representatives of data suppliers, the 
National Association of Manufacturers, the U.S. Chamber of 
Commerce, the NFIB, the Semiconductor Industry Association, and 
so on, to discuss this bill with them.
    They were quick to point out that they really couldn't 
speak on behalf of their members because they had not asked 
their members their opinions on this legislation. However, they 
did say to me that they could see absolutely nothing in this 
bill that would cause their members, in their personal opinion, 
to not support the legislation.
    In other words, it seemed to them, in one person's words, a 
no-brainer. This was legislation that improved assurances of 
confidentiality for companies and at the same time provided our 
fundamental general statistical agencies with the capabilities 
of sharing information to really improve our data and to make 
it more relevant.
    So although I can't say that there is not some company out 
there that might have a problem with this legislation, I have 
to say, among the numerous organizations I did talk to, I did 
not hear anyone express that view.
    Mr. Horn. For all three of you, do you see any downside to 
the bill from the viewpoint of industry? We have heard Dr. 
Haver.
    Ms. Haver. No.
    Mr. Horn. Dr. Nordhaus.
    Mr. Nordhaus. No. I think it is a plus. I think that we can 
actually do more with the data that we have now with data 
sharing. So I think it is a plus.
    Mr. Rector. I am unaware of any downside.
    Mr. Horn. OK. What do you see as the greatest benefits of 
data sharing provisions for users of Government data like 
yourselves?
    Ms. Haver. More accurate, relevant data. I think that we 
have discussed this really at some length today, so I won't go 
through some of the points again. But there are many cases 
where the ability to share information among our agencies will 
at least give us the possibility of improving our statistics, 
and there are many situations today where we know that somebody 
is wrong.
    You know, in 1997, information technology firms had a 
certain level of employment, but if you compare the numbers of 
the Bureau of Labor statistics and the Census Bureau for a 
year--that was after all an economic census year--there is a 
rather sizable discrepancy of--I don't quite remember the 
number, but between 10 and 15 percent.
    So these are the kind of anomalies that hopefully the 
agencies can start investigating. They can try to figure out 
why is it that BLS has more workers in this industry. So I 
think what we are going to have will be data that are much more 
consistent across our three agencies and hopefully, as I said 
before, a better reflection of the truth.
    Mr. Horn. As a user of Government data, what suggestions 
would you give to the Federal statistical agencies as they 
implement the provisions of this bill?
    Ms. Haver. Well, I would say, first of all, they should 
focus their energies where they are going to have the greatest 
payoff, and one clear example is the business list. I would 
like to see one business list, but I do know that Census 
perhaps has its way of using its list and BLS has yet another 
way of using its own. So at a minimum I hope we can get to the 
discrepancies. But what I would like to see would be simply one 
list.
    I think also, and it may be very difficult for our agencies 
right now given their budget constraints, at least the first 
markups on the appropriations do not look very good for these 
agencies. But I would like to see them investigate ways of 
reducing duplicate surveys so that we can really go to 
companies and say we are not going to ask this of you more than 
once, that efforts are really being undertaken in the 
statistical system to reduce the burden.
    I think that would be a big selling point to companies when 
a survey arrives to be filled out or when they receive a letter 
asking them to participate in a survey.
    Mr. Horn. Thank you, and I think that completes the 
presentation, unless there is something any of you want to put 
on.
    And Mrs. Maloney, who has been an excellent ranking person, 
she would like to submit a statement for the record. And 
without objection, that will be in at this point.
    And now I want to thank the staff of the subcommittee, 
Bonnie Heald, the staff director back there against the wall. 
And the gentleman doing all of the work here in many ways is 
the senior counsel, Henry Wray, to my left, your right, and 
counsel Dan Daly. Where is Dan Daly? Come on, don't be shy. Put 
your hand up there, fellows. And Chris Barkley, majority clerk, 
he is over there.
    You know, when you get next to a wall, why, there is a 
problem there. And then minority staff member, David McMillen, 
professional staff, back here. He gives us a lot of advice. And 
Jean Gosa, minority clerk, and she is with the staff of the 
minority. And our court reporters, and we are delighted to have 
them, and that is, Desirae Jura, and Mark Stuart. Thank you 
very much. We appreciate all of the work you have done over the 
years.
    So, with that, we thank you all and wish you well.
    [Whereupon, at 3:10 p.m., the subcommittee was adjourned.]
    [The prepared statement of Hon. Carolyn B. Maloney 
follows:]

[GRAPHIC] [TIFF OMITTED] T8326.035

[GRAPHIC] [TIFF OMITTED] T8326.036

[GRAPHIC] [TIFF OMITTED] T8326.037

