    [Senate Hearing 109-349]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 109-349

     AN ASSESSMENT OF FEDERAL FUNDING FOR PRIVATE RESEARCH AND DEVELOPMENT

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

                                    HEARING

                                   before the

                    FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
                         INFORMATION, AND INTERNATIONAL
                             SECURITY SUBCOMMITTEE

                                     of the

                                  COMMITTEE ON
                             HOMELAND SECURITY AND
                              GOVERNMENTAL AFFAIRS
                              UNITED STATES SENATE

                           ONE HUNDRED NINTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  MAY 26, 2005

                                   __________

           Printed for the use of the Committee on Homeland Security
                            and Governmental Affairs

                        U.S. GOVERNMENT PRINTING OFFICE
    21-826                      WASHINGTON : 2006
    _____________________________________________________________________________
    For Sale by the Superintendent of Documents, U.S. Government Printing Office
    Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512�091800
    Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001

            COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                       SUSAN M. COLLINS, Maine, Chairman
    TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
    GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
    NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
    TOM COBURN, Oklahoma                 THOMAS R. CARPER, Delaware
    LINCOLN D. CHAFEE, Rhode Island      MARK DAYTON, Minnesota
    ROBERT F. BENNETT, Utah              FRANK LAUTENBERG, New Jersey
    PETE V. DOMENICI, New Mexico         MARK PRYOR, Arkansas
    JOHN W. WARNER, Virginia

               Michael D. Bopp, Staff Director and Chief Counsel
       Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel
                          Trina D. Tyrer, Chief Clerk

    FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL
                             SECURITY SUBCOMMITTEE

                         TOM COBURN, Oklahoma, Chairman
    TED STEVENS, Alaska                  THOMAS CARPER, Delaware
    GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
    LINCOLN D. CHAFEE, Rhode Island      DANIEL K. AKAKA, Hawaii
    ROBERT F. BENNETT, Utah              MARK DAYTON, Minnesota
    PETE V. DOMENICI, New Mexico         FRANK LAUTENBERG, New Jersey
    JOHN W. WARNER, Virginia             MARK PRYOR, Arkansas

                          Katy French, Staff Director
                       Sean Davis, Legislative Assistant
                     Sheila Murphy, Minority Staff Director
                John Kilvington, Minority Deputy Staff Director
                           Liz Scranton, Chief Clerk

                                C O N T E N T S

                                     ------
    Opening statements:
                                                                       Page
        Senator Coburn...............................................     1
        Senator Carper...............................................     2
        Senator Lieberman............................................    16
        Senator Levin................................................    19

                                   WITNESSES
                             Thursday, May 26, 2005

    Charles W. Wessner, Ph.D., Director of Technology and Innovation,
      Board on Science, Technology and Economic Policy, The National
      Academies......................................................     4
    Robin Nazzaro, Director, Natural Resources and Environment Team,
      Government Accountability Office...............................    10
    Brian Riedl, Grover M. Hermann Fellow for Federal Budgetary
      Affairs, The Heritage Foundation...............................    12

                         Alphabetical List of Witnesses

    Nazzaro, Robin:
        Testimony....................................................    10
        Prepared statement...........................................    52
        Responses to Questions for the Record........................    63
    Riedl, Brian:
        Testimony....................................................    12
        Prepared statement...........................................   104
        Responses to Questions for the Record........................   115
    Wessner, Charles W., Ph.D.:
        Testimony....................................................     4
        Prepared statement with attachments..........................    37
        Responses to Questions for the Record........................   212

                                    APPENDIX

    ``Advanced Technology Program, Inherent Factors in Selection
      Process Could Limit Indentification of Similar Research,'' GAO/
      RCED-00-114....................................................    66
    Copy submitted by Senator Coburn for the Record:
        Chart entitled ``$300 Billion in Revenue, $300 Million in
          Federal Research Funding''.................................   118
        Chart entitled ``Venture Capital Funding Reaches $21 Billion
          in 2004''..................................................   119
        Letter dated May 18, 2005, to Hon. Carlos Gutierrez,
          Secretary, U.S. Department of Commerce, from Senator Coburn   120
        Letter dated May 24, 2005, to Hon. Carlos Gutierrez,
          Secretary, U.S. Department of Commerce, from Senator Coburn   122
        ``Department of Commerce: Discretionary Proposal Advanced
          Technology Program (ATP)''.................................   125
        ``OMB Program Assessment Rating Tool (PART)''................   126
        ``Federal Grants to Advanced Cell Technology, Inc.''.........   135
        ``Measuring Performance, The Advanced Program and Private-
          Sector Funding,'' GAO/RCED-96-47...........................   136
    Copy submitted by Senator Levin for the Record:
        ATP Response to Senator Levin's Inquiry, May 2005, ``ATP:
          Delivering Results''.......................................   180
        Letter dated May 20, 2005, to Senators Carper and Levin from
          Dr. Peter Fiske, Co-founder--RAPT Industries, Inc..........   183
        Letter dated April 27, 2005, to Hon. Senator Paul Sarbanes,
          from Jeff Serfass, Executive Director, U.S. Advanced
          Ceramics Association.......................................   185
        Letter dated May 26, 2005, to Senator Levin from Kenneth R.
          Baker, President and CEO, ALTARUM..........................   186
        Letter dated May 25, 2005, to Senator Levin from Dwight
          Carlson, Chairman, CEO, Coherix, Inc.......................   187
        Letter dated May 29, 2005, to Senator Levin from James Chew,
          Chief Strategy Officer, TJ Technologies, Inc...............   189
        Letter dated May 27, 2005, to Senator Levin from Thomas A.
          Cellucci, Zyvex............................................   190
        Letter dated May 26, 2005, to Senator Levin from Fawwaz T.
          Ulaby, Vice President for Research, The University of
          Michigan...................................................   192
        Letter dated May 2, 2005, to Frank Wolf, Chairman,
          Subcommittee on Science, State, Justice, Commerce and
          Related Agencies, House Committee on Appropriations, from
          numerous undersigned constiuents...........................   193
        ``Core Findings and Recommendations,'' The Natural Academics
          Committee on Government-Industry Partnerships..............   201

     AN ASSESSMENT OF FEDERAL FUNDING FOR PRIVATE RESEARCH AND DEVELOPMENT

                                  ----------

                             THURSDAY, MAY 26, 2005

                                           U.S. Senate,
                Subcommittee on Federal Financial Management,
            Government Information, and International Security,
                              of the Committee on Homeland Security
                                            and Governmental Affairs,
                                                        Washington, DC.
        The Subcommittee met, pursuant to notice, at 2:37 p.m., in
    room SD-562, Dirksen Senate Office Building, Hon. Tom Coburn,
    Chairman of the Subcommittee, presiding.
        Present: Senators Coburn, Carper, Levin, and Lieberman.
        Chairman Coburn. The Subcommittee will come to order. I
    thank each of you for attending.

                  OPENING STATEMENT OF SENATOR COBURN

        Senator Coburn. Last year, venture capitalists in this
    country, through the private sector, invested over $20 billion
    in various projects in the United States. The Federal
    Government outside the ATP program invested over $50 billion in
    research.
        The hearing today is not to say that there are not some
    good things that come out of every government program, but is
    to assess the relative dollar contribution versus the benefit
    of the programs that we are investing in.
        I think one of the things that every American can agree on
    is that having a deficit each year, and I would preface that
    the last time we had a real surplus in our country was 1973.
    All you have to do is look at the national debt to assess
    whether or not that is a true statement because it rose in each
    of those years.
        The fact is this year it will be over $620 billion. The
    only thing that lasts longer than life are government programs.
    The purpose of this hearing today is to take a good hard look
    at one of those particular programs that has been recommended
    for elimination through President Bush's budget recommendation,
    and assess and evaluate the quality, the impact and the
    potential future impact and cost benefit for that program.
        With that in mind, I will ask for unanimous consent that my
    entire opening statement be made a part of the record and I
    would introduce to you our Ranking Member, Senator Carper and
    ask for his opening statement.
        [The prepared statement of Senator Coburn follows:]

                  PREPARED OPENING STATEMENT OF SENATOR COBURN

        Last year, venture capitalists invested over $20 billion into
    various projects in the U.S. economy. Industries including
    biotechnology, telecommunications, and health care services received
    hundreds of millions, if not billions, of dollars in funding from
    private investors. All of that venture capital funding also doesn't
    even take into account the massive amount of money spent each year on
    research and development, or R&D, by publicly-traded American
    companies. Just to give a few examples, IBM in 2004 spent more than $5
    billion on R&D, while Motorola spent more than $3 billion on R&D. In
    short, the private sector of the U.S. economy is researching new
    technologies and products at a feverish pace.
        This hearing today has been convened to provide an assessment of
    Federal funding for private research and development, with a focus on
    the Advanced Technology Program, or ATP. Created in 1988 by the Omnibus
    Trade and Competitiveness Act, ATP is a Federal program charged to
    support research that accelerates the development of high-risk
    technologies in order to increase the global competitiveness of
    American industry. On its web site, ATP states that its goal is to help
    companies meet challenges that ``they could not or would not do
    alone.'' Many of the program's most vocal supporters believe that
    without the Federal funding provided by ATP, countless research
    projects would receive no money at all, and that ATP exists to remedy
    the failure of the market to fund research and development.
        Evidence to support those claims, however, is quite limited. Time
    after time, ATP is shown to fund initiatives that have already been
    undertaken by the private sector. Year after year, multi-billion dollar
    corporations receive millions of dollars from ATP. For example, General
    Electric, or GE, one of the most widely known corporate brands in the
    world, has received more than $100 million in grants from ATP. Last
    year alone, GE reported revenues of $152 billion. IBM, with revenues of
    nearly $100 billion in 2004, has received $91 million in Federal funds
    from ATP. In total since 1990, Fortune 500 corporations have received
    more than $730 million from ATP. If this does not constitute corporate
    welfare, then corporate welfare does not exist.
        Regarding the claim that ATP primarily funds research that does not
    already exist in the private sector, the U.S. Government Accountability
    Office (GAO), found in a 2000 report that ATP had funded research on
    handwriting recognition that began in the private sector in the late
    1950s. GAO found that inherent factors within ATP made it ``unlikely
    that ATP can avoid funding research already being pursued by the
    private sector in the same time period.'' Furthermore, according to the
    Program Assessment and Rating Tool used by the Office of Management and
    Budget, ATP does not address a specific need and is not designed to
    make a unique contribution.
        While many supporters of ATP point to the broad societal benefits
    of scientific research as justification for ATP, the merits of
    scientific research are not at issue here today. As a physician, I know
    first-hand the benefits that have been realized due to breakthroughs in
    the field of medical research. The main issues before us today are the
    Federal financing of research that may very well be duplicative and the
    Federal subsidization of multi-billion dollar global corporations.
        We are pleased to have with us here today distinguished scholars
    from the Government Accountability Office, the Heritage Foundation, and
    the National Academies. On our first and only panel, Robin Nazzaro,
    Brian Reidl, and Dr. Charles Wessner will give us their assessments of
    Federal funding of private research and development.

                  OPENING STATEMENT OF SENATOR CARPER

        Senator Carper. How is that for timing. It is not always
    that good.
        I just left about 50 screaming kids from Cab Calloway
    School in Delaware in my office, saying do not go to that
    hearing, stay here and take our questions. I thought I would
    come here and ask some questions of my own.
        To our witnesses today, welcome and thanks for joining us.
        I think this is my fifth hearing today and I think it is
    the last one.
        Senator Coburn. You were not in a 5-hour markup for
    asbestos.
        Senator Carper. How did that go?
        Senator Coburn. It is going to the floor.
        Senator Carper. That is exciting.
        I have actually quite a long statement here and rather than
    go through it, if I could, let me just ask unanimous consent to
    enter it for the record and we will just get right to these
    witnesses and get this show on the road. Thank you.
        Senator Coburn. Without objection.
        [The prepared statement of Senator Carper follows:]

                  PREPARED OPENING STATEMENT OF SENATOR CARPER

        Thank you, Mr. Chairman. I appreciate the dedication you've shown
    so far in using this subcommittee to closely examine programs--even
    very popular ones--to make sure that the taxpayer dollars we dedicate
    to them are spent wisely and are getting results.
        There's probably room for improvement in every program. I'm sure
    the Advanced Technology Program is no exception. I think it's clear,
    however, that ATP has been a success. I think it's also clear that ATP
    and programs like it should be seen as an integral part of our nation's
    economic policy, especially in times like these with U.S. industry
    under so much pressure from overseas competition.
        A recent assessment of ATP conducted by the National Academies
    shows that the program is achieving the goals Congress set out for it
    when it was created back in the late 1980s. According to the panel's
    findings, ``The ATP emphasizes economic growth and advances the
    competitiveness of U.S. firms by fostering technologies with
    potentially large net social value that might not otherwise emerge in
    time to maximize their competitive value.''
        I know there are some critics of ATP who would disagree with this
    assessment. I believe GAO will testify today that flaws in the
    program's application review process may lead to the funding of
    research projects that duplicate work already being done in the private
    sector without ATP assistance. There have been others who've criticized
    ATP for giving too much assistance to large companies or concentrating
    it in a handful of states. Others say ATP simply isn't needed and that
    much of the work it funds would happen with or without its help. I
    think some of this criticism misses the point.
        Data collected by ATP's Economic Assessment Office shows the
    projects funded under the program have had a real economic impact
    across the country. ATP has funded projects in 40 states across the
    country, plus the District of Columbia. The vast majority of these
    projects were led by small businesses.
        The Economic Assessment Office was able to analyze the impact a few
    dozen ATP-funded projects more closely and learned that they provided
    American taxpayers a return on investment of some $17 billion. When you
    consider that ATP has only distributed about $2 billion in grants since
    it's founding I'd say that's an example of remarkable success.
        In simple terms, I think ATP's mission is to find good ideas and
    help turn those ideas into something that can benefit our economy. It
    shouldn't matter where those ideas come from. And I don't know that it
    would ever be possible to guarantee that a company receiving an ATP
    grant would never be able to get funding for their project through some
    other means.
        It's clear to me that there are some good ideas out there that
    private venture capital firms probably won't touch. If those ideas have
    merit, I think the Federal Government, through ATP or some other means,
    should try to help them along.
        ATP has probably made some bad funding decisions in the past, Mr.
    Chairman, and I'm sure they'd acknowledge that themselves. They'll
    probably make more in the future. That's the nature of what they do--
    some research projects bear fruit, others don't. But the program is
    making an impact in a number of ways. The Economic Assessment Office
    found that ATP grants in most cases help bring products to market
    faster. Grant recipients are able to obtain more patents and hire more
    people. Growth for small firms that receive ATP funds is apparently
    quite dramatic. Fifty-nine small firms surveyed by the Economic
    Assessment Office doubled in size after receiving ATP grants. A handful
    of others grew even more.
        Mr. Chairman, I'll close with this. Just over 6 years ago now, when
    I was serving as Governor of Delaware, I asked the General Assembly for
    $15 million to start up the Delaware Biotechnology Institute. What we
    were seeking to do was to create a partnership involving the State
    Government, the academic community, and the private sector--a
    partnership that would put Delaware at the forefront of research,
    development and the commercialization of new life science products. We
    also sought to work with our partners to create and retain quality jobs
    and help our State better compete with our neighbors and with other
    States in the biotechnology field.
        I also worked as Governor to help create the Delaware Technology
    Park--a partnership between the State, the University of Delaware and
    the private sector that gives technology companies--both small and
    large, some of them start-ups--a place to grow their businesses.
        I'm proud to say that the Delaware Biotechnology Institute and the
    Delaware Technology Park are still working to keep jobs in my State and
    make it a place where companies and researchers involved in science and
    technology want to come to do business.
        I think these snapshots of what's happening in one small State in
    the economic development arena show the kind of good that government
    intervention like ATP can do--and are doing. When I was Governor, I
    thought a major part of my job was to help grow our economy and attract
    quality, well-paying jobs. I think ATP does similar work for our Nation
    as a whole.
        Thank you again, Mr. Chairman. I look forward to hearing from our
    witnesses and to discuss ATP's work further.

        Senator Coburn. We are going to have one panel today, so I
    would like to introduce our panel of witnesses. Robin Nazzaro
    has been with GAO since 1979, has a wealth of audit experience,
    as well as an incredibly diverse array of issue expertise. For
    several years she worked on tax and financial management issues
    and later in the area of information technology.
        Most recently, Ms. Nazzaro oversaw GAO's work on federally
    funded research and development, including responsibility for
    research into the National Institute of Technology and the
    National Science Foundation.
        Also here today is Brian Riedl, who currently serves as
    Grover M. Hermann Fellow for Federal Budgetary Affairs at the
    Heritage Foundation. Mr. Riedl's research has been featured in
    the New York Times, the Wall Street Journal, the Washington
    Post, a myriad of other publications.
        Before coming to Washington, Mr. Riedl worked as a policy
    analyst for Governor Tommy Thompson of Wisconsin.
        Our first witness to present today is Dr. Charles Wessner,
    esteemed Director of the National Research Council. He has a
    long history of public service, having worked for the
    Department of Treasury, the U.S. Diplomatic Corps, the
    Organization of Economic Cooperation and Development (OECD), in
    Europe. Dr. Wessner currently works as Director for Technology
    and Innovation at the National Academies.
        In the interest of time, your full statements will be made
    a part of the record and I would ask that you try to limit your
    testimony to 5 minutes and we will give you a chance to offer
    additional comments as we start the questions back and forth.
        Dr. Wessner, if you would please begin.

        TESTIMONY OF CHARLES W. WESSNER, PH.D.,\1\ DIRECTOR FOR
      TECHNOLOGY AND INNOVATION, BOARD ON SCIENCE, TECHNOLOGY AND
                ECONOMIC POLICY, THE NATIONAL ACADEMIES

        Dr. Wessner. Thank you very much, Senator. It is an honor
    to be here to speak before you both. And I would like very much
    to welcome your suggestion that we take a hard look at the
    program.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Dr. Wessner with an attachment
    appears in the Appendix on page 37.
    ---------------------------------------------------------------------------
        Indeed, at the National Academies, one of the things that
    we specialize in is advising the Congress with hard looks at
    programs. A hard, that is to say, objective look is our goal.
        My goal specifically today is to talk to you briefly about
    what the Advanced Technology Program (ATP) is, what it is not,
    and why it is important to continue supporting what we have
    found to be an innovative and effective program. In the course
    of that discussion, Senator, I would hope we would have the
    opportunity also to explore some of the myths and realities
    about innovation in the United States.
        Let me say first off that the National Academies'
    assessment of ATP was conducted under the leadership of Gordon
    Moore of Intel. It found that the ATP is meeting its mission
    goals. In short, we found after careful analysis that the
    program contributes to our Nation's innovation, economic growth
    and national security.
        The good news is that ATP investments are already yielding
    high returns. Innovative technologies for knee repair and early
    breast cancer detection enable more productive lives and can
    lower medical cost. ATP has also helped to fund work on
    supporting U.S. manufacturing, such as printed wiring boards,
    and supported promising new technologies ranging from fuel
    cells to DNA diagnostics that will potentially revolutionize
    drug discovery.
        There are a lot of common questions about ATP, and let me
    go to some of them. Let me first quote a promising young
    entrepreneur in Silicon Valley. She was asked why the
    government should fund the development of enabling
    technologies. And since you can read faster than I can talk, I
    thought I might just let you take a look at Elizabeth Downing's
    point. Elizabeth Downing, 3D Technology Laboratoris, NRC
    Report, states on page 65, ``Why should the government fund the
    development of enabling technologies? Because enabling
    technologies have the potential to bring enormous benefits to
    society as a whole. Yet private investors will not adequately
    support the development of these technologies because profits
    are too uncertain or too distant.''
        We all recognize the potential of new innovative
    technologies. The problem is that private investors cannot
    adequately support them, and for good reason. One of the things
    that troubles me is people often refer to this as just a
    government program, picking winners and losers. The point is
    that the program is industry driven. Unlike many research
    programs in the Federal Government, the projects have to be
    proposed by industry, they are directed and carried out by
    industry, they are funded by industry on a cost-shared basis.
    This is why the program was adopted on a bipartisan basis when
    it was established. The awards often serve a catalytic
    function, bringing together partners from large companies and
    from small companies as well as universities.
        The bulk of the ATP awards, nearly 70 percent, go to small
    businesses. Why is that important? Because small business
    drives innovation, employment and growth in the U.S. economy.
        Does the program work well? Yes, it does. How do we know
    this? We know this because the ATP program, ironically, is the
    most intensively studied, rigorously scrutinized, and carefully
    assessed of any of the U.S. technology programs over the past
    50 years. By itself, the National Academies' review consumed 2
    years, three major meetings, two major reports and numerous
    detailed studies led by a 15-person steering committee chaired
    by Gordon Moore. It involved leading economists and wide
    consultations with the venture community, corporations, small
    companies, and government officials.
        Why do I tell you that? Because the conclusions that we
    reach here today about the program were done laboriously,
    carefully and according to the highest standards of the
    Academy.
        One of the things I would like to draw to your attention is
    a common myth. Many in the policy world believe that because we
    have a robust venture capital market, VC finance alone is the
    solution to many of the challenges of early-stage finance.
        But I think what you may realize is that, as Congressman
    Verne Ehlers pointed out years ago, there is actually a valley
    death where it is very difficult to take the ideas from
    federally funded research and take them across the valley to
    the promised land, as it were, of product development,
    innovation and commercialization. These problems are especially
    severe for risky but promising new technologies.
        One of the things to recognize are the limitations of
    venture capital. Basically, venture capitalists are not focused
    on early-stage finance. This is not a failing. They are not
    supposed to be focused on early-stage finance. The venture
    capital goal is not to develop the U.S. economy in the
    abstract. The goal of venture capital funds is to have a return
    on the funds that are given to them by their investors. If you
    look at this pie chart,\1\ you can see that the seed funding
    available is actually quite small.
    ---------------------------------------------------------------------------
        \1\ The pie chart entitled ``Large U.S. Venture Capital Market is
    Not Focused on Early-Stage Firms,'' submitted by Dr. Wessner appears in
    the Appendix on page 41.
    ---------------------------------------------------------------------------
        I would like to quote a member of our board, David
    Morgenthaler, who is one of the past presidents of the National
    Venture Capital Association. David Morgenthaler, Morgenthaler
    Ventures, NRC Report, on page 66 states, ``[The ATP] is an
    excellent program for developing enabling, or platform,
    technologies, which can have broad applications but are long-
    term, risky investments.''
        ``Venture capitalists are not going to fund these
    opportunities, because they will feel that they are at too
    early a stage of maturity. Government can and should fund these
    technologies. In fact, it should do more than it is doing.''
        What he points out there again is simply that the program
    is an excellent program. It is one that has proven itself, and
    it is one that venture capitalists endorse.
        There is also another myth about the program. Some still
    ask ``would not private capital support an ATP project
    anyhow?'' The short answer is ``usually not.'' Why? Because the
    type of projects that ATP invests in are usually too risky, the
    technology often requires competencies that are not controlled
    by one firm, or the cost is simply too high. These are the very
    factors that the program addresses. Our research supports this
    view.
        Looking at 1998 ATP applicants one year after, NRC
    researchers found most of the non-winners had not proceeded
    with their research.
        I realize that my time is short here but I would like to
    emphasize that we are not alone. There are a variety of
    programs around the world like ATP. One of the analogies that I
    like is that I am not sure I would actually favor the Air Force
    in the abstract, sir. But if other countries have an Air Force,
    I think it is a jolly good idea that we have one, too, and that
    it be the best.
        The list below describes some of the Chinese programs in
    the semiconducter sector.
        There is the related problem with some of the programs.
    When they garner share in leading technology industries, even
    if what they did to get them is illegal, they still keep that
    position.
        But they are not alone in having extensive programs. Look
    at some of the smaller countries: TEKES in Finland, a country
    of 5 million people, has a program very similar to ATP. It is
    funded at $540 million for a country of 5 million people. In
    Belgium, a nation of 10 million people, they have a consortium
    for microelectronics research called IMEC that has budgeted
    $157 million. The EU has a 5-year Framework programme at $22
    billion, and they are planning to double that. Taiwan, where I
    just visited as an adviser to the prime minister, has the
    Industrial Research Institute which is funded at over $500
    million.
        I do not want to abuse my time here, sir, but I think it is
    very important to understand that first we have a sunken cost
    of $132 billion in research each year that we need to
    capitalize on, and ATP helps us do that. We need to understand
    the inherent challenges of early-stage finance and the
    limitations of venture capital, both in terms of when they
    invest in the development cycle and what they will invest in.
        In a global economy, as I have pointed out, there are large
    programs, many large well-funded programs, that are successful
    in what they are trying to do.
        We should also keep in mind historically that the U.S.
    Government has long played a major role in developing the U.S.
    economy. There was a period when we did not, Senator, from
    about 1792 to 1798. Since then the government has helped to
    develop many technolgies from interchangeable parts for muskets
    to the telegraph. I am very proud of what the Congress did in
    1842 when it gave Samuel Morse a $30,000 grant, a huge sum at
    that time, to prove this complicated idea that you could
    actually transmit signals and messages down electric wires.
        Examples also include aircraft frames, turbines, and radio,
    nuclear energy, computers, semiconductors, the internet, and
    the genome.
        Senator Coburn. Dr. Wessner, could you try to sum up?
        Dr. Wessner. Thank you, sir, because I am just reaching my
    conclusion.
        I would lastly like to recall that these contributions to
    our economy are central elements in our national security. ATP
    has made significant contributions to our national security, to
    homeland security. They have developed an x-ray technology that
    lets you see what is inside containers. This is very useful for
    national security, very useful for border security.
        So in sum, sir, I would like to give you the final
    conclusion from the NRC report. I think again you can read this
    more quickly than I can state. But my point is that we gave a
    very careful assessment.
        And I would like to stress, in closing, that someone
    described me as a friendly witness. No sir, we are not, at the
    Academy, a friendly witness. We are an objective witness. After
    careful analysis, we found that the program works and that it
    achieves its objectives, and we would hope that you would
    continue to fund this well managed, effective innovation
    program.
        Thank you, sir.
        Senator Coburn. Thank you, Dr. Wessner.
        I would welcome our other Member, Senator Levin. If you
    would care to make an opening statement now or you would care
    to defer, it is your privilege, sir.
        Senator Levin. Thank you very much, Mr. Chairman, for your
    graciousness. And I think I will make a short opening at the
    beginning of my questions. But I would like to submit my entire
    prepared statement at this time.
        [The prepared statement of Senator Levin follows:]

                  PREPARED OPENING STATEMENT OF SENATOR LEVIN

        America's tradition of pursing government policies that stimulate
    economic growth, create jobs, and establish self-sufficiency in
    industries critical to national defense dates back to the founding of
    our Republic. One of our most forward thinking and prolific founding
    fathers, Alexander Hamilton, not only created the Nation's banking
    system and laid the foundations for the stock exchange, but he urged a
    Federal role in developing the U.S. economy.
        Alexander Hamilton understood that the wealth and strength of a
    nation is founded on its ability to innovate, create and manufacture
    new and useful products. Although much has changed since the early days
    of the Republic, this basic premise continues to hold true.
        Today, American manufacturers and businesses face unprecedented
    foreign competition. Cheap imports from low-wage nations with weak
    labor and environmental standards put pressure on American
    manufacturers to shutter their facilities and move offshore to remain
    competitive. According to the Bureau of Labor Statistics, nationally we
    have lost nearly 2.8 million manufacturing jobs since January 2001.
        As a nation, we can't compete with low wages and weak environmental
    standards. Instead we should compete with cutting edge research and
    advanced technology. Indeed, America's strength is our intellectual,
    inventive and creative capacity and our ability to constantly innovate
    through technological developments to increase productivity. Public-
    private partnerships and collaboration have been a critical part of
    that process, increasing investment in R&D, leveraging dollars and
    resulting in overall benefits to the economy and society.
        Manufacturers' investment in innovation accounts for almost two-
    thirds of all private-sector research and development; this investment
    in turn leads to advances in other manufacturing sectors and spillover
    into non-manufacturing activities in the United States. We should be
    doing all we can to promote programs that help create jobs and
    strengthen the technological innovation of American companies.
        The Advanced Technology Program (ATP) administered by the
    Department of Commerce's National Institute of Standards and Technology
    is one of the few Federal programs available to help American
    manufacturers remain competitive in the global economy. In particular,
    ATP helps improve manufacturing efficiency and competitiveness which
    lead to growth in productivity. ATP is a bipartisan program that was
    established under the Reagan Administration and funded under President
    George H.W. Bush's Administration, which recommended significant
    increases in the program in its FY 1993 budget. This high octane
    economic development engine should be supported by Democrats and
    Republicans alike.
        The ATP was created in part to ensure that the U.S. economy
    benefited from Federal R&D investment through partnerships. ATP bridges
    the gap between the research lab and the marketplace by providing cost-
    share funding in high-risk R&D with broad commercial and societal
    benefits that would probably not be undertaken by the private sector
    because the risk is too great or because rewards to the private company
    would be insufficient to make it worth the investment.
        Less than 1.5 percent of venture funding is available for proof-of-
    concept (seed funding) and early product development. It has been said
    that the ATP facilitates so called ``Valley of Death'' projects that
    private capital markets are unable to fund. The Valley of Death is the
    gap between research and commercialization. As one small high-tech
    start-up participating in the ATP put it:

            ``Technology commercialization is HARD. It is also CRITICAL to
            the growth and economic competitiveness of the United States.
            For those of us out here in the trenches, the ATP is a vital
            source of support. ATP is unique in that it specifically
            focuses on helping bridge the chasm from the lab to the
            marketplace.''

        These investments promote the development of new, innovative
    products that are made and developed in the United States, helping
    American companies compete against their foreign competitors and
    contribute to the growth of the U.S. economy. For example, some of the
    technologies in which ATP was an early investor include DNA diagnostics
    for medical devices and nanotechnology.
        ATP was also an early investor in nanotechnology research.
    Nanotechnology has the potential to revolutionize almost every aspect
    of our lives--from smaller and faster computers, to miniaturized
    medical devices, to highly sensitive detectors to detect chemical and
    biological warfare agents. Unlike some of the more traditional research
    investments in nanotechnology--the ATP program is structured to ensure
    significant industry investment--which helps the commercialization of
    this high risk technology.
        An example of this is the work being done with ISSYS, a small
    company in Ypsilanti, Michigan, on the development of a portable
    multidrug infusion system. The need for multidrug infusion has not been
    met by existing infusion pumps because of their size, weight, and power
    consumption. Many diseases require multiple drugs to be administered
    with high accuracy. Cancer treated with chemotherapy and infectious
    diseases treated with drug ``cocktails'' are two examples of disease
    areas needing multiple drugs delivered in accord with a strict regimen.
    Programs like ATP that are supporting the commercialization of
    nanotechnologies will ensure that the U.S. retains its position as the
    world leader in this critical technology area.
        ATP is also playing an important role in developing new energy and
    power technologies that will improve our ability to generate and
    distribute power efficiently and effectively. This is important for our
    global economic competitiveness and our national security systems, and
    to help reduce our dependence on foreign oil. ATP programs invested
    $225 million (including cost share from industry) between 1997 and 2003
    in advanced power technologies, including fuel cells. An example of
    this is the work of ECD Ovonics in Michigan which, leveraging ATP
    investment, has developed new materials used to store hydrogen to power
    fuel cells. This research led to a $40 million development program with
    Chevron Texaco for commercialization, and to work with the U.S. Army to
    develop refueling stations for military fuel cell vehicles.
        ATP investments in advanced manufacturing technologies are helping
    companies develop and adopt leaner and more efficient manufacturing
    processes. This improves their competitiveness and helps strengthen the
    U.S. industrial base. As we are seeing in Iraq and Afghanistan, a
    strong and vital industrial base is necessary for us to produce the
    systems we need for our military, including body armor, combat
    vehicles, and electronics for advanced weapons and communications
    systems.
        Such technological innovations are also critical to homeland
    security. ATP through its own investments and industry cost share has
    invested over $500 million in homeland security technologies like
    biological sensors.
        A March 1999 study found that future returns from just three of the
    50 completed ATP projects--improving automobile manufacturing
    processes, reducing the cost of blood and immune cell production, and
    using a new material for prosthesis devices--would pay for all projects
    funded to date by the ATP. According to the Department of Commerce's
    own 2004 report, returns for the American people, as measured from 41
    of 736 ATP projects (just 6 percent of the portfolio), have exceeded
    $17 billion in economic benefits, more than eight times the amount
    invested by ATP. That's a good return on taxpayer dollars. DOC further
    reports that resulting technologies have been delivered to the nation
    in new or improved industrial processes, products, and services,
    ranging from more efficient energy sources to improved medical tests.
        ATP involvement accelerates the development and commercialization
    of new technologies. Time to market was reduced by 1 year in 10 percent
    of projects; by 2 years in 22 percent of projects; and by 3 years in 26
    percent of projects.
        The ATP has received applications from 50 states and made awards to
    high technology businesses in 40 states plus the District of Columbia.
    Over 170 universities have participated in ATP awards.
        One criticism of ATP is that it has funded research projects by
    large businesses. In fact, small businesses are the primary benefactors
    of the program. About 75 percent of all ATP projects include a small
    business with 66 percent (508 of the 768) being led by or involving
    only a small business. But some amounts of large company joint venture
    ATP participation has been found to be beneficial. The National Academy
    of Sciences' National Research Council found that the diversity of the
    ATP awards, involving both large and small companies, is an important
    feature of the program, and should be retained. It found that large
    companies bring unique resources and capabilities to the development of
    new technologies and can be valuable partners for technologically
    innovative small companies new to the market. ATP requires large
    businesses to contribute more matching funds to ATP projects: At least
    60 percent of project costs.
        The ATP has been extensively studied and time and again it has been
    found to be effective. OMB and the National Academies have rated the
    ATP proposal review process very highly. One of the most comprehensive
    evaluations of the program was undertaken in 2001 by the National
    Academy of Sciences' National Research Council. Dr. Wessner, the editor
    of that report is testifying today. As I'm sure Dr. Wessner will
    elaborate in his testimony, the National Academy found the ATP to be an
    effective Federal partnership program that is meeting broad national
    needs. The Academy recommended that the program receive additional
    funding so that it can further achieve its goals. Mr. Chairman, I ask
    unanimous consent to insert a summary of the Academy's findings in the
    hearing record.
        The Biotechnology Industry Organization (BIO), the Industrial
    Research Institute, the Alliance for Science and Technology Research in
    America, the American Chemical Society, the U.S. Advanced Ceramics
    Association, the National Center for Manufacturing Sciences, the
    Optical Society of America and many other organizations have also
    expressed support for ATP. The Senate recently confirmed its support
    for ATP on a budget resolution amendment I authored with Senator
    DeWine.
        I ask unanimous consent to include in the hearing record a number
    of letters of support for the ATP and other important Federal research
    and development programs.\1\
    ---------------------------------------------------------------------------
        \1\ The letters appear in the Appendix on page 183.

        Senator Coburn. That is great, Senator Levin. Ms. Nazzaro.

    TESTIMONY OF ROBIN NAZZARO,\2\ DIRECTOR, NATURAL RESOURCES AND
           ENVIRONMENT TEAM, GOVERNMENT ACCOUNTABILITY OFFICE

        Ms. Nazzaro. Thank you, Mr. Chairman, and Members of the
    Subcommittee. I am pleased to be here today to discuss our work
    on the Advanced Technology Program.
    ---------------------------------------------------------------------------
        \2\ The prepared statement of Ms. Nazzaro appears in the Appendix
    on page 52.
    ---------------------------------------------------------------------------
        ATP was established in 1988 to support research that
    accelerates development of high-risk technologies with the
    potential for broad-based economic benefits for the Nation.
    Between 1990 and September 2004, ATP funded 768 projects at a
    cost of about $2.3 billion in Federal matching funds. Under the
    provisions of the Omnibus Trade and Competitiveness Act, which
    established ATP, program administrators at the National
    Institute of Standards and Technology are to ensure that they
    are not funding existing or planned research that would be
    conducted in the same time period in the absence of ATP
    financial assistance.
        Research can provide both private benefits which accrue to
    the owners of the research results and societal benefits which
    accrue to society as a whole. In some instances, the private
    sector does not fund research that would be beneficial to
    society because doing so might not provide an adequate return
    on the firm's investment.
        To address this situation, the Federal Government supports
    research that has very broad societal benefits. However, there
    is a continuing debate over whether the private sector has
    sufficient incentives to undertake research on high-risk, high
    payoff, emerging and enabling technologies without government
    support such as ATP.
        In this context, we determined whether, in the past, ATP
    had funded projects with research goals that were similar to
    projects funded by the private sector and, if identified,
    whether ATP's award selection process ensures that such
    research would not be funded in the future.
        Our objective was not to provide an evaluation of the
    quality of the research funded by ATP or the private sector nor
    the impact these projects may or may not have had on their
    respective industries.
        To determine whether ATP had funded projects similar to the
    private sector projects, we chose 3 of the first 38 completed
    projects, each representing a different technology sector:
    Computers, electronics, and biotechnology. These 3 sectors
    represented 26 of the 38, or 68 percent of the ATP projects
    completed by 1999. We found that the 3 completed ATP funded
    projects addressed research goals that were similar to those
    already funded by the private sector. These projects included
    an online handwriting recognition system, a system to increase
    the capacity of existing fiber optic cables for the
    telecommunication industry and a process for turning collagen
    into fibers for human prostheses.
        In the case of the handwriting recognition project, ATP
    provided $1.2 million to develop a system to recognize cursive
    handwriting for pen-based computer input, in other words,
    without a keyboard.
        We identified several private firms that were conducting
    similar research on handwriting recognition at approximately
    the same time the ATP project was funded. In fact, in this line
    of research, which began in the late 1950s, we identified
    multiple patents as early as 5 years prior to the start of the
    ATP project in the field of handwriting recognition. We found
    similar results on the other two projects.
        Two inherent factors in ATP's award selection process, the
    need to guard against conflicts of interest and the need to
    protect proprietary information, make it unlikely that ATP can
    avoid funding research already being pursued by the private
    sector in the same time period. These factors, which have not
    changed since 1990, make it difficult for ATP project reviewers
    to identify whether similar efforts are being funded in the
    private sector.
        For example, to guard against conflicts of interest, the
    program uses technical experts who are not directly involved
    with the proposed research. Their acquaintance with ongoing
    research is further limited by the private sector's practice of
    not disclosing its research efforts or results so as to guard
    proprietary information.
        In conclusion, we recognize the valid need to guard against
    conflicts of interest and to protect proprietary information.
    However, as a result, it may be impossible for the program to
    ensure that it is consistently not funding existing or planned
    research that would be conducted in the same time period in the
    absence of ATP financial assistance.
        Mr. Chairman, that concludes my prepared statement. I would
    be happy to respond to any questions that you or Members of
    Subcommittee may have.
        Senator Coburn. Thank you.
        Senator Lieberman, while you were out I offered an
    opportunity for you to make an opening statement now or when
    you start your questions, whichever would be your prerogative.
        Senator Carper. And I spoke on your behalf.
        Senator Lieberman. You gave an opening statement on my
    behalf? Very nice of you.
        I will wait until the last witness and then, if it is all
    right, make an opening statement. Thank you.
        Senator Coburn. Absolutely. Mr. Riedl.

       TESTIMONY OF BRIAN RIEDL,\1\ GROVER M. HERMANN FELLOW FOR
           FEDERAL BUDGETARY AFFAIRS, THE HERITAGE FOUNDATION

        Mr. Riedl. Thank you, Mr. Chairman, and the Subcommittee
    for scheduling this hearing.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. Riedl appears in the Appendix on
    page 104.
    ---------------------------------------------------------------------------
        My name is Brian Riedl. I am the Grover M. Hermann Fellow
    for Federal Budgetary Affairs at the Heritage Foundation. The
    views expressed in this testimony are my own and should not be
    construed as representing any official position of the Heritage
    Foundation.
        Federal spending now tops $22,000 per household, the
    highest inflation-adjusted total since World War II, and $5,000
    per household more than the government spent in 2001. Budget
    deficits topping $400 billion are forecast as far as the eye
    can see. Given the Nation's budgetary challenges, the Advanced
    Technology Program remains one of the least justifiable
    programs. The President and the House of Representatives both
    support ATP's abolition. The Senate should join them.
        ATP was created in 1988 supposedly to provide research and
    development grants to help small businesses develop profitable
    technologies. In reality, ATP funnels taxpayer dollars to
    Fortune 500 companies. Between 1990 and 2004, 35 percent of all
    ATP funding was granted to Fortune 500 companies. For example,
    IBM has received $127 million in ATP subsidies. General
    Electric has received $91 million. General Motors has received
    $79 million. Motorola and 3M have each received $44 million.
    All in all, 39 Fortune 500 companies have received a total of
    $732 million from the Federal Government in ATP subsidies.
        Mr. Chairman, this is the kind of spending that outrages
    taxpayers. At a time when the Federal budget is deep in the
    red, there is no justification for taxing waitresses in Tulsa
    or cashiers in Flint in order to lavish hundreds of millions of
    dollars on Fortune 500 companies.
        ATP defenders will say that these subsidies generate
    greater technological innovation. They can point to many
    technologies on the market that ATP has funded. Of course ATP
    has funded some successful products. But the key question is
    whether the market would have produced those products even
    without ATP. Both economic theory and practice say yes.
        ATP does not fund basic science research like the National
    Science Foundation. Rather it funds the commercialization of
    research so the businesses can profit from it. Basic economic
    theory tells us that profit seeking firms have every incentive
    to fund profitable R&D themselves. If these projects are as
    promising as claimed, the company should have no problem
    convincing their shareholders to fund the projects or tapping
    into the $150 billion that private investors annually spend on
    R&D.
        The 39 Fortune 500 companies that have received ATP funds
    report a combined $1.4 trillion in annual company revenues. To
    suggest that these companies cannot afford their own R&D is
    baseless. Yes, ATP has funded HDTV and flat-panel televisions.
    But if they had not, a line of investors and businesses surely
    would have.
        The economic argument that ATP merely subsidizes existing
    R&D is also backed up by surveys of ATP participants
    themselves. Although the program is supposed to be a financier
    of last resort for companies that have exhausted all other
    options, a survey shows that two-thirds of ATP applicants never
    bothered to seek any private funding before going to the
    government.
        And among the near winners who had claimed that ATP was
    their final hope, half of them found private funding after they
    were rejected. Among the other half who did not find private
    funding, most never bothered to apply for private funding. They
    just continued to play the ATP lottery year-to-year.
        Not only is ATP a giveaway for wealthy companies that
    merely subsidizes existing research, but evidence shows that
    Uncle Sam is a poor investor. Only one out of three ATP
    projects ever brings a new product to the markets. One reason
    for this abysmal track record, as stated by the last presenter,
    is that ATP officials try to minimize conflicts of interest by
    seeking outside grant reviewers with little or no knowledge of
    the technology markets. And even if they sought market
    knowledge, most private companies in these markets conceal
    their research agendas, leaving ATP officials to guess where
    the market openings are. This blindness results in grants for
    projects that either duplicate existing private research or are
    doomed to fail.
        Consequently, ATP has granted money for technologies that
    had already been developed, patented and marketed by other
    companies years earlier. It has granted money to projects that
    have been discredited by their entire industry.
        Simply put, investors have better knowledge and more skill
    investing than government officials.
        In conclusion, technological advancement is vitally
    important to this Nation's economy. Yet when the governments
    try to pick the winners and losers by micromanaging
    technological innovation, the results will always disappoint.
    ATP subsidizes Fortune 500 companies that already have the
    money and incentive to fund their own profitable projects. And
    too many companies see ATP as little more than an ATM for the
    projects they would never spend their own money on.
        With Federal spending at $22,000 per household and growing
    by $1,000 per household each year, ATP should be the first
    target lawmakers seek for savings.
        I will be happy to answer any questions.
        Senator Coburn. Thank you. We will start the questioning
    with our Ranking Member, Senator Carper.
        Senator Carper. Dr. Wessner, I just want to ask you to
    respond just briefly to some of the comments we have just
    heard.
        Dr. Wessner. Thank you. I appreciate the opportunity.
        I have gone over Mr. Riedl's commentary on the ATP program,
    and I apologize, but I think some of the references there
    illustrate some of the basic flaws in the analysis.
        First, when he refers to basic economic theory, and while
    economic theory is a really interesting thing, it does not have
    a lot to do with how the economy actually operates,
    particularly in the murky stage of early-stage finance.
        The idea that the references to profitable R&D, which
    strike me as something like an oxymoron, decrying that the ATP
    program only succeeds one of three times. The last time I
    checked, a .333 batting average was a pretty good batting
    average.
        In the venture capital community, if you succeed 2 out of
    20 times, you are doing well. I am not sure that ATP actually
    succeeds 3 out of 10 times. But the point is that for early-
    stage finance, that is a very high success rate.
        I would also point out, just for a second, if we want to
    talk about economics, that there is a serious selection bias
    here. Two-thirds of the program goes to small firms and all the
    Heritage criticism is devoted to the funds going to large
    firms. It misses the very conception of the ATP program, which
    was to do both grants to small firms with promising
    technologies and to encourage cooperation between large and
    small companies, which is good for the large companies and good
    for the small companies. It is a way of strengthening the
    industrial fabric in the United States on which our national
    security ultimately rests.
        There are also claims that have been made, for example,
    regarding the Communications Intelligence Corporation on the
    cursive handwriting recognition. There is a factual error
    there. That program ultimately succeeded. That ATP program has
    been adopted by the Palm Operating System.
        But fundamentally, what it is important not to leave out,
    when we talk about how well ATP does, is a point of comparison.
    What are we comparing it to? We are working in an area where we
    want to convert research investments into products that help us
    in our lives, that enhance our national security, improve the
    ability of the government to complete its missions. ATP does
    all that. It does it arguably better and with more careful
    assessment than any other program we have.
        I am very pleased to see this status report here. Have you
    ever tried to get a status report on the success of projects
    from the Department of Energy or the Department of Defense? We
    have been mandated by you, the Congress, to look at the SBIR
    program. We cannot get this kind of data on the SBIR program.
        What this data underscores is in fact one of the strengths
    of ATP. It has one of the most rigorous and effective
    assessment programs in the U.S. Government. Its assessment
    program is considered a best practice model around the world.
        Let me just close by saying, that 2 hours ago I left a
    Dutch delegation at the Academies. They were here to talk with
    us about how they might adopt SBIR and expressed their interest
    in ATP. The rest of the world thinks that what America is doing
    with these programs is really quite interesting and quite
    effective.
        Senator Carper. Dr. Wessner, how do you measure success at
    ATP?
        Dr. Wessner. That is a good question, sir. One of the ways
    you can measure success is in commercial sales. You can also
    measure it in terms of patent licensing. You can also measure
    it in whether you have effective spillovers.
        Let me give you a quick case. In the early 1990s there was
    an investment with Bell Labs in extreme ultraviolet
    lithography. That did not seem to work out for about 3 years.
    And then Intel decided that was actually the technology it
    would need to maintain its global position, and it began a
    consortium based on this technology with Sandia National
    Laboratories. I think that illustrates the synergies that this
    program can develop--and particularly, for enabling
    technologies.
        I would consider a metric of success for the funding of
    Afametrics, which may revolutionize how we develop drugs. As
    many of you know, we have a serious problem in drug development
    in this country.
        I would also suggest that the investments in microturbines
    and fuel cells, where ATP has more success than much larger
    programs elsewhere, are a way of enhancing our energy security
    and a way of enhancing our national security by being able to
    provide secure and portable energy supplies.
        There are a whole range of things, but let me just close on
    one of the most amazing set of investments, in
    nanotechnologies, in Zyvex in Dallas. I was inspired by a
    speaker who described how important ATP was to developing his
    nanocompany. And that is exactly were ATP should be in that
    early phase, where it is hard for the companies to obtain
    funding and too risky for venture capitalists to invest.
        And I would want to stress here that this is not an either/
    or. We need the basic research. We need the applied research
    that often comes out of the military. We need other programs
    like SBIR that are designed to encourage this. And we need ATP.
    Asking which one is more important is like asking which rung in
    the ladder do you think you need. You need all the rungs on the
    ladder. That is how you get there. You may be able to skip one,
    but it gets very hard to skip two.
        Senator Carper. Dr. Wessner, my staff tells me that the
    percentage of funds that are invested in larger firms, you
    mentioned GE, General Motors, and others, that the percentage
    of funds going to large firms like that has declined over time
    and that now the percentage of monies that are going to smaller
    firms is closer to 75 or 80 percent. Is there any truth to that
    or is that a bold-faced lie?
        Dr. Wessner. No, that is absolutely true, sir. It has gone
    up sharply. In fact, to illustrate the power of the synergies
    of working with large and small firms, thanks to an ATP grant
    GE and a small company were able to develop a new digitalized
    breast imaging that has offered serious health advantages to
    women and to the society.
        Very briefly, the advantages are not that it is better than
    what a very experienced doctor can do, but it is better than
    what the average doctor can do. Because it is digitalized, you
    can get a second opinion easily. It has fewer false positives,
    which has enormous consequences. My understanding is that
    biopsies are running in the $20,000 to $25,000 range. So not
    having false positives that result in unnecessary biopsies, not
    to mention the terror imposed on the woman, is a major gain for
    society.
        And because it was with GE, imagine if the company just did
    it alone. Here is Joe New Company----
        Senator Carper. Dr. Wessner, I am going to ask you to wrap
    up.
        Dr. Wessner. My point is that by working with GE they were
    able to extend this across the Nation, lower the cost, and get
    it out to areas where there is less coverage. So it is working
    with poorer people and more geographically thinly populated
    areas. It is a positive sum that was only possible by the
    double combination.
        Senator Carper. Thank you. Thanks, Mr. Chairman.
        Senator Coburn. I would just make one comment. GE has
    digitalized every area, every radiographic area, that they work
    in. This had no impact in terms of doing it. Because GE would
    have spent the money to do that anyway.
        The cost on a biopsy is about $4,000, not $25,000, and
    digitalization has been taking place in the radiographic
    industry for years with the plan that everything would become
    digitalized. And the fact that a company that spends $5 billion
    a year on its research needs ATP to accomplish this one goal is
    a way of supporting a small company, I would grant you. But in
    an environment when we have $622 billion that we are going to
    spend, over $22,000 per man, woman and child, that we do not
    have the money for today, to say that ATP is responsible for
    that and extrapolate it out is not good science.
        That is an anecdotal observation that would not have
    happened had you all not been there. And I would tell you that
    in every other area of contrast radiography, CTs and everything
    else have been completely digitized. That would have happened
    anyway. They were going to spend the money on it because they
    had to spend the money on it to get it to the point it needed
    to be so that all x-ray technology can be digitalized. And it
    is all digitalized today.
        They all read them from home at night or in the afternoon,
    sipping tea.
        Senator Lieberman, welcome.

                 OPENING STATEMENT OF SENATOR LIEBERMAN

        Senator Lieberman. Thanks, Mr. Chairman. thanks for your
    kindness to me. We ought to get together and sip a little tea.
        Senator Coburn. And read an x-ray or two.
        Senator Lieberman. Yes, read an x-ray or two.
        I thank you for calling the hearing. I am an unabashed
    admirer of ATP, so I disagree with respect.
        There is no question about the overall point that Mr. Riedl
    spoke to, which is that we have an imbalance between our
    revenues and expenditures in the Federal Government that we
    have to work to close. But I would not start here.
        Last time I looked, I think this was about $140 million or
    $150 million a year out of a budget now of $2.7 trillion. And I
    think this has a multiplier effect that is powerful for our
    economy.
        It is also in the best tradition of public/private
    partnerships that have made the United States the world's
    technological and economic leader. We have to continue to do
    that if we want to stay there.
        Our history actually shows that from the telegraph to the
    Internet, from the automobile to the airplane, it really was
    Federal support and investment that helped bring those products
    to the market to spur commercial and consumer demand, and to
    create jobs.
        One that I love is that when Samuel Morse sat in the
    Supreme Court building in 1844 and typed out that history
    telegraph message, ``what hath God wrought,'' he was doing it
    in a demonstration fully funded by Congress, less of a
    multiplier effect, I guess, in dollars, than what we are
    talking about. This is the spirit of ATP, which has nurtured
    the kind of breakthroughs that Dr. Wessner has talked about.
        The numbers I have say that overall ATP has invested $2
    billion in nearly 800 projects, helping attract another $2.1
    billion in private investment. And that the current portfolio
    of ATP investments is expected to return at least $17 billion
    in benefits to the American people, which I think is a really
    good return.
        Senator Carper made the point that I wanted to make, that
    the vast majority of these ATP investments go to small
    businesses. There was some earlier inclination to try to
    involve some of the larger businesses cited and to try to push
    them into collaboration with the smaller businesses. But that
    has receded now.
        To me, ATP is a success story that has earned our continued
    support, particularly at a time when we are facing competition
    from abroad exactly in this area. I cite a few countries,
    Sweden, Finland, Israel, Japan, and South Korea each spend more
    on research and development as a share of GDP than we do in the
    United States. That is a bad sign.
        Also, today foreign-owned companies and foreign-born
    inventors account for nearly half of U.S. patents. Of the 25
    most competitive IT companies, only 6 are based in the United
    States and 14 are based in Asia. By the end of 2005, there are
    going to be 59 advanced semiconductor fabrication plants
    worldwide and this industry, which was essentially founded in
    the United States, only 16 of those 59 are going to be based in
    the United States.
        So we have got a problem here and I think de-funding ATP
    would really be withdrawing from the field and could mean
    losing economy changing new technologies to foreign countries,
    to innovators who could not finance their research and
    development efforts here.
        The point is this, that we are living in an age of
    technological advances at very high speed. The famous fable
    aside, in this case, in this global economy and technological
    world, the hare will always beat the tortoise. There are a lot
    of hares waiting to get out of their cages but cannot unless
    they receive the kind of support that ATP gives that they
    cannot find from the venture capital community.
        So I really hope that we will sustain this organization.
        I want to just ask one question and not indulge on your
    goodness in giving me time. Dr. Wessner, I wanted to ask you
    this, if you could think about and speak to what other public
    or private entities would be available to accomplish the goals
    of ATP if ATP were eliminated? In other words what are we at
    risk of losing?
        Dr. Wessner. Thank you, Senator. At least, I think I thank
    you. That is actually an interesting, which is to say a
    difficult, question. I think the short answer is twofold.
    First, there is not a program like ATP. You would open up a gap
    in the innovation system. And I think over time there would be
    a loss for the U.S. economy and for our competitiveness.
        I am not, by any means sir, predicting immediate disaster.
    That would be unwarranted. I would argue that there would be
    things that we would lose out on having funded here and lose
    out on having those benefits and technological----
        Senator Lieberman. If I hear you correctly now and in your
    earlier statement, what we are talking about here is that point
    between the breakthrough discovery and commercialization where
    venture capital often does not tread, which I have heard some
    people refer to as the valley of death in the innovation cycle.
        Dr. Wessner. Yes, absolutely. And the program is uniquely
    designed to address the valley of death. And something that has
    impressed us in the course of the Academy study, and we do not
    say this about some of the other programs we are looking at, is
    that the program has developed exceptional expertise in
    evaluating these applications and in processing them. I think
    that some of the difficulties they have about knowing whether
    or not other research is going on is to be expected. That is
    true in the venture community. That is true in the banking
    community, as well. This is not unusual.
        But they do have valuable institutional knowledge. There is
    a substantial body of work about the importance of what
    economists call intermediating institutions. Between the very
    powerful, and very positive, private marketplace, which
    characterizes the U.S. economy, and the sunken costs of the
    basic research that we carry out, these intermediate
    institutions act as a bridge across that valley of death. In
    short, ATP would be very hard to replace. The accumulated
    expertise is invaluable.
        And could I suggest, sir, that there are two areas of
    application. One is on the health care side where, when we held
    our first meeting on this, senior officials from the National
    Cancer Institute argued that this program could be very helpful
    to them in capitalizing on the increased R&D investments. And
    second, we are coming out shortly with a report that stresses
    the importance of public/private partnerships in developing new
    technologies against terrorism. The fight against terrorism is
    exactly the type of area where you want to bring new
    technologies and products forward faster than the market alone
    would.
        The fact that ATP already has helped in some important
    areas of the war on terror is important.
        Senator Lieberman. Thank you. Thanks, doctor. Thanks, Mr.
    Chairman.
        Senator Coburn. Senator Lieberman, I would like to just put
    in the record to note that according to the testimony we had,
    the written testimony, the U.S. market share of high technology
    from 1988 until 2004 has remained exactly the same at 31
    percent. I, like you, worry about how we are going to compete
    in terms of globalization. But I am also concerned that the
    economics of production favor production outside of this
    country. And to the point that we are facing today, it is
    starting to support the research outside of this country. I
    think that is a valid point.
        I wanted to clarify that the hearing today is not about
    whether research is important to us. The hearing is about are
    there other ways to do it? And are there other ways to spend
    the money? And contrast that with the effectiveness of what we
    are seeing today versus maybe spending that money in other
    areas.
        We spend a ton of money through NIH and through the
    National Science Institute. It is not a question of decreasing
    the research. It is a question of is there a better way to
    spend the money to get more bang for the buck?
        Senator Lieberman. Mr. Chairman, I would just respond
    briefly. Of course, I believe that this ATP does fill a space
    in the apparatus uniquely that is not filled elsewhere. But I
    agree with the two other things you said very strongly, which
    is the real danger now, you are right, we have lost jobs for
    economic factors, basically that people can get things done
    more cheaply elsewhere in the world.
        The danger now is exactly what you have said, which is that
    we will lose the research and development base of our country
    abroad, including the research and development base of American
    companies, because now they can find highly skilled, highly
    educated workers abroad who are still working for much less in
    comparable here. That means we are going to lose the engine of
    innovation which drives the new jobs.
        The other thing, and this is a topic for a separate
    conversation between me and you, but particularly in the health
    area I have been talking to people and trying to put some
    legislation together, and I am going to give you a call and sit
    down with you, aimed at--I am focusing now for a moment on
    NIH--on making sure that we get more from what we are investing
    there and that we develop systems for--and here is the big term
    that I have learned in the last few months, Mr. Chairman--
    translational research.
        That we figure out a way, as I put it in lay language, to
    take the clinical breakthroughs and move them more rapidly to
    the bedside, to the doctor's office, to the medicine chest.
    That is a real gap that is not being filled now. Thank you.
        Senator Coburn. Senator Levin.

                   OPENING STATEMETN OF SENATOR LEVIN

        Senator Levin. Thank you, Mr. Chairman. I was really
    intrigued, Mr. Riedl, when you made reference to that waitress
    in Flint. I have talked to a lot of waitresses in Flint. And
    they are deeply concerned about 2.7 million lost manufacturing
    jobs in this country the last 4 years. And ATP is one of the
    few programs that we have which is directly aimed at trying to
    see if we cannot have some future manufacturing jobs in America
    where the government is actively involved in supporting
    technologies which might otherwise not be supported.
        Would they otherwise be supported? That is the question
    that we can argue over. But we have got some good evidence on
    that from people who are right there on the front line. We have
    a lot of folks who have received these grants who have said
    that but for these ATP grants, they would not have produced the
    technology. That is pretty direct evidence. There are a lot of
    people who have said this.
        Here is a letter from RAPT Industries in Freeport,
    Pennsylvania.\1\ ``My company, RAPT Industries, was the
    recipient of an ATP award from 2003 to 2005. RAPT is developing
    a revolutionary new process for manufacturing precision optics.
    ATP has played a critical role in our success, funding our
    technology development when NO OTHER source of commercial
    funding was available.''
    ---------------------------------------------------------------------------
        \1\ Letter from Dr. Peter Fiske, Co-founder--RAFT Industries, Inc.,
    dated May 20, 2005, to Senators Carper and Levin appears in the
    Appendix on page 183.
    ---------------------------------------------------------------------------
        So it is kind of easy for us to talk about theory, and we
    do a lot of that. But there are an awful lot of folks out there
    who have received these grant awards, who have said to us that
    but for that support they would not have been successful and
    that they could not have produced what they produced. And what
    they produced has been a success.
        So I am willing to put an awful lot of stock in those
    stories that we receive from people who have actually been
    recipients of these grants.
        I am also deeply concerned about what other countries do,
    compared to what we do. I am talking here governments. We look
    at worldwide government funding for nanotechnology. Japan spent
    $800 million in 2003 compared to our $774 million. We used to
    spend more than Japan on nanotechnology, by the way. They have
    now caught us and overtaken us.
        I think that there is a philosophical issue here in terms
    of the role of government. You just described this as
    government picking winners and losers and that is it for you.
    We pick winners and losers all the time.
        In energy we pick winners and losers. We decide we are
    going to provide this kind of tax credit for this kind of
    energy development or oil exploration. We are going to supply
    this kind of tax credit for biotechnology. We are going to
    produce Ethanol. I guess the credits for Ethanol is picking a
    winner or loser is it not?
        Mr. Riedl. Not one that we support, either.
        Senator Levin. That is exactly my point, that there is a
    real philosophical issue here. This is not just a question of
    whether or not this specific program has produced more than it
    has invested, and I will get to those numbers in a minute.
        But there is a philosophical issue, a philosophical
    backdrop to your testimony here, which has to do with the role
    of government and just how active do we want our government to
    be in terms of giving incentives or in terms of giving the kind
    of support that some public policy would suggest we ought to
    support, whether it is energy production or whether it is
    putting in energy saving windows. We decided at one point we
    were going to give tax credits to people who will put in energy
    saving windows as a matter of public policy. There were a lot
    of folks who asked what are we doing that for? They said let
    the market decide that.
        We decided well, if you let the market decide that we may
    stay on the same course that we are on relative to energy,
    which is a huge deficit in energy. So we cannot just let the
    market work its will or else we are not going to do things that
    we need to do in energy conservation. We are not going to do
    the things we need to do in global warming. Do we want to let
    the market do what it wants to do in global warming? Or is
    there a public policy that is telling us hey, if you keep going
    down that road, we are going to pay a heavy price. You cannot
    just let the market play out and have its will on everything.
        That does not mean you do not believe in the market. It
    just means you believe in a government role as well. I think
    there is a difference here, a significant difference in
    emphasis, that lies behind your testimony than lies behind Dr.
    Wessner's testimony.
        Now in terms of what this produces, what does the ATP
    program produce? There is a report from the Department of
    Commerce. It is the 2004 Report on Economic Progress measuring
    the impact of the Advanced Technology Program. It is a
    Department of Commerce publication. It says the following:
    Returns for the American people as measured from 41 of the 736
    projects, which is just 6 percent of the portfolio, have
    exceeded $17 billion in economic benefits, more than eight
    times the amount invested by ATP. Resulting technologies have
    been delivered to the Nation in new or improved industrial
    processes, products and services ranging from more efficient
    energy sources to improved medical tests.
        I would ask that the report be made part of the record. It
    may have already been made part of the record.\1\
    ---------------------------------------------------------------------------
        \1\ The 2004 Report on Economic Progress submitted for the Record
    appears in the Appendix on page 125.
    ---------------------------------------------------------------------------
        Senator Coburn. Without objection.
        Senator Levin, are you aware of how that $17 billion number
    came into existence?
        Senator Levin. No.
        Senator Coburn. Could we have somebody address that, if
    anybody would care to on the panel, the $17 billion number?
        Let me give you the history of how it came about. There was
    a survey asked by ATP about what do you think the economic
    benefit is of your product. There was no scientific study.
    There was no actual econometric measurement. That was a
    response to a question by ATP of what they thought it was. And
    it has no connection with what reality is because it is a
    thought. It is not a measured response, in terms of economic
    return.
        So we really do not know whether that is a true statement
    or not. It may actually be much higher. But it was on the basis
    of a poll of the ATP awardees that asked them about the
    potential value of that project.
        Senator Levin. I think it could be off but it could be
    accurate. It is the best evidence we have, though.
        Senator Coburn. But from a scientific standpoint, Senator
    Levin, if we are going to make decisions based on total guesses
    on the ATP, and that is what we are doing. There is no
    econometric model that is measuring that.
        And maybe that is something we should do if we continue
    ATP.
        The other thing that I was thinking as you were talking is
    why should the government not have some ownership associated
    with this investment, as we do in a lot of drugs and a lot of
    other money that we fund? Why should the government not get a
    return for that risk? Should there not be a way of sourcing the
    Federal Government back for the risk that it is taking, the
    American taxpayers, in terms of putting this money out there?
        This may very well be a true number. I just would tell you,
    as looking at how the number came about, it is hard to know
    whether it is a real number or not.
        Senator Levin. Let me just read something, and I thank you
    for that. I think it is the best evidence we have, even though
    it comes from the people who received the grants, is what you
    are saying, the people who actually were in the program. I will
    give them a presumption that they are telling the truth. I
    think there is the presumption that they are giving us on an
    honest estimate.
        But in any event, let me just read this one piece and I
    think my time is up. ATP's Economic Assessment Office,
    according to this piece of paper I am reading, and maybe we can
    ask the witnesses if they know if this is accurate. But ATP's
    Economic Assessment Office uses statistical analyses, case
    studies, economic and econometric analyses, surveys and other
    methodological approaches to measure program effectiveness and
    return to taxpayers.
        I do not know where this came from so I cannot tell you
    that this is accurate but I have to assume it is, since my
    staff gave it to me. They always give me accurate information.
        But according to this, the Economic Assessment Office at
    ATP does use econometric analyses. So we ought to find out just
    what is the basis from them, since they are not witnesses here
    today--I wish they were. But in any event, perhaps we could ask
    them what is the basis for that $17 billion.
        Senator Coburn. Absolutely. That is a fair question. And
    actually, without objection, we will ask that question of ATP.
        Senator Levin. That would be great. Thank you, Mr.
    Chairman, my time is up.
        Senator Coburn. You are welcome to continue if you would
    like.
        Dr. Wessner. Senator, may I make a small comment?
        Senator Coburn. Absolutely. Please do.
        Dr. Wessner. Let we say that I admire your skepticism about
    numbers in the evaluation process. I think that is often most
    warranted, and I mean that very sincerely.
        What I can affirm is that our multi-hundred page study here
    looked very carefully at their assessment program. And our
    view, a view of independent economists not attached to the
    program, is that it had the greatest rigor of any comparable
    program.
        Senator Coburn. In the Federal Government?
        Dr. Wessner. Yes, in the Federal Government. Now that may
    not be a high standard.
        Senator Coburn. That is a low standard. I want you to know,
    that is a very low standard.
        Dr. Wessner. Given, Senator, that I said compared to what?
    They do way better than most.
        Second, could I draw to your attention, and I do not want
    to read it at any length, but on page 208 we have a paper by
    two independent economists. They concluded--and I will be very
    brief here, Senator--that ATP is selecting projects and firms
    that have greater potential for increasing the circulation of
    new knowledge and for having the business connection necessary
    to realize economic benefits from its activities.
        I am jumping ahead. We provide evidence that the investment
    community values the ATP award. Among firms that seek
    additional funding, we find that ATP award winners are more
    successful than non-winners.
        Now I am very attached to the private markets, and what I
    find validating for ATP is that after they have made those
    awards the companies get this halo effect, this certification
    effect, where the private investors are attracted to them.
        Senator Coburn. So what you are saying, there is value to
    recognition by ATP through a grant that allows them better
    access to more marketable money?
        Dr. Wessner. It generates better recognition--because the
    investment community recognizes that the selection criteria are
    tough. Remember only 12 percent of the firms are selected. In
    that regard, that is why I reject this idea that ATP is
    corporate welfare. Corporate welfare, as you know, is an
    entitlement for a class of people or firms--but only 12 percent
    of the ATP applicants receive an award. Thus an ATP award is
    much more akin to getting a scholarship. It is very competitive
    and you have to be good to get it.
        Senator Coburn. Thank you. Ms. Nazzaro.
        Ms. Nazzaro. If I may comment, one comment that Dr. Wessner
    made was that the individuals that were doing these reviews
    were not affiliated with the Department of Commerce. You may
    want to include that as a question for the agency because we
    have found in the past that these reviewers are, in fact, paid
    by the Department of Commerce to do these studies. While we did
    not review the 2004 study, we have reviewed earlier studies and
    have found that some of the economic assumptions that are made
    have been flawed.
        For example, in one case they had cited an example with the
    printed wiring board effort that they had funded. And they had
    extrapolated that that influence went to the entire industry.
    Well, the industry at the time had 800 members. So there was no
    way that one project had that kind of an impact across the
    whole industry, if you will.
        Granted, what they had done was good research. However, you
    could not make that kind of an extrapolation.
        Senator Coburn. I think it is also fair to note, if you are
    a stockholder in a major corporation, you are thrilled to get
    an ATP grant. That is return on your money. There is no
    investment, there is no risk on this money.
        I want to ask a question if I might. One of my concerns
    with ATP is this is supposedly grant money from people who
    cannot get money somewhere else. Is that true? Is that the way
    the project is supposed to be set up? In other words, the
    design behind the ATP program was that this was going to supply
    a need where capital was not available for research in the
    private sector?
        Ms. Nazzaro. Just one caveat to that is that it would not
    be funding existing or planned research that would be conducted
    in the same time period, in the absence of ATP.
        Senator Coburn. So there is two points. First, the GAO
    study found that 63 percent of the people who actually got
    grants never asked for money and never applied for any money in
    the private sector? Is that a true statement?
        Ms. Nazzaro. Correct. That was in our 1995 study.
        Senator Coburn. And second, there was no knowledge on the
    part of ATP in granting that whether or not there was any other
    research being done in any of the private sector. Is that a
    true statement, as well?
        Ms. Nazzaro. At that time, yes.
        Senator Coburn. Is that not true now? Has ATP responded to
    that criticism? Do we see something different now?
        Ms. Nazzaro. Yes, in response to that report that we did in
    1995, when we did bring them to task, if you will, on the fact
    that they were not aware of whether these individuals had
    applied for funding other places, they do now ask that question
    of whether they have. As to what weight that bears in their
    final determination, I am not aware of.
        Senator Coburn. My staff tells me having not sought private
    funding today is still not a disqualifying factor.
        Ms. Nazzaro. As I said, I do not know what the implication
    is but they do ask the question.
        Senator Coburn. Mr. Riedl, did you want to say something?
        Mr. Riedl. On that, that is exactly the same research that
    we have seen, that 63 percent never sought private funding that
    apply, 65 percent of the winners never sought private funding,
    and 56 percent of the near-winners never sought private
    funding.
        Again, of those who said it was the financier of last
    resort who just came up short, half of them miraculously found
    funding after they were rejected. Most of the other half who
    did not never looked. These are people who never looked before
    and never looked after. They decided that we are only going to
    keep playing the ATP lottery year after year.
        So for the most part, the argument that we need these
    grants because we need this technology to keep up with other
    countries is tough to sustain when data shows that those who do
    not get the grants or who look are able to get funding
    elsewhere. What that shows is that we are subsidizing existing
    research. Despite the best of intentions to create new
    research, it does not do that.
        The point also that I want to make on that is, in terms of
    the broad argument about how we need to fund technology and how
    important it is, total Federal R&D spending, according to OMB,
    has jumped 53 percent since 2001 to $122 billion. ATP
    represents 0.1 percent of the Federal R&D budget.
        So we are not talking about totally taking five steps back,
    in terms of Federal R&D spending. We are talking about the
    small sliver, 0.1 percent, that really has an abysmal track
    record. And that could be shifted into, say, the NSF or the NIH
    or something else where you do not see evidence that you merely
    be subsidizing existing research.
        The final quick point that I wanted to make was regarding
    the argument that ATP creates $17 billion in new value, again
    that $17 billion number is only relevant if you assume that
    none of those ATP grants would have been funded by the private
    sector. If ATP projects create $17 billion but you assume that
    most of those projects would have been funded anyway and then
    you would say the private sector would have created $17 billion
    in new growth for the economy other than the ATP.
        And if it is important to have the ATP's endorsement in
    order to attract more seed funding, I would be happy to have
    ATP slap a sticker on certain projects, saying the Department
    of Commerce thinks this is a really good project so other
    investors go for it, without necessarily giving them the grant.
    If the grant is not the best thing, just the endorsement, give
    them the endorsement.
        Senator Coburn. Let us go back to those people who do not
    get grants from ATP. What percentage of the people who do not
    get grants, who apply for grants but do not get grants from
    ATP, get funded in the private sector?
        Mr. Riedl. The only surveys that I have seen only look at
    the near-winners, the people who came up really close. Half of
    them find private funding after, is the number that I have
    seen. And again, of the half that do not, that overwhelmingly
    correlates with those who do not look for private sector
    funding afterwards. So among those who look, the vast majority
    find private sector funding.
        Ms. Nazzaro. Our numbers support that statement, that half
    of the near-winners continued their projects without relying on
    ATP funding.
        Another important note is that seven applicants in our
    study turned down offers from the private sector because they
    could not reach an acceptable funding arrangement.
        Senator Coburn. In other words, they went ahead anyhow but
    they did want the private sector because they did want to give
    as much of a percentage of ownership should they have been
    successful? Was that the implication?
        Ms. Nazzaro. That was why they came to ATP, because they
    had actually sought funding but turned down offers from the
    private sector.
        Senator Coburn. Dr. Wessner if, in fact, the Federal
    Government continues ATP and does it in a way to where the
    Federal Government gets a revenue stream off of it, and if your
    numbers are correct, in 2 or 3 years we can fund more than $125
    million just off the earnings potential of the research that
    you are doing. Why would we not want to make this an
    investment, rather than a grant, and saying that we are a
    participant, just like our universities are on drugs and other
    patents and other patents. Why would we not want to turn ATP
    into that type of a vehicle?
        And if it is really getting a $17.2 billion return on $125
    million, why would we not want to grow that in a private
    investment mechanism and endow it?
        On the things we fail to do in Washington is to endow
    things. That is why we are struggling with Social Security. We
    are struggling with Medicare. We are struggling with them
    because we do not save in advance. We do not prepare for the
    future.
        I would just love your thoughts. What about sharing--what
    is wrong with the American taxpayer, who has now put over $2
    billion into this program and gotten what looks like a 900
    percent return to the economy over the life of the program,
    what would be wrong with the American taxpayer sharing enough
    to continue the program?
        Dr. Wessner. Thank you, sir. We have analyzed a number of
    other programs and are in regular dialogue and consultation
    with countries around the world who have similar programs. The
    European Union, because of their suspicion of the private
    sector, is always trying to have recoupment mechanisms. And
    Senator, there is strong support from lawyers and accountants
    to do recoupment programs from which they would profit.
        The difficulty is that it is very hard to calculate the
    exact benefit that results from any particular grant or any
    particular project. CEOs generally think it is thanks to their
    leadership and vision that the company goes on to have major
    sales. The technical staff generally think it is because of
    their competence and skill. The government likes to claim----
        Senator Coburn. But that is an intermediary problem. That
    is negotiated every day in the private sector. I am going to
    give you $50,000, here is what I am going to expect if we are
    successful and we have a patentable and marketable product.
    Here is the share of the return and here is the share of the
    gross sales.
        Dr. Wessner. We think the government already is a partner.
    The government is a partner because if the company is in
    existence and paying salaries, we tax them. If the company is
    making any money, we tax that revenue, as we should. It is a
    much cleaner, simpler system.
        Senator Coburn. Except for everybody that is not getting an
    ATP grant, they are not getting the money and they are getting
    taxed as well.
        Dr. Wessner. It is a competitive program, sir. Not
    everybody gets a scholarship
        Second, if I could go on, we are drawing our figures from
    this analysis, which is publicly available both on the Web and
    we have them here. Some of these claims, leaving aside my GAO
    colleague, I do not recognize where they come from. I would
    like to say, in a friendly but very sincere fashion, that this
    is a serious topic. And making unsubstantiated claims that the
    private sector would have done it anyhow, as one of my
    colleagues here has done, is simply not acceptable analysis.
    There is no documentation for that. Our figures do not support
    that assertion of the same high number of companies being
    funded anyhow.
        Senator Coburn. What do your numbers show, in terms of----
        Dr. Wessner. Seventy percent do not go on at all or at the
    same level.
        Senator Coburn. How many go on, at any level, that are
    turned down by ATP?
        Dr. Wessner. Thirty percent, if my memory serves me.
        Senator Coburn. At any level?
        Dr. Wessner. At any level. But I would be happy to get back
    to you for that and we can actually document this for the
    record in a serious fashion.
        Senator Coburn. So 70 percent of the people who do not get
    an ATP scholarship do not continue their research?
        Dr. Wessner. In that area, of course.
        Senator Coburn. In that area. Nobody picks it up, it does
    not continue. And you all have looked at the studies to see
    whether that has been picked up by the private sector?
        Dr. Wessner. My understanding is that the figure is 70
    percent either not at all or not at the same level. These
    things are measured in some nuance, Senator. It is difficult to
    ascertain if it is a major program or does the company just
    have one engineer working on it?
        One of the points I raised earlier, and as Senator
    Lieberman suggested, is that it is important to dialogue about
    this because the hurdle rates and the development process
    within a firm are hard to understand. Asking a CEO what he is
    going to do in a particular area, how many resources he is
    going to put in, what is the potential, can management justify
    the investment compared to alternatives, is difficult. In the
    best of circumstances, this is all very tough to learn even
    without any Federal award at all.
        What we have seen is that the Federal awards have a
    catalytic effect that tend to provide internal justification
    for investment and also attract external investment. The awards
    help get something done.
        Occasionally, a researcher can come in from the R&D unit
    and say ``look, we just got this ATP award and we want to go
    forward with this.'' And the CEO who had turned down the
    project earlier will say ``OK, let's go for it. There may be a
    market there, and this will provide me with some reputational
    benefits which will enable us to go ahead.''
        And again may I put a nuance here? We are not saying that
    the early-stage financing system in the United States would not
    work in the absence of ATP. That would be absurd. But to say
    that this program adds value is true. Also, what I liked was
    your opening remark, ``Is it a quality program?'' Yes, it is
    both internationally and nationally, a quality program. In
    fact, it is one of the best we have.
        Is there an impact? Yes, and they have made a real
    determined--not perfect but determined--effort to measure it
    much better than others.
        Is there a significant benefit? Yes. Have I associated the
    Academies' work with that $17 billion return number? No, sir, I
    have not.
        Senator Coburn. The problem is, and maybe it is our
    measurement. But if you use the PART program that we are trying
    to use in the Federal Government to assess whether programs are
    successful, whether they have a measurable end point, can you
    mention the benefit, do you have defined objectives, it does
    not meet it. And that is why it was on the President's list.
        And the whole purpose of this hearing is to see is if that
    is legitimate?
        Let me just stop for a minute and I want to raise the
    level. Every man, woman, and child in this country right now
    owes $36,000 on the Federal Government's debt. The interest on
    that is $1,800 this year. Plus we are going to add another
    $2,200 associated with the budget deficit, the real budget
    deficit, this year. Plus we are going to add another $1,100 in
    Social Security increased liability and we are going to add
    another $2,600 this year to everybody in this country in terms
    of Medicare unfunded liability.
        So we are either going to start making the tough decisions
    about what is good for us and what is not and it may be that
    ATP is a great program. But should we be spending the money on
    that great program when there are other great programs that we
    could? And can we continue to spend $125 million or $135
    million on ATP program when what it is doing is actually
    cutting the legs out from underneath the children of the next
    two generations because they are going to have a reduced
    standard of living?
        So it is not about priorities. That is where we have to get
    to. And I recognize and I will tell you, and I think your
    performance and your demonstration and defense--I read your
    testimony, it is an excellent defense of this program. And I
    think it is done very well. But I also think that there are
    still questions that need to be answered with this program.
        One of them is on this slide. The fact that there is no
    status on programs from 1992, 1994, 1997. The fact that we do
    not know the status? That is a problem in itself.
        But again, let us look at it macro. What should we do as a
    country, now that we are almost $8 trillion in debt on the
    regular budget, that we have $43 trillion in unfunded
    liabilities for the baby boomers, that is my generation and
    maybe a few of you sitting out there. And we are going to ask
    our children to pay for it. So it becomes a matter of priority.
        Which is the best programs that we should fund? What should
    we fund first, second, third, fourth, and fifth.
        If we were in surplus, I probably would not even be having
    this hearing because there has been marked improvement in the
    ATP program since 1996. They have markedly changed. They have
    changed the amount of money that goes to small businesses and
    taken a lot more away from it.
        But that is not what the issue is. The issue is: Can we
    afford to have a program when we are having the kind of deficit
    and problems that we are having today? And is it, looking at
    the next two generations, in the priorities of where we should
    be spending our time today?
        I believe that we can justify most of the Federal
    Government programs that we have. I think most of them are
    well-intentioned, well-meaning, the thought behind them, the
    people that created them, the people that work in them are
    well-intentioned. But when we put all that together and then we
    say our grandkids are not going to be able to afford a college
    education--it is not going to matter whether we send technology
    oversees. We are not even going to be able to afford a college
    education for them as we struggle with this unfunded liability
    that is in front of us.
        So we need to have a critical look, not emotional but a
    critical look, at everything this government is doing and say
    which is the most important priorities. And if you look at the
    numbers that are happening to us and what the projections are,
    we cannot grow our way out of it.
        So the answer then has to come back as where do we squeeze?
    Now we could do what I have offered several times. Let us cut
    everything 5 percent. We could make it. If we cut ATP 5 percent
    and everybody else 5 percent, we could make it. We know we
    could do that. But we do not have the political will to do
    that. We do not have the political will to send that signal to
    the international financial markets, which is our biggest
    problem today.
        So I do not want you to take this personally, I do not want
    the people at ATP to take this personally. This is about a
    good, open, honest evaluation, not is it good. But is it good
    enough to continue spending the money on that is going to
    undercut the future of this country? Because this money is
    borrowed. On 30-year notes we are paying 4 percent on it and it
    is going to be compounded every year. So by the time you really
    start compounding, you get a lot of money.
        What is our obligation? Is it to make the easy choices now
    and fund ATP so that everybody at home is happy and the people
    who run ATP are happy? Or is it to make the hard long-term
    choices that are best for this country? How do we best secure
    the future?
        And that is my consideration. Ms. Nazzaro.
        Ms. Nazzaro. Dr. Wessner points to some of the studies that
    we have done. In our most recent study, where we looked at
    three projects, our concern was to look at whether this is
    research that the private sector would have funded. In those
    three projects we identified that they were funding projects
    that were similar to the same goals that the private sector
    would have funded.
        In their agency comments, the Department of Commerce came
    back and said if we had looked at all 199 projects that were
    funded at that time, we would have reached the same conclusion.
    So they concurred that we were not trying to pick examples
    hopefully to make a best case.
        Senator Coburn. So Department of Commerce readily admits
    that they are funding things that would have been funded in the
    private sector?
        Ms. Nazzaro. In the comments to our report, first they
    said, we presumably picked these three projects with the intent
    to make a particular point. We said we did not. We picked three
    technology areas. Those technology areas represented almost 70
    percent of the projects that had been funded by the program.
        Initially, we intended to look at nine case studies. But
    when we realized how labor-intensive it was to do an adequate
    and thorough job, we cut that back to three to make sure that
    we were really researching to make sure that these projects
    were, in fact, similar research goals.
        And when they came back and commented on our report, they
    said if we had looked at all 199 projects that they had funded
    to date, we would have reached that same conclusion.
        Senator Coburn. Thank you. Mr. Riedl, I think it is really
    fair for you to be able to reference your numbers. I think Dr.
    Wessner makes a great point. And I think if you do not have
    those numbers, you need to----
        Mr. Riedl. I do.
        Senator Coburn. I will give you an opportunity to do that.
        Mr. Riedl. The numbers that I had mentioned, specifically
    that the idea that ATP individuals who are near-winners could
    find funding in the private sector, is not just an economic
    theory that Heritage has pulled out of a hat. This is based off
    a survey through a GAO report that was reported in January
    1996, which I believe you have with you today.
        Senator Coburn. It is a part of the record.
        Mr. Riedl. That shows specifically that half of those near-
    winners reported finding private sector funding later. And the
    vast majority of those who did not find private sector funding
    later reported in a survey to GAO that they did not seek
    private sector funding.
        And furthermore, there is actually a report that was
    written by the National Institute of Science and Technology
    within the Department of Commerce in December 1996 that
    admitted that ATP funds projects which are the most profitable,
    the most ready for commercial success, and therefore the ones
    that the private sector would have most incentive to fund
    anyway. This is the Department of Commerce, itself, saying
    this.
        So I think there is some degree of universal agreement in
    most areas that there is a real economic issue regarding
    whether or not we are subsidizing existing research that would
    have happened anyway, or new research. The evidence seems to
    show whether it is a PART, GAO, or a Heritage's analysis, that
    we are probably subsidizing existing research.
        And while I do not want to quibble with the studies that
    are being quoted by Mr. Wessner, he did mention that one of the
    studies was led by Intel, a gentleman from Intel. And it is not
    uncommon for studies headed by the industry receiving
    government studies to show that the subsidies lead to the
    public good. That is not uncommon to see those conclusions.
        Senator Coburn. My observation is that there has been some
    pretty good improvement through what Dr. Wessner has given
    forward in his testimony versus 1996. And so I think our
    dependence is on that.
        But I think there is a valid point in what you say, Mr.
    Riedl because if, in fact, they want us to believe the $17
    billion survey but do not want us to believe the survey that
    says the opposite of that, you cannot use those same methods
    and come down.
        I think it is important for us to have a healthy look at
    it.
        Dr. Wessner, I am going to give you an opportunity to
    comment again because I want to make sure you get into the
    record what you want and rebut what you heard from Mr. Riedl if
    you want to.
        Dr. Wessner. Thank you. There are two things.
        One is there are perhaps three brief elements. The first I
    would like to express quietly a level of outrage about the most
    recent comment about Gordon Moore. As I am sure you know, sir,
    Gordon Moore was a founder of Intel. At the time of this study
    I think he was worth many billions of dollars. He is retired
    after a long, arducous, and successful career. Many of the
    medical instruments that you use are as a result of the
    advances that have gone on through Moore's Law. He is a
    distinguished person and has chaired the CalTech Board. The
    idea that we need to raise an ad hominem comment about a man
    who gave freely of his time in his retirement years to lead the
    study is repugnant in the extreme.
        I would point out that Gordon Moore was initially skeptical
    about ATP. He was skeptical that we should intervene in the
    market at all, although he recognized that the semiconductor
    consortium Sematech was not a bad idea, (and a successful one I
    would note). Indeed, Gordon Moore likes to point out that in
    the case of Sematech, the entire Federal contribution over the
    9 years is paid back quarterly by Intel in its taxes.
        His observation illustrates the point that as these
    partnerships to go forward, the gains that you are looking for
    are realized. Let me also stress that I am very sensitive to
    the deficit. My son is 19. He is taking economics, bless him.
    And he came down and said ``dad, how are we going to pay back
    this deficit?'' And I said ``who is we, paleface? This problem
    is yours.''
        Senator Coburn. But that is a very important point and let
    me make it just for a second. Never in the history of our
    country have we had one generation of Americans about to leave
    the next generation in such sad shape. Our heritage defies that
    we would do that.
        And so when we come to a $125 million program that may have
    some good, is there another $125 million program that has more
    good?
        In other words, it is not about everything is bad. It is
    not. Unfortunately, my frustration is we cannot get enough
    people up here thinking that way because we are not going to
    trip the deficit until we have a financial disaster in the
    international financial community. I am pretty well down to
    that. But that does not mean we should not try.
        And so the improvements that have been made in the ATP
    program are great, and it is not that we should not do
    research, and it is not that there are not good outcomes from
    some of that research. And it is not that everything that ATP
    does is wrong or less than perfect. It may be that 80 percent
    of it is right.
        The question is can we afford to continue to spend $125
    million in this area, versus should we cut $125 million out of
    Medicaid? Or should we reverse the Stark Law so that we allow
    medical technology to flow from hospitals to doctors so we
    decrease medical error?
        The point is that we have to make those decisions and it is
    incumbent upon us to start doing it pretty quickly or we are
    all going to be in a pretty good sized jam.
        I think your testimony, and your defense of where they are,
    demonstrates very well that there has been major improvements
    since 1996. Your testimony said that.
        Some of the anecdotal--and I have trouble with anecdotal
    stories because they do not mean anything scientifically, they
    do not mean anything mathematically, and they do not mean
    anything economically because they are an observation of what
    happened but do not compare what happened to what might have
    happened by chance or in the private sector.
        So when we try to make decisions for investment of Federal
    taxpayer money based on anecdotal observation, it is not good
    science. And we have enough junk science up here, and we
    certainly should not be using it with economics. We cannot make
    that decision.
        An example being digitalization of mammography. I will
    guarantee you as much as I take my next breath that that would
    have happened in the private sector without the first penny
    from ATP because it was happening everywhere and it had to
    happen if GE wanted to sell mammography units. They would have
    funded it had you not funded it.
        Dr. Wessner. Senator, first off, we at the Academies do not
    fund it. And I would be the last----
        Senator Coburn. I mean ATP.
        Dr. Wessner. I will be the first person to defer to your
    expertise in medical technologies. But I can give you, at the
    close of this session, the page number where Dr. Griffiths from
    GE made that argument.
        Senator Coburn. If you are from the private sector, you
    would make the argument every time. You do not have to spend
    the money. You did not have to spend the money, the Federal
    Government spent the money for you.
        Dr. Wessner. Actually, they had to spend a lot more money.
        Senator Coburn. But they got Federal Government money. If I
    got a grant and I said hey, I am successful with it, you guys
    did it.
        Dr. Wessner. I can only tell you what the interview found.
    We did not conduct the interview--it was done by a group of
    Harvard researchers--who found that GE basically did not think
    that there was any money in this technology, in this
    mammography system. And they were not willing to do it. The ATP
    award let the advocates of this new technology win the day
    inside.
        While recognizing the reality of a $2.7 trillion budget I
    would suggest that the real challenge, if I may venture,
    Senator, is that the difficult choice is to keep ATP.
        Senator Coburn. Maybe.
        Dr. Wessner. Because the tides are against it politically.
    The difficult choice is to say that the ATP program is actually
    seed corn. And the seed corn is what we need to plant.
        Senator Coburn. That is a great point.
        Dr. Wessner. Will every one sprout? No. But the chance that
    only a third of them do is, in fact, a very positive statement.
    And they can pay back--that is my point about Intel. They can
    pay back over time to help reduce this deficit.
        Senator Coburn. But we have to qualify. A third do but many
    of those would have anyway, according to the research that has
    been done about ATP. Because the private sector would have
    funded about half of them. And half of those who did not get
    funded would have gone on anyway.
        Dr. Wessner. I am running a team right now of about 16
    economists for an evaluation that the Congress mandated of the
    SBIR program. The hardest thing in the world, Senator, is to
    figure out what would have happened anyhow. The question is
    analogous to ``If you had not married your wife, who would you
    have married?'' ``If you had not gotten the scholarship, would
    you have gone to college?'' ``Where would you have gone to
    college?'' ``What would have happened?'' Those are darn
    difficult questions.
        Senator Coburn. Those are great points. But we do have
    testimony and there is a GAO report that says here is the
    facts.
        There has been improvement and I think you make a great
    point. The hard thing maybe to continue to fund ATP in those
    choices. You may be right. But what we have to do is really
    know what the return on it is.
        The other thing that I am a little bit disappointed in is
    everybody pays taxes that does research in this country that
    makes any income. They pay it on their employees and everything
    else. And I believe I see a way to fund ATP in the future. And
    it ought to be endowed by the money, the seed money it puts in.
    And it ought to get a return for the taxpayers.
        And if we continue ATP, then we ought to be figuring out a
    way for ATP to become self-funded. And if ATP is great, then
    let us self-fund it and let us let it grow. And let us let it
    get bigger.
        Dr. Wessner. We would be happy to study that for you, sir.
        Senator Coburn. I do not want to study it. I understand one
    thing. Greed conquers all technological difficulties. It does.
    The desire to advance, to advance oneself, will cause people to
    take risks that they would not have otherwise if they perceive
    that risk benefit reward. That is true in government. That is
    true in the private sector. That is true of senators and
    congressmen.
        And so my hope is that bringing this information forward
    today--actually, I have gotten a good viewpoint. I am
    enlightened somewhat. And I am much more positive about what
    the changes from ATP than what we saw in 1996. But that does
    not mean it should not change some more.
        The question is if it stays around, how should we modify
    it? How should we make it more effective? How should we make
    sure that the American taxpayers, if they are going to fund
    $125 million a year, of which half of it is probably going to
    have been funded anyway, how do they get a return on that? And
    how do we build an endowment so that endowment pays for that?
    Ms. Nazzaro.
        Ms. Nazzaro. Just in summary, we would like to also
    reiterate your opening remarks, that ATP has certainly been
    associated with a number of successes. And we have given them
    credit for encouraging joint ventures and economic growth.
        However, the discussion cannot be just about benefits. It
    has to be about costs.
        And you talked about whether there are other ways to do it?
    If half the projects now are going to small businesses, there
    is the $1 billion Small Business Innovation Research Program,
    as well as the Small Business Technology Transfer Program. We
    have seen that some of the applicants not only receive ATP
    funding but then go and get SBIR awards, as well.
        Senator Coburn. They know where the money is.
        Ms. Nazzaro. They know where the money is, that is right.
        Also, your discussion of payback. It is our understanding
    that the Act originally had a payback provision. And each year
    GAO does a report called the Budget Options Report. We have
    continuously made that recommendation, that for research, there
    should be a payback, particularly if it is large companies that
    are getting the money. There has to be a way that you can
    assess what the impact has been, whether you have been allowed
    to commercialize a product and you are now having sales or
    revenues, you should be able to pay back some of that money and
    make it a self-sustaining program.
        Senator Coburn. Dr. Wessner.
        Dr. Wessner. Just a quick observation. We are looking at
    the SBIR Program, as I mentioned.
        One of the things that is important to keep in mind--we
    refer to the active venture capital community, but the fall
    from $100 billion available in the year 2000 to just over $20
    billion now illustrates some of the unpredictability of venture
    markets. Both SBIR and ATP saw very rapid rise in applicants as
    the private sector--if you take a glance at this--as they moved
    farther upstream and away from this valley of death area.
        The last point, if I may, simply, for the record, sir,
    because it is an important one, regarding the statement by my
    colleague, whom I respect immensely, that NIST agreed with them
    on their 2000 report is not accurate. I would simply like to
    enter into the record the director at that time writing that he
    ``disagreed with both the methodology and the conclusions
    reached in this report.'' He writes that the implied argument
    in the GAO study is that the Federal Government should not fund
    research that shares the same overall goal as research funded
    outside the government. By that criterion, he notes, we would
    shut down Federal research on cures for cancer and AIDS and a
    host of other diseases, wireless communications, computing
    technologies and manufacturing. The fundamental error in this
    report is its failure to understand and address the central
    aspect----
        Senator Coburn. You can submit that for the record and we
    will include it in the record.\1\
    ---------------------------------------------------------------------------
        \1\ The GAO report appears in the Appendix on page 66.
    ---------------------------------------------------------------------------
        Dr. Wessner. My point is that they took strong issue.
        Senator Coburn. We will also include the letter from
    Appendix V, comments from the Department of Commerce, page 35,
    which states the opposite of that or a different opinion than
    that.\2\
    ---------------------------------------------------------------------------
        \2\ The letter appears in the Appendix on page 99.
    ---------------------------------------------------------------------------
        Let me also make one last note, and then we will adjourn
    the meeting. And I want to thank each of you for spending the
    time to come here. Thank you for your efforts and your service
    to the country and your efforts to make sure we make good
    decisions.
        When you talked about the other countries that, in fact,
    fund research through their government, what is their
    percentage deficit to their GDP?
        Dr. Wessner. Most of them just export to us, sir. They are
    doing pretty well.
        Senator Coburn. That is right. Most of them have surpluses.
    They do not have deficits. A big point.
        We could be in a lot of different things if we did not have
    a deficit, if we were in surplus. I might even earmark
    something for the first time in my political career, which I
    have never done.
        But the fact is we are not there. So in comparison, you to
    compare what our investment is as a percentage of our GDP and
    what our deficit is as a percentage of GDP as to whether or
    not--the fact is, we cannot grow out of it. It would be
    wonderful if we could, but we cannot.
        I would still make one point, we still have the highest
    growth in productivity of anybody in the world. We have the
    highest growth in productivity. And that is because we are
    working hard at doing it. And most of that is coming out of the
    private sector. It is not coming out of government-funded
    research. It is coming out of innovation and that concept I
    talked about before, greed conquers technologic difficulties.
    And we need to recognize that.
        I want to thank each of you for being here. A copy of the
    record will be made available to you. A copy of the record will
    stay open for any additional comments from any other Members of
    the Committee.
        Thank you very much and the hearing is adjourned.
        [Whereupon, at 4:09 p.m., the Subcommittee was adjourned.]

                                A P P E N D I X

                                  ----------

    [GRAPHIC] [TIFF OMITTED] T1826.001

    [GRAPHIC] [TIFF OMITTED] T1826.002

    [GRAPHIC] [TIFF OMITTED] T1826.003

    [GRAPHIC] [TIFF OMITTED] T1826.004

    [GRAPHIC] [TIFF OMITTED] T1826.005

    [GRAPHIC] [TIFF OMITTED] T1826.006

    [GRAPHIC] [TIFF OMITTED] T1826.007

    [GRAPHIC] [TIFF OMITTED] T1826.008

    [GRAPHIC] [TIFF OMITTED] T1826.009

    [GRAPHIC] [TIFF OMITTED] T1826.010

    [GRAPHIC] [TIFF OMITTED] T1826.011

    [GRAPHIC] [TIFF OMITTED] T1826.012

    [GRAPHIC] [TIFF OMITTED] T1826.013

    [GRAPHIC] [TIFF OMITTED] T1826.014

    [GRAPHIC] [TIFF OMITTED] T1826.015

    [GRAPHIC] [TIFF OMITTED] T1826.016

    [GRAPHIC] [TIFF OMITTED] T1826.017

    [GRAPHIC] [TIFF OMITTED] T1826.018

    [GRAPHIC] [TIFF OMITTED] T1826.019

    [GRAPHIC] [TIFF OMITTED] T1826.020

    [GRAPHIC] [TIFF OMITTED] T1826.021

    [GRAPHIC] [TIFF OMITTED] T1826.022

    [GRAPHIC] [TIFF OMITTED] T1826.023

    [GRAPHIC] [TIFF OMITTED] T1826.024

    [GRAPHIC] [TIFF OMITTED] T1826.025

    [GRAPHIC] [TIFF OMITTED] T1826.026

    [GRAPHIC] [TIFF OMITTED] T1826.027

    [GRAPHIC] [TIFF OMITTED] T1826.028

    [GRAPHIC] [TIFF OMITTED] T1826.029

    [GRAPHIC] [TIFF OMITTED] T1826.030

    [GRAPHIC] [TIFF OMITTED] T1826.031

    [GRAPHIC] [TIFF OMITTED] T1826.032

    [GRAPHIC] [TIFF OMITTED] T1826.033

    [GRAPHIC] [TIFF OMITTED] T1826.034

    [GRAPHIC] [TIFF OMITTED] T1826.035

    [GRAPHIC] [TIFF OMITTED] T1826.036

    [GRAPHIC] [TIFF OMITTED] T1826.037

    [GRAPHIC] [TIFF OMITTED] T1826.038

    [GRAPHIC] [TIFF OMITTED] T1826.039

    [GRAPHIC] [TIFF OMITTED] T1826.040

    [GRAPHIC] [TIFF OMITTED] T1826.041

    [GRAPHIC] [TIFF OMITTED] T1826.042

    [GRAPHIC] [TIFF OMITTED] T1826.043

    [GRAPHIC] [TIFF OMITTED] T1826.044

    [GRAPHIC] [TIFF OMITTED] T1826.045

    [GRAPHIC] [TIFF OMITTED] T1826.046

    [GRAPHIC] [TIFF OMITTED] T1826.047

    [GRAPHIC] [TIFF OMITTED] T1826.048

    [GRAPHIC] [TIFF OMITTED] T1826.049

    [GRAPHIC] [TIFF OMITTED] T1826.050

    [GRAPHIC] [TIFF OMITTED] T1826.051

    [GRAPHIC] [TIFF OMITTED] T1826.052

    [GRAPHIC] [TIFF OMITTED] T1826.053

    [GRAPHIC] [TIFF OMITTED] T1826.054

    [GRAPHIC] [TIFF OMITTED] T1826.055

    [GRAPHIC] [TIFF OMITTED] T1826.056

    [GRAPHIC] [TIFF OMITTED] T1826.057

    [GRAPHIC] [TIFF OMITTED] T1826.058

    [GRAPHIC] [TIFF OMITTED] T1826.059

    [GRAPHIC] [TIFF OMITTED] T1826.060

    [GRAPHIC] [TIFF OMITTED] T1826.061

    [GRAPHIC] [TIFF OMITTED] T1826.062

    [GRAPHIC] [TIFF OMITTED] T1826.063

    [GRAPHIC] [TIFF OMITTED] T1826.064

    [GRAPHIC] [TIFF OMITTED] T1826.065

    [GRAPHIC] [TIFF OMITTED] T1826.066

    [GRAPHIC] [TIFF OMITTED] T1826.067

    [GRAPHIC] [TIFF OMITTED] T1826.068

    [GRAPHIC] [TIFF OMITTED] T1826.069

    [GRAPHIC] [TIFF OMITTED] T1826.070

    [GRAPHIC] [TIFF OMITTED] T1826.071

    [GRAPHIC] [TIFF OMITTED] T1826.072

    [GRAPHIC] [TIFF OMITTED] T1826.073

    [GRAPHIC] [TIFF OMITTED] T1826.074

    [GRAPHIC] [TIFF OMITTED] T1826.075

    [GRAPHIC] [TIFF OMITTED] T1826.076

    [GRAPHIC] [TIFF OMITTED] T1826.077

    [GRAPHIC] [TIFF OMITTED] T1826.078

    [GRAPHIC] [TIFF OMITTED] T1826.079

    [GRAPHIC] [TIFF OMITTED] T1826.080

    [GRAPHIC] [TIFF OMITTED] T1826.081

    [GRAPHIC] [TIFF OMITTED] T1826.082

    [GRAPHIC] [TIFF OMITTED] T1826.083

    [GRAPHIC] [TIFF OMITTED] T1826.084

    [GRAPHIC] [TIFF OMITTED] T1826.085

    [GRAPHIC] [TIFF OMITTED] T1826.086

    [GRAPHIC] [TIFF OMITTED] T1826.087

    [GRAPHIC] [TIFF OMITTED] T1826.088

    [GRAPHIC] [TIFF OMITTED] T1826.089

    [GRAPHIC] [TIFF OMITTED] T1826.090

    [GRAPHIC] [TIFF OMITTED] T1826.091

    [GRAPHIC] [TIFF OMITTED] T1826.092

    [GRAPHIC] [TIFF OMITTED] T1826.093

    [GRAPHIC] [TIFF OMITTED] T1826.094

    [GRAPHIC] [TIFF OMITTED] T1826.095

    [GRAPHIC] [TIFF OMITTED] T1826.096

    [GRAPHIC] [TIFF OMITTED] T1826.097

    [GRAPHIC] [TIFF OMITTED] T1826.098

    [GRAPHIC] [TIFF OMITTED] T1826.099

    [GRAPHIC] [TIFF OMITTED] T1826.100

    [GRAPHIC] [TIFF OMITTED] T1826.101

    [GRAPHIC] [TIFF OMITTED] T1826.102

    [GRAPHIC] [TIFF OMITTED] T1826.103

    [GRAPHIC] [TIFF OMITTED] T1826.104

    [GRAPHIC] [TIFF OMITTED] T1826.105

    [GRAPHIC] [TIFF OMITTED] T1826.106

    [GRAPHIC] [TIFF OMITTED] T1826.107

    [GRAPHIC] [TIFF OMITTED] T1826.108

    [GRAPHIC] [TIFF OMITTED] T1826.109

    [GRAPHIC] [TIFF OMITTED] T1826.110

    [GRAPHIC] [TIFF OMITTED] T1826.111

    [GRAPHIC] [TIFF OMITTED] T1826.112

    [GRAPHIC] [TIFF OMITTED] T1826.113

    [GRAPHIC] [TIFF OMITTED] T1826.114

    [GRAPHIC] [TIFF OMITTED] T1826.115

    [GRAPHIC] [TIFF OMITTED] T1826.116

    [GRAPHIC] [TIFF OMITTED] T1826.117

    [GRAPHIC] [TIFF OMITTED] T1826.118

    [GRAPHIC] [TIFF OMITTED] T1826.119

    [GRAPHIC] [TIFF OMITTED] T1826.120

    [GRAPHIC] [TIFF OMITTED] T1826.121

    [GRAPHIC] [TIFF OMITTED] T1826.122

    [GRAPHIC] [TIFF OMITTED] T1826.123

    [GRAPHIC] [TIFF OMITTED] T1826.124

    [GRAPHIC] [TIFF OMITTED] T1826.125

    [GRAPHIC] [TIFF OMITTED] T1826.126

    [GRAPHIC] [TIFF OMITTED] T1826.127

    [GRAPHIC] [TIFF OMITTED] T1826.128

    [GRAPHIC] [TIFF OMITTED] T1826.129

    [GRAPHIC] [TIFF OMITTED] T1826.130

    [GRAPHIC] [TIFF OMITTED] T1826.131

    [GRAPHIC] [TIFF OMITTED] T1826.132

    [GRAPHIC] [TIFF OMITTED] T1826.133

    [GRAPHIC] [TIFF OMITTED] T1826.134

    [GRAPHIC] [TIFF OMITTED] T1826.135

    [GRAPHIC] [TIFF OMITTED] T1826.136

    [GRAPHIC] [TIFF OMITTED] T1826.137

    [GRAPHIC] [TIFF OMITTED] T1826.138

    [GRAPHIC] [TIFF OMITTED] T1826.139

    [GRAPHIC] [TIFF OMITTED] T1826.140

    [GRAPHIC] [TIFF OMITTED] T1826.141

    [GRAPHIC] [TIFF OMITTED] T1826.142

    [GRAPHIC] [TIFF OMITTED] T1826.143

    [GRAPHIC] [TIFF OMITTED] T1826.144

    [GRAPHIC] [TIFF OMITTED] T1826.145

    [GRAPHIC] [TIFF OMITTED] T1826.146

    [GRAPHIC] [TIFF OMITTED] T1826.147

    [GRAPHIC] [TIFF OMITTED] T1826.148

    [GRAPHIC] [TIFF OMITTED] T1826.149

    [GRAPHIC] [TIFF OMITTED] T1826.150

    [GRAPHIC] [TIFF OMITTED] T1826.151

    [GRAPHIC] [TIFF OMITTED] T1826.152

    [GRAPHIC] [TIFF OMITTED] T1826.153

    [GRAPHIC] [TIFF OMITTED] T1826.154

    [GRAPHIC] [TIFF OMITTED] T1826.155

    [GRAPHIC] [TIFF OMITTED] T1826.156

    [GRAPHIC] [TIFF OMITTED] T1826.157

    [GRAPHIC] [TIFF OMITTED] T1826.158

    [GRAPHIC] [TIFF OMITTED] T1826.159

    [GRAPHIC] [TIFF OMITTED] T1826.160

    [GRAPHIC] [TIFF OMITTED] T1826.161

    [GRAPHIC] [TIFF OMITTED] T1826.162

    [GRAPHIC] [TIFF OMITTED] T1826.163

    [GRAPHIC] [TIFF OMITTED] T1826.164

    [GRAPHIC] [TIFF OMITTED] T1826.165

    [GRAPHIC] [TIFF OMITTED] T1826.166

    [GRAPHIC] [TIFF OMITTED] T1826.167

    [GRAPHIC] [TIFF OMITTED] T1826.168

    [GRAPHIC] [TIFF OMITTED] T1826.169

    [GRAPHIC] [TIFF OMITTED] T1826.170

    [GRAPHIC] [TIFF OMITTED] T1826.171

    [GRAPHIC] [TIFF OMITTED] T1826.172

    [GRAPHIC] [TIFF OMITTED] T1826.173

    [GRAPHIC] [TIFF OMITTED] T1826.174

    [GRAPHIC] [TIFF OMITTED] T1826.175

    [GRAPHIC] [TIFF OMITTED] T1826.176

    [GRAPHIC] [TIFF OMITTED] T1826.177

    [GRAPHIC] [TIFF OMITTED] T1826.178

    [GRAPHIC] [TIFF OMITTED] T1826.179

    [GRAPHIC] [TIFF OMITTED] T1826.180

    [GRAPHIC] [TIFF OMITTED] T1826.181

    [GRAPHIC] [TIFF OMITTED] T1826.182

    [GRAPHIC] [TIFF OMITTED] T1826.183

    [GRAPHIC] [TIFF OMITTED] T1826.184

    [GRAPHIC] [TIFF OMITTED] T1826.185