[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
THE ROLE OF PUBLIC INVESTMENT
IN PROMOTING ECONOMIC GROWTH
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
MARCH 23, 2007
__________
Printed for the use of the Committee on Financial Services
Serial No. 110-17
U.S. GOVERNMENT PRINTING OFFICE
35-409 PDF WASHINGTON : 2007
---------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government
Printing Office Internet: bookstore.gpo.gov Phone: toll free (866)
512-1800; DC area (202) 512-1800 Fax: (202)512-2250 Mail: Stop SSOP,
Washington, DC 20402-0001
HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California RICHARD H. BAKER, Louisiana
CAROLYN B. MALONEY, New York DEBORAH PRYCE, Ohio
LUIS V. GUTIERREZ, Illinois MICHAEL N. CASTLE, Delaware
NYDIA M. VELAZQUEZ, New York PETER T. KING, New York
MELVIN L. WATT, North Carolina EDWARD R. ROYCE, California
GARY L. ACKERMAN, New York FRANK D. LUCAS, Oklahoma
JULIA CARSON, Indiana RON PAUL, Texas
BRAD SHERMAN, California PAUL E. GILLMOR, Ohio
GREGORY W. MEEKS, New York STEVEN C. LaTOURETTE, Ohio
DENNIS MOORE, Kansas DONALD A. MANZULLO, Illinois
MICHAEL E. CAPUANO, Massachusetts WALTER B. JONES, Jr., North
RUBEN HINOJOSA, Texas Carolina
WM. LACY CLAY, Missouri JUDY BIGGERT, Illinois
CAROLYN McCARTHY, New York CHRISTOPHER SHAYS, Connecticut
JOE BACA, California GARY G. MILLER, California
STEPHEN F. LYNCH, Massachusetts SHELLEY MOORE CAPITO, West
BRAD MILLER, North Carolina Virginia
DAVID SCOTT, Georgia TOM FEENEY, Florida
AL GREEN, Texas JEB HENSARLING, Texas
EMANUEL CLEAVER, Missouri SCOTT GARRETT, New Jersey
MELISSA L. BEAN, Illinois GINNY BROWN-WAITE, Florida
GWEN MOORE, Wisconsin, J. GRESHAM BARRETT, South Carolina
LINCOLN DAVIS, Tennessee JIM GERLACH, Pennsylvania
ALBIO SIRES, New Jersey STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota TOM PRICE, Georgia
RON KLEIN, Florida GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida PATRICK T. McHENRY, North Carolina
CHARLES WILSON, Ohio JOHN CAMPBELL, California
ED PERLMUTTER, Colorado ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana PETER J. ROSKAM, Illinois
ROBERT WEXLER, Florida KENNY MARCHANT, Texas
JIM MARSHALL, Georgia THADDEUS G. McCOTTER, Michigan
DAN BOREN, Oklahoma
Jeanne M. Roslanowick, Staff Director and Chief Counsel
C O N T E N T S
----------
Page
Hearing held on:
March 23, 2007............................................... 1
Appendix:
March 23, 2007............................................... 31
WITNESSES
Friday, March 23, 2007
Drake, Michael, M.D., Chancellor, University of California,
Irvine......................................................... 14
Haughwout, Andrew F., Research and Statistics Group, Federal
Reserve Bank of New York....................................... 21
Rapoport, Miles S., President, Demos............................. 16
Rohatyn, Ambassador Felix G., Rohatyn Associates LLC............. 2
Winston, Clifford, Senior Fellow, The Brookings Institution,
Washington, DC................................................. 18
APPENDIX
Prepared statements:
Drake, Michael............................................... 32
Haughwout, Andrew F.......................................... 45
Rapoport, Miles S............................................ 55
Rohatyn, Ambassador Felix G.................................. 65
Winston, Clifford............................................ 73
THE ROLE OF PUBLIC INVESTMENT
IN PROMOTING ECONOMIC GROWTH
----------
Friday, March 23, 2007
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 2:05 p.m., in
room 2128, Rayburn House Office Building, Hon. Barney Frank
[chairman of the committee] presiding.
Present: Representatives Frank, Maloney, Moore of Kansas,
Green, Cleaver; Neugebauer, and Campbell.
The Chairman. The gentleman from Texas is from Houston. He
has been Mr. Hospitality this year because his City is the lead
place where people have been welcomed from New Orleans, so he's
been in a very welcoming mood for longer than he should have
had to be.
This hearing of the Committee on Financial Services will
come to order. I begin with an apology and expression of
gratitude to the witnesses. It has been a busy week, and I had
anticipated unnecessarily that we might have a spillover this
morning. I very much appreciate your accommodating us on a busy
Friday afternoon. I understand that Mr. Rohatyn is going to
have to leave, and it's our fault, not the fault of any members
of the panel. We are appreciative.
We're going to get right into this. This committee has, of
course, legislative jurisdiction in specific areas involving
housing and financial services. We also have jurisdiction over
the Humphrey-Hawkins Act and the question of economic policy in
America in general.
One aspect of this that we are focused on is the problem we
are confronting in the United States, as well as in other parts
of the world, about how you go forward with economic growth in
a way that does not exacerbate social problems and in a way
that does not provide more inequality. Obviously, our
capitalist system requires inequality. It is a good thing in
the appropriate amounts, but too much inequality can become
socially dysfunctional. It might even become politically
dysfunctional, and this committee is going to be talking to
thoughtful people all year about how we go forward.
One aspect that I believe in very strongly is being
overlooked in the current situation and that is the
contribution that should be made by the public sector. I do not
regard support for a vigorous public sector as in any way a
denigration of the private sector. Our system requires both.
And when you talk about diminishing inequality, not getting rid
of it, but preventing it from growing as growth comes, I
believe we need more reliance on the public sector as a part of
that effort than we've had. How you do it, we can talk about.
So this is a piece of that discussion. It's the role of
public investment in promoting economic growth, and in
promoting economic growth in a way that makes it sustainable by
giving the great majority of the public a view that they have a
stake in it.
Do either of the other members wish to make an opening
statement? If not, we will begin with our witnesses, again with
my thanks for accommodating us. We'll begin with Mr. Rohatyn.
Ambassador, please go forward.
STATEMENT OF AMBASSADOR FELIX G. ROHATYN, ROHATYN ASSOCIATES
LLC
Mr. Rohatyn. Mr. Chairman and members of the committee,
it's a great privilege to be here today to discuss a critical
issue--the need for large-scale public investment in projects
that will modernize our Nation and enrich our people.
Throughout our history, and until the 1960's, the Federal
Government played a dominant role in our level of public
investment, while the States played a secondary role. This has
changed since then. Public investment has, by tradition, meant
infrastructure: roads, trains, bridges, public transportation,
public schools, etc., have provided the private sector with the
complementary investments which improve business productivity,
our standard of living, and our quality of life. Largely the
product of a Federal, State and local partnership, it was badly
neglected over the years, principally by the failure of the
Federal Government to maintain its level of participation.
The American Society of Civil Engineers has estimated that
it would take $1.6 trillion dollars over a 5-year period to
bring America's infrastructure to a reasonable standard of
adequacy and that this requirement increases by about $300
billion every 2 years.
Mr. Chairman, I have for many years recognized our
government's historic role as the indispensable investor in the
economy of our country. I hope that your support will encourage
the Congress to undertake the major effort needed in rebuilding
America before it is too late. In order to do so, we must
counteract the present theology that all public investment is
wasteful and that neither taxes nor borrowing can be justified
for that purpose.
It is also worth noting that the financing of public
infrastructure creates hundreds of thousands of private sector
jobs, which is particularly important when globalization is
putting pressure on American industrial employment.
Fortunately, past American political leaders did not always
think this way. As we look to our Nation's future, we should
also look back at the history of great public investments, at
the precedents set by leaders who made many of the critical
commitments that became the backbone of our Nation; we should
reflect on the actions of those leaders who used government
power and public finance to make the investments that formed
this country; and we should celebrate their historic
achievements by continuing to invest boldly and wisely in
America's future.
As the political, geographic, and economic structure of
America took shape in the 19th and early 20th centuries, public
investments such as the Louisiana Purchase, the Erie Canal, the
Transcontinental Railroad, the RFC, and the interstate highway
system shaped our economy and our security structure. Although
the private sector has been the mainstay of our economy, it
could not exist without this platform and the political leaders
who made those decisions--Jefferson, DeWitt, Clinton, Lincoln,
FDR, and Eisenhower.
Since the beginning of the Republic, transportation,
infrastructure, and education have played a central role in
advancing the American economy: whether it was the canals in
upstate New York or the railroads that linked our heartland to
our industrial centers; the opening of education to average
Americans by land grant colleges and the GI Bill, making
education basic to American life; or the interstate highway
system that ultimately connected all regions of the Nation.
This did not happen by chance, but was the result of major
investments financed by the Federal and State Governments over
the last century-and-a-half. Mr. Chairman, we need to make
similar investments now.
Of course, not all government investments have been
successful. The endless earmarks, political pork in too many
projects, corruption in military contracts, and the recurring
problems in NASA and many others are proof that there is no
such thing as perfection in the public sector any more than in
the private sector. But the private sector has also had its
Enrons and its Worldcoms, as well as its earlier scandals,
which caused Teddy Roosevelt to break up the trusts and FDR to
regulate the securities markets.
But the consistent ideological attack on public investment
is bringing this country to its knees. Witness the outrage of
New Orleans, the state of our public schools, our pollution,
and our wasteful use of energy. Without adequate levels of
public investment, our private sector will lose much of its
competitiveness and outsource more and more of our requirements
in goods as well as services, constantly increasing our foreign
debt and losing domestic jobs.
The recent decades have been the best of times for private
investment. For public investments, they have been disastrous.
My views on economic and social issues have been shaped not
only by my years in business and in government, but also by my
experiences as a child and as a refugee fleeing from the Nazis
and seeking asylum in America during World War II. During the
war years, I had from to time heard FDR's voice on the radio,
sometimes on clandestine sets, which shaped almost by osmosis
my views of America. To me, America was the platform for
freedom, fairness, and opportunity, and I have never wavered
from these views.
My involvement in public life began in the spring of 1975
when New York City was caught in a financial death spiral. In
the 1960's, the City had lost 300,000 private sector jobs, and
in the early 1970's, the City's economy had slowed sharply
during a national recession, aggravated by the Arab oil
embargo. Our capital investment program had been wiped out. The
City was shut out of the financial markets and headed for
bankruptcy.
To regain market access, we needed a plan which would
revive the City's economy, eliminate its deficit, and revive
its moribund capital investment program. We needed a plan with
Federal backing.
In the summer of 1975, when Governor Carey appointed me
chairman of New York's Municipal Assistance Corporation, I
believed that bringing the City back to the market would take a
few months. It actually took several years and required the
courageous political leadership of Governor Carey and Mayor
Koch, the strong support of the City's labor unions and of its
banks, and ultimately, it required credit from the Federal
Government in the form of seasonal loans.
The Federal credit support enabled the union pension funds
and the private financial institutions to bring their own
support to the City, and as a result, the City balanced its
budget, reentered the financial markets, and for the next 20
years, the City's economy was strong, its budgets were
balanced, and it was able to make the vital investments in its
infrastructure. It could not have happened without the credit
support of the Federal Government and the sacrifices of its
citizens.
It is also worth noting that the City repaid 100 percent of
its debt to the Federal Government ahead of schedule, and that
the Federal Government did not have to face the staggering
national cost of a New York City bankruptcy.
Today, support for any government intervention in the
economy has become anathema, and this has frightened too many
Americans into ignoring the long and positive history of
government investment in our land. Furthermore, the illogical
rules of government accounting and the fear of further deficits
make this a very difficult political issue.
As opposed to businesses, States, and local governments,
the Federal Government accounts do not differentiate between
long-term investment and everyday operating expenses. They
treat construction of a dam as if it were a welfare check and
record the debt incurred as a deficit without the offsetting
assets represented by the dams. If our private sector companies
were to keep their books in this fashion, they would report
losses instead of profits, they would cut back on investment
and employment in order to show earnings, and they would
ultimately go out of business.
The idea that government intervention is always bad has had
consequences. The recent catastrophe of New Orleans was an
event waiting to happen. If not in New Orleans, it would have
happened somewhere else. It is the result of a national failure
to make public investments adequately and intelligently--in the
case of New Orleans, inadequate investment necessary to prevent
the flooding of New Orleans, and the failure to have in place
an effective emergency response system.
Modern market capitalism and the links of the financial
markets to advanced information technology have created a
formidable engine for the creation of wealth, and we have, in
my judgment, the best economic system in the world. This
wealth, however, is heavily weighted toward the private sector,
and has resulted in the neglect and decay of public facilities,
including that of our public schools. The sensitivity of the
financial markets to government spending became a powerful
brake on public investment, because the arbiter of financial
policy is a government accounting system that treats investment
as an expense and a bond market fearful of deficits, regardless
of their origins.
The combination of these notions, namely, that government
cannot do trading agreement right, and that long-term public
investments are the equivalent of welfare payments, has caused
a steady erosion in Federal funding for infrastructure and
other initiatives that would spur progress and economic growth,
leaving more and more to State and local governments, which
cannot provide adequate support. That is the road that led to
New Orleans.
As we fail to make large public investments--
The Chairman. Mr. Rohatyn, could you sum up in another
minute, and then--
Mr. Rohatyn. Certainly, sir.
The Chairman. Thank you.
Mr. Rohatyn. I certainly can. A Federal capital budget
would help correct our problems. You all know the political
hurdles of such a budget, but their existence should not
automatically doom the idea. However, if we are unable to
institute a capital budget, there is a recent development that
suggests another remedy--the return of the 30-year Treasury
bond, because long-term bonds should finance capital assets,
and their issuance should be dedicated to that purpose. Even
longer maturities, such as 50-year bonds, should be envisaged.
That is what the European Union does to fund its systems.
To help deal with our shortage of capital investment, the
Congress could authorize a trust fund to be financed over a 5-
year period by special purpose 50-year Treasuries. The fund
could be used to co-finance high priority national, regional,
and local infrastructure programs, as well as special projects
which generate advanced intellectual property. Private capital
should be an integral part of the program. Tight control should
be applied to the operations, and it should be subject to the
Federal limit.
Jefferson, Lincoln, FDR, and Eisenhower proved that public
investment can generate vast returns. The Federal budget should
be a tool to encourage such national investment instead of
writing it off.
Thank you very much, Mr. Chairman.
[The prepared statement of Ambassador Rohatyn can be found
on page 65 of the appendix.]
The Chairman. Thank you very much, Mr. Rohatyn. Next, Dr.
Michael Drake, who is the chancellor of the University of
California at Irvine.
Oh, I apologize. We agreed to do an immediate round of
questions for Mr. Rohatyn because he has to leave early, so let
me begin.
It's important, because you've had a very distinguished
career in the private sector as an investment banker, as well
as your public sector work. One of the arguments we've heard is
that the expansion of the public sector is somehow inimical to
the private sector.
I do think it's important for you to comment from the
perspective you've had as an extremely successful private
financial markets individual as to the compatibility of the two
and whether or not the benefits you urge from an expanded
public sector could in fact be done through the private sector
instead.
Mr. Rohatyn. Well, Mr. Chairman, the experience that I've
had in the public sector essentially was my work as chairman of
the Municipal Assistance in New York. And that for me was an
eye opener in terms of how bad the need is for the public and
the private sector to work together. New York City would have
gone bankrupt if we hadn't had access to public money, to
government assistance. And we were able to do that by at the
same time bringing the private sector, the banks, as well as
the public sector unions, into the process.
And it turned out--probably turned out even better than we
thought it might. But without it, the City would have gone
bankrupt, the Nation would have suffered a terrible, terrible
economic loss, and socially, it would have been a catastrophe.
So I am absolutely convinced that the public and the
private sector have to work together, that they're
complementary, and they're not at all in opposition to each
other; that business and labor have to work together, and that
political parties have to work together. If we don't do that,
we are going to always be in trouble.
The Chairman. Thank you. A related question, because one of
the arguments often made on the Floor of the House and
elsewhere when we talk about government spending is there is a
general view that less government spending is better, unless
it's war or maybe going to Mars, or subsidizing agriculture.
Those are the three exceptions that we often hear.
But there is a general view that if you cut government
spending, that's better, and particularly we hear, when we're
not talking about defense contracts, and this is a verbatim
quote I have heard many, many times. Let me show off most of my
Latin. I now quote you verbatim what I have heard ad nauseam.
[Laughter]
The Chairman. And it is that government cannot create jobs,
that government spending cannot create jobs, that only the
private sector creates jobs, and that government funding that
is theoretically motivated by somehow increasing employment is
almost a contradiction in terms. Would you comment on that?
Mr. Rohatyn. Well, my simplest comment is that public
investment leads to private employment. Most of the people put
to work by public investment are private sector employees, and
most of the entities that benefit from public investment are
private sector corporations. The notion that these are
contradictory to each other doesn't make any sense to me.
The Chairman. In the book that you're working on, and the
comments you've made, you talk about some major decisions
involving significant public expenditure. Is it your view that
private employment, private sector employment in the economy
around those, subsequent to those events, was greater than it
would have been if they hadn't been made?
Mr. Rohatyn. Oh, absolutely, Mr. Chairman. I mean, the
decision by Lincoln, for instance, to finance the
Transcontinental Railroad, if we hadn't had a Transcontinental
Railroad, the economic development of this country would have
been infinitely slower. To me, this is self-evident. The things
that--
The Chairman. You hold that truth to be self-evident?
Mr. Rohatyn. I do indeed. I mean, the build-up to World War
II, which was an extraordinary accomplishment both politically
and economically, resulted in an enormous increase in private
employment and private investment as Roosevelt was building the
country up for World War II.
The Chairman. And I take it--I will turn it over to my
colleague--but what it seems to me you were saying, what I read
in here you're saying is that the job creation that results is
not simply from the expenditure itself, which might sort of be
self-evident in that sense, but enhances the creation for
further private sector investment. That done well, public
investment increases the level of private sector activity
subsequently?
Mr. Rohatyn. Absolutely, Mr. Chairman. I would argue, if we
did a better job in our public schools, we would have a much
better functioning economy as a result. It may be 10 years
later, but it starts right there.
The Chairman. The gentleman from Texas.
Mr. Neugebauer. I thank the chairman. Mr. Chairman, I want
to be clear. Are we just going to direct these particular
questions to--
The Chairman. Just to Mr. Rohatyn, and then we'll do the
rest.
Mr. Neugebauer. I just wanted to be clear about that. Thank
you, Ambassador, for--you know, I, number one, I concur with
you that infrastructure is a vital part of our economy.
In fact, you know, one of the things I tell folks--and I'm
a land developer, so I understand infrastructure probably as
well as anybody, because I've put a lot of infrastructure in,
and I look for infrastructure when I'm doing a land development
project--I would say that you're right when you look at putting
in the transportation infrastructure, for example, that we put
in this country, opened up opportunities, bringing electricity
to other parts of the country. And probably in those days, you
know, there was no other financing source for some of those
projects than the Federal Government.
But due to the sophistication of financial markets today,
and the fact that we have the ability to put capital together,
really for just about anything. I mean, we now have in Texas,
under proposal, a private company to build a road and to build
a toll road in our--do you see our role in the government is
not necessarily--I noticed you're a proponent of going back to
a 30-year bond or even a 50-year bond. One of the problems I
had with that is, we have trouble up here getting a budget
passed for a 1-year project, much less a 30- or 50-year
project. But do you see the government being an augmenter of
some of these marketplace activities now and letting the
private sector fill in the gaps on this infrastructure?
Mr. Rohatyn. Sir, I believe, as I said, that there is a
partnership always--usually a partnership role for the public
sector and the private sector. I would give priority in terms
of looking for capital to looking for capital in the private
sector, even as we deal with public investment.
But I've also had experience, especially with the
refinancing of the City of New York, with the fact that a
relatively small amount of government involvement and public
capital plays an enormous role in encouraging the other
players, the insurance companies, the unions, everybody else,
to put in the majority of the capital.
Also, there are projects where the public purpose is more
important than necessarily the profit margins of the business,
which have to be put in equilibrium.
So my position would be that there has been a huge
improvement in the technology of finance, if you will, and that
can be put to use now in any number of private and public
activities. And to make use of that as much as possible, but to
have an instrument where if you have three governors who need
to do a regional project that's complicated, and where the
profitability isn't self-evident, to have a government financed
entity that is professionally competent and then can put up
enough of the money to encourage private sector people to come
in.
Mr. Neugebauer. Well, you're kind of leading to my next
question, and want you just to expand on that. Where do you see
the areas today where we don't see private capital coming to--
showing much interest in infrastructure? Can you identify some
of those areas for me?
Mr. Rohatyn. Well, I think that by and large, you can
encourage private capital to look at investment practically
anyplace. On the other hand, that is not always consistent with
the profitability of the projects that would come about,
because it just doesn't lend itself to that kind of thing. So I
am for having all of the instruments that you need, both
financial and nonfinancial.
For instance, you cannot--you're not going to put a private
sector--at least I don't think, on a large scale, in the public
school system of most cities in America today. You may do it in
some places, but you're not going to do it on a massive scale.
So I think you have to do what works, and what works is
some combination of private and public involvement, both in the
financial and the operating area.
Mr. Neugebauer. You know, in the education mode, I think
the jury is still out on that, because, you know, it's a
relatively new concept of--there are some very successful
private institutions.
Mr. Rohatyn. Oh, I agree with you, sir. I just--
Mr. Neugebauer. Yes. And so I think we have to be careful
of characterizing that. I would say this. We have made a
tremendous investment in education. People say we need to
invest more in education and maybe that's true. But when you
look at the money over the history of this country, of the
amount of money that we have put into education, it's a
pretty--if you graph it, it's a pretty steep graph.
And I think the question that people are--should be asking
more is, instead of putting more money into education, I think
what we are saying now is that we want more education for our
money. I think that's particularly the road I'm going down,
that before we continue to pour extremely large amounts of
money into education, I think we have to go back and kind of
look at the overall model and say, is this working? Because the
money has been coming into education.
Mr. Rohatyn. I agree. I was actually mostly arguing about
the need to build buildings where the water doesn't come
through the roof onto these kids who are trying to learn the
alphabet.
Mr. Neugebauer. Thank you, Mr. Chairman.
The Chairman. I now recognize the gentlewoman from New
York.
Mrs. Maloney. Thank you, Mr. Chairman, for calling this
important hearing, and it is a tremendous honor, Ambassador, to
have you here today in Congress to share your knowledge with
us, and I want to really personally thank you for your many
contributions to our economy and really to helping our country,
not only New York during the 1970's, and during our time of
crisis, but you've continued to be a voice that everyone
listens to.
And I have wanted to ask you this question for a long time,
and even though it's a little bit off point, could you comment
on the weak dollar and what that means to our economy now and
your thoughts about the impact on our country long term with
this? It appears to be a policy of the Administration to weaken
the American dollar. And I would just welcome any of your
analysis or thoughts on this subject.
Mr. Rohatyn. This is kind of a suicidal subject that you're
asking me to comment on.
[Laughter]
Mr. Rohatyn. To some extent, the weak dollar is a result of
our foreign deficits, and our foreign deficit is partly a
result of the competitiveness of countries like China, India
coming along, and our domestic deficits. So I think in today's
world where the financial markets are so huge that it's very
difficult to simply control them, that the weak dollar is a
result of the economic position of our country in the world and
our internal financial policies.
I'm not a fan of a weak currency in terms of its social
repercussions and in terms of its standing in the world. So I
would prefer, personally, a strong currency, economic growth,
low inflation, and a relatively balanced budget, but I wouldn't
make a fetish out of balancing the budget every year, mostly
because I have no confidence in the accounting system of the
government, which I don't think reflects at all the financial
condition of the country.
So I'm not sure that's a very good answer that I'm giving
you. I'm not sure there are very good answers to that question,
frankly. But the weak currency is a result of a huge imbalance
in our economic position, in our trade deficit as well as our
Federal deficit, and the fact that countries like India and
China are coming along like gangbusters and are going to make
things very, very difficult.
Mrs. Maloney. I heard a comment from Shirley Tillman, the
president of Princeton, recently. She was asked what she thinks
is the greatest crisis confronting our government. We feel that
we're facing a crisis every day; there's something happening
all the time. And I just would like to ask you the same
question. Her response was the fact that our country is not
investing in science and mathematics and really research and
sort of cutting edge technologies, which has kept our country
really on the curve, on the leadership curve in the world. And
she saw the fact that we seem to be cutting back in--or we are
cutting back in investments in science and technologies. And
since we are--and mathematics. And since we are talking about
public investments today and how it helps our economy, where do
you think we as a Nation should be investing? Obviously, we
need to invest in many areas, but if we had to be strategic,
where do we need to put our dollars to help the most people and
to really keep our country competitive in this very, very
competitive world?
Mr. Rohatyn. Well, I would say education and
infrastructure.
Mrs. Maloney. You would say education and?
Mr. Rohatyn. Infrastructure.
Mrs. Maloney. And infrastructure?
Mr. Rohatyn. Yes.
Mrs. Maloney. Thank you.
The Chairman. The gentleman from Kansas.
Mr. Moore of Kansas. Mr. Chairman, I want to welcome the
witnesses who are here to testify today and thank them for
their testimony.
I think Mrs. Maloney has asked some of the questions I
would ask, and I would ask another question. Mr. Ambassador, if
you don't feel comfortable answering, if you don't feel like
this is in your area, please say so. I'm not trying to push at
all. I'm just asking.
We have in this Nation an--
The Chairman. We may be one of the few committees in the
Congress who is not subpoenaing people.
[Laughter]
The Chairman. So you're here voluntarily. You can answer or
not.
Mr. Moore of Kansas. Right. Right you are, Mr. Chairman. We
have in this country an $8.8 trillion national debt. About 40
percent of that debt right now I understand is financed by
foreign nations. And a question was asked, I believe by Mrs.
Maloney, about our currency and our situation. Do you have
concerns about foreign nations holding such a substantial
portion of our debt? And what might be the result if those
foreign nations decided they didn't want to hold our debt any
more?
Mr. Rohatyn. I think, first of all, there is somebody from
the Federal Reserve, thank God, on this committee, who can
hopefully--
Mr. Moore of Kansas. And I'm happy to have anybody if you
care to answer it try to take stab at that. I'm trying to ask a
legitimate question here. I'm not trying to put anybody--
Mr. Rohatyn. Totally. And it is obviously a risk to have
this kind of imbalance in our accounts.
Mr. Moore of Kansas. Yes, sir.
Mr. Rohatyn. And to have as much of our capital in hands
that today are cooperative and tomorrow might not be. On the
other hand, it does create a situation where we're all kind of
in the same boat, and--
Mr. Moore of Kansas. And what do you mean by that, sir?
We're all in the same boat?
Mr. Rohatyn. Well, it will not help China to destroy the
dollar.
Mr. Moore of Kansas. Would their selling off our debt
destroy the dollar?
Mr. Rohatyn. Well--
Mr. Moore of Kansas. Or would it affect interest rates at
all?
Mr. Rohatyn. It depends to whom and in what amounts and in
what way. So I'm sorry not to be able to be very precise.
Mr. Moore of Kansas. I understand.
Mr. Rohatyn. But this is a--first of all, it's a very
delicate question.
Mr. Moore of Kansas. Yes, sir.
Mr. Rohatyn. And secondly, it's something that I don't
think anybody has the answer to. I think the only answer is to
be as orderly in the way we run our economy and as prudent as
we can be as to invest as much as we can in things aimed at
economic growth and social support, and try to run our--both
our import-exports and our internal budgets with as much
equilibrium as possible. But that requires political decisions.
This is not an issue that has no solution, if we want to do it.
Mr. Moore of Kansas. Yes, sir. Well, I appreciate, and
frankly agree with you, that as much as we can invest in
infrastructure and education, that's going to be to the
advantage of the people in our country. I think ultimately my
concern is that our debt is getting so high and we sometimes
end up borrowing money to make those investments, and I just--
that's my concern of where do you find the appropriate balance?
And if the gentleman from the Federal Reserve cares to comment,
I'd be happy to hear anything you have to say. I know that
since Chairman Greenspan has gone, everybody thought that the
markets didn't listen to him any more. And when he talks about
the possibility of a recession, I guess we were wrong that
people, in fact, do still listen to Chairman Greenspan. Any
comment at all, sir?
Mr. Haughwout. Well, Congressman, this is really not an
area in which I specialize.
Mr. Moore of Kansas. Okay.
Mr. Haughwout. I'm afraid I don't--
The Chairman. Yes. In fairness, he wasn't asked for this
purpose.
Mr. Moore of Kansas. Okay.
The Chairman. Will the gentleman yield to me briefly?
Mr. Moore of Kansas. Absolutely, Mr. Chairman.
The Chairman. I appreciated the colloquy with the gentleman
from Texas and Ambassador Rohatyn about the importance of
education, and we talked about how much money has gone in
there. In fact, I think if you look at education and measure by
money, as we often do, as a value, we don't treat it very
seriously.
We've just been through a markup with some amiable
contention about CEO salaries, and we were told that those of
us who thought that CEO salaries might have gotten a mite high
were being mean-spirited, and we had to pay for performance.
Look at what we pay teachers. If you look in this society at
the salary of teachers--let me put it this way. If you didn't
know what the occupation was, and you just ranked compensation,
and then you said based on the amount of compensation, how
strongly do you think the society values that profession, you'd
figure teaching wasn't very highly regarded around here. We
don't pay teachers very much at all.
So when you look at overall expenditures, there are a lot
of things that go into it, but I believe it is in fact a sign
that we have not as a society valued education when we pay the
people who are trying to teach 5-, 6-, or 7-year-olds,
particularly those who have had difficult lives previously. So,
yes, I do think that that's a good measure.
Now, money can be well spent or badly spent. But if you
start out by substantially undercompensating people compared to
so many other professions in this society, we shouldn't be
surprised. And I'm just off on this tangent, but we used to be
able to get away with that because we had a good thing to help
us get teachers even though we underpaid them. It was called
sex discrimination.
If you were a woman interested in chemistry or physics or
biology 40 years ago, you could go be a teacher or a nurse. And
as the society has made some progress in diminishing
discrimination, women have other options. So, you know, we had
an artificial supply of good teachers because of sex
discrimination, and that artificial supply is no longer there.
Supply and demand, I think, have not yet rebalanced.
I appreciate the indulgence. The gentleman from Texas.
Mr. Green. Thank you, Mr. Chairman. And I thank all of the
persons who are appearing today, as well as the ranking member.
Just a comment before I ask a question, and it has to do with
education as well. We from time to time hear of problems in
police departments, corruption, if you will. And rarely do we
talk about eliminating police departments or police services.
We usually will conclude that we should fix the problem. We
should hire more police officers, pay them more, and buy better
equipment. We should do those things necessary to maintain what
we know to be a good system.
And unfortunately, I agree with what the chairman has said,
we have not taken a similar attitude, I think, as it relates to
education. We want to leave no child behind, but in the
process, we seem to overlook the fact that we have to leave no
teacher behind if we're going to leave no child behind. And I
want to associate myself with the comments of the chairman on
education.
Mr. Ambassador, I hate to be the one to ask you to go into
specifics. You mentioned education in the main, but what aspect
of education would you conclude that we should focus on? Should
it be Head Start, higher ed? Where should we go in your
opinion, with our public influence by way of emolument?
Mr. Rohatyn. Sir, I am not an expert on education, and,
therefore, I will give just an off-the-cuff answer, if I may.
My wife is involved--and I should have brought her here. It
would have been much more productive.
There are two areas of education that to me seem vital. One
is to start very early, not to wait for a child to be 5-, or 6-
, or 7 years old to begin concentrating on what to do. And
secondly, as I mentioned earlier, to give working facilities to
children in schools a clean and safe environment. And in
working at MAC in the city, I got involved in this subject,
because we created a building fund for the schools as we were
starting to run surpluses. So I spent a lot of time walking
around the schools. And it is the most distressing and
depressing situation in most of the schools that you can think
of. And I think that unless you start children very young in a
decent environment to study in, it's hopeless before you start.
But, you know, the rest is how you--what the curriculum
should be, and how this should be organized. I'm not an expert
on that.
Mr. Green. Thank you. Mr. Chairman, I will yield back the
balance of my time in the interest of time.
The Chairman. I thank the gentleman. The gentleman from
California.
Mr. Campbell. No questions.
The Chairman. I thank the gentleman. The gentleman from
Missouri.
Mr. Cleaver. Thank you, Mr. Chairman. I really appreciate
your comments, Mr. Ambassador, with regard to public financing.
Here's a conundrum. I think we should invest in public
financing for the same reason that you stated, and I've seen it
in my City. I'm a former mayor of Kansas City, Missouri, and
I've seen public investment generate all kinds of private
economic development around the public investment.
The problem is--and it's been touched on by my colleague
from Kansas, I think everybody here to some degree--we are
borrowing so much money that, frankly, we're financing
everything with borrowed money. We are a debtor nation. And $7
billion for Katrina in the supplemental that we approved
earlier today. And so there's a public investment going into
New Orleans. And when you think about the infrastructure
declining on the Federal highways and in the cities. Most
cities on the Eastern seaboard are functioning with stormwater
and sanitary sewers that are over a century old, and they're
crumbling. But if we try to do public investment, you know,
some kind of a contemporary TVA, we're going to have to borrow
money to do it.
Now the only other option is to figure out how to reverse
the trend toward a minus zero savings rate in this country. We
have to borrow from foreigners because we don't have--we don't
save money in this country, whereas in Asian countries, the
savings rate in some rise above 20 percent, and we are like 0.6
or something. I'm not sure exactly what it is right now. What
can we do, or is there anything that we can do, that you would
suggest, to generate a savings rate? Or is it that the economy
is not as good as we are being told it is, and people cannot
save, and, therefore, they are spending all they earn and then
borrowing to make it?
Mr. Rohatyn. Well, sir, I hate to bring up something that
is probably considered impolite in this City, but I would
just--
Mr. Green. Nothing is impolite in this City.
Mr. Rohatyn.--refer to the fact that no other country in
history has ever gone to war and cut taxes at the same time.
And when you start with contradictions of interest that are so
profound, I don't know what to say to you with respect to
ultimately running a balanced economy that deals with these
things, because you're eliminating revenues to an extent that
it's finally impossible.
So, most of the problems that this country has, I think,
because we are still the strongest economy in the world. We
have great science. Every other year we invent something new
like Google or Yahoo or things that 5 years ago just didn't
exist. But we can't seem to agree among ourselves on a balance
between spending and saving. So, these are not rocket science,
but they do require some unity of interest and some unity of
philosophy in terms of what kind of an economy and what kind of
a society you want to run.
Mr. Green. I have a question. Have you seen this TV
commercial where this guy starts out walking from his home and
he says I have this beautiful home and great family, then he's
driving around and cutting his grass on a tractor, and the next
thing he's cleaning his swimming pool. They have a gorgeous
swimming pool. And he says, ``How do I do it? I'm up to my
eyeballs in debt.'' And every time I see that, I just--I think
about our country, our Federal Government.
Thank you.
The Chairman. Thank you. Thank you, Mr. Rohatyn. You're
excused now, and I appreciate your coming to see us.
Mr. Rohatyn. Me, too, and I apologize.
The Chairman. No, no, we changed this around. I'm very
grateful to the others for staying here, and I'm sorry that we
don't have control over the schedule, and we are indebted to
you for your indulgence.
We'll now resume the statements. Dr. Michael Drake is the
chancellor of the University of California, Irvine. And I guess
the closer people were, maybe then they can go early, and then
get home. You're stuck for the night. So, thank you for
staying. Go ahead, Dr. Drake.
MICHAEL DRAKE, M.D., CHANCELLOR, UNIVERSITY OF CALIFORNIA,
IRVINE
Dr. Drake. So I'll talk low and talk slow and I won't say
too much.
The Chairman. Two out of three won't be bad, Doctor.
Dr. Drake. Okay. Good afternoon, Chairman Frank, Ranking
Member Bachus, and committee members. Thank you for the
opportunity to appear before you today to discuss the important
issue of Federal investment in basic science research.
I am Michael Drake, chancellor of the University of
California Irvine, one of the 10 campuses of the University of
California system. At UC Irvine, we educate nearly 26,000
students and conduct research in a wide range of the sciences,
supported by the National Institutes of Health, the National
Science Foundation, the Departments of Defense and Energy,
NASA, NOAA, and several other Federal research agencies.
Our Nation's system of higher education, and particularly
its public universities, are a unique example of a public
investment that has paid enormous dividends. Starting with the
GI Bill, Federal student aid has helped shape postsecondary
education since World War II. Thanks to the Federal
Government's commitment, including your recent action to
increase the Pell Grants, students with need have increased
access to higher education.
America's colleges and universities produce human and
intellectual capital, the twin engines of economic growth.
Public investment is the critical factor that has made our
research universities the envy of the world. There is no doubt
that university research is critical to our Nation's R&D
enterprise. Universities perform over 60 percent of the
Nation's basic research.
Economists attribute as much as 50 percent of our national
economic growth over the last half century to innovation. To
quote Alan Greenspan in 2001, ``Had the innovations of the
recent decade, especially in information technologies, not come
to fruition, productivity growth during the past 5 to 7 years,
arguably, would have continued to languish at the rate of the
preceding 20 years.''
Public investment in basic research has an added benefit--
the integration of research and education. At both the
undergraduate and graduate levels, students learn by doing,
both in the lab and in the classroom. Research takes place in
the institutions that develop our young future scientists.
Other countries, particularly China and India, are struggling
to emulate this. As you well know, Mr. Chairman, from your
personal experience, it is that formula that spawned the root
128 phenomena in Massachusetts, as well as the Silicon Valley
phenomenon in my own home State of California.
Our country's higher education system is so successful that
we often forget how big a role federally supported university
research has played in changing Americans' lives. For example,
in my field of medicine, for the second consecutive year,
annual cancer deaths in the United States have actually fallen.
This drop, a first in history, is occurring despite the aging
of our population.
On the physical sciences side, basic research in physics
led to the development of the Global Positioning System, which
has been an invaluable aid to our military, and also to wayward
travelers, I should add. Imagine as you leave here what you
will do and be impacted with; dozens of things that were
unthinkable a generation ago, whether it be listening to an MP3
player, using the Internet, or using your ATM card. I mention a
number of other examples in my written testimony.
The Federal familiar in basic research has had an excellent
return for American taxpayers. It has been estimated at between
28 to 40 percent per year. But why does the Federal Government
have to do this? Why shouldn't the private sector do more?
Well, the fact is that business spends an enormous amount of
money on development, but the characteristics of basic research
are not attractive to short-term investors. Basic research is
just that; basic. It is long-term and uncertain. It is a
fundamental building block for the future. Basic research
doesn't conform to the investor cycle of quarterly reports.
Norm Augustine, the former CEO of Lockheed Martin, frequently
tells how his company proudly announced a program of long-term
investment in basic research, only to watch its stock price
fall.
With few exceptions, my State of California being one,
States simply lack the means to invest heavily in research.
State support is a very small portion of the total basic
research done at our universities. But the Federal commitment
to basic research has had a mixed record in recent years. It is
true that Congress recently doubled funding for the NIH, and
thank you. But since 2003, NIH funding has declined in real
terms by 12 percent. Physical sciences and engineering research
have been nearly flat funded over some 3 decades. Given the
growing importance of interdisciplinary research, adequate
funding for both the life sciences and the physical sciences is
essential.
I am here today as the chancellor of a research university,
but I am also a physician and an NIH-funded researcher for over
a quarter century. I marvel at how diagnostic tools, therapies
and preventive knowledge have transformed the practice of
medicine and enhanced the quality of life for all Americans.
Mr. Chairman, I want to thank you and your colleagues for
the recent actions taken by this Congress in its funding
decisions this year. I respectfully request that the Congress
continue its support for research. Only the Federal Government
has the resources and ability to support this vital research.
We can afford these investments. Indeed, we must make them if
we want to continue to lead the world.
I thank this committee for bringing the Nation's attention
to this incredibly successful partnership and hope it will
continue to spread the message through the Congress and the
Administration. I'd be pleased to answer your questions.
[The prepared statement of Dr. Drake can be found on page
32 of the appendix.]
The Chairman. Thank you. Our next witness is Mr. Miles
Rapoport, who is the president of Demos. And I should have said
before, any written material that any of the witnesses wish to
insert in the record, without objection, will be inserted. Go
ahead.
STATEMENT OF MILES S. RAPOPORT, PRESIDENT, DEMOS
Mr. Rapoport. Thank you. I deeply appreciate the
opportunity to be here, and I thank the committee for turning
its attention to this important issue. To introduce myself
briefly, I am the president of Demos, a network of ideas and
action. Demos is a nonpartisan public policy and research
institute founded in 2000. We focus on problems of democratic
participation, economic opportunity, and the important question
you are considering today, the proper role of government in our
society and the economy.
In the 1980's and 1990's, I was in State government in
Connecticut, both as secretary of the State, and also for 10
years in the legislature where I was a member of the Finance
Committee. The role of public investment was central to all
that experience. I was a freshman legislator in Connecticut
when the Mianus River Bridge in Greenwich collapsed after years
of deferred maintenance. I was there for an ambitious
initiative called U Conn 2000, which spent 10 years investing
in the University of Connecticut with fabulous results. And 10
years ago, the City of Hartford received a significant state of
investment, which has had an enormous important and salutary
effect on that City and its economic vitality.
These cases were my education, both in what happens when we
underinvest in our infrastructure and the public structures
that undergird our economy and quality of life, and they were
my education in the leading and positive role that public
investment can play in economic development.
I believe it is important to restore a broad understanding
of the role played by public investment and the public sector
in our economy and in the quality of our lives. America's
signal achievement after World War II, the creation of a broad
and vibrant middle class, was accomplished with policies that
included major public investments. The Veterans Administration
and the FHA helped millions of young families buy homes. The GI
Bill, and later the Pell Grants and Stafford loans, helped
millions of young people get an education. These public
investments created opportunities for young people--young
families, rather--to get a leg up and build a future for
themselves and their children.
Unfortunately, this commitment to investing in shared
prosperity has waned. Over the past 30 years, public investment
has been systematically devalued. There has been a sustained
and relentless critique not only of government's excesses but
of government itself. The ideals of the marketplace have been
elevated and extended into arenas previously occupied by an
understanding of a shared common good.
In the 1970's and 1980's, we embraced privatization,
deregulation, and the liberation of the global marketplace. It
all boiled down to one simple message: the market is better.
This has left Americans with a very negative view of
government. Careful research undertaken for Demos over the last
2 years shows that people have two dominant images of
government, both negative. The first is of politicians fighting
and attacking one another, and the second is of an ill-defined,
bureaucratic monolith that has little to do with people's daily
lives. Most people give little conscious thought to the number
of ways in which every day, government, properly run, assists
us all. And it is a very long list.
The consequences of devaluating public investment have been
severe. Let me mention a few. The first is inequality, which
has increased dramatically in America over the last 30 years.
The rewards of private investment have gone to a small or
smaller number of people who have pulled far ahead of the rest
of us. It is by now a familiar tale. The top 10 percent of
Americans have increased their share of personal income from
about 30 percent in the postwar era to 46 percent in 2004. The
share of income going to the bottom 60 percent has plunged from
32 percent in 1967 to 26 percent in 2005. Is this connected to
the lack of public investment? I believe that it is.
The second consequence is the highly disturbing fact that
for the first time in recent American history, the next
generation will not, as a whole, be better off than the
previous one. Tamara Draut of Demos, in her book, Strapped,
makes it very clear that in comparing young Americans today to
my generation, it has become far more difficult to achieve the
hallmarks of middle-class adulthood: getting a college degree
and paying off your debts; buying a home; having children; and
getting a job with health insurance. In each of these areas,
our investments have declined significantly.
Third, there are areas of our economic life where
government can not only achieve economic goals more equitably
than private markets, but more efficiently as well. Health care
is probably the clearest case. Public Medicare is far more
efficient than its private counterparts. The VA hospital system
does a better and more cost-effective job than its fragmented
private sector counterparts. But thus far, our market-oriented
blinders have kept us from seeing this clearly.
Let me mention just three specific realms in which I think
public investment could make a major difference. The first is
investment in early childhood education, particularly programs
for children born into disadvantaged circumstances. The work of
Nobel Prize winning economist James Heckman shows that
investment in early childhood programs gives children a much
larger chance to succeed. From a strictly income-generating
viewpoint alone, according to Heckman, such programs can
increase earnings by 15 to 17 percent over a lifetime.
Another arena for investment is to make college more
affordable. Education is a requirement for people to succeed in
the workforce, and for our economy to compete in the global
arena. But many students are either avoiding post-high school
education altogether, or graduating with enormously burdensome
levels of college-related debt. According to recent studies,
168,000 academically qualified high school students every year
don't attend college because they can't afford it, and a large
number attend 2-year colleges rather than 4-year colleges for
the same reason.
The Pell Grant, which used to cover three-quarters of the
cost of attending public universities, now covers only a little
more than a third. Grants have largely been converted to loans,
and tuition in our public 4-year universities has more than
doubled.
A last arena--and this is a very personal experience for
me--is making a needed public investment in our democracy
itself. Elections in this country have literally been run on a
shoestring, and we have paid a heavy price and lost confidence
in our election system. The patchwork of laws, rulings, and
equipment purchasing decisions, has all of us on edge about
procedural chaos every time a major election comes up. We need
a strong national agency with serious and sustained investment
in research, testing, standard-setting, training, and
enforcement, and we need sustained support for States in
improving their system.
Let me conclude by saying that our Nation's future and that
of its people depends on a set of public structures that give
everyone, businesses and individuals alike, the chance for
success. These structures, whether they are scientific research
programs, as the chancellor said, levies, bridges, roads,
colleges, or children's programs, promote the common good and
shape our common future. We need to reverse the undervaluing of
public investment and our government's overall role. This
committee's hearing today is an important contribution to that
conversation. I thank you for allowing me to be part of it.
[The prepared statement of Mr. Rapoport can be found on
page 55 of the appendix.]
The Chairman. Next is Mr. Clifford Winston, who is a senior
fellow of economic studies at the Brookings Institution.
STATEMENT OF CLIFFORD WINSTON, SENIOR FELLOW, THE BROOKINGS
INSTITUTION, WASHINGTON, D.C.
Mr. Winston. Thank you, Mr. Chairman, and members of the
committee. I'm happy to be here to talk about public
investment. Public investment encompasses both investment in
physical infrastructure and investment in human capital. I'll
confine my remarks to investment in physical infrastructure or
physical capital, but a lot of what I have to say, I think,
also applies to investments in human capital.
Any economic intervention in a market calls into question
how the markets are doing. This is not necessarily an attack, a
general attack on markets, but one has to ask the question, why
is government involved in public investment? So the first thing
I want to talk about briefly is just some justification for
what I call public production. That's what we're dealing here
with, physical capital. Then I'll assess how government policy
has performed in this task, and then I'll briefly conclude with
some policy suggestions.
All right. Justification. The main justification for
economic involvement in public production is market failure.
That is, there is the view that the market would not provide a
good or service that is socially desirable even though it's
privately unprofitable. For example, roads. The roads system is
extremely expensive to construct. It would be extremely
expensive and difficult for the private sector to raise all the
capital to build the interstate. Even if they could raise the
capital, they'd be encumbered by such great debt that they'd
probably never make a profit.
Or, for example, an urban rail system. It may not be that
they're going to be able to attract sufficient demand, or with
competition from autos get higher fares to support a private
sector rail system that's profitable. But these things could be
socially desirable in terms of the benefits to the public
exceed the subsidies that are required to keep them going.
So, if the public is involved then in doing this, and we
see this in a number of areas, certainly in the transportation
infrastructure--highways, airports, inland waterway systems,
public investment involved there--public land management--and
then services--urban bus, urban rail, and inner city rail
service, that is Amtrak, Postal Service the like--all areas of
public investment. The question is, how well has the government
done? Has it performed efficiently? This is not a question of
whether these things are desirable. Presumably they are. The
question is, are they being provided in an efficient way?
My assessment will be drawn from my book. The book is
entitled Government Failure Versus Market Failure. It's
actually available for free on my Web site. Don't tell
Brookings I've said that if you want to see it, but it is on my
Web site. What the book is about broadly is retrospective
assessments by the economics profession about what we really
know about how government has performed in this area. Some of
the work I've done, obviously, or I probably wouldn't have
written the book, but mainly the work is done by a lot of other
economists.
The general lesson you get out of the work is that research
accumulates. We don't start from square one. We now have really
a core of knowledge that we can build on to get to, ``truth'';
that is, at least the state of knowledge we have at the time,
and this could be quite powerful, I think, in our
understanding.
Let me begin before getting to that evidence with just some
descriptive statistics to get some intuition. You observe
growth in highway congestion and delays, something probably all
of you live with, you see that. Growth in air travel delays.
You certainly hear about that. Growth in urban transit
deficits. You probably hear about that, or certainly the issue
of the Dulles extension costing $4 billion raises questions and
obviously, you're all aware of the big dig, that costing a
little bit more than we planned on it costing.
So that suggests that public investment might be
characterized by serious inefficiencies. It need not be. These
things may be just the price of getting socially desirable
goods and services. However, the academic evidence that I
mentioned actually does reinforce intuition that in fact there
have been tremendous inefficiencies in all these areas that
have cost of hundreds of billions of dollars and are a drag on
economic growth.
There are a number of sources for where the problems lie,
but I'll just touch on two--inefficient pricing and inefficient
investment. Quick examples. The problem with pricing like in
the area of highways. Highways are underpriced in the sense
that the users who contribute to congestion don't have to pay
for that congestion, so there is demand for capacity but people
do not have to pay for that. And that's a wrong signal for
investment. We think we need more roads, but if we price them
efficiently, perhaps we wouldn't.
Trucks. Trucks tear up the roads because they're big and
heavy and all that, but the damage is related to the weight per
axle. That is, if you have more axles, that is good, that helps
your weight and you do less damage. It displaces your weight.
You do less damage to the road. However, the way we price roads
is with a gas tax, which is perverse. It penalizes trucks who
do the least damage, because they're the ones with more axles,
but they get less fuel economy, okay. But this is exactly the
kinds of ways that we are allocating resources in roads.
Road investment. Pavements. They should be trading off up-
front capital costs for ongoing maintenance costs. A thick road
doesn't have to be maintained as much. What's happening is, we
underbuild roads, they're maintained a lot. They don't last as
long, and we wind up increasing expenditures, okay. These are
some of many examples that I could talk about just in terms of
specific policies that have led to serious inefficiencies in
public production and public provision of infrastructure. As
noted, the implication is, a lot of waste and resources, as I
said, hundreds of billions of dollars a year; a drag on
economic growth, so you actually see the return on investment
in these areas is low. I've estimated that one dollar of
spending on highways reduces congestion costs only 11 cents. So
I guess I'm suspicious of claims that we should increase
spending. Why do we want to increase spending when we're
getting such low rates of return? Usually, that's not where you
want to be putting your resources.
Where then do I see policy? First, you look at what the
source of the problem is. A lot of this, obviously, deals with
political economy, and you could actually give better testimony
than I could about the pressures to lead to waste in spending,
also rigidity of agencies. The real concern, regardless of what
you think, the story is these inefficiencies has persisted for
decades, and there are real concerns about seeing reform, but
growing interest in when the private sector could do better.
So here is where I think we now have to have a broader
vision, not just public-private partnerships, but serious
consideration of the, ``counter factual,'' that is,
privatization.
We could, in all these areas of the private sector, do
better. I think it would be premature to recommend this, but
the success of deregulation, not only as a policy, but getting
bipartisan support, was through experiments, that is without
knowledge of what intrastate airline competition was doing,
lower fares compared with interstate, without knowledge of
deregulated commodities, how they compared to the price of
regulated commodities, I do not think Congress will be
enthusiastic about deregulation.
What I am calling for is growing interest in experiments of
privatization, in a variety of areas. Obviously, I do not have
enough time to go into how this could be done. I think there is
a lot more thought that goes into it.
I would suggest that such experiments might reveal ways
that the private sector can help in far greater ways than we
could possibly imagine, and transform a lot of our
infrastructure in urban services in ways that we could not
imagine just as how deregulation has transformed our inner city
system and generated such high benefits.
Thank you.
[The prepared statement of Mr. Winston can be found on page
73 of the appendix.]
The Chairman. Thank you.
Our final witness, and then we will have questions, is Mr.
Andrew Haughwout, who is a member of the Research and
Statistics Group of the Federal Reserve Bank of New York.
Mr. Haughwout?
STATEMENT OF ANDREW F. HAUGHWOUT, RESEARCH AND STATISTICS
GROUP, FEDERAL RESERVE BANK OF NEW YORK
Mr. Haughwout. Chairman Frank, and members of the
committee, thank you very much for the opportunity to speak to
you on the subject of public investment.
Today, I will be discussing research on public investment
and its relationship to economic growth and wellbeing.
All of the views I will express are my own and are not
those of the Federal Reserve Bank of New York or the Federal
Reserve System.
Physical public capital, what I will refer to as,
``infrastructure,'' is the dominant component of the Nation's
publicly owned wealth, and it is that kind of investment that
my own research is focused on.
Infrastructure consists largely of highways and streets,
buildings like schools and city halls, and sewer and water
systems.
Public capital is a very important part of the Nation's
wealth. Public investment in physical capital was over $430
billion in 2006, adding to a stock of publicly owned physical
capital that would have cost nearly $8 trillion to replace in
2005.
About 90 percent of the non-defense public assets in the
United States are owned by State and local governments.
Nonetheless, the Federal Government plays a large role by
helping to finance the construction of capital goods that State
and local governments own.
The ultimate goal of the large amount of resources devoted
to public investment is improvement of the welfare of the
American people.
Today, I will discuss three crucial issues surrounding
public infrastructure: its effects on economic growth; its
effects on household quality of life; and how these benefits
are influenced by the way we finance and locate new
investments.
The first issue is the relationship between infrastructure
and economic growth. Well-functioning infrastructure systems
are critical to a well-functioning economy, but it is clear
that the United States already has extensive public
infrastructure.
The evidence we currently have points to a conclusion that
additional infrastructure investments do increase productivity
but those effects are probably smaller than the benefits of
private capital.
Early estimates from the 1980's had indicated that
infrastructure's contribution to private output was
approximately twice as large as that of private capital, which
led to concerns of a severe infrastructure shortfall.
More recent research has resulted in significantly lower
estimates of the productivity of infrastructure, and most
economists now agree that the earlier estimates were too high.
The second central issue, which has received far less
attention from economists, is the direct benefits that
infrastructure provides to households. An example may clarify
what I mean.
Imagine that a State builds a new road from your home to
your place of work that cuts your one way commuting time by 15
minutes. Will you arrive earlier at work each day or sleep
later?
The way economists have thought about infrastructure
implies that all employees will get to work earlier, increasing
the output they produce. At least some workers will probably
sleep later or read the paper longer each morning. This
increased leisure will not be accurately measured in standard
studies of income or productivity, but it is still a real
benefit since it improves quality of life.
These quality-of-life benefits of public investments have
been less well studied, but some evidence is available. In my
own work, I have estimated that the value to households of
increases in infrastructure is considerably higher than the
comparable benefit to firms.
The issue of infrastructure's effect on wellbeing is
broader than its effect on income.
The third issue I would like to emphasize is that the way
we finance and select infrastructure projects affects location
patterns. This dimension is important since where activities
occur has significant effects on levels of productivity and
income growth.
Thus, an important way in which infrastructure policy can
potentially affect economic growth is through its effect on
location patterns.
Research indicates that private firms in dense urban
environments are more productive than in less developed areas.
Because they are often placed in relatively undeveloped areas,
public investments provide individual firms and households with
incentives to move from more to less dense environments, but if
this re-distribution of activity reduces productivity growth,
then the placement of new infrastructure in relatively
undeveloped areas may not be the most effective use of public
monies.
The complex way we finance public investments allows
localities to receive the benefits of public works, while much
of the cost is paid by taxpayers elsewhere.
Regional decisionmaking bodies are authorized to allocate
transportation investment budgets, but do not typically control
the size of these budgets.
Maximizing the effectiveness of our public investment
budget requires careful attention to both the level of funding
and the design of institutions for allocating infrastructure
investments.
Thank you.
[The prepared statement of Mr. Haughwout can be found on
page 45 of the appendix.]
The Chairman. Thank you all, very much.
It is 3:00 on a Friday afternoon. We are through with
votes. There are five members here and a couple of others in
and out. There is some interest in this, and we intend to
continue to discuss it.
Mr. Winston, to get a sense of this, you talk on pages two
and three about transit pricing--three and four. You talk about
how it is below what is needed.
Would you recommend raising the fares for public transit?
You say it would be privatized. Would a private company doing
the transit then raise the fares?
Mr. Winston. Let me step back.
The Chairman. No, please do not step back. We do not have
time. That is the question.
Mr. Winston. Ultimately, yes. My expectation would be that
the subsidies are something that would not be sustained in a
private system.
The Chairman. You would advocate turning it over to a
private company which would raise the fares?
Mr. Winston. I would advocate a private company to do two
things. First, try to minimize the cost of service. That is a
critical part. My expectation, even with a lower cost of
service, is that fares would probably be higher; yes.
The Chairman. Thank you.
Dr. Drake, one of the things that concerns me is that we
are told by some--Alan Greenspan, Ben Bernanke--that yes, we
have more inequality than it is healthy for society to have,
and they have argued, and others have argued, that the major
way to diminish it, never to try to even come close to
abolishing it, is through education.
I believe they are putting too much of a burden on
education going forward, and certainly education does not take
care of all the people who are already in their 30's and 40's,
but even if we are talking about education going forward, my
view is that part of the problem is if you simultaneously are
an advocate for steady reduction in government spending kind of
across the board, you are going to have problems. A critical
element in the education is going to have to come from public
funding. What is the state of the current level of Federal and
State funding for education?
Can the private sector make up for it? Do you think we need
more public support for education, particularly higher
education?
Dr. Drake. A complicated question, and I think a
challenging one. I believe that Federal support for public
education is a critical factor that has made this country what
it is.
I speak from the higher education point of view first, and
say that if we look at the United States in the last half of
the 20th century, compared to the United States in its history
before that time, things that made us a leader among nations
were things that came from our higher education compact, and
things that we brought to society from the education system,
and a lot of the growth over this last several decades has been
the result of Federal investment of research and other things
that have come from higher education.
I would say at the same time, from the time I grew up going
to public schools, that the level of investment and the level
of quality in public schools across the country is just very
different than it seemed like it was when I was attending.
The Chairman. When I talk about, ``public,'' I am talking
about public support for higher education. That is what
concerns me.
What is the current projection--I agree with you that
higher education has been important. From the standpoint of
diminishing, reducing inequality, it seems to me that there is
going to need to be a public funding element of higher
education.
What is the state of that today? In terms of the
accessibility of people from poor families, lower income
families, what kind of access do they have to your institution?
Dr. Drake. We at the University of California actually have
a very proud record of access to lower income families, about a
third of our students, 30 percent of our students, are PELL
grant eligible, which is the highest of any comparable
institution in the country. We are very proud of that.
I will say that every year there is increasing stress on
families to be able to support their students in our education
system. As fees go up, the stretch and strain on families,
particularly middle income families, becomes an increasingly
large burden.
We work quite hard to try to do everything we can to keep
costs as low as possible while maintaining the excellence that
is required to be leaders nationally.
I will say that State support is the way that we would see
it most actively. From the time I was a medical student at the
University of California, San Francisco, now 30 years ago, the
percentage of State support has dropped to about half of what
it was before. I think that is troublesome.
The Chairman. That is very troubling. State universities in
general say that well, the trend has been much lower. I just
wish when people talk across the board for lower public
expenditures, they will understand that among the expenditures
that have been lowered is support for higher education.
My time has expired. The gentleman from Texas.
Mr. Neugebauer. Thank you, Mr. Chairman. I will say this
has been a great panel.
Dr. Drake, I want to go back to something that you said
that I agree with. The country has been an enormous benefactor
of the research that has gone on in many of our universities in
the technology. You pointed out the GPS, and that is not only
something we enjoy in the military.
As a policymaker, one of the things we face is something
that you were kind of alluding to, we have this huge appetite
from our research universities that if you will give us more
money, we can do more research, and in fact, provide a better
educational opportunity for our students who are coming there.
Then the other piece of it is that we hear more and more of
our students are having trouble at the other end of the
spectrum, of becoming a student.
What are some things that you think we can do at our level
to do that? Either we are going to be giving you folks more
money for research or we are going to be helping more students
get into the system. Somewhere in the middle, I guess, is the
appropriate balance. I do not know that we have found that yet.
Dr. Drake. Yes. I was going to say both, but I guess it was
not one of my options.
Mr. Neugebauer. Everybody who comes up here, that is their
answer. We are looking for some solutions here.
Dr. Drake. I understand. I would say a couple of things.
One, I am here to support research. I think supporting students
is also critically important, and there really is a balance. We
do what we can actually, and in a lot of our research, we do
educational research also, to look at how we can help to
improve the educational system.
In fact, in California, we have recently started a new
initiative at the University of California to go and do
something called the Science and Math Initiative, where people
from our campuses work in K-12 to try to help the production of
K-12 individuals be stronger in the science and math areas
particularly, those things that are important for technology as
it goes forward.
It is a critically important balance. I think you often
have the challenge--I do not mean to make the analogy, but as a
chancellor, all day I have people coming to me with good things
that they would like for me to do, and then more good things
than we can do, and there is a balance between those two.
As a country, we have done very, very well over these last
several decades in that balance. I think it is important to
stay the course.
Mr. Neugebauer. Thank you.
Mr. Winston, I was listening to your discussions about
infrastructure and to the extent of letting the market forces
be much a part of that as you can, and I agree with that.
One of the interesting concepts that I have been toying
with as a former city council member and then later working on
a transportation project, is a concept of buying down.
Do you know what to buy down a mortgage is? To pay fees up
front to make the interest rate less on a mortgage, so you pay
some up front.
One of the things I have been a proponent of is letting the
public sector buy some of that down to an economic level and
where it makes sense for then the private sector to be able to
take that. That leverages those dollars.
Let's just say we could build a road for $1 million, using
all public money. Dr. Drake here needs money for education and
those kinds of things.
If we could put, say, $100,000 of public money into that
transportation system and let the private sector put the other
$900,000 in, and let the private sector maintain that road and
keep it up from that point forward, that frees up my $900,000
for education and schools and research and other kinds of
things.
That creates an interesting debate. There are a lot of laws
against mixing private and public money and taxpayers' money
together.
What are your thoughts on that concept?
Mr. Winston. My concern about that is that although you can
sort of name, in your example, hard fees, $100,000 versus
$900,000, in practice, once we go down a road like that, there
is the risk that the $100,000 is not enough, that the private
sector is involved.
We sort of got a sense of this in private investment
possibly in a high speed rail, inner city rail, there were
supposed to be projects that were going to go in that way, but
the private sector initially was interested, and then after
making further inquiry into what it was going to cost, they
came back and said, ``No, we are going to need more money.''
If we could really agree there were going to be limits and
that these limits we could identify were sort of the tipping
point that would be just what the private sector needed to
attract them, that would be great.
I think as a practical matter, the system could be gamed,
and once they get in, there can be problems.
I am weary about that. I am also weary about the incentives
for the most important thing that I am really looking for in
this area, which is innovation.
When the private sector fully has a stake in these systems,
then they start to think out of the box and start making the
kinds of technological changes and innovations that are
unencumbered by the public sector, and that often can give you
the sort of biggest return, the things you just cannot
anticipate and you cannot see.
Unfortunately, I cannot say that I am enthusiastic about
those kinds of arrangements.
Mr. Neugebauer. Thank you.
Mr. Green. [presiding] The gentleman's time has expired. I
will now yield myself 5 minutes.
If I may, I would like to visit with you, Mr. Rapoport. I
would like to go to page six of your codified instrument.
On page six, near the very bottom of the page, the language
reads, ``Public Medicare is enormously more efficient than its
private counterparts, with far fewer administrative costs.
``The VA hospital system, with its efficiencies of scale,
long-standing patient relationships, and comprehensive care,
does a better and more cost effective job than its fragmented
private sector counterparts.
``But in the health care debate thus far, our market
oriented blinders have kept us from learning these lessons.''
What I would like to know is, and this may not be the best
time to talk about the VA system, given some of the things we
have heard in the news lately, please, if you would, tell us
what we can learn from this in terms of health care for people
in the main.
Mr. Rapoport. The most recent information that I drew from
in talking about the VA was a very interesting piece from the
Boston Globe by Drake Bennett on March 11th, which sort of
looked very closely at what the actual cost and quality
implications were of the VA, which obviously as you know, does
not impact running the Walter Reed Hospital, it is a separate
system.
And what they found is because there was such a long term
clientele, if you will, that is people who use the VA system as
their main source of health care, that there was an up front
investment in the proper testing and the proper long term care
that they got, which actually lowered the costs of medical
care, gave them very, very good care, had a very high
satisfaction rate, and a relatively low administrative cost, as
opposed to in the privatized system where patients are going
from one place to another to another to another, and often not
as properly coordinated.
The administrative costs were low and the quality of care
was actually quite good. It sort of came as a surprise to the
writer of the article as he investigated it, but that is what
he came back with.
Mr. Green. How would you respond to the notion of some sort
of nationwide health plan that covers everyone that has
government involvement?
Mr. Rapoport. This is somewhat out of my area of full
expertise. I would generally say that as an area of needed
public investment, creating a health care system where we have
universal coverage for everyone with administrative costs that
are kept under control would be an extraordinarily important
investment for the health, wellbeing, and ultimate productivity
of society.
Almost every other industrialized country that our
businesses compete with pay for the health care of their
citizens in one holistic system as opposed to putting the
burden onto the corporations or putting it onto the individual.
I think that would be a very productive way to do it. By
the way, one very easy way to think about this would be to
expand Medicare to a different age population. It has fairly
low administrative costs, and I think that would be a good step
forward.
Yes, I think as a matter of an area for public investment
that would pay very high returns, I happen to believe that
would be a good one.
Mr. Green. Would anyone else care to comment?
Dr. Drake. I should. This has been my field. I am also
chair of a group now called the Association of Academic Health
Centers for the United States, where we look at this very
carefully.
It would be incredibly helpful for the efficiency of the
health care system in this country and for the health of our
citizens.
Mr. Green. Thank you. At this time, I will yield 5 minutes
to the gentleman from California, Mr. Campbell.
Mr. Campbell. Thank you, Mr. Chairman. Welcome all, and a
special welcome to you, Chancellor Drake.
The University of California, as I recall, a few years ago,
about 18 percent of its total budget was State funds, total
revenue, income, if you will. I do not remember how much was
Federal or how much was tuition or how much was privately
raised.
Can you tell me what that is either for the University of
California, of which I am an undergraduate product, by the way,
or UCI?
Dr. Drake. At Irvine, the State funds for Irvine are just
under $300 million a year in a budget of $1.4 billion. You can
do the math. We come out at around 20 percent. It is higher at
campuses that have no medical facility, because that is a big
part of our budget at Irvine.
At Santa Cruz or Riverside, the percentage of State funding
would be higher. It would be lower at a place like UC, San
Francisco, where it is closer to 10 percent.
Mr. Campbell. How much is private?
Dr. Drake. There is $300 million, State. Our Federal
research grants and contracts are around 200 to $250 million a
year, so we are looking toward about $600 million for us.
A lot of the rest of that, about $600 million of that,
would be in the health care part of our budget. A large part of
the health care budget then is Medicare and other things,
probably about half of that.
The private investment in our research enterprise is
actually relatively small. Students also pay fees at our
institution--25,000 students at a fee of about $7,000 to $8,000
per student also is a big part of our budget.
Mr. Campbell. And you have private contributions as well?
Dr. Drake. And we have private contributions. Last year,
about $100 million, for a campus of our size. It is a public/
private partnership in that way.
Mr. Campbell. I am sure you would like to see more of
everything. That is your job. Is that balanced? How does that
balance feel to you or is there an objective within the
University of California to change that balance?
Dr. Drake. Yes. There is an objective in two ways. I will
tell you the places that we have looked at, and the place that
is in the private sector and the place that is in the public
sector.
In the private sector, we look actually for more fund
raising. As the State, in this case, not the Federal
Government, has decreased its support for higher education on a
percentage basis, that puts stress on our ability to be able to
compete for faculty and others with private institutions who
charge much, much more for what they provide, 5 times as much,
almost, for tuition.
We have a hard time competing if the State fraction goes
down, unless we have private support to help us.
The place where it is most important for us to have Federal
support is what I mentioned today, which is one of the most
important places, which is in the research enterprise.
As we grow forward, that funding of basic research is not
as attractive to the private sector. There is some. We have a
lot of public/private partnerships. We care a lot about those.
True basic research, when you are not even necessarily thinking
about the product, is something that the private sector tends
not to invest in very heavily.
Mr. Campbell. You mentioned the doubling of NIH funds. I
have heard some criticism, not specific to NIH, but that lots
of money goes into research and where there is not a lot of
product, output.
You talked about basic research, which can have a very long
gestation period.
Is there something we could or should be doing with NIH to
make it more effective or efficient?
Dr. Drake. I think that NIH is the envy of the world. As we
travel around the world, when other countries are trying to
emulate the great success of the United States, they try to put
together something like the NIH, where you have a fund of money
that is peer reviewed by scientists looking at the best ideas
and the best new science that has a long enough period of
support that a young scientist can become involved in an area
and create a career by making real discoveries.
This has been an incredible model for us. As I mentioned,
as we look at the United States in the last 60 to 70 years, and
the real advances, particularly in the area that I work in,
which is in medicine, we see them coming from discovery upon
discovery that builds this great foundation.
I am a supporter. I worked in the lab and did basic
research. I am a supporter of basic research based on peer
reviewed merit, so we look at the best ideas and lead those
forward, and then actually as that becomes a part of our
knowledge, we then can look at ways to apply it later on.
We have done it awfully well in this past period.
Mr. Campbell. No suggestions?
Dr. Drake. I would say that continuing to fund it at an
adequate level is the most important thing. I am being as
honest as I can. It really has worked. It is really the envy of
the world. It has worked quite well. It needs your continued
support.
Mr. Campbell. Let me ask anybody who wants to answer. I am
a CPA, so this is a bean counter oriented question.
One of the things that is unique to government accounting
is that when public money is spent on something that has a
useful life that is long, such as a road or a building at the
University of California, Irvine, or wherever, we expense it
all when the cash is put out, when the building is bought,
which outside of government, that is not done at all in
accounting.
Obviously, that affects decisionmaking. Has anybody ever
thought about that or does anybody think that government should
act more like private entities and set up an asset and
depreciate those?
Yes. I will butcher your name if I say it. I will let you
say it.
Mr. Haughwout. I am Andy Haughwout from the Federal Reserve
Bank of New York.
I think it is important to note that State and local
governments budget more in the way you are describing the
private sector budgeting, that is to say they have capital
budgets, which allow the use of debt to finance along with
capital projects, and then pay for operating expenses,
including maintenance, out of current revenues.
I think for those governments, that kind of institutional
arrangement allows for the kind of long term planning you were
alluding to.
Mr. Campbell. Mr. Rapoport, a question for you, and I guess
probably my last question.
Right now, Federal Government spending is about 20 percent
of gross domestic product, and Federal taxes are slightly below
that, hence, the deficit, I think 18.6, something like that.
That is about the historic average since 1960. A lot of the
things that you suggest in your testimony would obviously
increase that dramatically. That is just the Federal
Government. I cannot recall the number with State and local,
but I think it is somewhere north of 30-something percent of
GDP that is government related activity.
I would assume with the things that you are suggesting that
you would take taxes considerably higher than the 18.6 they are
at now and government spending higher than that.
Is there some place you think that can go without hurting
the economy?
Mr. Rapoport. Yes, I would take it higher, actually. I
think one of the places to look for comparison--the costs for
health care, for instance, are borne somewhere. They are either
borne by the government or they are borne by major corporations
who pay for health care, or they borne by the individual. The
costs are done.
In a number of the European countries, which in fact have
done reasonably well in the global economy and on a trading
basis as we have and have not had the kinds of inequality
increases that the United States has had over the time, the
taxation levels are up closer to 30 percent and yet if you
actually take the costs to a consumer or taxpayer, and if you
take out the health care costs that they no longer need to pay
or the other costs, it may not be a much greater cost.
I might go up to the upper 20's and lower the costs for
people in society in other ways.
Mr. Campbell. Be more like Sweden.
Mr. Rapoport. Not a bad idea.
The Chairman. The other countries, how many are spending
$100 billion a year on a war in Iraq?
Mr. Rapoport. Is that a question?
The Chairman. Yes.
Mr. Rapoport. None that I know of.
The Chairman. Thank you.
With that, the hearing is adjourned.
[Whereupon, at 3:42 p.m., the hearing was adjourned.]
A P P E N D I X
March 23, 2007
[GRAPHIC] [TIFF OMITTED] 35409.001
[GRAPHIC] [TIFF OMITTED] 35409.002
[GRAPHIC] [TIFF OMITTED] 35409.003
[GRAPHIC] [TIFF OMITTED] 35409.004
[GRAPHIC] [TIFF OMITTED] 35409.005
[GRAPHIC] [TIFF OMITTED] 35409.006
[GRAPHIC] [TIFF OMITTED] 35409.007
[GRAPHIC] [TIFF OMITTED] 35409.008
[GRAPHIC] [TIFF OMITTED] 35409.009
[GRAPHIC] [TIFF OMITTED] 35409.010
[GRAPHIC] [TIFF OMITTED] 35409.011
[GRAPHIC] [TIFF OMITTED] 35409.012
[GRAPHIC] [TIFF OMITTED] 35409.013
[GRAPHIC] [TIFF OMITTED] 35409.014
[GRAPHIC] [TIFF OMITTED] 35409.015
[GRAPHIC] [TIFF OMITTED] 35409.016
[GRAPHIC] [TIFF OMITTED] 35409.017
[GRAPHIC] [TIFF OMITTED] 35409.018
[GRAPHIC] [TIFF OMITTED] 35409.019
[GRAPHIC] [TIFF OMITTED] 35409.020
[GRAPHIC] [TIFF OMITTED] 35409.021
[GRAPHIC] [TIFF OMITTED] 35409.022
[GRAPHIC] [TIFF OMITTED] 35409.023
[GRAPHIC] [TIFF OMITTED] 35409.024
[GRAPHIC] [TIFF OMITTED] 35409.025
[GRAPHIC] [TIFF OMITTED] 35409.026
[GRAPHIC] [TIFF OMITTED] 35409.027
[GRAPHIC] [TIFF OMITTED] 35409.028
[GRAPHIC] [TIFF OMITTED] 35409.029
[GRAPHIC] [TIFF OMITTED] 35409.030
[GRAPHIC] [TIFF OMITTED] 35409.031
[GRAPHIC] [TIFF OMITTED] 35409.032
[GRAPHIC] [TIFF OMITTED] 35409.033
[GRAPHIC] [TIFF OMITTED] 35409.034
[GRAPHIC] [TIFF OMITTED] 35409.035
[GRAPHIC] [TIFF OMITTED] 35409.036
[GRAPHIC] [TIFF OMITTED] 35409.037
[GRAPHIC] [TIFF OMITTED] 35409.038
[GRAPHIC] [TIFF OMITTED] 35409.039
[GRAPHIC] [TIFF OMITTED] 35409.040
[GRAPHIC] [TIFF OMITTED] 35409.041
[GRAPHIC] [TIFF OMITTED] 35409.042
[GRAPHIC] [TIFF OMITTED] 35409.043
[GRAPHIC] [TIFF OMITTED] 35409.044
[GRAPHIC] [TIFF OMITTED] 35409.045
[GRAPHIC] [TIFF OMITTED] 35409.046
[GRAPHIC] [TIFF OMITTED] 35409.047
[GRAPHIC] [TIFF OMITTED] 35409.048
[GRAPHIC] [TIFF OMITTED] 35409.049
[GRAPHIC] [TIFF OMITTED] 35409.050
[GRAPHIC] [TIFF OMITTED] 35409.051
[GRAPHIC] [TIFF OMITTED] 35409.052
[GRAPHIC] [TIFF OMITTED] 35409.053
[GRAPHIC] [TIFF OMITTED] 35409.054
[GRAPHIC] [TIFF OMITTED] 35409.055
[GRAPHIC] [TIFF OMITTED] 35409.056
[GRAPHIC] [TIFF OMITTED] 35409.057
[GRAPHIC] [TIFF OMITTED] 35409.058
[GRAPHIC] [TIFF OMITTED] 35409.059
[GRAPHIC] [TIFF OMITTED] 35409.060
[GRAPHIC] [TIFF OMITTED] 35409.061
[GRAPHIC] [TIFF OMITTED] 35409.062
[GRAPHIC] [TIFF OMITTED] 35409.063
[GRAPHIC] [TIFF OMITTED] 35409.064
[GRAPHIC] [TIFF OMITTED] 35409.065
[GRAPHIC] [TIFF OMITTED] 35409.066
[GRAPHIC] [TIFF OMITTED] 35409.067
[GRAPHIC] [TIFF OMITTED] 35409.068
[GRAPHIC] [TIFF OMITTED] 35409.069
[GRAPHIC] [TIFF OMITTED] 35409.070
[GRAPHIC] [TIFF OMITTED] 35409.071
[GRAPHIC] [TIFF OMITTED] 35409.072