[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
ECONOMIC RECOVERY AND JOB CREATION THROUGH INVESTMENT IN AMERICA
=======================================================================
HEARING
before the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
OCTOBER 29, 2008
__________
Serial No. 110-101
__________
Printed for the use of the Committee on Ways and Means
ECONOMIC RECOVERY AND JOB CREATION
THROUGH INVESTMENT IN AMERICA
ECONOMIC RECOVERY AND JOB CREATION THROUGH INVESTMENT IN AMERICA
=======================================================================
HEARING
before the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
OCTOBER 29, 2008
__________
Serial No. 110-101
__________
Printed for the use of the Committee on Ways and Means
----------
U.S. GOVERNMENT PRINTING OFFICE
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COMMITTEE ON WAYS AND MEANS
CHARLES B. RANGEL, New York, Chairman
FORTNEY PETE STARK, California JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan WALLY HERGER, California
JIM MCDERMOTT, Washington DAVE CAMP, Michigan
JOHN LEWIS, Georgia JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee JERRY WELLER, Illinois
XAVIER BECERRA, California KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas RON LEWIS, Kentucky
EARL POMEROY, North Dakota KEVIN BRADY, Texas
MIKE THOMPSON, California THOMAS M. REYNOLDS, New York
JOHN B. LARSON, Connecticut PAUL RYAN, Wisconsin
RAHM EMANUEL, Illinois ERIC CANTOR, Virginia
EARL BLUMENAUER, Oregon JOHN LINDER, Georgia
RON KIND, Wisconsin DEVIN NUNES, California
BILL PASCRELL, JR., New Jersey PAT TIBERI, Ohio
SHELLEY BERKLEY, Nevada JON PORTER, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama
Janice Mays, Chief Counsel and Staff Director
Jon Traub, Minority Staff Director
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisory of October 22, announcing the hearing................... 2
WITNESSES
The Honorable David Paterson, Governor, State of New York........ 6
The Honorable Mark Sanford, Governor, State of South Carolina.... 16
The Honorable Douglas Palmer, Mayor, City of Trenton, New Jersey. 24
Timothy Firestine, Chief Operating Officer, Montgomery County
Executive, Rockville, Maryland................................. 42
David Mongan, President, American Society of Civil Engineers..... 48
Dennis Van Roekel, President, National Education Association..... 55
Randi Weingarten, President, American Federation of Teachers..... 65
______
Jared Bernstein, Ph.D., Director, Living Standards Program,
Economic Policy Institute...................................... 131
Robert Greenstein, Executive Director, Center on Budget and
Policy Priorities.............................................. 154
Christine Owens, Executive Director, National Employment Law
Project........................................................ 164
Jeanne Lambrew, Ph.D., Associate Professor, LBJ School of Public
Affairs, University of Texas at Austin, Senior Fellow, Center
for American Progress, Action Fund, Austin, Texas.............. 183
Martella A. Turner-Joseph, Vice President, Joseph & Turner
Consulting Actuaries, LLC, New York, New York.................. 189
Alan Viard, Ph.D., Resident Scholar, American Enterprise
Institute...................................................... 193
SUBMISSIONS FOR THE RECORD
Levi Pesata, statement........................................... 221
Corrine Brown, Chairwoman, Subcommittee on Railroads, Pipelines,
and Hazardous Materials, U.S. House of Representatives......... 227
Goodwill Industries of Manasota and Acadiana..................... 229
David W. Joyner, letter.......................................... 232
American Apparel and Footwear Association, Statement............. 233
American Benefits Council, Statement............................. 234
American Federation of State, Statement.......................... 237
American Prepaid Legal Services Institute, Statement............. 240
American Public Works Association, Letter........................ 242
American Seafaring and Longshore Labor Unions and U.S. Flag
Shipping Organizations, Statement.............................. 244
Associated General Contractors of America, Statement............. 245
Burnett County Wisconsin Child Support Agency, Statement......... 248
Center for Law and Social Policy, Statement...................... 248
Chippewa County Child Support Agency, Statement.................. 255
Coastwise Coalition Joint Letter, Statement...................... 255
Columbia Country Child Support Agency, Statement................. 258
Congressman Luis G. Fortuno, Statement........................... 259
Denise Soffel, Statement......................................... 260
Diana Aviv, Statement............................................ 260
Frank Hugelmeyer, Statement...................................... 263
Honorable Anibal Acevedo Vila, Statement......................... 265
Honorable John P. DeJongh, Jr., Statement........................ 266
J. Lee Pickens Project, Statement................................ 269
Jicrilla Apache Nation, Statement................................ 276
Jim Gibbon, Statement............................................ 280
Kenneth J. Kies, Statement....................................... 282
Meg Torgerud, Statement.......................................... 284
National Association of Home Builders, Statement................. 284
National Black Chamber of Commerce, Statement.................... 290
National Child Support Enforcement Association, Statement........ 292
National Complete Streets Coalition, Statement................... 294
National Employment Opportunity Network, Statement............... 295
National Retail Federation, Statement............................ 297
National Retail Federation, Statement............................ 299
Ohio CSEA Directors, Statement................................... 299
Pamela S. Pipkin, Statement...................................... 300
Patrick Smith, Statement......................................... 301
Patti L. Worzalla, Statement..................................... 301
Pre-Paid Legal Services, Statement............................... 303
Public Human Services Association, Statement..................... 304
Richard L. McNeel, Statement..................................... 306
Rod R. Blagojecich, Statement.................................... 307
Shirley Franklin, Statement...................................... 308
Starwood Hotels, Statement....................................... 310
Statement of National Roofing Contractors Association............ 311
Transportation For America Coalition, Statement.................. 313
U.S. Chamber of Commerce, Statement.............................. 318
William C. Daroff, Statement..................................... 319
Wisconsin Board of Supervisors, Statement........................ 321
Wisconsin Child Support Enforcement Association, Statement....... 321
ECONOMIC RECOVERY AND JOB CREATION THROUGH INVESTMENT IN AMERICA
----------
WEDNESDAY, OCTOBER 29, 2008
U.S. House of Representatives,
Committee on Ways and Means,
Washington, DC.
The Committee met, pursuant to notice, at 10:10 a.m., in
room 1100, Longworth House Office Building, the Honorable
Charles B. Rangel (Chairman of the Committee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
CONTACT: (202) 225-5522
FOR IMMEDIATE RELEASE
October 29, 2008
FC-23
Chairman Rangel Announces Hearing on
Economic Recovery, Job Creation and
Investment In America
House Ways and Means Committee Chairman Charles B. Rangel today
announced the Committee will hold a hearing focusing on economic
recovery and job creation through investment. This hearing will take
place on Wednesday, October 29, 2008, beginning at 10:00 a.m. in the
main committee hearing room, 1100 Longworth House Office Building.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing. A list of invited
witnesses will follow.
BACKGROUND:
American families are facing a unique new set of challenges as a
result of the recent economic downturn. The American economy has shed
jobs every month in 2008, 760,000 in total. In September 2008 alone,
the economy suffered a staggering loss of 159,000 jobs, the biggest
one-month loss in five years. According to the latest figures from the
U.S. Department of Labor, there are currently 9.5 million unemployed
workers with a national unemployment rate of 6.1 percent, which is also
a five-year high.
Millions of families have also lost their homes to foreclosure, as
a housing crisis continues to grip the nation with mortgage and credit
markets suffering from a lack of confidence in the financial services
sector. Increasing volatility in the stock market is also having a
devastating impact on workers and retirees' savings, with retirement
accounts losing hundreds of billions in value in recent months. These
factors, combined with a dramatic increase in the cost of health care,
food, education and energy, have left millions of American families in
an insecure and untenable financial situation.
State and local governments are also struggling with record budget
shortfalls, falling victim to years of policies that favored short term
solutions rather than long-term investment. These deficits are
preventing critical investment in areas such as health care, education
and infrastructure to improve the quality of life for local residents.
These challenges are compounded by depressed financing mechanisms
brought on by instability in the financial markets. As a result,
governments are increasingly unable to meet obligations for critical
care or execute contracts for improvements to roads, bridges, railways
and other infrastructure items. The resulting degradation of America's
commercial infrastructure threatens to diminish its ability to deliver
goods to markets around the world and damage its competitiveness in the
international marketplace.
In announcing the hearing, Chairman Rangel said, ``American
families are hurting and they are looking to Congress for solutions to
help our economy recover and create new jobs. This hearing will examine
the growing challenges facing working families as well as State and
local governments to determine how we can best restore economic
security throughout our nation.''
FOCUS OF THE HEARING:
The hearing will focus on challenges facing American families and
State and local governments during the economic downturn and solutions
to improve economic security, create new jobs and invest in America's
infrastructure.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
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noted above.
Chairman RANGEL. The hearing will come to order.
Most of you have already felt the pains in your
communities. We can't use the word ``recession'', but we
certainly know what is happening to our people back home.
We found it difficult, but we did find it possible to give
close to $1 trillion to our financial institutions, and now we
hope to hear from panelists that will share with us the
economic pain that is felt on the ground, as opposed from just
the credit crunch.
Most all of our communities have lost jobs. A lot of people
that are on the panel are going to have to determine how they
are going to meet their budgets and, since they have to have a
balanced budget, decisions that they are going to have to make
in terms of what services are going to be cut, reduced, as well
as the economic impact of cutting education, cutting health
care, and a variety of other economic decisions they have to
make.
It is our hope that, as a result of this testimony, that
the Members of this Committee would realize how important the
economic recovery is and that the leadership of both parties
would be able to confer and to come back after the election to
see what we can do to provide the assistance to local and State
Government, as we have found ourselves able to do with our
banking and finance industry.
So, I hope this is not the last time that Jim McCrery will
be with us and that we will have his support in coming back. I
know you are looking forward to it. But in view of the fact
that the elections in Louisiana are going to be postponed, we
hope that you will be able to provide your expertise.
But in the event that we don't have the opportunity, I know
that I speak for every Democrat on this side of the aisle when
I say, Jim, that you have brought a sense of civility to this
Committee, the likes that haven't been seen in over a decade.
While it is abundantly clear that we could not do all of the
things that you and I would want to accomplish, the
disagreements that we had individually and collectively was on
the level that certainly would make the House of
Representatives appreciative of the efforts in which we brought
our bills to the floor. You have been a great Member of
Congress, a great Member of this Committee, and I am pleased to
share with this Committee your willingness to work with us even
after the election itself. So, at this time I would like to
yield to you.
Mr. MCCRERY. Thank you, Mr. Chairman; and thank you very
much for those kind words. It has been a pleasure working with
you and all the Members of this Committee on both sides of the
aisle.
This is a great Committee. I believe it is the best
Committee in the House of Representatives. The Members who are
chosen to serve on this Committee are chosen carefully by our
respective leaderships; and the quality of service, as
evidenced by the turnout here today, has always been of the
highest quality on this Committee.
So, Mr. Chairman, it has been a real honor and pleasure to
serve on this Committee and particularly to serve with you
these last 2 years. The public doesn't know all the efforts
that you and I made to accomplish things within the
jurisdiction of this Committee, and I want to thank you and
acknowledge publicly your efforts to work with me to try to
solve some of the country's problems in a bipartisan way.
Unfortunately, we didn't succeed in all the matters that we
tried to address, but I appreciate the effort that you made
very much.
Mr. Chairman, because of your kind words, I now will revise
my opening statement. Just kidding.
Mr. Chairman, this hearing is indeed important, again, as
evidenced by the turnout of our Members on both sides today. We
have seen economic conditions in this country, unfortunately,
deteriorate substantially over the last couple of years. The
number of Americans classified as long-term unemployed nearly
doubled between January of 2007 and September of 2008. During
that period, there has been more than a 400 percent jump in the
number of high unemployment States. Gasoline prices, though
down from their highs earlier this year, are still well above
January, 2007, levels. The deficit is higher, driven mostly by
higher spending, while our 401(k)s and IRAs have shrunk in the
face of a stock market which has moved down sharply amidst
unprecedented volatility. Underlying these problems has been
weakness in the housing market, which has seen falling home
values and a rising number of foreclosures.
But, Mr. Chairman, we have not stood idly by, the Congress.
We have passed on a bipartisan basis a stimulus bill earlier
this year. We passed a housing rescue package. Earlier this
month, we passed a far-reaching financial stabilization package
that fundamentally alters the relationship between the
Government and the markets, making even its supporters nervous
about the long-term implications of that. But we passed it on a
bipartisan basis.
Unfortunately, though, these efforts have failed to get the
economy kick-started, and the calls are growing louder for yet
another round of stimulus. In late September, the House passed
a stimulus bill that the Senate failed to act on. That bill's
$60 billion price tag seemed steep at the time, but today some
Members of Congress are talking about packages several times
that size.
This hearing will provide us an opportunity to hear from a
variety of witnesses who will describe the current economic
situation and who will share their recommendations for
congressional action. In particular, I am pleased to see at the
dais a former colleague who left our ranks when he was elected
Governor of South Carolina back in 2002. Governor Sanford will
no doubt provide a unique perspective, particularly as his
State is attempting to close its current budget shortfall.
Governor Sanford, welcome back. It is good to have you.
The presence of so many Members I think again underscores
the importance of this hearing, Mr. Chairman; and I appreciate
your calling it. But I am not sure, Mr. Chairman, whether this
hearing is just a fact-finding expedition or whether we are
laying the groundwork for action in Congress next month on a
stimulus package. I say that because many of the witnesses that
we will hear today will urge Congress to enact all sorts of
good-sounding spending increases. But if our goal is to make
law this year, Mr. Chairman, I would remind everybody on this
Committee that it is of little use to draft a package that
these panelists might embrace, their cumulative requests are
well over $300 billion, but it will do us little good to craft
a package like that if it stands little chance of passing a
closely divided Senate or getting signed by the President.
So, I hope once again, Mr. Chairman, that we will work in a
bipartisan fashion to try to craft a package that both sides of
the aisle can embrace and help get this economy going again.
So, again, Mr. Chairman, thanks for calling the hearing;
and thank you again for your cooperation over the last 2 years.
It has been a real pleasure.
Chairman RANGEL. Thank you so much, Jim.
To the panel, let me thank you for breaking from your
regular schedule to share your views with us.
You have heard the views of the Ranking Member, Mr.
McCrery; and he is right. We have to be prepared to put
together a package that indeed will be bipartisan. Quite
frankly, I don't think that should be very difficult.
When someone loses their job, their health insurance, can't
pay the mortgage, finds themselves not being able to get
credit, no one asks whether they are Republican or whether they
are Democrat. The pain is felt out there by you each and every
day.
Unlike the Federal Government, the decisions that you have
to make is in terms of balancing that budget, and you don't
have the discretion. So, we welcome your views. But even after
this panel and after this session is completed, we hope that
you will share your views with your Members of Congress,
Republican and Democrat, to really show them how important that
is.
The first witness, of course, having known him since he was
born and having served with him as a State senator and having
served under him as lieutenant governor and having the great
honor now of having him to be the Governor of the Empire State
of New York, as well as a neighbor in the community--I don't
have to worry about him lobbying me. It is a question of trying
to get him to back off and say, ``I do agree with you,
Governor.'' But he is an outstanding man of courage. We have
known that within our State for decades and now the whole
country is being able to see the leadership he is providing and
the difficulty our great State faces.
So, Governor Paterson, it is a great honor to have you here
to hear what you have to say as to the state of financial
affairs as relates to New York.
STATEMENT OF THE HONORABLE DAVID A. PATERSON, GOVERNOR OF THE
STATE OF NEW YORK
Mr. PATERSON Thank you, Chairman Rangel. Thank you, Mr.
Sanford. Without you, I have no voice here.
Thank you, Chairman Rangel, Ranking Member McCrery and all
the Members of the House Committee on Ways and Means and Mayor
Palmer and Governor Sanford and all the panelists who have been
kind enough to travel here today.
The great novelist Ann Rand advised us in The Fountainhead
that our country, the greatest country in the world, was
founded on the basis of individualism, where people were
encouraged to adventure, not to be complacent; to be daring,
not dormant; to prosper, not to plunder. But, unfortunately, an
infection of greed and mismanagement, combined with a lack of
transparency and Government regulation, have brought us to the
point where our Nation faces a downturn in its economy only
rivaled by the Great Depression.
As this Committee pauses in its deliberations to hear some
of us suggest some of the ways that we might reignite the
engine of our economy, I would encourage all of the Members of
the Committee to consider the value of the great States that
comprise this great country that we live in.
The Center for Budget Priorities and Policies offered its
projections for fiscal year 2008-2009, that there are 25 States
in deficit, totaling $48 billion of debt. Their projections for
2010 are spiked upward incredibly: There will be 39 States in
deficit, and the amounts owed total over $104 billion.
In the State that I represent, the State of New York, we
balanced our budget on April 9. The budget then grew to a
deficit of nearly $1 billion. Even after we addressed that, our
State now is $1.5 billion in deficit, a reopened swelling of
our deficit for this year. Our projected deficit for 2010--
2009-2010, which was originally $5 billion, grew to $6.4
billion by July of this year.
In our recent budget forecast, our mid-year forecast, I
announced yesterday that New York State's projected economic
deficit for 2009-2010 is $12.5 billion.
The 3-year deficit plan by which we try to address our
obligations for the next 3 years, which was $21.2 billion in
July, has now erupted to $47 billion. Much of this is caused by
the fact that New York derives 20 percent of its resources from
Wall Street; and in the fourth quarter of the fiscal year,
January, February and March, that figure spiraled to 30
percent.
So, we are not out of the problem yet. But what we will
have to do and what other Governors and legislatures of other
States will have to demonstrate to Washington is that we have
to put our own house to order. This is why I have called the
legislature back for a second time for an emergency economic
conference on November 18th to close that budget deficit and
add more money on to it to bolster us for the rest of the year.
I will introduce our budget for 2009-2010, 6 weeks early, on
December 16, to try to address those issues.
We have agreed that any taxation right now would only
exacerbate the problem; and, if anything, we need to lower
taxes for some of our businesses that would hope to create jobs
so that hundreds of thousands of New Yorkers don't leave the
State, as they do every year, for other areas where the life
quality is better.
We are cutting all we can, and we will cut all that we are
able to. But, inevitably, the deficit is too voluminous for us
to address. Therefore, we feel that targeted, sensible actions
by the Federal Government could provide relief for us now. This
is why today I call upon Congress to pass a second stimulus
legislation package before it adjourns at the end of the year.
We think that the most essential way that the House and Senate
can help our country is to reinvest and reignite the engine of
our economy which we see as our States.
The National Governors' Association wrote a letter just
recently advising that probably the priority way in which we
can address this crisis is through an increase in the Federal
Medical Assistance Program of at least 5 percent through 2011.
Additionally, we think that the House could establish some of
the block grants that it did after our attack on our country in
2001 that led to a downturn in our economy and that this would
bring needed essential services back to our States, issues that
people face during these times, of health care, public
assistance, food assistance and, obviously, unemployment.
We further and moreover suggest that infrastructure repair,
something this country has not addressed in the last 50 years,
would be an advisable method that we might proceed right now.
We in New York have many programs involving roads and bridges
and infrastructure development and also water waste treatment
that are ready to go if we had the dollars to actually begin
them. We would have 40 shovel ready programs for improving
highways and bridges. We would have another 58 programs ready
to go in the area of water projects.
We also would hope that the House and the Senate would
address the issue of extending unemployment compensation and
also the modernization of our unemployment insurance program
because of the number of people that have been thrown out of
work that was described by Congressman McCrery just a few
moments ago.
We feel that food stamps are the best economic stimulus.
The estimates are that $1.73 is rendered for $1 that is
invested in food stamps.
Finally, we would suggest that in terms of helping those
who are greatest in need of health care, that there be a
moratorium on the outpatient health clinics regulations that
would curtail the ability of many to receive health care and
may even be not in compliance with Federal law.
These are just some of the ideas that we suggest. We
recognize that there are opposing points of view, but whichever
way the Congress addresses these issues, we advise that the
great States of this country right now are facing huge deficits
without the resources to affect them. We have in many respects
mismanaged and need to put our own houses in order by cutting
spending, which governments often become overly involved in.
However, much of the crisis that has come from the subprime
mortgage crisis infecting the rest of our country is one that
we think needs to be addressed holistically by the Federal
Government investing in the States.
I want to thank all the Members of the Committee for
allowing me this opportunity to present our case to you.
Chairman RANGEL. Thank you so much, Governor.
[The prepared statement of Governor Paterson follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman RANGEL. It is my pleasure to invite and recognize
Mr. Sanford. I know, with your experience in the House, that
you recognize how important it is going to be for our Governors
and even our Mayors to bring together their congressional
delegations and to try to show how important in a bipartisan
way that this Congress has to come back and ease the pain of
your constituents, which is the backbone of everything that we
want to do for our great country. But, as Mr. McCrery has said,
we are going to need your help to make certain that it is a
package in which the President is willing to sign.
I now recognize Mr. Sanford. It is good to see you back in
your old House.
STATEMENT OF THE HONORABLE MARK SANFORD, GOVERNOR OF SOUTH
CAROLINA
Mr. SANFORD. It is a pleasure to be back, sir.
Chairman Rangel, Congressman McCrery and former colleagues,
thank you indeed for the chance to testify. I very much
appreciate it.
I have a longer set of prepared remarks, written testimony
that I would like to submit for the record----
Chairman RANGEL. Without objection.
Mr. SANFORD [continuing]. That more substantively goes to
the points that you raised in your opening comments, Mr.
Chairman.
But in the interest of time, since I have only got 5
minutes, let me boil down what those comments say. What they
say is I very much admire the intentions of the Committee, but
I am here to respectfully beg of this Committee not to approve
a $150 billion stimulus package going forward, for the
unintended consequences that I think it would bring to my home
State of South Carolina, to all States, to the Nation as a
whole. For that matter, to my boys, you all's grandkids, and
your kids. I would say that really I guess tied to five
different points.
I would say, one, if you go ahead with this, the question I
think ultimately has to be asked: Who bails out the bailout? I
raise that point because we need to remember we are not talking
about taking money out of a bank. In this case, we are talking
about borrowing more money from Social Security, borrowing more
money from Medicare, borrowing indeed money from our kids and
grandkids, borrowing more money from the Chinese, where we have
already borrowed approximately $500 billion worth. I think that
there is some irony in borrowing more to deal with a problem
that was ultimately created by excessive borrowing. I think
that there are a lot of different ways that you could get at
this.
Probably one of the simplest would be a conversation that I
had a couple months ago with David Walker, who is the past
Comptroller General of the United States of America. He left
that post to join up with Warren Buffet and a variety of others
in a group trying to raise awareness of the problem going
forward in the accumulated $52 trillion worth of liability this
country has. I said, why are you going? He says, ``As I see it,
we only have about 10 years, and after that it is a pure math
trap with regard to what comes next.'' He likened it to fiscal
child abuse.
I have a chart here. This is not a reading test for you,
Chairman Rangel, but it gets to the point that the numbers have
been rising rapidly. We are now at about $52 trillion of
unpaid-for political promises, and I think the idea of adding
more borrowing at this time would be problematic. I would
submit that for the record as well.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. SANFORD. I would secondly say, do you have to be a
financial or fiscal bad guy to win these days? That is a
question that is increasingly being asked when I travel around
our State. Because there are a lot of folks that had question
marks, real problems, with the bailout of Wall Street, among
them, for instance, community bankers. What they say is, we
lived by the rules, we were careful in our underwriting
process, we looked very carefully at the credit, and yet the
banks that didn't do that are the ones that are getting Federal
aid; and, in fact, they are going to have competitive advantage
against me as a local community bank based on the unintended
consequence that came with this help.
The same is being said at a more local level. You know,
Amity Shlaes wrote a book called The Forgotten Man, talking
about that forgotten man in the Great Depression who was just
struggling to survive; and a lot of folks are telling me, I
feel like that forgotten man. I didn't buy too much house, I
didn't take on too much mortgage, and yet the person across the
street that did is the person being rewarded. At the State
level, that same phenomenon exists.
I have two more charts that I would submit here for the
record.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. SANFORD. This is growth in spending, the blue line
being Federal Government, the red line being States. The irony
here is, as many people who oftentimes complain about the
fiscal irresponsibility of the Federal Government, in fact the
only group that has been more fiscally irresponsible in fact
have been States, because States have grown at a higher rate of
growth in terms of spending than the Federal Government has
over that last 15 years. That is the average look.
If you were to look on a State-by-State basis, just to give
you an example of what I am talking about, over the last 10
years, the Federal Government has grown by 77 percent. If you
contrast that, for instance, Wyoming. Wyoming has grown by 250
percent, their State Government. Alaska has grown by 143
percent, roughly double that of the Federal Government.
California, that is asking for help, grew by 95 percent, again,
well ahead of the growth rate of the Federal Government.
So, again, I think that there are some unintended
consequences that come to the States that have been more
fiscally prudent if we bail out those that haven't been such on
that front.
Thirdly, I would point to and I will mercifully spare you
another reading test or chart--Herb Stein, who once said that
if something won't go on forever, it will stop. Fairly
profound, fairly simple. If you think about, for instance, a
Federal-State program like Medicaid, it has grown on average
across all States in this country at 9.5 percent over the last
10 years, 9.5 percent every year. It doesn't take a rocket
scientist to know that if you grow one program at 9.5 percent
and the underlying economy is growing by about 3 percent, you
are going to have problems come sometime down the road.
We are going to have to make reforms and changes to any
number of these Federal-State partnerships for them to be
sustainable. If we simply add more money at this time and in
essence bail out what are in some cases unsustainable programs,
I think that we end up with real problems down the road.
Fourthly, I would say, remember the cows. I am not talking
about cows in your congressional district or in my State, but I
am going back to Pharaoh's dream there in the Bible that was
interpreted. As you may remember there were seven fat cows
coming out of the Nile and there were seven skinny cows coming
out of the Nile. As long as history has been around, there has
been an up and down cycle to times of feast and times of
famine. I think that what we have got to remember here in this
case, when times are good, people generally get ahead of
themselves.
Debt and liabilities have grown at five times GDP over the
last 25 years. What we have done as a country is to say,
rightfully--and, again, I admire the intent of the Committee
and the intent of the Congress--we want to do something about
that. If you add up all the different bailouts and pieces of
economic stimulus over the last year, it adds up to roughly
$2.3 trillion, about $21,000 per household. Yet we are still
where we are. The question I think that has to be asked is
would another $150 billion make the difference on what comes
next? I would submit this chart for the record as well. What it
shows is $150 billion of stimulus is one-fifth of 1 percent of
world GDP.
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Mr. SANFORD. We are now dealing with a global issue, a
global problem based on what has happened to the credit and
financial markets. It has rippled into every one of our main
streets and hometowns. But we need to remember that the overall
global economy is $67 trillion; the U.S. economy is $14
trillion. And $150 billion, when we have already submitted $2.3
trillion to try and effect change on this front, I don't think
at the end of the day will be enough.
Fifthly, I would finally say--and I just might add one
point on that. The fact that it won't be enough I think is
telling in bank deposits. If you were to look at July 2 of this
year, banks held $14 billion in deposits in balance with the
Federal Reserve. October 1 of this year, they hold $167 billion
in balances there at the Federal Reserve. So, in fact, though a
lot of money has been put on the street, in fact given the
nature of man, given the history of cycles, at times people are
going to slow up regardless of how much money you put into the
system.
Finally, I would simply say this. Would you give the
soldier the keys? I would say this to you very specifically,
Chairman Rangel. If you think about your service to the United
States military, it was none other than heroic back in the
Korean war. You earned a Purple Heart in service for your
country. I think that what you know in seeing that process
unfold is that, regardless of the training, regardless of the
length of training, at some point at the training's end you
have got to give the keys to that sailor, the soldier, the
airman, the Marine. At a Federal-State level we don't do that.
There are a lot of States out there still with training wheels
based on Federal mandates.
So, what I would submit to you is that there is something
that can be done that would be very helpful to every State, and
that is tied to unfunded mandates.
We looked up the number in South Carolina. We have a total
of about $428 million each year that we deal with in our budget
process that are tied to Federal unfunded mandates. If you were
looking to help States, one of the ways that I think would make
the biggest difference is either to free us or to fund those
unfunded mandates.
Those would be my quick thoughts within the 5-minute
context that I have got. Thank you, sir.
Chairman RANGEL. Thank you.
[The prepared statement of Governor Sanford follows:]
Statement of The Honorable Mark Sanford, Governor,
State of South Carolina
Chairman Rangel, Congressman McCrery and Members of the Committee,
I thank you for this chance to testify before your Committee.
I'm here to beg of you not to approve or advance the contemplated
$150 billion stimulus package for the effects that it would ultimately
have in the state that I represent, and in turn, all states across the
country and the nation as a whole. I applaud the sentiment behind it
and your intentions in trying to help the American public given the
enormity of the financial collapse before us, and I understand the
supportive position staked out by many of my fellow governors by letter
from the National Governors Association this Monday as well. Still, I
feel it's incumbent upon me to stand up and speak now, or perhaps
forever hold my peace--and with the greatest respect I'd submit that I
don't think this is the course to be taken.
I'd ask that you, as leaders at this crucial juncture in our
nation's story, do three things: one, recognize that the current
avalanche of bad news can be traced back several years to oftentimes
poor financial decisions that snowballed out of control; two, consider
that this $150 billion salve may in fact further infect our economy
with unnecessary Government influence and unintended fiscal
consequences; and three, accept that there may be better routes to
recovery than a blanket bailout, including offering states like mine
more in the way of flexibility and freedom from Federal mandates
instead of a bag of money with strings attached.
First, the situation we're now in did not develop overnight, and in
the same way it won't be cured by morning. As the old saying goes, the
first step to getting out of a hole is to quit digging.
I think this certainly applies to the mountain of debt now facing
our country, with overall debt growing roughly four times the rate of
Gross Domestic Product (GDP) over the last 15 years. Our national debt
is now over $10 trillion--more than $4 trillion higher than when I left
Congress at the end of 2000. We're spending more paying interest on
this debt (roughly $20 billion monthly) than we are on the War in Iraq
(around $12 billion). Add to all this last month's timely illustration
of Times Square's National Debt Clock actually running out of spaces as
the debt passed $10 trillion. No need to worry: a new clock is being
made with room for a quadrillion dollars of debt--that's a million
billion dollars, or a ``1'' with 15 zeros. I have a feeling we'll be
using those extra digits sooner rather than later, given that
Government spending has grown 57 percent ($1.2 trillion) this decade
alone.
In fact, if this $150 billion stimulus package is passed, this
year's budget deficit could top $1 trillion--adding to the over $10
trillion national debt and making it 70 percent of a roughly $14
trillion economy. That would be the highest level since the early 1950s
when the nation was still paying down the accumulated costs of World
War II. But back then there weren't trillions of dollars in unfunded
liabilities linked to Social Security and Medicare hiding off the
balance sheet.
Common sense voices from both sides of the aisle are raising red
flags about our national deficit, the debt and these unfunded
liabilities. Warren Buffet, Pete Peterson and Former United States
Comptroller General David Walker were featured in a recent documentary
called ``I.O.U.S.A.'' Their point is that we have over $52 trillion in
contingent liability, amounting to a roughly $450,000 invisible
mortgage hanging over the head of each and every American family.
Walker comments that we're simply ``charging the national credit card .
. . [it's] more of the same, just in larger numbers.''
We've never before in the history of our republic faced the kind of
unfunded liabilities that we do now. I believe that some time in the
not so distant future we're going to reach a breaking point when that
$52 trillion will come due, and that our potential inability to pay
will have frightening ramifications by either completely trashing the
value of the dollar or creating hyperinflation which robs from every
middle class worker across America.
Global equities have lost more than $10 trillion in value just in
October--and global GDP growth projections for 2008 are being ratcheted
down from essentially 2 percent to 1 percent by the World Bank.
But this economic storm was in part predictable, even if it wasn't
completely preventable, for the simple reason that gravity always
works. In other words, what goes up must come down. One could go as far
back as Biblical times and look at the passage of the seven fat and
seven skinny cows coming out of the Nile in Pharaoh's dream to remember
that this notion of business cycles, credit cycles, the up and down of
the economy, is one of the constants in history. The housing bubble is
a case in point. According to the Case-Schiller home index, we've seen
a decade long 235 percent run up in housing prices, from 79.6 in 1996
to a peak of 188.6 in 2006. Prices have since come down more than 20
percent to around 150. Experts warn that there's more downside on the
horizon, with the median new home price this September dropping over 9
percent from September 2007 to $218,400, the lowest in four years.
Second, I'd ask you as political decision-makers in an
overwhelmingly economic crisis to take the Hippocratic Oath and pledge
to ``do no [more] harm.'' I believe the macroeconomic forces at work
will hardly be slowed by an additional $150 billion, and I'd strongly
urge against further tampering with what in principle should be a free-
market economy.
Economist Arthur Laffer put it well in Monday's Wall Street Journal
when he said, ``Whenever the Government bails someone out of trouble,
they always put someone into trouble . . . Every $100 billion in
bailout requires at least $130 billion in taxes, where the $30 billion
extra is the cost of getting Government involved.''
Simply throwing money into the marketplace in the hope that
something positive will happen ignores the fact that the Government has
already put over $2 trillion into the system this year using various
bailouts and stimulus packages: including $168 million in direct
taxpayer rebates this past Spring; an $850 billion bailout last month
that cost more than we spend on defense or Social Security or Medicaid
and Medicare annually; and myriad loans and partial nationalizations of
institutions like Freddie Mac and Fannie Mae, JPMorgan Chase, Bear
Sterns and AIG. This doesn't even include the arguably most effective
form of stimulus the country has seen over the past year, a market-
based infusion of over $125 billion into the economy and taxpayers'
wallets caused by falling oil prices and subsequently lower prices at
the pump.
This year's $2 trillion plus in bailouts and handouts seems that
much more momentous when you consider that Federal tax revenues last
year were only $2.57 trillion. Simple math demands we ask ourselves if
$2 trillion did not ward off the crisis in confidence we're currently
experiencing, then how much can $150 billion more help? Especially
since we're dealing with a $14 trillion economy and a larger $67
trillion world economy, meaning that this shot in the arm represents
merely one-fifth of one percent of the world economy.
I believe no matter what amount of money is thrown at the consumer,
individuals and businesses will likely choose to wait to make their
purchases or investments. People simply don't buy as much and as
frequently when their savings are shrinking and their household equity
is sinking. In fact, Americans' disposable income fell over 1 percent
to just over $10,700 in July of this year, which consequently hurts
demand and thus slows growth. That's no small problem in a consumer-
driven economy, with Washington Post columnist George Will observing
that Americans decided it was ``more fun to budget like Government
does, matching spending to appetites.'' Will also elaborates on
Americans' trend away from personal savings--pointing out that we saved
a dime of every dollar of disposable income in the 1980s, a nickel in
the 1990s, and in 2004, the savings rate went negative.
Aside from the reality that $150 billion pales in comparison to the
size and scope of what's before us--and therefore would have little
impact--I think that there is a much more pressing, and personal to my
current position, reason that this is not the best direction.
Essentially, you'd be transferring taxpayer dollars out of the
frying pan--the Federal Government--and into the fire--the states
themselves. I think this stimulus would exacerbate the clearly
unsustainable spending trends of states, which has gone up 124 percent
over the past 10 years versus Federal Government spending growth of 83
percent. It would also dangerously encourage even more growth in
governmental programs like Medicaid, which in state budgets across the
nation already grew 9.5 percent per year over the last decade--
certainly unsustainable in our state. Moreover, the United States
Department of Health and Human Services just last week projected that
spending on Medicaid will grow at an average annual rate of 7.9 percent
over the next 10 years--and possibly faster if this stimulus package
passes. State debt across the country has also increased by 95 percent
over the past decade. In fact, on average every American citizen is on
the hook for $1,200 more in state debt than we were 10 years ago.
There seems to be no consequence, and indeed a reward, for
unsustainable spending growth by states. In effect, sending $150
billion more to states would produce another layer of moral hazard--
already laid bare at the corporate, individual and Federal levels in
recent years. Corporations like CountryWide overleveraged their
resources on risky loans as American banks increased their stake in
subprime mortgages from only 5 percent in 1994 to roughly 20 percent in
2004. At the individual level, some people bit off more mortgage than
they could chew, with Americans' house price-to-income ratio jumping
from 4-to-1 (where it had hovered for 30 years) to 8-to-1 in 2006, and
over 40 percent of first-time homebuyers in 2004 not making any down
payment at all. Nationally, the Federal Government stepped in and
offered a solution that presented more risks than the problem it
addressed: namely, not allowing certain companies, and even certain
citizens, to fail. Yet capitalism was and is predicated on this idea of
risk, and the chance for success and failure.
Bloomberg News columnist and author of The Forgotten Man Amity
Shlaes points out that the taxpayer is the forgotten man in this
equation--and you and I and all our constituents are put on the hook
for more and more liabilities, many of which will certainly be passed
onto our kids and their kids after them. On both a rhetorical and
practical level, I'd ask you what happens when the Federal Government,
indeed our nation, needs a bailout? Who bails out those who've bailed
out everyone else?
Third and finally, I believe there are far better paths, albeit
some less traveled by, to take than going and borrowing more money from
the Chinese--whom we owe over an estimated $1.3 trillion plus already--
to spend even more taxpayer dollars in a desperate attempt to catalyze
a souring economy.
First among these preferable paths would be giving states relief
from unfunded mandates--which have cost the fifty states $131 billion
over the last four years, and my home state specifically around $500
million. These mandates include Real ID with its long-term $10 billion
price tag for states, increasing the minimum wage costing states $200
million this year, No Child Left Behind's $12.3 billion burden this
year, regulations related to prescription drug plans that will cost
states $95 million in 2010, bio-terrorism upgrades costing $167 million
this year, and reductions in Federal Food Stamp funding costing states
$200-300 million annually.
My home state of South Carolina has not been immune to these
national and global economic struggles. Still, last year alone we had
over $4 billion in capital investment and are on pace for better than
that this year. We've seen 147,000 more people start work since I took
office in 2003, and we rank 15th in the nation in employment growth in
that same time frame--well ahead of many states with lower unemployment
rates, including Maryland, Massachusetts and New York. So while there
are certainly opportunities for improvement from infrastructure to
education in the state I represent, I'll make clear once again that
federally-restricted money from Washington D.C. isn't the panacea I
think some portray it to be.
In short, I'd ask Members of the Committee to simply give the
states more freedom. Give us more flexibility. Give us more in the way
of control over the dollars we already have and less in the way of
costs. Give us more options, not more money with Federal strings
attached.
Aurthur Laffer said that ``whenever people make decisions when they
are panicked, the consequences are rarely pretty.'' If in fact this
Committee has already succumbed to the financial panic of those
pursuing a sensationalist story or increased governmental intervention,
then, in closing, I beg of you: do not distribute this $150 billion
into the economy only via the states, large corporations or another
Federal bailout. Give it back to the taxpayers.
Thank you for this opportunity to offer my humble perspective as it
relates to the financial storm we find ourselves in, and the proposed
stimulus package you may soon consider. Again, I appreciate your time
and wish you all the best as you face the difficult task before you. I
will be happy to answer any questions you have.
Chairman RANGEL. Before I recognize Mayor Palmer, could I
ask you, Governor, whether you supported the efforts of the
President and the Congress in rescuing the $700 billion problem
faced by our financial institutions?
Mr. SANFORD. I apologize. We were being neighborly as
fellow governors; I didn't hear the first part of the question.
Chairman RANGEL. Recently, the President asked and the
Congress complied with a $700 billion rescue bailout, whatever.
Did you support that effort?
Mr. SANFORD. I did not.
Chairman RANGEL. Let me now recognize the Mayor of Trenton,
the former Chairman of the Conference of Mayors. Governors can
go to their mansions in the capitals and the Congress can stay
here in Washington, but the Mayors really can't get away from
Main Street. That is the kind of pain that America is really
feeling. I hope you share your views from the Conference of
Mayors as well as from the people of Trenton with us.
STATEMENT OF THE HONORABLE DOUGLAS PALMER, MAYOR, CITY OF
TRENTON, NEW JERSEY
Mr. PALMER. Thank you, Mr. Chairman. It is always a
pleasure to see you. A lot of times you are with my godfather,
Mayor Dave Dinkins of New York. It is very nice to be here. To
all Members of Congress, and especially good to see a former
Mayor, my dear friend from Patterson, New Jersey, Congressman
Pascrell.
I am Douglas H. Palmer of Trenton and the immediate past
president of the United States Conference of Mayors. It is
always good to be here with my good friend, Governor Paterson,
too, and just meeting the Governor from South Carolina.
I also want to commend you for your leadership of one of
the most important Committees in Congress and your longstanding
support of local government. I have more on the record that I
will present, and I will try to be succinct and brief.
I am a little impressed by the two Governors that could
quote from authors and all those things. I am just a Mayor. I
can--but I do want to say, in the words of that great poet John
Lennon of the Beatles, I say, ``Help. I need somebody. Not just
anybody.'' In the words of Jack Nicholson, who said, ``The
truth, you can't handle the truth.''
Well, the truth is that American cities are hurting. The
truth is that when you talk about Main Street, we are the
Mayors of Main Street.
The fiscal condition of cities has declined significantly
since 2007, according to the city fiscal condition survey. It
is important. Unlike as you mentioned, Mr. Chairman, unlike the
Federal Government, local governments cannot carry a deficit
from 1 year to the next. We are required by law to spend no
more than we receive in revenues. As a result, many cities are
taking drastic steps to balance their budgets, and I just want
to provide you with a few examples. I think of Governor
Paterson's talk about the State of New York. I won't go into
what Mayor Bloomberg is doing, but I will just talk about my
city, Trenton, the State capitol.
The financial meltdown and the domino effect that has
occurred in other sectors is certainly having a profound effect
on the city of Trenton, as well as many other urban
municipalities.
Almost one-third of our 7.5 square miles is owned by the
State of New Jersey. Almost 53 percent of all properties are
tax exempt. We rely heavily upon State aid to supplement our
budget.
To make matters worse, the State of New Jersey is in a
fiscal crisis. Our Governor Corzine is testifying in the
Rayburn building right now. The State will have a $4 billion
deficit next fiscal year, which will translate into a $4.6
million reduction in State aid in my city.
In sum, our city's budget deficit right now is $25.8
million. We are doing many things to close the gap. We
instituted a major workforce reduction plan, which includes
layoffs, demotions, the elimination of most personnel vacancies
including 16 police officer and 13 firefighter vacancies, and
the demotion of 13 fire captains. In all, we will be
eliminating over 10 percent of the workforce. This will reduce
budget appropriations by $7.4 million. But we still have to
close the remaining 18.8 million shortfall. If the city cannot
find a way to close this gap, the tax rates will increase by 43
percent.
In summary, Mr. Chairman, the economic meltdown sweeping
across our Nation and the globe threatens to subject many local
governments to budget shortfalls far into the foreseeable
future. It is clear that the economy needs a shot in the arm to
nurture it back to a healthy recovery.
Now that Congress has enacted a $700 billion package to
rescue Wall Street, we strongly recommend the enactment of a
Main Street stimulus package.
Congress should take action to ensure that local
governments have access to short-term credit. Local government
credit assistance, we are talking about due to problems in the
domestic and global financial markets. State and local
governments are finding it increasingly difficult to access the
capital markets at commonly acceptable rates. Cities across the
country are especially having difficulty selling bonds and
accessing short-term credit.
We strongly recommend that Congress direct the Federal
Reserve and the Treasury Department to work together under the
$700 billion Emergency Economic Stabilization Act to design a
facility to provide a funding backstop to the State and
municipal Government debt market similar to the recently
announced program for commercial paper. Without such action,
States and municipalities will face ever increasing costs to
manage their short-term debt.
I just want to go over a few quick things about the U.S.
Conference of Mayor's and Main Street stimulus.
We request, one, the Community Development Block Grants for
Infrastructure $10 million--$10 billion. We are asking for a
$10 billion increase in CDBG to create jobs through the
construction and improvement of public facilities, streets, and
neighborhood centers.
Two, the Energy Block Grant for Infrastructure and Green
Jobs for $5 billion. Congress should provide $5 billion to fund
the energy efficiency and conservation block grant to help move
America toward a greener economy and create millions of green
jobs. I won't go into all this. The Transit, Equipment, and
Infrastructure. We are urging $9 billion for that; the Highway
Infrastructure, $32 billion; Airport Technology and
Infrastructure, $1.5 billion; Amtrak Infrastructure, $1.25
billion. As was mentioned, water and wastewater infrastructure,
$18.75 billion; School Modernization, $7.5 billion; Public
Housing, $2.5 billion. Public Safety Jobs, we also note it's
critically important to add $2.48 billion to that, because you
need a safe city as well.
Mr. Chairman, I note some may say, well, that is a lot of
money. It is. But I know people in my city and people across
this country need jobs. We have projects are that ready to go
right now, like an old public works project that FDR
instituted, our people not only need hope but we need resources
so that we can put people back to work and fund critical
projects that help create jobs with our infrastructure, create
economic development opportunities that will increase jobs. The
Conference of Mayors can give you lists of projects throughout
this country that could be on the ground within a year and a
half with the proper funding necessary so that we can put
people back to work and help stave off what many fear is a
recession that is coming. These aren't handouts. These are
opportunities for our country and our cities to move forward in
a very strong way.
I have more that will be into the record, and I am willing
and ready to answer any questions when you see fit.
Chairman RANGEL. Thank you, Mayor Palmer. Without
objection, your entire testimony will be entered into the
record.
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Chairman RANGEL. I just want to repeat, the elections will
be over, and I hope that the concerns of the Members will not
be Republican and Democrats at that time but feeling the pain
that you have to face each and every day as Mayor of Trenton,
and all of the Mayors that belong to the Conference of Mayors.
I urge you, with all of my heart, to reach out to the Members
of Congress and to share with them how important it is that we
do come back after the election to fulfill the commitments in
which we have made. So, thank you for your testimony.
At this time, I would like to yield to an outstanding
Member of the Committee on Ways and Means, Congressman Chris
Van Hollen, for the purposes of introduce our next witness.
Mr. VAN HOLLEN. Thank you, Mr. Chairman. I represent
Montgomery County as part of my congressional district, and the
county executive of Montgomery County is Ike Leggett. One of
the best and smartest decisions he made early on was to bring
on Tim Firestine, who we are going to hear from in a minute, as
the county's chief administrative officer.
Tim previously served for many, many years as the head of
the county's finance department. He has been 28 years in the
area of public finance, including teaching as an adjunct
professor at the University of Maryland, the graduate school on
public finance.
So, Mr. Chairman, at a time when a lot of our local
governments are feeling the squeeze, we couldn't have a better
person here to talk about how we should move forward. So, I
thank you for having him today. Thank you, Mr. Firestine, for
being here.
Chairman RANGEL. Mr. Firestine, the Committee anxiously
awaits your testimony.
STATEMENT OF TIMOTHY FIRESTINE, CHIEF OPERATING
OFFICER, MONTGOMERY COUNTY EXECUTIVE,
ROCKVILLE, MARYLAND
Mr. FIRESTINE. Thank you. Chairman Rangel, Ranking Member
McCrery, and Members of the Committee, thank you for the
opportunity to appear before you today.
I will tell you up front, I apologize for not having any
quotes in my testimony as the honorable gentlemen to my right
have. But I do have some recommendations that I think will make
a difference at the local level, will help stimulate the local
economies, and perhaps won't cost the billions of dollars that
you are concerned about.
With respect to the critical role State and local
governments serve in creating Americans jobs, this hearing
could not come at a better time. The turmoil in the capital
markets has had a particularly acute effect on the municipal
bond markets, and as a result governments are facing real
economic hardships.
I have spoken to many Government officials around the
country, and like the other distinguished gentlemen at the
table, the current fiscal climate facing local and State
governments is the most challenging that I have seen throughout
my career. At a time when communities are faced with
skyrocketing foreclosures, decreased tax revenues, growing
unemployment, and the increased demand for services that comes
with these problems, States, counties, cities, and small towns
have been frozen out of the capital markets for days and weeks
at a time, or are faced with borrowing costs that are
prohibitively high.
Without reasonable access to the capital markets, local
governments are struggling to provide essential services to the
general public. For example, the inability to access short-term
financing is affecting our ability to purchase replacement fire
trucks, purchase new transit buses, or provide more railcars at
a time when ridership--transit ridership is it growing because
of high fuel costs.
The retreat of banks and other financial institutions from
the municipal bond market has caused an astronomical increase
in borrowing costs. In addition to borrowing long term for
capital projects, State and local governments issue short-term
debt for a variety of reasons, such as the bridge the gap
between the payment of regular expenses and the collection of
taxes.
In the current environment, local governments who issue
short-term debt with interest rates that adjust on a daily or
weekly basis saw their borrowing costs increase from less than
2 percent to upward of 9 and 10 percent. Some issuers were
completely unable to find buyers for their short-term bonds,
which increased borrowing costs even further, and there is no
sign of a quick recovery.
In fact, recently, my county, which is AAA rated, has been
since 1973, we put out an RFP for a guarantor or a liquidity
provider on a pending short-term transportation financing
transaction and we received no bids. We have never seen
anything like this, and are very concerned with the layers of
disruption in our markets and the likelihood of a very long
recovery period.
While State and local governments are suffering the effects
of the current credit crisis, it is important to note that the
general problems in the municipal market are not due to any
fundamental problems with the underlying credits or State and
local governments themselves. Municipal securities are one of
the safest investments available, second only to treasuries,
with a default rate of less than one-tenth of one percent and
virtually zero for governmental bonds.
The Emergency Economic Stabilization Act passed by Congress
last month will provide a significant injection of capital into
the market and flexibility for the Treasury and Federal Reserve
to begin rebuilding the country's financial system. However,
aside from the inclusion of tax exempt money market mutual
funds and the Treasury's temporary guarantee program for money
market funds, virtually no direct relief or accommodations have
been made for issuers of tax exempt bonds. Repeatedly, the
Federal Reserve has commented that its commercial paper
financing facility would not be extended to include tax exempt
commercial paper or other short-term debt instruments, and the
Treasury has indicated that the ability to purchase challenged
assets under TARP would not be extended to tax exempt
securities.
What that means is that while local governments have not
contributed to the problems of the credit crisis and continue
to serve as the first responders between citizens and
Government, we are not receiving help.
What can Congress do that would be helpful to State and
local governments? One of the most important action items
Congress can undertake in order to stimulate the economy and
create jobs would be to ensure that State and local governments
have regular access to the capital markets in an economical
fashion. One suggestion would be to have the Treasury and
Federal Reserve extend their authority under TARP and the CPFF
to ensure that the capital markets are open to State and local
governments, and, that there are buyers for floundering short-
term debt.
Treasury and the Federal Reserve have already exercised
broad authority under TARP, and clarifying that they have
authority to assist State and local governments would allow
them to provide immediate assistance.
Furthermore, the Treasury and Federal Reserve and other
Federal Government agencies should create a special task force
to address the problems State and local governments are facing
and determine ways to assist counties, States, and towns as
they try to maintain their footing during this economic
downturn.
Congress and the Treasury could also lift burdensome Tax
Code requirements on corporations and property and casualty
insurers that limit the amount of tax exempt bonds that they
can purchase. The current limits and regulations stifle demand
and are woefully out of date. Simply raising these limits will
allow for these sectors to purchase more tax exempt securities,
which would be a win-win for all parties.
To that point, Congressman Neal of this Committee, together
with Financial Services Committee Chairman Barney Frank,
introduced legislation this summer that would encourage banks
to directly hold municipal securities. In 1986, Congress
eliminated the deduction banks and financial institutions could
take for carrying and purchasing tax exempt bonds. This took
nearly all incentives for banks to purchase municipal bonds--
took away all the incentives for banks to purchase municipal
bonds, which was a significant blow to State and local
governments, as banks were a major purchaser of our securities
prior to 1986.
The only allowable interest deduction left in place for
banks to carry bonds from governments that do not issue more
than $10 million per year. H.R. 6333 not only addresses the new
purchasing power for banks to purchase all types of municipal
securities as was the case prior to 1986, but it also raises
the bank qualified debt limit to $35 million. Raising the bank
qualified limit will allow smaller governments to directly
place their issuances with banks and avoid many of the costly
expenses associated with issuing debt in the general market.
Just a few more comments. Other actions you could take,
passing legislation H.R. 6308 that calls for the SEC to use its
authority and have the rating agencies use comparable ratings
for all securities which would better reflect the soundness and
significantly lower levels of defaults and municipal
securities. Many governments would like to see their ratings
upgraded if comparable scales are used, possibly leading to
lower debt issuance costs.
Governments will need to refinance debt in the months and
years ahead as the markets calm; thus, Congress should grant an
additional and targeted and temporary advanced refunding
opportunity to governments similar to what was provided in the
aftermath of September 11th and Katrina.
Finally, eliminating the AMT penalty that exists on some
tax exempt bonds should also be considered similar to the
legislation Congress passed earlier this year that eliminated
the AMT penalty for housing bonds.
Mr. Chairman and Members of the Committee, thank you again
for the opportunity to appear before you, and I look forward to
answering any of your questions.
[The prepared statement of Mr. Firestine follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman RANGEL. Thank you so much for your testimony.
The Chair now would like to present the president of the
American Society of Civil Engineers, David Mongan.
STATEMENT OF DAVID MONGAN, PRESIDENT, AMERICAN SOCIETY OF CIVIL
ENGINEERS
Mr. MONGAN. Good morning, Mr. Chairman, and Members of the
Committee, I am David Mongan, president of the American Society
of Civil Engineers.
For a variety of reasons, the Nation faces severe economic
hardship. Many economists believe that the Nation is in
recession. ASE would like to go on the record as supporting
efforts to pass legislation to promote national economic
recovery and job creation by increasing the Nation's investment
in infrastructure. We recommend that at least $40.7 billion of
infrastructure investment be a part of any economic recovery
legislation, money that can be put to work almost immediately.
Such an action would serve the dual purpose of reviving the
Nation's economy by job creation and repairing the Nation's
crumbling infrastructure. Spending on new roads and other
public works projects would create jobs and provide a more
lasting boost to the economic engine that investment provides
in infrastructure, more so than another round of rebate checks.
These jobs could be created quickly as Federal, State, and
local governments have numerous infrastructure projects ready
to go. Projects suspended due to a lack of funding could
quickly be restarted.
The Department of Transportation reported that every $1
billion of highway investment supports over 34,000 jobs. It is
important to note that the total number of jobs supported by
highway investment, including construction-related jobs and
independent industries rose from 1.56 million in 1996 to over
2.1 million in 2007, as a result of increased highway
investments. These numbers hold true across other categories of
infrastructure as well. These investments produce different
types of jobs, direct jobs or construction jobs, indirect jobs
or industries that support the building of infrastructure,
asphalt, concrete, steel, engineers, designers. Finally, there
are the induced jobs, the stores, gas stations, restaurants
that follow the infrastructure.
Three years ago, the American Society of Civil Engineers
2004 report card for America's infrastructure gave an overall
grade of D to 15 critical areas of infrastructure. We said that
it would take an estimated $1.6 trillion to upgrade the
existing infrastructure. Little has changed in those 3 years
since we handed out that dismal grade. The Nation continues to
underinvest in infrastructure. Federal spending for
infrastructure as a share of all Federal spending has declined
steadily over the past 30 years. The dangers of a nation's
crumbling infrastructure to its economic health are as great as
those posed by the current financial crisis.
Infrastructure is the foundation upon which our economy
stands. Without a modern functioning infrastructure system,
economic recovery will not be possible. Our Nation's economic
health, competitive advantage, and quality of life are at risk.
In my written testimony, we lay out the well documented
needs of the Nation's highways, bridges, and transportation
systems. Recent congressional and DOT studies concluded that we
need to invest at least $225 billion annually in capital
improvements to upgrade our existing system to a good State of
repair. We are spending less than 40 percent of this amount
annually. We recommend $18 billion for necessary reconstruction
projects for the Nation's highway systems and $5.4 billion for
transit projects.
The Environmental Protection Agency reported that we must
invest at least $204 billion just to prevent combined sewer
overflows and sanitary sewer overflows. Congress should provide
$6.5 billion for the repair and construction of these systems.
Our corps of engineers operates and maintains 240 locks at
95 locations, along 12,000 miles of inland waterway. The
average lock on these waterways is 53 years old, past the 50-
year service life. We recommend spending $7 billion in new
funding to help reduce the backlog of projects.
The House Transportation Committee identified $17.5 billion
a year in capital needs. We recommend $600 million for the
airport improvement program. Our Nation's drinking water faces
an annual shortfall of $11 billion to replace aging systems and
comply with Federal water regulations. We recommend at least $1
billion in new financial investments. We estimated that $10
billion is needed by 2009 to address all the critical non-
Federal dams, dams which pose a direct risk to human life if
they fail. We recommend $200 million for the dams in greatest
need.
Too many American children go to schools in overcrowded
buildings, with leaky roofs, faulty electrical systems, and
outdated technology, all of which compromise their ability to
develop the educational skills necessary for the workforce in
the 21st century. We recommend at least $2 billion for school
construction.
We must also consider other solutions, such as a national
infrastructure bank, a Federal multiyear capital budget.
Public-private partnerships should be considered as one of the
means of financing infrastructure improvement. Other options
should be considered. User fees and trust funds, impact fees,
toll revenues, mileage-based user fees, revenue bonds, and tax-
exempt financing. All of these must be considered.
I would like to thank you for the opportunity for ASE to
share our views. We look forward to working with the Committee
on Ways and Means in efforts to address these serious concerns,
and would be happy to answer any questions. Thank you.
Chairman RANGEL. Thank you, President Mongan.
[The prepared statement of Mr. Mongan follows:]
Statement of David Mongan, President,
American Society of Civil Engineers
Good Morning Mr. Chairman and Members of the Committee. I am David
Mongan and I am pleased to testify on the issues of economic recovery,
job creation and investment in America. I am here today in my capacity
as the President of the American Society of Civil Engineers (ASCE).
ASCE was founded in 1852 and is the country's oldest national civil
engineering organization. It represents more than 146,000 civil
engineers individually in private practice, Government, industry, and
academia who are dedicated to the advancement of the science and
profession of civil engineering. ASCE is a non-profit educational and
professional society organized under Part 1.501(c)(3) of the Internal
Revenue Code.
In my professional life, I am President of Whitney, Bailey, Cox &
Magnani, LLC, in Baltimore, MD., an architectural/engineering/
construction firm providing professional services in highway and bridge
engineering, architectural design of institutional, commercial and
industrial buildings, transportation planning, environmental
engineering, land development and site engineering, landscape
architecture, design of waterfront and marine-related facilities,
construction inspection, and field surveying.
II. NEED FOR ECONOMIC RECOVERY
For a variety of reasons well known to this Committee, the nation
faces severe economic hardship in the coming months. Many economists
already believe that the nation is in a recession. For example, the
Congressional Budget Office (CBO) predicts that the country's real
gross domestic product will decline noticeably in 2009. The CBO
estimates that unemployment will exceed six percent next year
nationally; in many parts of the country the job loss is predicted to
be far steeper.This is grim news. It is clear that Congress and the
President will have to work quickly to soften the worst of the
slowdown. Just last week, Ben Bernanke, Chairman of the Federal Reserve
Board, testified before the House Budget Committee that further
economic recovery legislation probably is required.
``With the [economic] outlook exceptionally uncertain, the optimal
timing, scale, and composition of any fiscal package is unclear,'' Mr.
Bernanke said. ``With the economy likely to be weak for several
quarters, and with some risk of a protracted slowdown, consideration of
a fiscal package by the Congress at this juncture seems appropriate.
Any fiscal package should be structured so that its peak effects on
aggregate spending and economic activity are felt when they are most
needed, namely, during the period in which economic activity would
otherwise be expected to be weak.'' ASCE concurs in this judgment. We
support efforts to pass legislation to promote a national economic
recovery in a time of financial distress.
Such an action would serve the dual purpose of reviving the
nation's economy and the nation's infrastructure. Currently, much is
being written about the relationship between infrastructure investment
and job creation. In April of this year, the U.S. Department of
Transportation (DOT) reported every $1 billion of Federal highway
investment (including the accompanying state match) supports 34,779
jobs. It is important to note the total number of jobs supported by
highway investment-including construction-related jobs and dependent
industries--rose about 12.5 percent from 1.65 million jobs in 1996 to
2.13 million jobs in 2007 as a result of increased highway investment
from all levels of Government.
Additionally, these jobs would be created quickly as Federal, state
and local governments have numerous projects in a number of
infrastructure categories ready to go. In the areas discussed later in
this testimony, a large number of infrastructure improvement projects
have been identified and lack only the funding to proceed.
These investments produce different types of jobs--direct, indirect
and induced. Direct jobs are construction jobs. Indirect jobs are
created in industries that support the building of infrastructure--
asphalt, concrete, steel, engineers, and designers. Finally, there are
the induced jobs, the stores, gas stations, and restaurants that follow
once the infrastructure is built.
III. NEED FOR INFRASTRUCTURE INVESTMENTS
As an initial matter, we firmly believe that any economic recovery
legislation should contain significant new funding for many of the
nation's aging infrastructure systems, which are the indispensable
lifelines of our economy. The nation's surface transportation systems,
waste-water treatment facilities, waterways, airports and schools are
all in need of repair and updates. We recommend $40.7 billion in
infrastructure spending as part of any economic recovery legislation.
Three years ago, ASCE's 2004 Report Card for America's
Infrastructure gave an overall grade of ``D'' to 15 critical
infrastructure systems. We said then that it would take an estimated
$1.6 trillion to upgrade the existing infrastructure. Little has
changed in the three years since we handed out that dismal grade, and
establishing a long-term plan to finance the development and
maintenance of our infrastructure remains a pressing national priority.
This nation continues to under-invest in infrastructure at the national
level. Earlier this year, the CBO reported that the total of all
Federal spending for infrastructure as a share of all Federal spending
has steadily declined over the last 30 years.
The dangers of the nation's crumbling infrastructure to our
economic health are as great as those posed by the current financial
crisis. The nation's infrastructure is the foundation on which our
economy stands. Without a modern, functioning system of highways,
bridges, mass-transit, drinking-water systems, sewage systems, levees,
dams, school and other elements of the infrastructure, economic
recovery will be impossible. Simply put, without proper investment and
attention to these networks, our nation's economic health, competitive
advantage, and quality of life are at risk. Below we cite only a few of
the more immediate infrastructure investment needs.
A. Surface Transportation System
The CBO recently estimated that America's investment in surface
transportation infrastructure by all levels of government in 2004 was
$191 billion (in 2006 dollars), or 1.5 percent of gross domestic
product (GDP).
The Federal Government provided about one-quarter of those funds,
and states and localities provided the rest. Those funds were split
about equally between spending for capital projects and operation and
maintenance. Most of that spending was for roads. In comparison, the
Chinese government invested an estimated 2.5 percent of GDP in highway
construction in 2001, according to the American Road and Transportation
Builders Association.
The National Surface Transportation Policy and Revenue Study
Commission concluded this year: ``We need to invest at least $225
billion annually from all sources for the next 50 years to upgrade our
existing system to a state of good repair and create a more advanced
surface transportation system to sustain and ensure strong economic
growth for our families. We are spending less than 40 percent of this
amount today.''
In 2007, the Department of Transportation (DOT) reported that the
cost to maintain the nation's highways would require an annual
investment of $78.8 billion in 2004 dollars by all levels of
government. Even at this level, however, congestion would worsen,
according to the report, because it would finance too little new
highway capacity. The U.S. DOT report calculates an annual investment
of $89.7 billion in 2004 dollars would be required to achieve this
policy goal. Most of the additional $11 billion investment each year
would be for new capacity.
The DOT report, however, may understate the need. The American Road
and Transportation Builders Association believes that Federal highway
funding in the next surface transportation bill would have to start at
$54.5 billion in FY 2010 and grow to $61.5 billion by FY 2015 to
provide the Federal share of the annual highway investment needed to
maintain both physical conditions and operating performance.
Additionally, in February, the House Transportation and
Infrastructure Committee estimated that there are $15.8 billion in
capital needs to maintain the nation's public transit systems in their
present condition. The need increases to $21.8 billion if funds are
authorized for transit improvements.
B. Wastewater Treatment Systems
In January, 2008 the Environmental Protection Agency (EPA) reported
that we must invest at least $202.5 billion just to prevent combined
sewer overflows and sanitary sewer overflows at the nation's 16,000
publicly owned wastewater treatment works.
In 2002, the EPA estimated that the projected gap in what is spent
on sewage treatment systems and what is needed was between $331 billion
and $450 billion by 2019.
C. Waterways Infrastructure
The U.S. Army Corps of Engineers operates and maintains 240 locks
at 195 locations along 12,000 miles of inland waterways. The average
lock on these waterways is 53 years old--past the 50-year service life.
The average cost to replace a lock is $600 million, if we were to
replace just half of the 240 locks that are known to be beyond their
design life, we would need to spend $72 billion. To rehabilitate the
other half of the system would cost another $30 billion. The total
figure is more than $100 billion just to bring our antiquated waterways
up to modern required conditions.
At the annual rate of spending of $180 million in the
Administration's budget proposal for FY 2009, it would take the Corps
20 years simply to fund all the inland waterways projects authorized in
the Water Resources Development Act of 2007 (WRDA).
D. Aviation
In February of the 2008, the House Transportation Committee
identified $17.5 billion a year in airport capital needs. Funding is
badly needed if we are to avoid costly delays in the future.
E. Drinking-Water
The nation's drinking-water treatment systems face an annual
shortfall of $11 billion to replace aging facilities that are near the
end of their useful life and to comply with existing and future Federal
water regulations. The shortfall does not account for any growth in the
demand for drinking-water over the next 20 years.
F. Dams
In 2004, we estimated that $10.1 billion is needed by 2019 to
address all critical non-Federal dams, dams which pose a direct risk to
human life should they fail.
G. Schools
The ASCE 2004 Report Card for America's Infrastructure gave the
nation's schools a D. The last detailed report from the Department of
Education stated in 1999 that $127 billion a year was needed to bring
facilities into good condition. Too many of America's children go to
school in overcrowded buildings with leaky roofs, faulty electrical
systems, and outdated technology, all of which compromise their ability
to achieve, succeed, and develop the educational skills necessary for
the workforce of the 21st Century.
IV. INVESTMENT PROPOSALS
A. Surface Transportation System
Recovery legislation should provide $18 billion for necessary
reconstruction projects for the nation's highway systems. A number of
state departments of transportation polled by the American Association
of State Highway Officials earlier this year identified more than 3,000
highway projects totaling approximately $18 billion that could be
implemented 30 to 90 days after enactment of Federal economic recovery
legislation.
There are $4.6 billion worth of transit projects ready to begin
construction today, according to the American Public Transit
Association (APTA). Congress also has authorized another $800 million
in projects to avoid immediate service cuts throughout the country. We
recommend that Congress provide $5.4 billion for transit projects as
part of the economic recovery legislation.
B. Wastewater Systems
Congress should authorize $6.5 billion for the repair and
construction of publicly owned sewage treatment works (POTWs). There
are between $3 billion and $10 billion worth of upgrades for publicly
owned treatment works now on the drawing boards. Construction could
begin within weeks if Congress provides the required assistance. Under
the program that passed the House in September (H.R. 7110), the EPA
would have had the discretion to use only one and a half percent of the
$6.5 billion in the bill (approximately $100 million) in the form of
grants. Any new funds should be distributed primarily in the form of
grants or negative-interest loans for ready-to-go POTW projects based
on the local community's economic situation.
C. Waterways Infrastructure Repairs Pending
The U.S. Army Corps of Engineers has an enormous amount of
infrastructure work that needs tending. We estimate that the Corps
requires approximately $7 billion in new funding to:
Substantially reduce the backlog of critical
maintenance and repairs at an estimated 360 multiple purpose
flood-control, hydropower, recreation, water-supply, and
navigation projects and upgrade recreation facilities.
Improve the safety of several high-risk dams.
Restore and improve hydropower plants to meet an
industry standard 98 percent plant availability.
Recapitalize the oldest and most at-risk projects on
the nation's 12,000 miles of inland waterways.
Fully dredge to their authorized depth the nation's
296 highest use, deep-draft commercial ports. These ports
manage approximately 2.6 billion tons or 94 percent of the
nation's commercial import and export commerce.
Fully dredge inland waterways to their authorized
depth and width to ensure that the approximately 750 million
tons of commercial goods that flow through these works annually
reach their intended markets. Among the industries most
affected by the aging waterways are agricultural exports and
all bulk commodities, including iron ore for domestic steel
plants, coal for power plants, and fertilizer as well as bulk
road construction materials and others.
Repair and upgrade critical coastal protection
projects that defend key population centers from natural
disasters.
D. Aviation
Congress should authorize $600 million for the Airport Improvement
Program. The Federal Aviation Administration has reported it could use
that amount for ``ready-to-go'' projects. The types of projects include
safety and security projects such as runway improvements, runway
lighting, signage improvements, security enhancements, etc.
E. Drinking-Water
We recommend that Congress provide $1 billion in new financial aid
to the nation's drinking-water treatment systems to begin critically
needed upgrades.
F. Dams
We recommend that the economic recovery package contain $200
million for the dams in greatest need of repair.
G. Needed School Repairs
Congress should consider a $2 billion emergency public school
renovation and repair program to help states meet the school facility
needs of local communities by providing resources to repair, renovate,
and modernize America's schools. Equally important, its enactment will
stimulate the creation of thousands of new jobs in construction-related
services. It is estimated that $2 billion for this purpose would be
sufficient to create an estimated 32,300 jobs.
While there are many other worthwhile infrastructure programs that
concern us deeply, ASCE believes that the list above is a badly needed
beginning to the problem of renewing our economy and preserving public
health, safety, and welfare through a concentrated Federal reinvestment
in America's failing infrastructure.
V. LONG TERM SOLUTIONS TO THE INFRASTRUCTURE CRISIS
A. National Infrastructure Bank
The National Infrastructure Bank Act of 2007 (S. 1926) would begin
to address a problem that is rapidly approaching crisis levels--the
physical deterioration of the nation's major public works systems. It
would prime the pump to begin meeting the staggering investment needs
for our infrastructure.
Briefly, the legislation would establish a National Infrastructure
Bank. The Bank would be an independent body designed to evaluate and
finance ``capacity-building'' infrastructure projects of substantial
regional and national significance.
Eligible infrastructure projects would be limited to publicly owned
mass transit systems, public housing, roads, bridges, drinking-water
systems, and sewage-treatment systems.
Sponsors--states, cities, counties, tribes, or an infrastructure
agency such as a transit or wastewater treatment agency, or a
consortium of these entities--would propose infrastructure projects for
the bank to fund. To be eligible, the projects would need a minimum
Federal investment of $75 million.
We believe a National Infrastructure Bank is essential to beginning
the long-term effort to maintain or replace economically vital
infrastructure systems across the nation. This nation cannot afford to
wait much longer to invest significant sums in its infrastructure.
B. Federal Capital Budget
ASCE supports the establishment of a Federal multi-year capital
budget for public works infrastructure construction and rehabilitation.
This budget would be similar to those used by state and local
governments. The capital budget must be separated from non-capital
Federal expenditures. The current budgeting process at the Federal
Government level has a short-term, one- to two-year, focus.
Infrastructure, by its very nature, is a long-term investment.
The current Federal budget process does not differentiate between
expenditures for current consumption and long-term assets. This causes
major inefficiencies in the planning, design and construction process
for long-term investments. A Federal capital budget could create a
mechanism to help reduce the constant conflict between short-term and
long-term needs. It also would help increase public awareness of the
problems and needs facing this country's physical infrastructure.
Without long-term financial assurance, the ability of the Federal,
state, and local governments to do effective infrastructure investment
planning is constrained severely.
C. Public-Private Partnerships
We need to say a few words about the use of public-private
partnerships (PPPs) in providing financial assistance to U.S.
infrastructure. PPPs are contractual relationships between public and
private sectors in infrastructure development. They have been defined
as ``a cooperative venture between the public and private sectors,
built on the expertise of each partner that best meets clearly defined
public needs through the appropriate allocation of resources, risks and
rewards.''
ASCE recognizes PPPs as one of many methods of financing
infrastructure improvements. ASCE supports the use of PPPs only when
the public interest is protected and the following criteria are met:
Any public revenue derived from PPPs must be
dedicated exclusively to comparable infrastructure facilities
in the state or locality where the project is based.
PPP contracts must include performance criteria that
address long-term viability, life-cycle costs, and residual
value.
Transparency must be a key element in all aspects of
contract development, including all terms and conditions in the
contract. There should be public participation and compliance
with all applicable planning and design standards, and
environmental requirements.
The selection of professional engineers as
consultants and subcontractors by Federal, state, and local
agencies should be based solely on the qualifications of the
firm.
ASCE supports the development of criteria by governing agencies to
protect the public interest. Examples of criteria include input from
affected individuals and communities, effectiveness, accountability,
transparency, equity, public access, consumer rights, safety and
security, sustainability, long-term ownership, and reasonable rate of
return.
D. Other Financing Options
In addition, ASCE supports the following financing options.
User fees (such as a motor fuel sales tax) indexed to
the Consumer Price Index.
Appropriations from general treasury funds, issuance
of revenue bonds, and tax-exempt financing at state and local
levels.
Trust funds or alternative reliable funding sources
established at the local, state and regional levels, including
use of sales tax, impact fees, vehicle registration fees, toll
revenues, and mileage based user fees be developed to augment
allocations from Federal trust funds, general treasuries funds
and bonds.
State infrastructure banks, bonding and other
innovative financing mechanisms as appropriate for the
leveraging of available transportation program dollars, but not
in excess of, or as a means to supplant user fee increases.
The use of budgetary firewalls to eliminate the
diversion of user revenues for non-infrastructure purposes.
VI. 3% Government Withholding
Another burden that will soon be placed on the nation's
infrastructure will go into effect in 2011, when a Federal mandate that
Federal, state, and local governments withhold 3 percent from payments
for goods and services activates. Section 511 of the Tax Increase
Prevention and Reconciliation Act (PL 109-222) will add millions to the
cost of the nation's infrastructure as engineering firms, construction
companies and governments at all levels struggle to absorb the added
cost of doing business. Compliance will reduce cash assets that are
used to pay company employees and other day-to-day expenses. Many
construction projects profits are not realized until the end of a
multiyear contract. Despite this, contractors will have had three
percent withheld throughout the life of the contract. We strongly urge
Congress to repeal Section 511 before it goes in to effect in 2011.
VII. CONCLUSIONS
Thank you for the opportunity for the American Society of Civil
Engineers to share our views. We look forward to working with the Ways
and Means Committee in efforts to address these serious concerns. I
would be happy to answer any questions you may have.
Chairman RANGEL. Now we will have President Van Roekel, who
is representing the National Education Association, to testify.
STATEMENT OF DENNIS VAN ROEKEL, PRESIDENT,
NATIONAL EDUCATION ASSOCIATION
Mr. VAN ROEKEL. Good morning, Chairman Rangel and Ranking
Member McCrery, and Members of the Committee. Thank you for the
opportunity to be here. My name is Dennis Van Roekel; I am the
new president of the National Education Association.
Today, I would like to focus on the impact of the Nation's
economic crisis on education; specifically, the major
infrastructure needs of our Nation's public schools, and the
positive impact that investments in school construction can
have on local economies.
Many of NEA's 3.2 million members have already seen
firsthand how our Nation's deteriorating economy is affecting
public schools and the 55 million children who attend them. We
are seeing budget cuts and staff layoffs. Detroit has laid off
700 teachers; Los Angeles has laid off 500 administrators;
Miami-Dade County in Florida has laid off hundreds of schools
psychologists, maintenance workers, and custodians.
We are also seeing the stress on families who are
struggling to get by. A record number of students are homeless
or poor enough to qualify for free or reduced school meals.
Schools report a steady stream of anxious parents, often in
tears, pleading for free meals for their children because they
just don't have the 70 cents per day for reduced priced meals.
We are seeing more students who need donated backpacks and
school supplies because their families cannot afford to provide
them.
Congress must take immediate action to stimulate our
economy. NEA believes that any stimulus plan must include
investing in school infrastructure. The average school in
America was built almost 50 years ago. Public schools need to
spend an estimated $17 billion a year just to maintain their
existing structures and grounds. Many schools are falling
behind in keeping up.
Every day across this Nation, millions of children attend
schools that are not fit for children. Many schools hold
classes in temporary trailers, converted closets, and even in
hallways.
The quality of school facilities varies dramatically and
inequitably. School districts with higher proportion of low
income children have less funding for construction, less
funding for renovation, repairs, and maintenance than their
counterpart wealthier districts. So, their students suffer.
Don't let anyone tell you that the physical condition of a
building doesn't affect learning, because we know it does. That
is why I would like to thank you, Mr. Chairman, for your
leadership on this issue, particularly for creating qualified
zone academy bonds and sponsoring the America's Better
Classroom Act, the ABC Act. NEA is proud to support the ABC
Act.
In providing for the issuance of more than $25 billion in
bonds for school modernization projects, your bill would save
millions of dollars in interest payments for States and
districts, and help communities stretch limited resources to
pay for additional school facility projects as well as
essential education programs. We are pleased that your bill has
such strong bipartisan support with over 220 cosponsors, and we
look forward to working with you toward its passage next year.
In the short term, however, we believe that school
infrastructure funding must be part of any Federal stimulus
package. NEA's analysis suggests that investing $250 billion
over a 5-year period for repair and maintenance of school
facilities would support 50,000 jobs per year.
In the last two statewide bond cycles in California, $10
billion in school construction expenditures created more than
175,000 jobs. But in addition to creating jobs, investing in
school infrastructure has a positive effect on residential
property values. But the most important reason to invest in our
schools is because of our children. When we build or modernize
schools, we are not just buying bricks and mortar, we are
investing in children's future.
Today, one-fourth of our students are in schools that are
considered substandard or even unhealthy. We must upgrade or
replace these old schools to improve air quality and increase
the amount of natural light. Following green principles can not
only make our children healthier and help them learn better, it
can also save as much as $20 billion in energy costs over the
next 10 years.
Mr. Chairman, my written testimony includes more details
about some of the points I have mentioned, but today I want to
thank you for the opportunity to address the Committee, and I
would be happy to answer any questions. Thank you, sir.
[The prepared statement of Mr. Van Roekel follows:]
Statement of Dennis Van Roekel, President,
National Education Association
Chairman Rangel and Members of the Committee:
Thank you for the opportunity to speak with you today about the
infrastructure challenges facing our nation's schools, and the critical
link between infrastructure investments and economic stimulus.
My name is Dennis Van Roekel and I am honored to be here today as
the new President of the National Education Association, representing
the views of 3.2 million educators working tirelessly every day in
public schools across the country to ensure every student the
opportunity to excel.
Today, I would like to focus on the impact of the economic crisis
on schools and the students they serve, the significant infrastructure
needs facing our nation's public schools, and the real impact
investments in school construction can have on local economies.
Impact of the Economic Crisis on Schools
As many as 27 states are predicting deficits for FY09 of at least
$25 billion. As a result, a growing number of states have made or are
considering harmful cuts in education and other vital services. Some
states have already been forced to layoff school staff. For example,
Detroit has laid off 700 teachers; Los Angeles has laid off 500
administrators; and Miami-Dade County has laid off hundreds of school
psychologists, maintenance workers, and custodians. Rising fuel costs
are forcing school districts to take drastic measures, including
trimming or eliminating bus service, cutting all field trips, and
shortening the school week.
The economic crisis is not only threatening education funding, but
is impacting the daily lives of our students and their families:
With the frightening rise in mortgage foreclosures,
schools are seeing record numbers of students who are homeless
or poor enough to qualify for free school meals.
Many districts are being forced to raise prices for
school meals due to escalating food costs. Schools report a
steady stream of anxious parents, often in tears, pleading for
free meals for their children because they do not have 70 cents
a day for reduced price meals.
Schools also report record numbers of students
needing donated backpacks and school supplies, because their
families cannot afford to buy them.
Clearly, Congress needs to take immediate action to help alleviate
the pressure on state budgets and working families. We have urged
Congress to pass a stimulus package with state fiscal relief, a
temporary increase in the Federal Medicaid match, extensions of
unemployment benefits, and increases in nutrition assistance.
School Infrastructure Needs
Our nation's public schools are in desperate need of repair and
renovation. Across the country, children go to school in overcrowded
buildings with leaky roofs, faulty electrical systems, and outdated
technology. Some schools hold classes in ``temporary'' trailers,
converted closets, and hallways. In 2003, the Modular Building
Institute estimated that more than 220,000 portable classrooms were in
use by public school systems in the United States. Too many students
attend schools that lack the basic electrical and telecommunications
equipment necessary for connection to the Internet or the use of new
education technologies. In 2004, the American Society of Civil
Engineers gave public school infrastructure a grade of ``D.''
This is not a new problem. NEA has been working on the school
modernization issue for over a decade. And, the problem has only been
exacerbated since Congress first looked at the issue in the 1990s.
The demands of today's educational programs and services are
overwhelming the structural capacity of the average school in America,
built almost fifty years ago. According to a 1999 study completed by
the National Center for Education Statistics (NCES), the average public
school building in the United States was 42 years old. The mean age for
schools in this study ranged from 46 years in the Northeast and central
states to 37 years in the Southeast. About one-fourth (28 percent) of
all public schools were built before 1950, and 45 percent of all public
schools were built between 1950 and 1969. Seventeen percent of public
schools were built between 1970 and 1984, and 10 percent were built
after 1985.
Public K-12 schools throughout the nation need to spend an
estimated $17 billion a year just to maintain existing structures and
grounds. And there is evidence that many schools are falling behind.
According to an NCES survey in 1999, 76 percent of all schools reported
that they had deferred maintenance of their buildings and needed
additional funding to bring them up to standard. The total deferred
maintenance exceeded $100 billion, an estimate in line with earlier
findings by the Government Accounting Office (GAO). In New York City
alone, officials have identified $1.7 billion of deferred maintenance
projects on 800 city school buildings. NEA's May 2000 report
``Modernizing Our Schools: What Will It Cost?'' estimated the
nationwide cost of repairing, renovating, or building school facilities
and installing modern educational technology at $322 billion--nearly
three times previous Government estimates.
Historically, local tax revenues have been the dominant source of
funds for building and renovating public school facilities, with
support from state governments and small Federal initiatives, combined,
supplying less than a quarter of all facilities funds nationwide.
Usually, state support has been based on a politically determined
amount of available money--without regard to educational needs or
construction costs--and the outcome of a political struggle over how to
distribute that money among a state's school districts. As a result,
the quality of school facilities varies dramatically, and often
inequitably, based on differences between communities' local ability to
pay and the balance of political power in the state.
Federal investment in school construction is critical to meeting
infrastructure needs and, in particular, to reducing the disparity in
overall school facility quality between low-income and high-income
school districts. Schools in districts with a higher proportion of low-
income children have less funding for new construction, renovations,
and major maintenance and repairs than schools with more affluent
student populations. According to the Economic Policy Institute (EPI),
between 1995 and 2004, schools in districts with more than 75 percent
of students eligible for free or reduced price lunch spent an average
of $4,800 per student on school construction. In contrast, schools in
districts where less than 10 percent of students qualified for free or
reduced price lunch spent an average of $9,361 per student on school
construction.
Economic Impact of School Infrastructure Investments
In a time of economic weakness, public investments in the nation's
infrastructure can provide short-term stimulus and build the foundation
for long-term economic growth. According to EPI, Federal investments in
infrastructure, including school buildings, are required to address
critical needs, create jobs, and spur the economy. In short, investing
in school infrastructure acts as a job creation program in the
struggling construction industry--putting Americans to work building or
repairing school facilities. This work puts money in the pockets of
those workers immediately, and it can lead to higher productivity in
the future.
According to EPI, investments for the purpose of short-term
stimulus can emphasize repairs in which the work can start and be
completed quickly. The economic activity and jobs directly created by
this spending have a beneficial ripple effect as, for instance,
construction firms purchase materials and employees spend their
salaries. NEA's analysis suggests that using $20 billion spread over a
five-year period for maintenance and repair on school facilities would
support 50,000 jobs per year.
In recent years, investments in school construction across the
country have been shown to have a significant multiplier effect on
local economies. For example:
In July of this year, researchers at Rutgers
University estimated the economic impacts of planned school
construction projects in New Jersey for the next five years.
Their findings: each $1 million of spending on school
construction will generate: 8.7 job years (one job-year is
equal to one full-time job lasting one year); $469,000 in
income; more than $13,000 and $16,000 in state and local tax
revenue, respectively; and $611,000 in gross state product.
Over the next five-years, the state expects to spend $5.4
billion on school construction, which will generate almost
9,400 full-time jobs annually; $2.5 billion in income; $3.3
billion in GDP; $369 million in Federal tax revenues; $72
million in state tax revenues; and $87 million in local tax
revenues. This includes both the direct economic effects and
the indirect (multiplier) effects of the subsequent economic
activity.
In the last two statewide bond cycles in California,
$10 billion in school construction expenditures created more
than 175,000 jobs and generated twice the economic activity
($20 billion) as the initial investment.
According to a 2007 analysis by West Virginia
University, the School Building Authority of West Virginia
spent more than $500 million on school construction projects
between 2003 and 2007. The result--$1.09 billion in business
volume, 9,620 job-years (an average of 1,924 jobs each year),
$281 million in employee compensation, and $16 million in state
tax revenues.
A study of the economic impact of Boston's eight
research universities determined that the ``multiplier effect''
of the eight universities' spending within the region on
payroll, purchasing, and construction generated an additional
$3.9 billion in regional economic output, $1.6 billion in
wages, and more than 37,000 full-time-equivalent jobs in 2000.
A report released last year determined that 20
universities in middle Tennessee directly injected $249 million
in construction and equipment-related expenditures in 2004 in
the middle Tennessee region. Taking into account indirect and
induced impacts, the capital expenditures of the 20
universities generated a total of $456 million in business
revenue, $183 million in personal income, 4,722 jobs, and $13.6
million in state and local taxes.
In addition to job creation, investment in school infrastructure
has been shown to have a direct and positive impact on residential
property values. New or well-maintained school facilities can help
revitalize distressed neighborhoods. School quality helps determine
localities' quality of life and can affect the ability of an area to
attract businesses and workers. For example, in Oklahoma City, the
renovation and reopening of Cleveland Elementary School increased
property values by 30 to 100 percent.
Impact of School Infrastructure Investments on Student Learning
In addition to stimulating local economies, it is clear that school
modernization enhances student learning in many ways. For example, it:
Addresses concerns for overcrowding.
Allows educators to plan an environment that is more
conducive to curriculum integration, engaged learning, and
technology integration.
Builds the infrastructure to support and meet the
demands of modern technology.
Addresses safety and environmental concerns brought
about from aging structures which used unsafe materials, such
as asbestos.
Improves student and staff morale by establishing
learning communities instead of isolated classrooms in a long
hallway.
Enhances the inclusion of new cutting edge
technology.
Adds to property values, thereby improving the
community.
Enhances the school as a community center.
Improves the offering of extracurricular activities
for students, giving them a constructive avenue for learning
through teaming and physical accomplishments.
Improves the environment for offering after-school
learning activities to meet the needs of the community, such as
tutoring services, clubs, etc.
A growing body of research supports the relationship between the
condition of a school's facilities and student achievement:
A recent study (The Walls Speak: The Interplay of
Quality Facilities, School Climate, and Student Achievement,
2006) found a positive correlation between a school facility's
condition, school climate, and student achievement.
Another study (The Impact of School Environments,
2004) analyzing 25 years of research found the majority
supporting the relationship between school quality and student
performance. Conversely, a study of Houston schools (The Wise
Man Builds His House Upon the Rock, 2004) related poor school
conditions to poor school performance.
A 1996 study by the Virginia Polytechnic Institute
and State University found a significant difference in academic
achievement between students in substandard classrooms and
demographically similar children in a first-class learning
environment.
Similarly, a 1995 study of North Dakota high schools
found a positive correlation between school conditions and
student achievement and behavior. A 1995 study of overcrowded
schools in New York City found students in such schools scored
significantly lower on both mathematics and reading exams than
did similar students in underutilized schools.
School Modernization and ``Green Schools''
Modernizing our nation's schools is also critical to ensure
students and educators a healthy environment. Twenty percent of the
American population spends their days in school buildings, and one
quarter of these students and school staff attend schools that are
considered substandard or dangerous to occupant health.
Every child and school staff person has the right to a school with
healthy air to breath and conditions that foster learning. ``Green
schools'' create a safe and healthy environment that is conducive to
teaching and learning while saving energy, resources, and money.
Through long-term and careful planning with students, teachers,
administrators, and members of all community constituencies, high
quality, community--centered educational environments:
Promote a sense of safety and security
Build connections between members of the school and
the community
Instill a sense of pride
Engage students in learning
Encourage strong parental involvement
Foster environmental stewardship.
Studies demonstrate that green schools directly benefit student
health and performance. These studies show that:
Daylight improves performance
Good indoor air quality improves health
Acoustics increase learning potential
Mold prevention decreases asthma incidences (asthma
is the number one cause of school absenteeism due to a chronic
illness)
Comfortable indoor temperatures increase occupant
satisfaction.
If all new school construction and renovation used the ``green''
approach starting today, energy savings alone would total $20 billion
over the next 10 years. On average, green buildings expect an 11
percent decrease in operating costs, a 6 percent increase in building
value, and a 14 percent decrease in energy use. New green schools can
expect to save 20-40 percent in annual utility costs; while renovated
green schools will save 20-30 percent.
Perhaps most importantly, student achievement is greater in above-
standard buildings compared to below-standard buildings. For example,
students taught in classrooms with daylight produce higher test scores
than those in classrooms with no direct daylight.
Conclusion
Investment in school infrastructure provides a win-win scenario--it
improves teaching and learning environments, helps maximize student
achievement, and creates jobs that help stimulate local economies while
putting more money into the hands of working families. A short-term
investment in school repair can have a long-term impact on our nation's
economic well-being. We urge Congress to invest in school
infrastructure as part of any stimulus package.
Thank you for the opportunity to speak with you today.
__________
[Supplementary Information from Mr. Van Roekel follows:]
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[Supplementary Information from Mr. Van Roekel follows:]
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Chairman RANGEL. It is now my honor and pleasure to present
my friend Randi Weingarten, who is the president of the
American Federation of Teachers, and to thank her for her
constant effort to improve the quality of education for our
children throughout our city, our State, and our great country.
STATEMENT OF RANDI WEINGARTEN, PRESIDENT,
AMERICAN FEDERATION OF TEACHERS
Ms. WEINGARTEN. Thank you, Chairman Rangel, very much and
thank you for that introduction and for all of your work. Thank
you, Ranking Member McCrery, and thank you all the Members of
the Committee. Thank you for the opportunity to testify on the
urgent need for Congress to pass an economic stimulus package
that economically invests, not divests in American future.
As Chairman Rangel said, my name is Randi Weingarten and
like Dennis Van Roekel, I am the new president of the AFT,
still the president of the UFT in New York, and this is the
first time I have had the honor in that capacity to testify
before you.
Some may think it is odd for the presidents of both teacher
unions to be at a hearing on economic stimulus, but the number
one concern of the 1.4 million members of the AFT is the health
of our economy. The simple fact is this: Education and the
economy are intertwined. Neither is strong when the other is
weak. When the economy is weak, workers lose their jobs, homes
and health care. The effect of these losses don't just hit
workers. It also affects their children who are our students.
When the economy is weak and governments make spending cuts,
they all too often occur in K through 12 education programs.
Unfortunately, as you've already heard from this esteemed
panel, many States are feeling the economic pinch and are
already beginning to make cuts in education. South Carolina,
Maryland, New York and the localities that President Van Roekel
mentioned are not isolated. Just yesterday, Governor Deval
Patrick of Massachusetts announced that budget shortfalls will
mean scaling back his education reform agenda, and there are
many others that we have included in our testimony, including
some testimony from local Union presidents that I would ask to
be made part of this record.
These cuts will have lasting impact on the quality of the
education that our children receive and on tomorrow's
workforce. We cannot have a vibrant, strong economy without
well prepared students. That's why continued investments even
in this difficult time are so critical.
So, my message is very simple: As Congress works to
assemble a plan to strengthen the economy, it must recognize
the benefits of providing immediate assistance to cash strapped
States so they can continue to provide important public
services such as quality public education and health care.
Difficult times demand bold action.
The boldest action you can take now is the simplest. Invest
in the foundations of our country's strength: jobs, education
and health care. One of the reasons States and localities
across America are dealing with record budget deficits is
because of the mortgage crisis. Later this week, I will be
visiting the cities of Cleveland, Cincinnati and Detroit, all
places where home foreclosures are rising and people are
suffering. These trends foretell another crisis, the eroding
revenue base for public education in most of our communities,
and it gets worse. Higher unemployment rates are resulting in
lower consumer spending and decreasing sales tax receipts which
I am afraid will lead to further cuts in critical education,
health care, and infrastructure programs.
The worst outcome for our Nation would be for government to
retreat from their basic commitments and backslide into a
situation for which it could take decades for us to recover.
Investing in education and other public services is just as
important today as it was yesterday before this current fiscal
crisis, and I would argue probably more important. We should be
moving aggressively toward strengthening our public services,
our infrastructure, our schools and health care because only by
doing that will we remain competitive in the international
marketplace and be the world leader we are today.
Now, you and the Bush Administration have already worked
together to pass two bipartisan initiatives to lessen this
crisis, but more work must be done. It is my sincere hope that
the current Administration will start now to work with Congress
and the new President to develop a prudent comprehensive
countercyclical package to protect those who did not get relief
in the first two bills. The following are the three priorities
we would recommend to include in the stimulus package: First,
expand and increase unemployment insurance benefits. Without
new legislation, 800,000 jobless people will exhaust their
benefits in this month alone. Family mobility and homelessness
often increase with rising unemployment rates and this type of
instability negatively affect school-age children.
Second, bring immediate fiscal relief to the States. As
more States face budget shortfalls they will be forced to cut
services to balance their budgets at a time when citizens need
them most. The Federal Government should increase the
contribution to the States' Medicaid program to $35 billion and
increase funding for the Social Service Block Grant by $20
billion. These countercyclical programs will provide immediate
help to cash strapped States and sustain vital public services.
Third, and finally, and I will repeat when President Van
Roekel said, investing and improving our infrastructure. States
need assistance to rebuild our crumbling infrastructure. This
will result in improved roads, schools, bridges and water
systems as well as more jobs for either unemployed or
underemployed. I also urge you to build on the 3 billion
included for school modernization in the House passed stimulus
package by adopting again as Dennis Van Roekel said, a portion
of Chairman Rangel's ABC school legislation. During the New
York City fiscal crisis, construction was halted and
maintenance was deferred to such an extent that it took the
next 30 years to fix the problems created by this inactivity
and that doesn't even touch upon the education losses that
resulted that we are now only recovered from.
I am confident, as I know most of you are, that our economy
will recover, but I hope that in the process State and local
governments will not be forced to inadvertently worsen the
situation by making cuts that could prove harmful to future
generations. We are talking about people's lives here and
irreversible outcomes if we pursue shortsighted cuts. So, Mr.
Chairman, the stimulus package you and the other Committee
chairs are preparing is critical. After a national election,
the historic pattern has been for our Nation to come together.
I hope this trend will continue this year and that Congress
will work on a bipartisan basis to fix our economy and make the
intelligent investments needed at this time. Thank you again
for the opportunity to testify and I would be happy to answer
questions.
[The prepared statement of Ms. Weingarten follows:]
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Chairman RANGEL. Thank you, Madam President, and again,
thank you to the entire panel for sharing your views with us
and in recognizing that if we are going to do this in a
bipartisan way, we are going to have to impress the Members of
Congress within your cities and within your State. Of course,
recruiting your members doesn't apply of course to Governor
Sanford, which I would suggest that you can leave your members
alone and tell them to stay at home.
But having said that, Governor, do you recognize our Nation
is going through a severe fiscal crisis at this time and do you
agree that the likes of which has never been seen since the
Great Depression?
Mr. SANFORD. Absolutely.
Chairman RANGEL. Do you believe that there is any role for
the Federal Government to play as it relates to the fiscal
institutions? Since you opposed the $700 billion recovery, do
you think that we should have given any financial assistance to
these institutions at all?
Mr. SANFORD. I personally don't. If you look at our numbers
in terms of--it's interesting that the latest----
Chairman RANGEL. No, that's good for me. So, you don't
believe we should have any responsibility exposing to the
taxpayer to anything as it relates to that problem?
Mr. SANFORD. Well, they are already exposed.
Chairman RANGEL. But you would not have supported----
Mr. SANFORD. I would not support adding to that exposure
which is the nature of borrowing when you are already in a
hole. The old saying if you're in a ditch, part of the quickest
way to get out is to quit digging.
Chairman RANGEL. Do the people in South Carolina--have you
felt the increase in unemployment at all in South Carolina?
Mr. SANFORD. Absolutely, as has the rest of the Nation. But
the issue goes back to this larger notion. I have a chart here
that shows household debt as a percentage of GDP. In 1953, we
were at 20 percent; today we are at 100 percent.
Chairman RANGEL. Governor, you said Federal intervention
was infectious, and that's kind of rough language that affects
our economy with unnecessary and unintended fiscal
consequences. So, I just want to see whether there is anything
that we can do as a Government that you would agree makes some
sense. Now, would you support unemployment compensation for
these people that are unemployed in South Carolina?
Mr. SANFORD. We have obviously a program in place. The
question is should we add to it.
Chairman RANGEL. I know--I am just asking. I don't want to
be offensive and infect anything that relates to your concept
of your Government. So, therefore, I want to make certain that
is there anything that we can do that you agree with?
Unemployment compensation, expand it, modernization, picking up
those people who are looking for work and can't find it. Should
the Federal Government look at that? Forget stimulus. Should we
do it? Should we be involved in Medicaid and Medicare? Should
we be involved in assisting and getting people an education,
training, and being competitive? Should we do anything that
would allow us to be competitive to get out of the fiscal mess
that we are in that you would agree is the proper role for
government?
Mr. SANFORD. Sure. That's why I made the last point that I
made which is there are a whole series of unfunded Federal
mandates at the State level that run us about 400----
Chairman RANGEL. That is not in States that were made under
your watch and my watch. We are looking ahead now----
Mr. LINDER. Mr. Chairman, why don't you let him answer your
questions?
Mr. SANFORD. So, there are very substantial unfunded
mandates and----
Chairman RANGEL. Well, unfunded mandates, you can't put
that in a stimulus package. The gentleman from Georgia
Mr. LINDER. If the Chairman will yield, I think what he
said was he is not in favor of another stimulus package because
all of these things could be more helpful to get rid of the
unfunded mandates that could help themselves.
Chairman RANGEL. Well, I heard what he said. I don't have a
hearing problem. I just want to be able as the Chair to get
answers to my questions and not answers to questions I did not
ask.
Mr. LINDER. Mr. Chairman, if you will yield further, the
point I made was, if you want answers to your questions, let
him answer them.
Chairman RANGEL. I thank the gentleman for his direction.
Do you support the Federal Unemployment Compensation
program?
Mr. SANFORD. I do. We obviously have a program in place----
Chairman RANGEL. Do you support expanding that program?
Mr. SANFORD. I don't. In other words, I would----
Chairman RANGEL. That answers me, Governor. We don't have
the problem that he thinks we have. That answers it.
Do you support any Federal assistance for infrastructure,
bridges, roads, schools? Do you think the Federal Government
should be involved at all?
Mr. SANFORD. The Federal Government is involved and----
Chairman RANGEL. Do you think we should continue to be
involved? I don't want to get involved in unintended mandates.
Mr. SANFORD. The details matter here because again I go
back to the basic reality which is you have got to
differentiate between investment and borrowing to invest. The
Federal Government----
Chairman RANGEL. I don't have a problem, Governor, with my
question. Do you think the Federal Government should be
involved in assisting in providing health care for the people
in South Carolina?
Mr. SANFORD. Obviously, because we administer Medicaid,
which is a Federal-State program that helps a lot of people in
South Carolina.
Chairman RANGEL. What makes you think the Federal
Government should have that obligation to take care of the
health care of the people in South Carolina?
Mr. SANFORD. You are changing the words. You said should
the Government be involved versus should we again expand that
obligation? In other words, the two are different. We have a
program. It is unsustainable. It has been growing at 9\1/2\, 10
percent a year over the last 10 years, and the question going
forward, and this is the larger point that David Walker and
Pete Peterson and a whole host of others are making, which is
if you have $52 trillion of accumulated liability, of political
promises that have been made but not paid for, ultimately just
as was the case with the homeowner whose households became
underwater from a credit standpoint, somebody has got to pay
for it.
Chairman RANGEL. How about in tornadoes, floods and
hurricanes, do you think the Federal Government should be there
for the people in the States at all?
Mr. SANFORD. Again, the Federal Government is----
Chairman RANGEL. I am asking you if you think we should be.
We are. Do you think we should be?
Mr. SANFORD. Well, you are not asking the question that
again, I am making which is----
Chairman RANGEL. I am so sorry. The Chair apologizes for
not framing a question which you can answer. I yield to Mr.
McCrery.
Mr. MCCRERY. Thank you, Mr. Chairman. I think the exchange
between the Chairman and Governor Sanford highlights the
underlying philosophical discussion that needs to be had. Many
of us, Mr. Chairman, as you know, and I have no doubt that you
went through the same many hours of deliberation when we passed
the $700 billion package of assistance to the private sector,
many of us voted for that very reluctantly because we were
concerned about the precedent that that set. We were concerned
about the erosion of the clear distinction between the public
sector and the private sector, and I think Governor Sanford and
your questions to the Governor bring to light the fundamental
differences between States and the Federal Government and the
responsibilities of each.
We have, to a great extent, over the past, say, 40 years or
so blurred what were fairly traditional lines and some would
say even constitutional lines between State responsibilities
and Federal responsibilities and what many are suggesting here
today is that we blur those lines even further, Mr. Chairman. I
have concerns about that. I believe that fundamentally
government which is closest to the people is government that is
the most effective and the most responsive to the people. By
definition, the Federal Government based in Washington, D.C. is
the farthest away from the people.
So, the more power and the more money we take into
Washington for redistribution around the country, the less
responsive the Government becomes to the people. I think that
is a fundamental question that should not be made light of. I
think Governor Sanford, at least based on what I have heard him
say here today and based on what I know about him, falls
squarely on the side of maintaining some of those distinct
lines between state responsibilities and Federal
responsibilities. So, Governor Sanford, I would just like for
you to share with us--I know your State has not been immune to
the economic conditions prevalent around the country and that
you too are facing a budget shortage in your state. Can you
share with us some of the steps that your State Government is
taking to rectify the situation, to close that budget gap?
Mr. SANFORD. Yes. The House and Senate came back in. They
dealt with the budget shortfall the old fashion the way, and
that is they made cuts. They submitted those cuts to me. I have
until tomorrow to dispense with those cuts or veto some portion
thereof. It is more than $400 million worth of real cuts that
the bodies made in bipartisan fashion, and so I guess my simple
point is this----
Mr. MCCRERY. Can you give us some examples of those cuts?
Mr. SANFORD. I mean, literally A to Z with regard to
government. There was no silver bullet. They are painful
throughout agencies. As much as possible, they attempted to
protect Medicaid for its impact with regard to people in need
in health care and to protect education. So, there were more
moderate cuts there. There were very substantial cuts in sort
of a whole host of other areas of government.
Mr. MCCRERY. As a Governor of your State, are you concerned
that these cuts that you are about to make in State spending
will set back your State for 30 years or more in terms of the
progress of South Carolina?
Mr. SANFORD. No, I don't think so. Because if you look
across our State and Governor Paterson's State, other States
across this country, there are a lot of families out there, a
lot of little businesses out there that are making real world
cuts in what they do. It doesn't mean that their business will
be toppled for the next 30 years. It means they had to make the
best decision within the context of a number of bad choices
that were before them.
So, if a small business can cut, if a large business can
cut in some cases I think it ought to be mirrored at the
Federal and State level because that's the reality of what is
happening in the economy after all.
Mr. MCCRERY. Does South Carolina have a rainy day fund?
Mr. SANFORD. We do. We have a capital reserve fund.
Mr. MCCRERY. Are you using that now?
Mr. SANFORD. We have. We have.
Mr. MCCRERY. What, in your opinion, would general revenue
sharing which is to a large extent what some are talking about
do to the incentive for States to create and maintain rainy day
funds?
Mr. SANFORD. Again, I think that that is why I talked about
in my testimony I talked about unintended--well-intentioned but
unintended consequences and for States that have been more
fiscally prudent, for the States that have set aside rainy day
funds, for the States that have exhausted those rainy day
funds, there would be the same effect that many people feel out
there and saying wait, Wall Street's being bailed out but I am
not being bailed out for a poor decision that I may or may not
have made.
If I might get back to just what the Chairman was getting
at just a moment ago, because we do see it through a different
point of view, what I am saying is this: The way that you want
to frame the question because you are a very smart guy and you
want to get it framed within the context that you want to frame
it is should government be involved or not, for instance, with
regard to Federal disaster? I don't think there is a Governor
out there who would say that the Federal Government shouldn't
have a role in Federal disaster.
Our State was impacted by FEMA when Hurricane Hugo hit. I
suspect we will be impacted down the road ahead. The question
though, and I think this is the real question of this
additional $150 billion that you are talking about, is should
the Federal Government's role be expanded? Because one of the
trend lines that we seem to see is that with every disaster
that comes our way, there is yet another Federal response. I
mean, think about 9/11.
With 9/11 at that time, about 25,000 airport security folks
were federalized even though countries like Israel who have a
real vested interest in security and are doing an awfully good
job of security have private contractors that take care of that
same function. Or think about Katrina. Did some things go wrong
with regard to emergency preparedness and emergency response
there? Absolutely. But what it has precipitated is a big
forward response from the standpoint of the Federal Government.
In some cases, the Federal Government taking over emergency
response efforts that have historically been handled at the
local government level, at the Mayoral level or at the State
level.
So, now, in the wake of this crisis that is before us, the
question is not will Government be involved? The Government has
been involved, always will be involved. But particularly given
that some of the making of this crisis was created by Fannie
Mae and Freddie Mac, quasi governmental entities, by a Federal
policy, a variety of other things that were in play at the
Federal level, should the response be yet another growing of
Federal Government's role and scope in every one of our lives?
I fall on the side of believing very strongly that that would
create very strong negative untended consequences with the
expansion, not, again, present involvement, but the expansion,
particularly in light of the $52 trillion worth of liabilities
the Federal Government already has.
Mr. MCCRERY. Thank you, Governor. One quick question for
Mr. Mongan.
Mr. Mongan, you spoke about infrastructure projects that
have been put on suspension, that have been suspended because
of lack of money to go forward and I suppose by implication we
would consider those projects ready to go. I mean, all the
engineering has been done, everything has been set, you have
just got to put money on the ground and construct; is that
right?
Mr. MONGAN. Yes, that's correct. The numbers----
Mr. MCCRERY. Do you have any number that quantifies the
amount of such suspended projects around the country?
Mr. MONGAN. The numbers that I cited, this $40 billion
represents information that we received from Federal sources,
testimony at the transportation and investment Committee of
these suspended projects----
Mr. MCCRERY. $40 billion.
Mr. MONGAN. Yes. 40 billion that are available, ready to
go.
Mr. MCCRERY. Okay. Thank you very much.
Chairman RANGEL. It would be helpful if we got that
information about the schools around the country as well, those
that are in the pipeline because of the immediate nature of
infusing resources in this area is very important.
The Chair now recognizes the distinguished gentleman from
California, Chairman of the Health Committee, Mr. Stark.
Mr. STARK. Thank you, Mr. Chairman. I would like to thank
the panel for their input today. I wish we had a hospital
administrator here and we could talk about that infrastructure
in many parts of our country which lags behind and particularly
in my State where Earthquakes are going to force us to spend
probably $100 billion just to make a hospital safe. But I want
to draw the distinction for a moment just between two
approaches. One of our distinguished leaders across the aisle
today suggested that the way to stimulate the economy is to
basically cut $100 billion in taxes and give it to large
corporations in the form of reduced corporate taxes.
That would amount to some hundred, $125 billion a year less
revenue that the Federal Government would get and thereby
increase the deficit $100 billion a year to help large
corporations. The opposing approach, I guess, that I would
favor is if we are going to increase the deficit to use that to
create jobs and invest that in infrastructure, which when we
are all done, at least would leave us with, at the worst, a
bandshell, at the best, maybe a new school or a hospital or
something that people could use for the many years that our
children will be paying off that debt. But at least it is there
and would not result in just more very rich corporate
executives making billions of dollars a year.
But this same leader across the aisle in his tour around
the country said that he wasn't sure that you could increase
construction. His comment was, and I am quoting here, that
everything that could be built is being built. Now, I heard
Governor Paterson earlier talk about--and I liked his quote--a
shovel-ready project. So, my question is to our two
distinguished panelists in the education field, do you think
that every municipality and county and State in this country
has a ``shovel-ready project'' that would improve the education
of our children whether they are preschool or college age?
Aren't there numerous projects that would put additional people
to work immediately in the education field? Ms. Weingarten?
Ms. WEINGARTEN. We will get you, for the record, the types
of project we think are ready to go already.
Mr. STARK. Across the country.
Ms. WEINGARTEN. Across the country. I know in New York
because of some of the escalating costs we have at least
several million, maybe a billion dollars worth of ready-to-go
construction that if we had the funding to do it, people could
put shovels in the ground. They have already been done. There
has been a 5-year construction project and zoning program and
whatnot.
Mr. STARK. I would ask then, if I could, Mr. Palmer and Mr.
Firestine, and I can help, Mr. Firestine, because I know where
there are a few potholes in Montgomery County and I am not so
familiar with Mr. Palmer's area. But do you guys have projects
that are right on the shelf that you could get going in less
than 90 days if you had additional funding?
Mr. PALMER. Yes, absolutely. We have schools that are put
on hold. We have designed them, the architecture done. Schools
that could go now that could be built green, projects, sidewalk
repairs, road projects that could go right now and help spur
our economy. But I just want to mention something that Mr.
McCrery said earlier about believing that government that is
closest to the people, well, let me just tell you that mayors,
you can't get closer than Mayors. You are hearing from the past
president, immediate past president of the U.S. Council of
Mayors.
We have testimony and reports of what we recommend, and
hearing from people that are closest to the people, we believe
that there is a fundamental partnership that should exist
between the Federal Government and cities to help us because we
can't do it alone, whether it is in the stimulus package to
help as it relates to transit, putting moneys into our roads,
intermodal transportation.
We are the ones that deal with families that are losing
their home. We are the people that are dealing with the people
that have small businesses that can't make it because we have a
water main break that has closed their street for 3 weeks and
they are about to lose thousands of dollars. So, there is a
fundamental partnership that needs to exist. Cities cannot be
left on their own to pull ourselves up by our bootstraps when
we don't have boots nor straps, and we certainly believe that
the Federal Government can work in partnership to create jobs
in our communities because at the end of the day, the cities
are the ones that you read about that are having the most
problems.
Mr. STARK. I have exceeded my time, but I think that the
witnesses clearly point up the distinction that we can cut
taxes, which puts a burden of further deficit on our children
whether it is an increased State deficit in California or in
South Carolina, or in New York or the Federal Government, or we
can take that same increase of deficit and put some people to
work, and that has a multiplier effect that I think would help
us dig out of this recession far more quickly.
Thank you, Mr. Chairman, for indulging me in the extra
time.
Chairman RANGEL. Thank you, Mr. Stark.
Before I recognize Mr. Camp, it has come to my attention
that my Governor has to leave and I ask unanimous consent that
he be given an opportunity to tell us whether or not he has
been persuaded by Governor Sanford as it relates to the
testimony because I would hate to go back home and find out
that he thinks he made a big mistake in asking for help.
Governor Paterson
Mr. PATERSON. Governor Sanford turned my microphone on
again to stop hearing from me, that he has gotten a little
tired of my remarks.
But actually, I think Governor Sanford makes a couple good
and it has to do with money going to the wrong places, and that
at this time in our history when we have seen the frugality of
spending going the wrong direction, recklessly and without
regard for human dignity, I think we do have to pay a lot of
attention to that. But I really do believe that there are
needed services provided by the States, by the State
governments, who do have to practice a great deal more of
restraint in terms of spending but that they would go in the
right place.
Now, the Federal bailout package and Governor Sanford
talked about who is bailing out the bailers? Well, I mean we
have to be careful about that. The bailout package, the $700
billion, one of the first ideas that was proposed by the
Secretary of the Treasury, who was given almost unilateral
control over it and not even responsive to the Justice
Department, was to actually give--was actually to buy up the
subprime mortgage debt of a lot of these banks, and in no way
touching the structure of the banks themselves. I think that is
what Governor Sanford was sort of talking about.
I am very happy that Prime Minister Brown in Great Britain
had a different way of looking at it, which was to recapitalize
the banks. If you are going to do a bailout, you have to come
in--you have to get rid of the board of directors. You have to
get rid of the people that got you into the problem in the
first place. That is what our country is doing right now, and I
think that is the right way to conduct a bailout in a way that
the taxpayer now becomes an investor and if these stocks begin
to go up again, we can actually make money or recover the
resources we gave to the bailout.
So, I think that in terms of the States, you have to
understand that a lot of our States, even though I am, at
times, critical of how our State has managed in its own
perimeters, the fact is that New York in 2006 got back $61.2
billion less than we paid in taxes to the Federal Government
and in 2007, the statistics are now in. We got $86.9 billion
less than we paid into the Federal Government. There is no
other State that is even close. California is up to $55 billion
that they get back less than they pay into the Federal
Treasury. So, when I came in today, I saw in the newspapers
that the Governor is coming to Washington, hat in hand, and the
Governor is coming to Washington to beg.
I am not here to beg. I am here to say that New York
doesn't need a handout. We need a hand back. We need the same
resources that we have distributed to our National economy to
bail that economy out many times, to help other States that get
back far more than they pay in taxes. What we need right now is
someone to recognize that a crisis, a national disaster, its
epicenter is in Washington. Where Washington has the flu, New
York has pneumonia. The $1.5 billion that we have to close our
budget deficit this year, combined with the $12.5 billion that
we will have to find a way to ameliorate next year, that $14
billion divided over what is our general fund, that is, our
resources absent Federal money that goes directly to counties
and villages and also special dedicated revenue funds, is $56
billion. So, in other words, we have a deficit that is 25
percent of our entire expendable resource, and we think that
because we have already demonstrated--my first day in office, I
cut the agencies 3\1/2\ percent and cut them again 3 months
later.
Our State agencies have now down 10 percent. We are
practicing the fiscal discipline that we think that Washington
is looking for, and we are going to have to, in many ways, look
to the Federal Government for assistance right now as we try to
keep the Main Streets all over New York that are not affected
at all, whether they are in Syracuse or Rochester or the north
country of New York, Massina, Utica, other places, Bay Shore on
Long Island, other places that are not going to benefit from
anything that goes to Wall Street.
Chairman RANGEL. Thank you, Governor. I know you have to
leave, and Governor Sanford, you will have another chance to
persuade me before you leave.
Let me thank Congressman Camp for his patience here and
recognize him for his contribution.
Mr. CAMP. Thank you very much, Mr. Chairman. I want to
thank all of you for your testimony today and really relating
to us the difficulties you are all facing with this economic
downturn from your States and representing cities and the
organizations also that you represent, and I appreciate the
very sincere testimony you gave today.
I do think it's critical that Congress take immediate steps
to get the economy back on track and as Governor Paterson said
in his oral testimony he would like to see us lower taxes on
business. I think we should be talking about tax relief in this
Committee for small businesses and families and we should be
talking about ways to protect the investments of seniors and
maybe that is suspending investment taxes or suspending the
required forced distributions from 401(K) plans.
We should be talking about cutting taxes to stimulate
growth and investment, which brings me to my question. Governor
Sanford, you have a record of cutting taxes in South Carolina
and reducing spending as you have outlined, and when you
reduced taxes, did you create jobs or did you lose jobs in
South Carolina.
Mr. SANFORD. We gained jobs. We are up roughly 150,000 net
jobs from where we started 6 years ago. So, on a net basis, we
positively gained them.
Mr. CAMP. It is very rare to hear somebody come to this
Committee and say please don't provide me with any more Federal
money. So, I think that may be the reason why you may have
received some of the reaction you have gotten today. But I
noted in your chart says that State spending has increased 122
percent in the last 15 years. While Federal spending 108
percent in the last 15 years, which proves that more money for
States might simply just mean more permanent State spending.
Given that, is there any flexibility that Congress could
provide you over current dollars that the States relieve and do
you have any specifics on the flexibility that you might be
able to receive that could be helpful?
Mr. SANFORD. That is why I specifically mentioned unfunded
mandates. As the Mayor just mentioned, the rubber meets the
road at the mayoral level, at the county level and the State
level and if you look at a number of those different mandates,
I think that at the local level we have a far better grasp of
the problem. I think we have a far better sense of how to deal
with the problem than with all due respect the folks in
Washington. So, you look at the number, $428 million worth of
unfunded mandates at the Federal level to South Carolina that
frankly would help us a lot more than a stimulus package, just
simply allowing us more flexibility in how we spend our own
money at the State level.
I would also say this: What needs to be remembered about
contemplated deficits is that it is an eventual rise in taxes.
A deficit is simply a deferred tax because if you believe in
the soundness of our dollar and the credit worthiness of the
United States, any accumulated deficit simply means that is an
accumulated tax. So, what some people are saying that we will
just increase the deficit to increase a stimulus package is to
say we will increase taxes, and I don't think you are ever
going to grow the economy by ultimately increasing taxes.
Mr. CAMP. We have seen in the last 2 years the deficit
increase by about 77 percent, and that doesn't include the
rescue package. It could be much higher. It doesn't include the
potential deficit spending in the stimulus package. So, we are
seeing a pretty significant increase in the Federal budget
deficit in just the last couple of years, and that follows the
last 3 years of actual declining annual deficits. You have
mentioned the concern that this may ultimately mean higher
taxes down the road. If we are trying to stimulate the economy
and stimulate a pro-growth agenda and economic growth and job
creation, how will raising taxes ultimately help do that? We
are hearing this may be on incomes of at least $150,000 if you
hear the vice presidential nominee, the Democrat vice
presidential nominee in his recent remarks. What do you think
this will do to economic growth in South Carolina?
Mr. SANFORD. I think it would hurt it in our State. I think
it would hurt it in other States. It is interesting in the
conversation about the possibility of $1 trillion dollar
deficit this year in Washington. Barney Frank said, ``I believe
later on that there should be tax increases to deal with those
deficits.'' That was his quote. Again, you look at this notion
of increasing taxes, I think it has the so-called Laffer curve.
I think that the historic example of what has happened with
countries around the globe in their experimentations with tax
rates is that if you increase taxes, there will be a drag on
the underlying economy. So, that is why I think we ought to be
paying particular attention on that front.
I would also mention the fact that some of the worthy
public works projects that were just mentioned, Government at
the Federal level, I think, is a very inefficient way of
getting the dollars there. If you look for instance at the
bandshell--I guess Pete was talking a moment ago about the
worst you end up with is a bandshell, the best you end up with
is some other infrastructure project that might be more
notable. But even in what is talked about with this bill is, I
understand, about $14 billion would go for infrastructure out
of a total of $150 billion.
So, that is 1 in $10 that is actually going to
infrastructure. The other important point to remember is that
John Macon, who is a noted scholar at the American Enterprise
Institute, did a study of the so-called lost decade within
Japan, and what Japan tried to do was just that. We put a lot
of money into infrastructure and maybe that will get our
economy going. That proved not to be the case in Japan over
that 10-year time period.
Mr. CAMP. Okay. Thank you. I see my time has expired, Mr.
Chairman.
Chairman RANGEL. Let me make two things clear. There is no
$150 billion package, and we will not have any package at all
unless the President agrees, and of course, we are trying to in
order to get the President's agreement to make it as bipartisan
as we can. If you really want to get involved in presidential
candidates and Barney Frank, I reserve the time to talk about
your vice presidential candidate, but I don't think you want
that to happen. Well, I just don't believe that this should be
the forum in determining anything except what is best for the
people in our congressional districts and the country and I
will restrain myself in trying to make certain we stay on that
road.
I would like to the gentleman from Michigan.
Mr. LEVIN. Thank you and welcome. Mr. Firestine, just two
quick comments and then I want to go back to you, Mr. Sanford.
Your suggestion regarding TARP, talk to financial services. I
think it makes sense but it's not within our jurisdiction. But
the AMT issue is within our jurisdiction. Mr. Chairman and Mr.
McCrery, I hope will take a look at that if there is a package.
Chairman RANGEL. Well, certainly, as it relates to the
bonding----
Mr. LEVIN. Exactly. Exactly.
So, Mr. McCrery, you said that you thought that Governor
Sanford's testimony helped show the basic differences between
the two sides here, and Mr. Rangel has emphasized we try to
bridge them. So, I want to try to see if we can bring this a
bit. You were asked about unemployment comp. The question is
extending the benefits which we have done in all previous
recessions and we did once, and a bill passed this House just
before we left, 368-28 to extend the benefits 7 weeks for
those--for everybody and an additional 13 for those over 6
percent. I want to be clear this isn't a new program. You are
opposed to what passed the House and is now in the Senate
extending unemployment compensation benefits?
Mr. SANFORD. In its present form
Mr. LEVIN. But----
Mr. SANFORD. Because there is a substantial additional cost
to doing so. I keep going back to my basic premise, which is,
by all means, if you want to extend unemployment benefits but
then cut some other area of Federal Government, I would applaud
that effort. That is not what is being contemplated.
Mr. LEVIN. Well, except there is money. There are billions
and billions of dollars in the trust fund for unemployment
comp. The only reason it is scored is because of the unified
budget. So, I think your State should, understand that you are
with the 28 who voted no and opposed to the 368 including many
Members of this Committee on your side.
Mr. SANFORD. I would grant you that it is always easy to
spend somebody else's money----
Mr. LEVIN. It is not somebody else's money.
Mr. SANFORD. Whose is it?
Mr. LEVIN. It is the money of people who worked for it and
the employers paid in for it for the purpose of extending.
There are 2 million plus people who have exhausted their
benefits, including many thousands in South Carolina.
Mr. SANFORD. Absolutely, but is that trust fund
sustainable?
Mr. LEVIN. It is very sustainable. That trust fund has more
than enough money to pay for the extension. I think it shows
the difference between the two parties. I don't think we are
blurring the difference.
I want to ask you about the highway trust fund because you
say instead of a bag of money with strings attached. Now, I
think you receive ample funds to the highway program. Are you
opposed to Federal highway program?
Mr. SANFORD. We are a donor State. We send more money to
Washington than we receive based on gas tax revenues.
Mr. LEVIN. I am glad you raised that. We don't have figures
later--at least, I don't have right before me beyond '04, but I
think the pattern is clear. This is South Carolina Federal tax
paid versus Federal spending received. In '04 South Carolina
received $1.35 for every dollar that it paid in Federal taxes.
Governor Paterson said the opposite is true in New York and in
Michigan we have debated this forever and now it's up to 94
cents. So, you come here and say that you are a donor State in
highway funds, but overall, you are a done State. It was in
'04, $1.35, and that pattern has been true--the figures go
back--I have 1981 when it was $1.21, and then the last years I
have for it, it was $1.34, $1.36, $1.35. So, I don't understand
it. Even though you are a donor State, how much do you receive
back now in highway funds?
Mr. SANFORD. I don't have the number at the tip of my
tongue, but what I would say----
Mr. LEVIN. Are you opposed to the highway fund, to our
highway program?
Mr. SANFORD. Yes, in its present form. I will give you the
perfect example. The question is in the delivery system itself.
We can debate the merits of are you, a donor, versus not a
donor State. We can go back and forth on that front and I would
have numbers. You would have your sets of numbers. But what is
interesting is----
Mr. LEVIN. My set of numbers aren't mine.
Mr. SANFORD. Right, I understand. But we could come up with
different sets of numbers that we could debate on. But even if
we said your numbers are right, I think what is interesting is
still the inefficiency in the present model. For instance, Jim
Clyburn, who is a Member of Congress from there in South
Carolina, has proposed a $100 million bridge from Lone Star to
Rimini. In other words, the folks in the Highway Department
have said it is not needed.
There are a lot of more compelling infrastructure projects
in the State based on transportation need and based on traffic
counts. Yet to have that road picked from Washington, D.C. I
think is at odds with, again, this larger notion that the Mayor
was just getting at which is at times local knows best.
Mr. LEVIN. Look, Governor, you can pick out one earmark if
you want. But the fact remains you come here and you talk about
the role of the Federal Government. You want it diminished. You
are a donee State in terms of Federal dollars dramatically so.
You have a Federal highway program that is of major benefit to
your State. You pick out one earmark and the infrastructure
proposal is not to expand but to use an infrastructure that
this country has benefited from. Essentially, I think you do
shape, without getting into detail, the issue before the public
this year and that is the role of Federal Government when times
are difficult, when jobs are being lost, when a financial
system is under immense pressure. I just want to close--you
talk about the unfunded mandate and my time has expired--of the
$428.366 billion--these are your own figures--are in education.
They are special ed and No Child Left Behind. Proposals
that came through here on a bipartisan basis but have been
underfunded in the last 8 years where the Republicans
controlled the Congress. So,--and the mandate, the States
aren't carrying out 100 percent special-ed in lieu of Federal
moneys. So, to lump this all together when more than three-
quarters is in education and the Congress that has been
dominated by the party to which you belong has not funded the
mandates, I think you need not to talk about the role of
Government but the way certain people within the Government
have exercised or failed to exercise an appropriate role of
Government.
Mr. SANFORD. Again, I understand what you are saying, but I
keep going back to the deeper foundation that I am getting at
which is we could come up with different programs, some of
which we would find meritorious, some of which we wouldn't. But
the bottom line is at the Federal level it is absolutely
unsustainable. We have accumulated $52 trillion of unfunded
political promises, and either we are going to default on debt
or we are going to raise taxes or we are going cut benefits
dramatically down the line.
Mr. LEVIN. You are talking to a now majority that has
opposed the policies that have added $5 trillion to the debt of
this country. You are preaching to the wrong choir.
Mr. SANFORD. I am not preaching. I am just saying here is
where we are. I am not saying it is Democrats' fault; I am not
saying it is Republicans' fault. Both folks share some blame in
that equation. But I am saying based on where we are now, can
we add $150 billion worth of debt when we are already $52
trillion in the hole?
Chairman RANGEL. The gentleman's time has expired. I wish I
could go around the country with Governor Sanford myself, but
your point is well taken and I wish we could hear more from
you.
The Chair recognizes Mr. Ramstad, but before I do I would
like to say that not only has it been a pleasure working with
you but a part of your legislative legacy was that you brought
some sense of fairness as to how we treat mental illness. You
and Congressman Kennedy should be proud of the effort that you
made over the years, and while you were successful, now people
don't know how long you two actually worked at it. I want you
to know it has just been a pleasure for all of us to have
worked with you on that bill.
Mr. RAMSTAD. Thank you very much, Mr. Chairman, for your
very kind words and I want to thank all the Members of
Committee who worked on in a bipartisan way to achieve finally
after 12 long years mental health and chemical addiction
treatment parity. According to the New York Times, 113 million
Americans will now be able to access treatment over the next 10
years who otherwise would not. It is very gratifying and
humbling to have been part of that effort with not only
Congressman Kennedy, but Senator Kennedy and Senator Domenici
and many, many other Members. Thank you for your leadership on
that, Mr. Chairman, and I want to thank Mr. Stark too as
Chairman of the Subcommittee on Health.
At this time, Mr. Chairman, I would just like to yield very
briefly to the ranking Member.
Mr. MCCRERY. Thank you, Mr. Ramstad.
Just to set the record straight on special ed funding, IDEA
funding, Mr. Levin has gone on, but not that it matters but I
was here when Republicans took over the House in 1995 and we
increased the level of funding for IDEA. We increased the
percent of funding for IDEA when we took the majority after
decades of not funding it properly according to promises made
by the then Democratic majority when the program was
instituted.
So, I do take issue with that. We tried very hard to get
the funding up. It is an unfunded mandate. I favor full funding
for it. If we are going to mandate it, I think we ought to fund
it. I voted for increases, and we were very up front about our
desire to increase the level of funding. We never got close to
100 percent but we got further along than the Democratic
majority did for decades.
Mr. RAMSTAD. Reclaiming my time, Mr. Chairman, first of
all, let me thank this distinguished panel for your testimony.
We certainly appreciate your helpful input. Let me also say I
believe one of Congress's better moments was coming together in
a bipartisan pragmatic commonsense way to pass the $700 billion
so-called bailout bill or economic rescue, economic
stabilization bill, call it what you will, but to achieve that
consensus and to see the Speaker, the Majority Leader and the
Republican leader all on the same page and the Administration,
by the way.
So, now we are seeing at this time $250 billion in troubled
assets being purchased. We are seeing nine national banks
injected with liquidity. So, my point is I think in approaching
another package of $300 billion in stimulus elements, I think
we need to approach this--first of all, I know we need to
approach this in a bipartisan way to effect--to pass this
legislation, and I think we also need to view it in context of
four factors. First of all, we have got to be mindful of the
Federal budget. I say this as somebody who strongly supported
the bailout package, who is the chief Republican sponsor with
our distinguished Committee Chairman of the ABC school
modernization bill, who has consistently been there to support
the Federal funding programs for education because I believe in
public education.
I believe your priorities are the Nation's priorities,
President Weingarten, when you say there are jobs, education,
and health care are the main domestic priorities. But we have
to be mindful that next year's deficit may be as much as $1
trillion and just because the Federal Government can print
money, it doesn't mean it should. I think we need to take a big
breath, if you will, to use a poor metaphor, but here the
apparatus isn't even in place yet in the $700 billion bailout
and there are already signs in the credit markets. Congress
hasn't allowed time for the Federal Reserve's monetary policy
to take effect.
In fact, as we meet here today, Wall Street is awaiting the
Federal Reserve's most recent pronouncement. They are expected
to lower interest rates. Thirdly, I think we have to look at
legislation that instead of just a short-term temporary fix, we
need to promote long-term growth and we need to pass something
that is going to result in longer term solutions. For example,
I think the school modernization bill is right on point, that
partnership, Federal, State and local partnership. We can't
deny here in Washington that 50 percent of the public school
buildings are crumbling, are in a State of disrepair. I think
we have to look at long-term growth initiatives as well as some
short-term fixes. We need to look at investment incentives,
expanding the child tax credit, small business incentives like
expensing bonus depreciation and so forth.
So, I hope--because this President is not going to sign any
package that doesn't represent a hybrid, if you will, that
doesn't have growth incentives as well as some of these other
elements that you so articulately advocate. So, let me just say
this and ask the question of President Weingarten or anybody,
but you mentioned, and I think I heard you correctly when you
said Congress should work with the new President to craft a
stimulus package.
Is that to imply that we should wait until January 20, the
new President and the new Congress, and give us time to see the
effects of the bailout, to see the effects a little longer term
of the Federal Reserve monetary policy and so forth?
Ms. WEINGARTEN. No, sir. I actually meant that in the next
6 days we will know--next 6 or 7 days we will know who the new
President is; and the Constitution creates an important
transition period, obviously. But in looking at this, obviously
the circumstances--the economic circumstances in which we all
find ourselves are not going to magically disappear on January
20th, and more work will have to be done over the course of the
next several years, hopefully less than more.
But what we are seeing, what I was saying was that, in that
same kind of bipartisan spirit, work now, try to pass things
now. Some people have lost their unemployment insurance now.
The creation of construction jobs to undertake projects in the
pipeline that are not funded is critical. The State and local
governments are cutting now even for the mid-term projects in
this education year.
So, I was--what I was pleading for, and I was pleading, was
to start dealing with these things now; because we on the
ground--and I have been in 16 States in the last 6 weeks. We on
the ground are seeing the effects of the economic crisis to
real people, as you are in your congressional districts.
Mr. RAMSTAD. So, you are saying time is of the essence, and
we should do it now. But I think that underscores my main point
of bipartisanship, because we still have this current President
in office until January 20th. Nothing is going to change as far
as our statutes are concerned. We are not going to be able to
pass anything without this President before January 20th. So, I
think we need to be mindful of that factor, that bipartisanship
is really critical, like it was in the $700 billion bailout
package.
Let me just say finally, Mr. Chairman--thank you for your
indulgence. Let me say finally while I have this opportunity, I
have appreciated working with the National Education
Association as well as the American Federation of Teachers,
particularly the teachers of Minnesota, over the past 18 years
of Congress. One of my true pleasures has been working on
education issues. So, thank you for your leadership. I wish you
all the best. I yield back the balance of my time.
Mr. MCDERMOTT. Thank you, Mr. Ramstad.
I represent a city in the Northwest, where we understand
why the Earth shakes from time to time. The employees of this
country are presently going through a rather shaky period; more
and more families have lost their jobs, their health care,
their pensions, and their economic security in this last recent
period. Unfortunately, they have also lost confidence in the
Government to solve any of the problems. Yesterday, the
Confidence Board reported that consumer confidence fell to the
lowest level ever recorded in this country.
The U.S. economy has lost jobs every month of 2008;
corporate America got a $700 billion bailout, and have repaid
the workers the favor by giving them pink slips. There are
serious talks going on in Detroit between General Motors and
Chrysler about some kind of deal that will ultimately wind up
with massive layoffs. Whirlpool is cutting 5,000 jobs. There
are almost three unemployed workers for every job that becomes
available, and there is more than one in 10 workers that are
currently under--or unemployed in President Bush's ownership
society. We know the unemployment situation is going to get
worse.
I point to the monitor; if you will pay attention to it.
When the general unemployment rate is 6.1 percent, if we count
the total number of Americans who are underemployed, it is now
10 percent. Those are the part-time employees, those who have
given up work, and that is where we are. That red bar
represents today.
Now, things are going to get worse. The next slide shows
Wall Street economists are expecting we will experience a
general unemployment rate of 8 percent next year. That is
across the country. That is of those who are out of work, and
then you add on the underemployed.
So, as you know, the Congress has provided 13 weeks of
additional Federal finance benefits in June. We passed it out
of here. This was an important lifeline to workers who lost
their jobs through no fault of their own and are looking for
work that is not there. Now, since June, the job situation has
continued to worsen, and thousands of workers who were able to
take advantage of the original 13 weeks are now seeing them
expire.
Before we went into recess in September, last month, the
House overwhelmingly passed legislation providing an additional
7 weeks, with 13 weeks more for people in high unemployment
States, of which South Carolina is one. Last year, the House
passed an unemployment reform bill which will provide an
additional $700 billion to States that make progressive
reforms.
My question--and I am sorry that the Governor of New York
left because his testimony, he says: We are ready to deal with
low wage workers and part-time workers; and if the reform bill
had passed, it would have been $400 billion to the State of New
York. I wonder, Governor Sanford, are--I am trying to
understand your testimony. You are in favor of extending
unemployment benefits to those who have--whose benefits have
expired. Is that correct?
Mr. SANFORD. Again, I am open to that. That wasn't my
testimony, but that was in reaction to a question. Yes, sir.
Mr. MCDERMOTT. You are open to that?
Mr. SANFORD. Right.
Mr. MCDERMOTT. Are you open to modernizing your law to
include people who are part-time workers? Because they are not
covered presently under the Federal law in most States. Are you
open to that?
Mr. SANFORD. Again, the nature of the workforce is
changing. I think that there certainly can be adaptation of the
process. My simple point is, not expansion of the whole of
Federal Government and Federal power and authority over,
whether it is the Mayor's job as a local municipal leader or my
role or Paterson's role as Governor.
Mr. MCDERMOTT. So, that is a qualified--that is a kind of a
political answer, I think. Isn't it?
Mr. SANFORD. No. It is straightforward. What it is saying
is let's not make the Federal Government any bigger than it
already is, because there are a lot of us out there who think
it is too big. If you have accumulated $52 trillion of
accumulated liability and political promises that have been
made and not paid for, at some point you have got to pay for
what is already on the table in terms of political problems.
So, adding more political promises I think would be a problem.
Mr. MCDERMOTT. If we don't pass this unemployment
extension, the 18,000 people in South Carolina who will have
exhausted their benefits this year, it is your responsibility.
Is that what you are saying? You don't----
Mr. SANFORD. No. What I am saying is, can we be more
creative in that process of saying can we cut somewhere else in
the Federal Government to pay for it, if in fact that is what
the Federal Government wants to do.
Mr. MCDERMOTT. Well, give me the cut. Give me the cut you
want to make. Do you want us to cut your Medicaid payments?
Mr. SANFORD. We will gladly take a block grant all day long
in lieu of the current system.
Mr. MCDERMOTT. I find it hard to believe that you seriously
are saying----
Mr. SANFORD. You don't think there is a dollar that could
be cut in the Federal Government?
Mr. MCDERMOTT. I am sorry?
Mr. SANFORD. You don't think there is a dollar that could
be cut in the Federal Government?
Mr. MCDERMOTT. Well, you haven't given me what it is. You
are certainly not willing to have your highway funds cut. You
are not willing to have your Medicaid funds cut.
Mr. SANFORD. No. I am saying that you are the one wanting
to expand the program. I am saying, it would seem to me to be
the impetus of that person that wants to expand the program to
come up with a cut.
Mr. MCDERMOTT. That seems to me that, as this thing goes
downhill, as more and more people exhaust their benefits, they
are going to stop paying their mortgages and you are going to
stop getting property taxes, and these county officials and
these city officials in your State and everywhere else--I can't
imagine what is happening to the local government as your tax
base erodes when people aren't paying property taxes.
Mr. SANFORD. I am sure that the Mayor will tell you, but I
will simply say this: This is not what made America great. I
mean, the whole idea of we constantly have to rely on the
Federal Government to take care of the latest problem or the
latest ill I think is contrary to what made your State great or
my State great or, for that matter, the country great as a
whole.
Mr. WELLER. Mr. Chairman, would the gentleman yield?
Mr. MCDERMOTT. Yes.
Mr. WELLER. This is a friendly exchange, of course, Mr.
Chairman.
Mr. MCDERMOTT. We will see.
Mr. WELLER. Your Unemployment Modernization Act, and like
you, I urge the Senate to act on the extension plan that the
House overwhelmingly passed with bipartisan support before we
left Congress a few weeks ago. But in your modernization plan,
as I understand it--and the Governor may not have had an
opportunity to study your bill. But you fund your expansion of
benefits in your modernization legislation with an additional
tax on small business and employers. But at a certain point,
the States are expected to assume the cost of your expansion.
So, from the standpoint of Governor Paterson and Governor
Sanford, they would essentially have an unfunded mandate which
they would be expected to pick up at a certain point. Is that
correct?
Mr. MCDERMOTT. Reclaiming my time, the tax that we had in
that bill was an extension of a tax that is already on. There
was no increased tax in that bill of modernization; that was
extension of a present FUDA tax that was put on some years ago.
I now will move to Mr. Johnson, I believe, is the next
questioner.
Mr. JOHNSON. Well, Mr. Chairman, I think the Governor has
departed or is about to. If we had enough money to put an exit
sign up there, you could find your way out, Mark. Thank you for
coming.
I thank you. You know, it seems to me that--I have been a
long-time advocate for private-public partnerships, and I think
private activity bond financing is an excellent way to get more
activity. For each dollar of revenue spent by the Government
with private-public partnership, we get tens of billions of
dollars worth of spending by not having to use all tax dollars.
I think that a lot of States, Texas and South Carolina, too,
are using that. I feel like if we have got projects ready to
go, that we ought to maybe consider that as a way of making
that happen.
Mr. Mongan, I would like to ask you: Are you aware that the
Chicago Skyline project and the Pennsylvania Turnpike are two
major undertakings that were both public-private partnerships,
I believe? Do you have any comment on these projects or private
activity bond financing that you think might work?
Mr. MONGAN. The use of public-private partnerships and
private bond financing is an excellent vehicle for those
projects that meet certain criteria. It is not a panacea for
every project that comes down the road.
Clearly, I think there are criteria that need to be
established around the use of public-private partnerships so
that the public interest is adequately protected.
There are two kinds of public-private partnerships: The
asset sales, such as occurred in Indiana, or the project like
you are going to be seeing here outside of Washington soon
where we are building a new toll lane on the south side of the
Beltway, and that is a public-private partnership.
Each needs to be evaluated on its particular merits.
Obviously, there needs to be an economic return to the private
sector in order for it to be a successful project. We have seen
the problems in some projects, such as the tollway that exists
from Dulles to Leesburg, where that wasn't adequately financed
up front and there has been a lot of changes in ownership, but
ultimately it is now successful and expanding. So, it is a very
viable tool that is there for States.
What we would urge is that there are a number of States
that don't allow it to be used, and we would urge that those
States recognize the benefits of public-private partnerships as
a means for financing, not just transportation, but many
infrastructure projects.
Mr. JOHNSON. I agree with you, and I thank you for your
comments.
I don't have any further questions, Mr. Chairman. I yield
back.
Mr. MCDERMOTT. Mr. Pomeroy.
Mr. POMEROY. Mr. Chairman, thank you. I have been in and
out, and this question may have been addressed when I was out.
Actually, this is for the next panel.
I have got a slide I want to talk about relative to
pensions; that is not this panel.
My question would be for Mr. Firestine. I have heard
reports about municipal bond issues not being essentially
marketable, even though highly rated municipalities are
offering them in this environment of credit crunch. I am
wondering what you are seeing relative to the ability of
infrastructure issues that are bond funded in light of the
market.
Mr. FIRESTINE. Again, as you know, the municipal market
really backed up in September. Quite frankly, most of the
crisis came in and, as still evident, actually started much
earlier in the year with auction rate securities or short-term
investments, any type of investment that had a guarantee or a
backstop to it, whether it was a bond insurance company or a
bank. The problem with those is, you know, dealers couldn't
place them, so in a lot of cases you had banks holding perhaps
that--those bonds, short-term bonds. What happens in those
cases is the interest rate increases dramatically, as I said in
my testimony in some cases 2 percent up to 9 percent. So, there
is an immediate drain or impact on your budget.
Second, usually in those short-term financing situations,
if they are used in a capital budgeting situation, the intent
is at some point to take it out for a long-term financing, and
perhaps convert it from short-term to something maybe 20 or 30
years. The problem is on the short-term financing, once the
bank holds the debt, it accelerates the term of those bonds.
So, now agencies not only are paying higher interest rates, but
rather than having 20 years or 30 years to pay them off,
suddenly the maturity is increased and they have got to start
accelerated principal payments over a short period of time. So,
significant budgetary impacts of that.
Mr. POMEROY. You have heard the discussion that Governor
Sanford advanced relative to concern about spending and concern
about the Federal versus State role. Being cognizant of those
concerns, are there steps the Federal Government can make to
add essentially liquidity to the municipal bond market
opportunity that is going to make infrastructure investment
locally financed through bond revenues easier to achieve?
Mr. FIRESTINE. Absolutely. As I indicated in my testimony,
a simple backstop in your guarantee of a municipal debt in a
general way would certainly add liquidity. It takes that
liquidity issue off the table. I think it increases capacity
for local governments to proceed with projects. I also think
that it certainly would free up the short-term market to the
extent it is not used for capital projects to give some comfort
to those governments that are worried about having cash to make
payrolls for their employees.
Mr. POMEROY. But the market has not been rationally
evaluating the performance likelihood of these bonds when
issued by municipalities. Do you think the Federal guarantee
behind a AA, AAA municipal bond is going to enhance its ability
to be marketed?
Mr. FIRESTINE. I do. I mean, I think it provides--again
focusing on the short-term aspect of that, I think it helps
highly rated bonds; I think you can still get it done. AAAs,
you can probably still get done. It is those lower rated bond
issues that in the past had bond insurance or other forms to
help make them marketable. Right now----
Mr. POMEROY. Is there a way the Federal Government could
develop underwriting capabilities, so basically we are not--I
mean, we are signing on to highly--to bonds where the payoff is
highly likely.
Mr. FIRESTINE. Right. Again, I don't want to imply what the
form would be, but I think assuming some sort of a Federal
guarantee----
Mr. POMEROY. That is what I am saying. But let's not
guarantee just everything. How do we discern what to guarantee
and what not?
Mr. FIRESTINE. Again, I think the place where the guarantee
immediately would have an effect is in the short term, the
variable rate market, or with respect to auction rate
securities where I think there is over $200 billion worth of
auction rate securities that are looking for some sort of
backstop or guarantee.
Mr. POMEROY. But what I am asking is, within the Federal
Government, if we would go down that road, how would we be able
to discern what to guarantee and what not relative to likely
performance? I mean, we don't want to give a blank check here;
we would want to only guarantee things that are of high quality
and illiquid only because the market is irrationally sorting
these things out right now.
Mr. FIRESTINE. Again, I think there is some precedent with
respect to what you are doing in the private sector with--you
know, commercial paper in the private sector. We could follow a
similar process with respect to tax exempts that you are
following with commercial paper.
Mr. POMEROY. Thank you. Thank you, Mr. Chairman.
Mr. MCDERMOTT. Mr. English will inquire.
Mr. ENGLISH. Thank you, Mr. Chairman.
Mr. Chairman, I had hoped to engage the two Governors while
they were here, because I think that many of the issues that
will come up with the stimulus package have a direct impact on
them, and many of their proposals I think will have impact
based on the status of State finances, which I realize have
been deteriorating because of the slowdown in the economy,
which disproportionately affects State budgets. As someone who
came out of State Government, I understand how State revenues
are impacted by the economic conditions like we are currently
experiencing.
I was hoping to get them to comment on the status of rainy
day funds. I know that Pennsylvania, for example, has been
aggressive about maintaining its rainy day fund and, as a
result, may be a little better positioned to deal with the
current situation than some other States.
But in lieu of that, Mr. Mongan, it is a real privilege to
have you here given the status of the organization you
represent. I think, as a Hamiltonian sort of conservative,
philosophically, I agree with a great deal of what you have
said here and the basic thrust of your remarks; but I also know
that we are trying to maximize the dollars that we put in the
stimulus. It seems to me that, in terms of infrastructure
spending we need to make some important distinctions as we put
together a stimulus package.
First, I would like you to respond to the Congressional
Budget Office's comment in January. Here I will quote.
``Because many infrastructure projects may take years to
complete, spending on those projects cannot easily be timed to
provide stimulus during recessions, which are typically
relatively short lived.''
That conforms with many of the things we have been hearing
in this Committee and the Joint Economic Committee over the
course of this year as we have looked at stimulus bills. Would
you like to briefly respond to that?
Mr. MONGAN. Thank you. Much of the infrastructure in terms
of new projects or, shall we term projects of national
significance and regional significance, I would agree are
projects that extend in terms of multiple years for
construction and have life expectancies, if you will, of 50 or
more years. But there are literally hundreds and hundreds of
projects that are out there that are of, we will call, system
preservation.
Recently, there was an article that Virginia is going to be
forced to reduce its highway program by another $1.1 billion;
and the article indicated that now they are going to be cutting
back on maintenance or system preservation. There are projects
in terms of bridge repair that need to be funded now and need
to be done now. There are highway expansions and widenings. As
the mayor said, ``I have got sidewalk projects.'' They are
projects that are easily done, quickly put on the street, and
they create jobs.
Yes, does that sidewalk have a 50-year life? Probably not.
So, I think you have to look at the apples versus the oranges,
and make sure you are looking at the same kind of
infrastructure improvements.
Mr. ENGLISH. I think that is a good response. Would you
also like to respond to the comments of Allen Blinder, in a
recent working paper? Obviously, someone who is not considered
a doctrinaire conservative, his quote is, ``The slow natural
spend-out rates remain a serious handicap. For example, out of
each $1 appropriated for highway expenditures, less than one-
third is likely to be spent within a year. Accelerating the
pace of spending on public works for stabilization purposes
would be inefficient and wasteful.''
Can you challenge that?
Mr. MONGAN. Again, for the same reason that is quoted, you
have to look at the project and the nature of the project. If
we are looking at large infrastructure projects that are multi-
year construction projects, then the gentleman's statement is
relatively accurate.
Mr. ENGLISH. Would you then agree that perhaps, whatever we
do on stimulus, we have to be extremely discriminating about
the parameters of how we spend on infrastructure?
Mr. MONGAN. I would agree with that. Yes, we should
discriminate.
Mr. ENGLISH. Thank you.
Mr. Chairman, I appreciate the opportunity; and a very
distinguished panel today.
Mr. MCDERMOTT. Mr. Thompson will inquire.
Mr. THOMPSON. Thank you, Mr. Chairman. I thank all the
witnesses for being here.
I am one who believes that the best stimulus that we can
possibly do is to figure out a way to get funds for capital
project improvements. I know that Mr. Mongan had spoke to the
value of these capital projects and infrastructure projects.
There has been a lot said about the value of that and how the
multiplier works and how many jobs will be created, and I
believe all of those numbers and think it is important to say.
But there has not been much said about the cost of doing
nothing in regard to the infrastructure projects that are out
there. I know just in my district alone, I run up to the
Sacramento River, and if that levee, which is in bad, bad shape
and the Sacramento River breaks, if it breaks on my side of the
river, there is tremendous damage that is done to both homes
and to farmland. If it breaks on the other side of the river,
the town of Sacramento is under water and the cost to
Government at every level to respond to that would be
horrendous, not to mention the fact that over 60 percent of
Californians would be without drinking water.
You can talk about other examples from bridges collapsing
to roads falling apart. I am very concerned that we deal with
this and believe at the same time it would provide a tremendous
stimulus.
So, I would like to hear from both Mr. Mongan as well as
Mr. Firestine and Mayor Palmer about that issue, the cost of
doing nothing, and what waiting for State matching funds could
do to hurt or delay any local or State projects, and are there
any State projects or local projects that have been started but
if we don't come through with Federal money, given the tough
economic times, those projects--are there projects that may
have to be stopped?
Mr. PALMER. Yes. You are exactly right, Congressman. The
cost of doing nothing, we can't afford anymore.
There are so many examples, if you look at even water main
breaks, our crumbling infrastructure under the ground, our
pipes. When you had the issue that happened, unfortunately, in
Minneapolis, Minnesota Mayor Rybak did an excellent job showing
strong leadership there along with the Governor. But when that
bridge went down, not only was there a tragic loss of lives,
but also look at the effect it had on the economy and the
effect of--you know, if trucks can't go through routes, it is
going to be a problem that is going to cost--goods and services
are going to cost more. If you have a water main break or a
pipe that bursts in New York City, the economic toll that that
costs to the small businesspeople in and around that area.
I think we are at a time now where we recognize that we
just cannot continue as a nation to be crisis oriented. We have
to plan ahead, we have to look at investing in our
infrastructure and resources so that we don't have these kinds
of things. I believe the American people are ready for that
kind of bold, strong leadership when you tell them, ``This is
an investment.'' You don't have to wait until a bridge
collapses or the roof crumbles down on kids for you to want to
do the right thing. I think this is an opportunity for all of
us as Americans to do the right thing now and invest in our
cities and our communities.
Mr. MONGAN. Just to point out a statistic relative to
highways. The poor road condition in this country costs the
U.S. motorists over $67 billion a year in additional repair and
operating costs. That is over $330 per motorist because of the
quality of our roads. Then, if you look into the delay costs
the industry experiences because of congestion or poor roads
and the fact of just-in-time delivery is the way that our
industries works today; if those products are delayed, then you
have idle workers, you have products that aren't delivered to
the market on time.
So, yes, you are absolutely correct that doing nothing
costs our economy real dollars, and it costs our environment
real dollars and our energy by the additional gasoline and
idling that is done in--just in road construction, road
congestion.
Mr. THOMPSON. Thank you. Anything to add, Mr. Firestine?
Mr. FIRESTINE. I do. I think if you look regionally you can
see dramatic examples of infrastructure needs. Even in wealthy
parts of the region, Montgomery County earlier this year, we
had a large water main break shut down almost half of the
county, businesses closed for 3 or 4 days. If you live there,
you know how uncomfortable it was over that period of time.
The need for infrastructure replacement, it is a place
where clearly the contracts are in place, we know we can do it;
it is just a matter of how quickly we can fund replacement of
that aging infrastructure.
Another example is the work being done by the D.C. Water
and Sewer Authority. I sit on their board. There is a mandate
to help clean up the Chesapeake. It is a $4 billion
requirement; $2 billion of that is focused on the antiquated
sewer system within the District, which is a combined sewer
system which causes overflows. That needs to be corrected, that
is a $2 billion project. Reducing the nitrogen flow out of Blue
Plains, which is the largest sewage treatment plant in the
world, is another $2 billion project.
So, there are huge infrastructure requirements here in the
region that certainly we need, and it is difficult in advance
to pay for those.
Mr. THOMPSON. Thank you, Mr. Chairman, for the time.
Mr. MCDERMOTT. Yet again, Mr. Weller, I am going to say
goodbye to you in public.
Mr. WELLER. We may be back again in November.
Mr. MCDERMOTT. Mr. Weller will inquire.
Mr. WELLER. Thank you, Mr. Chairman. I know, as a courtesy,
the Committee allows Members to insert into the record an
opening statement, and I would just ask that my opening
statement be inserted into the record.
Mr. MCDERMOTT. Without objection.
[The prepared statement of Mr. Weller follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. WELLER. Thank you, Mr. Chairman. I would note the
discussion; like my friend from Pennsylvania, I support
infrastructure investment as part of any stimulus plan. I would
note, unfortunately, States like Illinois, we have been
suffering under one-party Government for 7 years.
Unfortunately, even though one party controls the Government of
the State of Illinois, between the Governor and the State
legislature they have failed for 7 years to pass a capital
projects bill necessary to fund road projects and other
infrastructure in the State. So, Illinois, unfortunately,
probably wouldn't be able to benefit from any Federal
infrastructure program because the State would not be able to
put up the matching dollars. So, until they get their act
together, it is going to be difficult for a State like mine to
be able to benefit from this type of initiative, which I do
support.
I would like to direct this question to Mr. Firestine. I
want to ask our two Governors because of their role, and
particularly the Governor of New York, but unfortunately they
had to leave. But this week, I noted in U.S. News & World
Report there is an article which talks about how the Chairman
of the House Education and Labor Committee, Mr. Miller, is
pursuing a plan which would essentially eliminate private
retirement accounts as we know them, a plan which would
eliminate the tax preferred status or the preferential tax
treatment of accounts like 401(k)s, take that away, and so
which would in my view certainly change how 401(k) plans
operate.
Mr. Firestine, I note that Montgomery County as part of
your benefit program for your county employees, that you have a
401(k) or a 401 retirement plan which receives preferential tax
treatment. If that preferential tax treatment was taken away,
as appears to be being advocated now by the Chairman of the
House Education and Labor Committee, how would that impact the
retirement plans of your employees, and how would that impact
your ability to provide this type of benefit to your employees?
Mr. FIRESTINE. First of all, what is interesting about
that, we had the traditional defined benefit plan for county
employees; and one way we were trying to control our long-term
liability was to move to a 401 type approach, a defined
contribution approach. The main purpose is you know what the
amount is that you have to contribute, the employee contributes
a share, it gets the tax treatment that it does. So, we moved
in that direction thinking that most governments would go that
way. What we found is a lot of governments haven't.
It is a challenge for employees who are in those plans now,
because obviously what has happened in the stock market, there
is a lot of pressure to somehow make up for those employees'
losses, to somehow get them back to whole, in order for us to
stay competitive as an employer in the region.
Mr. WELLER. But if you take away the tax preferred status,
where the employees would have higher taxes on their
contribution, would that have an impact on your employees'
decision to participate and make contributions into those type
of plans?
Mr. FIRESTINE. First of all, the employees who were hired
since 1994 don't have a choice; they are automatically
enrolled. That is really their only retirement benefit.
Mr. WELLER. So, that would mean a tax increase on those
employees if you take away that tax preferential treatment?
Mr. FIRESTINE. I believe so.
Mr. WELLER. Mr. Mongan, do many of your members, civil
engineers, do they have 401(k)s as part of their retirement
plan?
Mr. MONGAN. I have no knowledge of that.
Mr. WELLER. Do you?
Mr. MONGAN. My firm? I have a firm. Yes, we have the 401(k)
plan in my firm.
Mr. WELLER. So, with your particular firm--you are an
engineer.
Mr. MONGAN. Yes, sir.
Mr. WELLER. So, for you and your colleagues with your firm,
if the preferential tax treatment was taken away for your
401(k) contributions, would that affect the--how would that
affect the decisions being made by your employees and you,
yourself, regarding your retirement contributions and your
intent to save?
Mr. MONGAN. I really can't speak for my 200-plus employees.
I mean, each one has to make their own individual decision.
From my perspective, obviously I don't like to pay any more
taxes than anyone else does. But that is my retirement plan,
and I will continue to fund it, even if it means with after-tax
dollars as opposed to pre-tax dollars.
Mr. WELLER. Maybe I could just ask, since I am running out
of time here, ask each panelist, just give me a yes or no, if
you support taking away the preferential tax status for 401(k)
accounts, if you support that idea.
Mr. PALMER. I don't have enough information on that to give
you an answer right now.
Mr. FIRESTINE. I think for the reasons I stated, no, we
don't support taking that away.
Mr. VAN ROEKEL. I would not support it.
Mr. WELLER. Thank you, Mr. Chairman. I realize I have run
out of time. Thank you to the panelists.
Mr. MCDERMOTT. I yield to the Chairman to say good-bye to
the mayor.
Chairman RANGEL. I wanted Mayor Palmer to know that not
only did I recognize he wasn't talking about the people of the
great City of Trenton, but the problems that are faced by the
Conference of Mayors in his statement that was entered into the
record. But I cannot overemphasize the importance of mayors
working with their congressional delegations and making certain
that the importance of the pain that you are suffering from
State as well as the Federal Government can be shared as we
come back, and hopefully in a bipartisan effort, to make our
contribution to stabilize the economy the best that we can as
relates to jobs, infrastructure, health care, and other things.
Because there is no place for our Mayors to run. I want to be
as helpful as I can, and I am certain that Jim McCrery, if he
was around, would be the first one to come to me, and not
necessarily saying what you should be advocating, but I would
hate to see this Congress just adjourn without making some
effort to ease the pain, and not just for our fiscal
institutions but for the people of your great cities. So, thank
you for making the effort, I appreciate your time.
Mr. PALMER. Thank you, Mr. Chairman. Just so you know, the
U.S. Conference of Mayors represents 80 percent of the
population of the country. We are a bipartisan organization. We
work very well, both Democrat, Republican, and Independent, and
we will continue as the U.S. Conference of Mayors has in the
past to reach out to all the Members of Congress, both
Republican and Democrat. As was said, there is no Republican or
Democrat way to fix a pothole; but we do recognize it has to be
a bipartisan approach to this with the support of the
President. We look forward to reaching out and working with
you, because we really want to make sure that we can help Main
Street. Mayors represent Main Street. So, we are hopeful and
will continue to work with you. Thank you for the opportunity
for us to be a part of this great distinguished panel and to
testify. Thank you.
Chairman RANGEL. I look forward to working with you. I
yield back the balance of my time.
Mr. MCDERMOTT. The gentleman from California, Mr. Becerra,
will inquire.
Mr. BECERRA. Thank you all for your patience. Thank you for
having come. I would like to just focus on a couple of things.
Mr. Firestine, perhaps I can start with you.
I suspect your area of Maryland is going through much of
what my Southern California area of Los Angeles is going
through, and that is that we are having a tough time moving
forward with a lot of our infrastructure projects because the
money that we thought we had in revenues principally through
property tax and so forth has really been depleted, and we are
seeing far less money coming in for this coming fiscal year.
I suspect your different infrastructure projects go to
schools, to the issue of schools, to the issue of--I know Mr.
Stark mentioned hospitals, retrofitting hospitals and all the
rest. Do you have issues of water in your area of Maryland?
Mr. FIRESTINE. Yes. I had referred earlier to some very
serious issues in this region in the water and sewer front. We
have aging infrastructure in Montgomery County, and we actually
have an agency that covers two counties; it is a bi-county
organization that provides water and sewer service. The
challenge has been to try to maintain some replacement schedule
of our water facilities, water mains. To the point that earlier
this year we had a major water main break that shut down about
a half of the county, a lot of businesses were not able to open
for 3 or 4 days, had a dramatic impact economically on the
county. I also referred to a major project in the region
related to the District's combined sewer overflow system, which
is over 100 years old and creates a situation of polluting our
waterways in the region. A major improvement at the Blue Plains
facility, a $2 billion project to reduce nitrogen going into
the Bay.
But in addition to that, I also just want to note, I mean,
we have a $4 billion capital program in Montgomery County with
a lot of projects that have been designed, would be ready to
go. They are schools. Schools are easy to proceed with. They
are easily designed. It is not like building a bridge which
requires separate engineering. We do fire stations, we do
libraries, we do all of that type of infrastructure with a lot
of projects that have been planned but are sitting there
waiting in a 6-year capital program until the right timing
comes along that they can be constructed.
Mr. BECERRA. I know in my City of Los Angeles, there is
always some water project underway, whether it is replacing old
pipes or trying to install a newer system into areas where it
is very needed.
I suspect if we were to tell you we could find a way to add
in an economic recovery bill some provision to help you with
water, some people will say water will become the next oil or
energy crisis, that we may find that the price of oil will be
dwarfed by what we having to pay to get good clean water, not
just potable water but also water that we can use for crops and
other things.
If you had dollars to make investments in your water
infrastructure, would that be something helpful to the cities
and counties or the jurisdiction that you represent?
Mr. FIRESTINE. I think the constancy across the country--
and this gentleman is probably more appropriate to answer that,
but everybody provides water and sewer services. I am sure most
find that that is the place where infrastructure lags in terms
of maintenance, because it is not seen; it is in the ground.
You tend to in a lot of cases have a strategy that focuses on
simply repairing the break when it occurs, not staying ahead of
the curve by replacing those pipes in advance.
Mr. BECERRA. I imagine there is no shortage of projects,
both small and large scale, which any one of the cities or
villages or towns in your jurisdiction probably could undertake
if they saw that there was an opportunity to get some
partnership with the Federal Government to try to make it
possible for us to do these infrastructure projects. I would
also imagine that most of those projects employ people who are
paid at a pretty decent construction or manufacturing wage
level. Would that be correct?
Mr. FIRESTINE. That is correct.
Mr. BECERRA. So, good paying jobs for a lot of Americans,
you can't ship abroad a job to do infrastructure in Maryland.
Mr. FIRESTINE. Right.
Mr. BECERRA. Questions for our two Presidents from the
teachers associations, Mr. Van Roekel and Ms. Weingarten.
Chairman Rangel has had this notion for a long time that if we
provided the local governments an incentive to put out the
bonds, to build more schools, that we would all benefit in the
long term by having educated these kids far better. Has there
been anything that you are aware of in the literature, in the
work that has been done--because we have done some of these
bondings through these credits--bond credits in the past, to
make available to local school districts moneys where you put
out the bond, we will pay the interest, so you in essence get
an interest free loan for the life of the bond, which saves you
a ton of money, and at the end you end up with not only a
savings of dollars but you also end up with a brand spanking
new school for your kids? Are you aware of anything that says
that that is still not a good idea and a good investment by the
American people?
Mr. VAN ROEKEL. Everything I know says it is still a great
idea.
Mr. BECERRA. Is that about as big a softball as you have
ever seen thrown your way?
Mr. VAN ROEKEL. Yes. I appreciate it.
Ms. WEINGARTEN. The question was asked earlier about the
kind of ready for construction programs right now. We have
gotten technology that is so great these days, we have gotten
an answer that there is at least around the country $10 billion
to $20 billion of ready-to-construct school construction
projects that if there was the money to do it shovels could be
in the ground immediately.
Mr. BECERRA. I appreciate your responses. It is amazing, as
big a softball and as easy it is to hit that one out of the
park, we still haven't taken the strikes necessary over the
last many years to really get on the ball. Everyone complains
about the fact that we don't graduate enough engineers out of
our colleges to fill the spots that we have right now waiting
for them, and we import thousands of people from around the
world to take high-paying engineering computer jobs. Yet when
we have an idea that everyone says works, which the literature
says works, we still haven't moved on it.
So, I thank you for having been here. Hopefully, these
difficult times, these extraordinary circumstances give us a
chance to do some extraordinary things in very simple ways that
will let us hit the softball out of the park.
Mr. VAN ROEKEL. I might just add, we have done surveys in
several States about the environment in schools and its impact
on student achievement and student learning. I will be glad to
provide the details. But it is literally tens of thousands of
surveys; and then, when you see the results. So, not only is it
a good investment in terms of the economy, it is an investment
and the return is good. But what happens when you improve the
learning condition of students by good construction and good
buildings, especially supporting green values? Learning
increases and that is absolutely a win-win for everyone.
Mr. BECERRA. Thank you for your testimony. Thank you, Mr.
Chairman.
Mr. MCDERMOTT. Mr. Larson will inquire.
Mr. LARSON. Thank you, Mr. Chairman. I would like to thank
the panelists as well.
I have just two questions that I would like to direct my
first one at the educators present here, as a fervent supporter
of Mr. Rangel's infrastructure bill to get aid out to our
States for school construction. I have this question.
With regard to the infrastructure as it relates to
broadband, how would you rate our public school system
currently in terms of its ability in a global economy to
respond digitally by--and how much broadband is within our
schools currently? What, in your estimation, needs to be done
to make us current or make us truly schools of the 21st
century, number one, from an infrastructure standpoint?
Number two, with regard to the school setting itself, Ed
Zeigler out of Yale often talks about schools of the 21st
century and their capability, especially in neighborhoods in
urban and rural areas, to be able to have child care before and
after school. So, any new construction, albeit green and clean,
should also take into consideration the obvious stress on the
current workforce that, during these economic times or even
worse, what are your projections on that? So, fundamentally,
from a human capital perspective, the schools' ability to
facilitate child care; and, from a technological standpoint,
where we need to be in terms of technologically being able to
ramp up like, well, say our competitors in India, Ireland,
China, just to name a few.
Ms. WEINGARTEN. We have been through the course of the last
20 years, I would say, attempting to always catch up in terms
of ensuring that our infrastructure meets the current academic
needs. That is not--and there is no clearer place than in
technology. This Congress, over the course of many, many years,
has really endeavored to help with that. The Chairman's bill
has been one way of doing it. The eRAID program, other kinds of
programs like that have been other ways of trying to ensure
that we could actually ensure that our schools, buildings that
were built 80, 100, 150 years ago, not only converted from coal
burning to other kind of heating and now green kind of
technology, but also ensuring that you had the technology and
the wiring to even have a basic computer.
Mr. LARSON. How many schools would you estimate probably do
not have sufficient broadband in order to participate in 21st
century technology; i.e., schooling and education, in this age
of knowledge-based communication?
Ms. WEINGARTEN. Unless my colleague has the answer to that
question. Our sense is we are never catching up enough. We
certainly now have--I will tell you in terms of New York City,
after two big capital programs which the Congress has provided
significant help in, particularly Chairman Rangel, we have been
able to wire most of the schools. But when you start talking
about broadbanding and all that that would allow us to do, we
are nowhere near where we need to be.
Mr. LARSON. That was my point, especially when we are
talking about an infrastructure program and the public wants to
see the direct benefit. We don't want to just put bricks and
mortar, however important they are, and they are. But if we are
not putting, making the investments so that it is going to pay
off long term so that our children are able to compete long
term with their--you know, it used to be you competed across
State borders; now we compete globally. It never ceases to
amaze me the investment that other nations are willing to make
because they understand the significance and importance.
Mr. VAN ROEKEL. To add to that, as we do interviews with
businesses outside, what they talk about is that too often our
students power down when they get to school, meaning that the
technology available at school is far less than what some of
our students carry around in their backpacks when they are out
of school. The inequity of that, of the ability to have those
technology tools, is huge.
Our organization, the National Education Association, has
been a partner with the Partnership for 21st century skills, to
talk about what are the skills and knowledge that we have to
put into our schools and our education system today in order to
be competitive in the world and in the years to come. That is a
huge step that we need to take, and we are not anywhere near
where we need to be.
Mr. LARSON. Mr. Mongan, if I could ask you, from a civil
engineering perspective. As it relates to over the last 25
years, what we have seen in terms of investment is investments
in bubbles that ultimately burst; and, for the most part, they
are paper assets that we have been dealing with. Whether it is
real estate, whether it is financial paper assets, et cetera,
even speculation in the commodities markets based on paper
rather than actual tangible goods, in your view, does the
country need an industrial policy centered around civil
engineering, science, and manufacturing? If so, what are some
of the areas that you think we should go to?
Mr. MONGAN. This country and the Congress has tried to
help, but we have clearly a report that the National Academy of
Engineers published a few years ago, Rising Above the Gathering
Storm relative to science, technology, engineering, and math
education. We are continuing to fall behind our colleagues
outside of the United States in that area. That we must do more
to promote that type of education. Clearly, our investment in
infrastructure and STEM education has lagged behind
significantly our foreign competitors.
I had the privilege of traveling to Tunisia this past
summer on a presidential trip, and their President, Ben Ali,
for the past 20 years has had a program of education focused
around science, technology, and math. Their GNP doubles what
Europe's average GNP does, just a small country of 10 million
people. They have 20 colleges of higher education granting
engineering and technology degrees out of a population of 10
million. We don't even come close. It is simply because they
have the leadership and the vision to say that science
technology and engineering and math are our way out for the
future.
Mr. LARSON. Thank you. I thank all three of you for your
responses.
Mr. MCDERMOTT. Mr. Brady will inquire.
Mr. BRADY. Thank you, Mr. Chairman. I thank the panel for
your information today.
Congress does not have a good track record when it comes to
economic stimulus efforts. Our last one earlier this year had
no impact; that all those checks went down the gas tank because
of high fuel prices, and this Congress refused to deal with
high fuel prices. The aid to the States in 2003 had little
impact other than, unfortunately, many States padded their
State payrolls. Today we face a bigger problem because of that.
It seems to me that the bigger picture is that our National
Government is on very shaky financial ground. Republicans I
think did a poor job controlling spending. When we left control
of the Congress, we had a deficit of $160 billion. Today, in
the first year of Democrat control of Congress, that deficit
more than triples, over $400 billion. When we finish this year,
we will have the highest Federal deficit in American history.
That is not even counting the bailout or the $50 trillion or
more in unfunded liabilities for Social Security and Medicare.
Governors and mayors have rightly criticized Washington for its
out-of-control spending habits.
So, today, having Governors and cities asking Washington
for financial aid is a little like Lehman asking the auto
makers for financial aid today. We may well do best to get our
own financial houses in order. I wonder if the best signal that
we couldn't send to our financial markets is that Congress is
going to deal with its financial house, and it is going to take
the necessary steps not on a spending spree but on spending
reform.
I do think there is merit in exploring the unemployment
benefits issues, because we have some States that are
struggling terribly. Schools in Texas tell me, in my district,
that fuel prices continue to be the hardest part of their
budget. They are laying off teachers, consolidating bus routes,
ending extracurricular programs. They just can't handle those
fuel prices. What Congress should do to address that in a
meaningful way I think would help our schools a great deal.
I do think there is merit in exploring a direct injection
of infrastructure funding for highways and bridges. If I were
in charge, I would bypass the U.S. Department of Transportation
and send that money directly to the States for projects that
are ready to bid today. I would pay for every dime of that
injection by--for 1 year, I would lower the gate, the tax gate;
allow U.S. companies to bring back more than $300 billion of
profits that are stranded overseas because our Tax Code
penalizes them for reinvesting in America. Not only would that
double the economic injection into the U.S. economy, but the
taxes from that 1 year lowering of the gate would pay for every
dime of that highway and bridge infrastructure funding.
So, I guess my question to you, Mr. Mongan, is we know the
Highway Trust Fund is flat broken and needs to be addressed in
a meaningful way. But do you believe bypassing the Federal
middleman, injecting dollars directly into the--let me give you
a choice. What is the smarter move for Congress, to fix the
Highway Trust Fund permanently or to directly inject dollars
into the States for ready to bid contracts?
Mr. MONGAN. Well, I think Congress needs to address next
year in the transportation reauthorization ways to deal with
the trust fund, ways to provide sufficient revenues to ensure
the trust fund doesn't go broke again and that there are
adequate resources there to invest in transportation. I think
there are a multitude of issues associated with our trust fund
and the spending, the mandates, the categories. All of that
needs to be examined.
In immediate terms, I think that a direct grant, if that is
what we are talking about, to States with mandates that will be
used in transportation or bridges probably would put the most
dollars on the street in the short term. But I see that purely
as a short-term option, not in terms of a longer term approach.
We need the criteria, we need the discipline that the Federal
Department of Transportation brings to our transportation
problems, and that shouldn't be destroyed in the process of
trying to fix the trust fund.
Mr. BRADY. Do you object to our paying for that
infrastructure funding rather than borrowing money to do that?
Mr. MONGAN. We think that there are a number of ways that
infrastructure funding can be financed and that those ways
should be explored.
Mr. BRADY. Thank you. Mr. Chairman, I yield back.
Mr. MCDERMOTT. The gentleman from Oregon, Mr. Blumenauer,
will inquire.
Mr. BLUMENAUER. Thank you. Thank you, Mr. Chairman. Thank
you, Chairman Rangel, for the laser like focus on
infrastructure. This is going to be a major item for us not
just in the context of the stimulus, but it is one of the major
unfinished agenda items we have for the next Administration and
the new Congress. I appreciate your patience sticking with us
and adding your voices to the drumbeat of the challenges that
we face with the economy, with fraying infrastructure, whether
it is roads, bridges, water, transit, or our educational
infrastructure or lack thereof, and in the context of some of
the new realities that we are facing like a carbon-constrained
environment where we are going to have to be doing things to
meet the challenge of global warming.
I am hopeful that if there are any observations that you
can help us with, with all the smart people that are within
your organizations and the experience that you folks have, that
we might be able to obtain from you some thoughts about what
the vision should be for the big picture. I don't want to put
you on the spot now for 37 seconds but to the extent to which--
I know, Mr. Mongan, we have had these conversations with you
and your team in the past--as we try to sort out what Congress
and the new Administration needs to be doing with the big
picture to renew and rebuild America for this century in these
contexts, beyond just the short-term economic stimulus but
something that you can count on year in and year out and be
part of a broader comprehensive effort that we can look at so
we know what it is that we are financing and how we squeeze
more value out of the process. The extent to which you have
some thoughts and can supply them at least to me I would deeply
appreciate that over time and look forward to following up with
you.
I would have a very specific short-term question to Mr.
Firestine, if you wouldn't mind, and others of you may have
some thoughts. We are looking at agencies, municipal agencies,
school districts, airport authorities that are AAA, gold
plated, that have a revenue stream, have not missed a debt
service payment ever, and are watching, and you referenced, the
skyrocketing short-term problem. I am wondering if there are
approaches that occur to you that we might be able to take now
to help those local governments, those school districts, those
transit authorities that are running into the serious short-
term buzz saw that the Federal Government could do with a
different type of bond, for instance, or a bond in reinsurance
or something that would enable you to work, function at a
reasonable price given how creditworthy many of these entities
are.
Mr. FIRESTINE. Again, I think because there is no market
out there for liquidity providers, there is nobody willing to
provide guarantees for short-term liquidity, that is the best
place where I think the Federal Government could help. I think
the authority is already there in terms of what you have
approved. As I said earlier, I think the issues with respect to
Treasury, looking at you know what has been done for assistance
with commercial paper in the private sector, certainly would
apply to the health that is needed with short-term commercial
paper on the tax-exempt side. There are issues with short-term
variable rate debt where it is used basically in those
situations where it is an interim financing tool for capital
projects. Because you don't have access to that and because you
are delaying issuing long-term debt you have now put long-term
projects on hold.
So, again I think most places where we see the immediate
need is in the short-term market in the form of guarantees, and
that is, I think, one of the quicker ways to provide stability
there. There are jurisdictions concerned about making payroll
because they don't have access to commercial paper, to assure
in advance of tax receipts that they have cash to make payroll,
and it is all related to the fact that you can't get a
liquidity facility.
Mr. BLUMENAUER. Thank you. Our friends from education, any
thoughts about this bigger picture?
Ms. WEINGARTEN. We have actually put out a report on green
schools and our vision of what a green--how we can green our
schooling--our schools and what it means both in terms of
higher productivity, satisfaction rates, helping kids as well
as what a school like that would look like, and we would be
happy to get that to you.
The other point I would make is over the summer I started
talking about how you pull together a lot of what we do in
schooling and in social service and you try to do that maybe
either with wrap-around programs or under the same roof. So,
for example, there are many places where the S-CHIP program,
other--the children health programs have been brought into or
coordinated with schooling. So, you have some health clinics
either in schools or coordinated with and so if you look at a
long-term vision of what schools will do or can do, that is a
way of looking at infrastructure side by side with long-term
coordination, which I think would actually, again, save money
in terms of having a lot of services that we believe kids
should have coordinated under the same roof.
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Mr. VAN ROEKEL. Just to follow up again on the concept of
green schools, I worked with the U.S. Green Building Council
and they are doing incredible work on the environment and green
schools and what we can do in the long term about a vision of
what it looks like. One of the leading reasons for absenteeism
is asthma and the incidences have gone up just dramatically in
the last 20 years. We see a difference of air quality in
schools with the absentee rate and the impact it makes on
student learning.
So, there is much there. I would love to provide that to
you.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. BLUMENAUER. We look forward to it. Thank you very much.
Mr. MCDERMOTT. Mr. Porter will inquire.
Mr. PORTER. Thank you very much. I appreciate your
patience. Thank you for being here, and the next set of
panelists that are awaiting the opportunity.
I come from the great State of Nevada, and we are very
proud of who we are as a community. When times are good, we
excel and we reap the benefits of a strong economy. But we are
also one of the first hurt in travel to or in Nevada when
things are bad, the economic challenges. We have one of the
worst foreclosure rates in the country, 1 out of 40 some homes
in my district. We currently are laying off individuals from
families from jobs. We may well see up to 9 percent projections
for unemployment in Nevada. Our Government's cutting, State
Government, between 14 and 20 percent. Having been a Mayor of a
much smaller community than some of our teammates here today,
but a Mayor of a small community, I decided to run for the
State Senate because of all of the mandates that were being put
on me by the State of Nevada as a city. Then as a member of the
State legislature, I also realized there are also a lot of
mandates the Federal Government puts on States, local
governments and schools. As families are struggling in Nevada,
families are hurting, they really are looking at their own
mandates and looking at what they can afford and what they
can't afford. So, families are cutting their budgets. Schools
are cutting their budgets. Cities and States are cutting their
budgets.
I am very, very concerned that one area we have not
addressed as we try to help find solutions to some of your
problems is that not only are my constituents angry with the
Federal Government, they are also angry with the local and
State Government because they think they are bloated budgets.
Now, I don't believe that in State and local governments. But
one thing we haven't done as the Federal Government is look at
our own waste and our own mandates, and I applaud and I am
sorry that the Mayor isn't here, but the Main Street stimulus
package. I agree in principle and I am sure there are some
areas we don't agree with, but I think that is a very, very
positive step. You are giving us some possible solutions to
problems. But what I would really like to see that local
governments and State governments, if they would help us with
your list of mandates. I know you know what they are because we
used to do that. You know what they are, those mandates that we
are not funding that are putting burden upon you.
I would also like to ask that this Congress take a look at
where we have duplications in service. We have hundreds of
programs that are very, very important but there are hundreds
of agencies doing the same thing.
So, in the midst of this crisis, unlike we have seen in
probably 70 or 80 years, what I would encourage Congress to do
is to look at the Main Street stimulus package but also at the
same time have the local governments give us their list of
mandates that aren't necessary, that you don't think are
necessary that we are not funding. I think that the Federal
Government at the same time could reduce some of its duplicate
programs, and I think that by November 17, when Congress comes
back into session, we ought to look at these. What can we do to
help you? What can we do as a government? We owe it to our
constituents. It is just common sense. As we move forward
trying to help you, we need to find where our moneys are being
wasted as well.
So, having said that, I would just like to ask off the top
of your heads, are there some mandates that you think we ought
to be reducing on you as local governments and unnecessary
services to help your constituents? I know the schools have a
couple. Is there anything in the schools?
Ms. WEINGARTEN. Look, there is--we can spend a lot of time
talking about this issue and much of even we--even when No
Child Left Behind, for example, was passed on a bipartisan
nature, it was passed in a way that immediately after it was
passed much of the funding that was supposed to be intended
never happened and as a result you have--even for those who
believe in testing you have variable testing all across the
country, the work that was done to try to lift standards, a lot
of that work has not materialized. So, part of this is making
sure every dollar that is spent is spent in a wise way, which
is what your question is, and I am sure we can look at many of
the other programs----
Mr. PORTER. I would think--I guess I am offering that. I am
not disagreeing. We probably would agree with most of the
things you are talking about today, but help us then also with
things that are a burden to you. I know special needs, we need
to help these kids but we are not funding it. What are we, 20
something percent now? So, I would ask, November 17, I would
wish that this Congress would put all of this together as we
move forward. Whether infrastructure needs, we need to look at
these things. So, again thank you very much----
Mr. FIRESTINE. If I could add one which I think is a good
example of imposition of an unfunded mandate. There is a
requirement at the local government level for a 3 percent
withholding on payments that are made to vendors, and the
impact of that is quite significant. We don't think there is
any benefit to be received from that, but it is a clear mandate
that we are going to have to put new systems in place to deal
with and for an effect that, you know, will crowd out moneys
that would be needed for other more important priorities at the
local level.
Mr. PORTER. Thank you. My last thing in closing, to my
knowledge this Congress has not looked at ways to reduce
mandates and burdens on local government. I have not heard
anyone on this panel suggest we raise taxes. Actually the
Governor said it would be the worst thing we could do. I think
we can do this together especially at this time of need, and
again I appreciate all of you being here today.
Mr. MCDERMOTT. The gentleman from New Jersey, Mr. Pascrell,
will inquire.
Mr. PASCRELL. Thank you. Mr. Chairman, I want to associate
myself with the remarks of the gentleman from Nevada, the
questions also, the line of questioning, but I am perplexed.
Although I know that Governor Sanford had to leave, I really am
perplexed that his State of South Carolina has the fourth
highest unemployment rate in the Nation and when you look at
how many folks that have been unemployed just in this past year
and how many--in South Carolina rather--have exhausted their
unemployment benefits and will no longer be considered
unemployed in the system that we have, as you well know. I am
perplexed as to his position and I wanted to express it.
I want to go to Mr. Mongan because you answered the
questions--you were asked questions by my good friend from
Pennsylvania, Mr. English, about capital investment and I was a
little perplexed as to whether you were agreeing with the line
of questioning that we have to have these projects in the
pipeline, they are taking too much time, this is not the best
way to spend our money. I want to know if that is what I was
hearing from you.
In testimony later today we are going to hear folks--in
fact, he hasn't testified yet but Mr. Viard of the American
Enterprise Institute, which totally shoots down the possibility
of any kind of infrastructure investment, and he talked about--
he used the same words that you are using. There are time lags.
Now, you are here as a civil engineer to tell us we need to be
investing in the infrastructure. You are here to tell us that
infrastructure is important and we could put people to work.
Yet your response to Mr. English almost contradicts that.
We are here, as I understand the Chairman, we are here to
go to the heart and soul of the average American who is
suffering during this recession, call it whatever you wish.
That is why we are here. We read in the papers the last few
days that the very money that we voted for out of the $750
billion, the money that went to the banks is not being lent to
the American people. So, here we are 2 weeks past the time that
we voted, 3 weeks past the time we voted, and the money that we
voted for in good faith, many of us, the second stimulus
package, the second vote that Friday, the money is not getting
to the people. We are never going to be able to build new
homes. So, I am very concerned about not only providing dollars
for an infrastructure. I am very concerned about whether that
money is ever going to put people to work and as quickly as
possible.
There are thousands of projects, are there not, Mr. Mongan
in the pipeline, that is my first question, in each State, yes
or no?
Mr. MONGAN. Yes.
Mr. PASCRELL. That means, Mr. Mongan, that we have got
design, we have got the schedules ready to go. We just simply
don't have the money in those States to fulfill either building
access to airports, either expanding roads, repairing roads,
fixing the bridges. Thirty-nine percent of the bridges in New
Jersey are falling down, falling down, falling down. Thirty-
nine percent of the bridges. Now, do you think it is expedient
for us, this Committee, to explore the possibility of money
going to the infrastructure, Mr. Mongan?
Mr. MONGAN. Yes. I am sorry if I misled you in my answer to
the Congressman's question. As I interpreted his question, is
that there are large infrastructure projects like the
intercounty connector here in Maryland that is going to cost $2
billion and is it prudent to have a stimulus package that funds
an infrastructure project of $2 billion that is going to take
10 years to build? Well, what my comment was is that there are
lots of other projects out there that are----
Mr. PASCRELL. As a civil engineer----
Mr. MONGAN [continuing]. That are ready to go, that can be
worked on immediately and are not going to be multi-year----
Mr. PASCRELL. Well, there are a lot of those projects,
aren't there, ready to go?
Mr. MONGAN. There are thousands and----
Mr. PASCRELL. What about the water projects? What about the
sewer separation, which is a Federal mandate--I am sorry the
Governor is not here. We have tried for 8 years on a bipartisan
basis to get money into those facilities of separating our
sewer system to ensure clean water, drinking water. How many of
those projects would you imagine are in the pipeline ready to
go, ready to go next Monday morning if we provide the dollars--
at least help provide the dollars with partnership with those
States?
Mr. MONGAN. There are hundreds and hundreds of those types
of projects.
Mr. PASCRELL. So, to give the impression that we would have
to wait so long before any of these projects to get off the
back burner, so to speak, and put people to work, that is just
not so?
Mr. MONGAN. That is correct.
Mr. PASCRELL. Why aren't we pushing for that?
Mr. MONGAN. We are pushing for that. The answer----
Mr. PASCRELL. You are. So, in other words, you would
clarify what you said to Mr. English----
Mr. MONGAN. Yes.
Mr. Pascrell [continuing]. And responded to it because he
was quoting directly from this gentleman from the American
Enterprise Zone. I mean I am not shocked what he is saying, but
I was interested in how the dialog went. You do support
immediate infusion of dollars in partnership with the States to
get the projects, these infrastructure projects that are in the
pipeline, getting them going. We can do that in a very short
period of time after we pass the legislation; is that correct?
Mr. MONGAN. Yes.
Mr. PASCRELL. You support that?
Mr. MONGAN. Yes.
Mr. PASCRELL. Thank you for clarifying.
Thank you, Mr. Chairman.
Mr. MCDERMOTT. The gentlewoman from Nevada, Ms. Berkley,
will inquire.
Ms. BERKLEY. Thank you very much, Mr. Chairman.
Thank you for being so patient with us and staying all this
time. I appreciate it.
I represent the urban core of Las Vegas. I grew up there,
and for the last 45 years that I have lived there it has been
nothing less than a boom town with extraordinary growth and
extraordinary prosperity. If we were talking a year ago, my
comments would have been dramatically different than they are
going to be now.
At this time I have got the highest mortgage foreclosure
rate in the country in my congressional district. One out of
every twenty-two homes is in foreclosure. Since people don't
have skin in the game they are mostly just abandoning their
homes and leaving town or leaving the neighborhood. My
unemployment rate is far higher than the national average. It
is 7.3 percent. As my colleague from Nevada stated, we have
received indications that that unemployment is going to go up.
Mine wasn't quite as dire but close, to 8.6 percent by the end
of the year, which is going to have catastrophic consequences
to the people I represent. Our State economy, which is based on
sales tax and 87 percent of the land in the State of Nevada is
Federally owned; so there is no tax base, our State budget is
in shambles right now. This is relatively new and shocking and
difficult to grapple with when you are unaccustomed to it.
I thought it was very important to fly back for this
hearing because there isn't anything that you have proposed
that we are discussing that won't have a direct and beneficial
impact on the people that I represent. Providing an infusion of
funds to Medicaid for my State will mean the difference in many
instances between life and death and permanent health problems
because people will be able to continue to access a doctor, and
that is very important. An extension of unemployment benefits
so that we have a bridge for many families that are recently
unemployed, struggling, and until this economy turns around
there is not going to be any hope for them to be able to
support their families.
But the part of this discussion that intrigues me the most
and I think will have the longest and most lasting consequences
for the people I represent is the infrastructure component and
investing in the infrastructure of this Nation. I think that is
a wonderful way to stimulate the economy.
Our State legislature last session did a study and found
that there was--we had between $3.5 billion and $5 billion
worth of infrastructure needs. I don't have crumbling bridges
and--I don't have enough of them. So, the fact that we would be
able to put money into these projects is very, very important.
But the question I have for you, Mr. Mongan, I am getting
conflicting numbers. I used to say that for every billion
dollars that we invest in our infrastructure we employ 47,000
construction workers. I recently read that number was 35,000.
Would we be employing 35,000 construction workers, and I
understand ancillary jobs as well, or 47,000? Either number is
startlingly good but which one would it be so I am accurate?
Mr. MONGAN. The U.S. Department of Transportation I believe
in April earlier this year published their number, which is for
1 billion of investment in transportation, and that is not just
Federal investment but State investment, too, but a billion
dollars equals slightly over 47,000 jobs. It may not be all
construction jobs, but 47,000 people are employed for every
billion dollars spent.
Ms. BERKLEY. I am glad to know that the higher number is
what is accurate. My building trades people are dead in the
water. So, many of the projects on the Las Vegas Strip have
been stopped and of course our hotel building has slowed down
and our housing market is nonexistent. So, to be able to put
those people back to work I think will have a direct impact, an
immediate impact, on our economy and do what a stimulus package
is supposed to do. Do you agree with that assessment?
Mr. MONGAN. Very much so. I will be honest. I have a firm
of 225. Because the State has cut back on transportation
spending, they have canceled some of my projects that we are
working on. I laid five people off this week and that will
occur again because the projects aren't there and the money
isn't there.
Ms. BERKLEY. Mr. Chairman, may I continue to question for
another moment? Thank you. I wanted to speak to the Presidents
of both of our teachers associations.
I think that the package to provide zero interest bonds for
school construction is very important. That is not one of the--
I have been a proponent of that ever since I came to Congress.
Las Vegas builds a school a month in order to keep up with our
growth. Now, we passed a substantial bond issue, two of them
over the course of the last 20 years; so we are financing. I
would like to go into the schools with you, if I may.
I have got one of the highest dropout rates in the country
and that was before the economic slowdown. So, many of these
kids when they turn 16, they drop out of school because they
have been able to get a job. What--I know this is a much--you
could talk for hours on this, but what are the social
implications of youngsters dropping out of school at the age of
16 before they have completed their high school education much
less their college education or occupational training?
Ms. WEINGARTEN. The implications, the moral, the social,
the economic implications are huge. There is a recent study
that actually shows that every dollar invested in early
education yields a savings of $7 later on in foregoing--or in
increased graduation rates, in reduced incarceration rates and
things like that. Chairman Rangel has spent a lot of time on
the issue of. dropouts. We have tried--wearing my New York City
hat, we have tried to spend a lot of time looking at that. We
are starting to see that if you focus on career and technical
education, if we start thinking about green schools in a very
different way and green jobs in a different way, if you link
kids in middle school--and you are right, Congresswoman, this
is a very long and we can spend hours on this--but if you link
kids from middle school onward to something that they actually
want to do in school, you cut change that dropout rate
significantly. Some of it is long term, some of it is short
term. But when you actually have--and I think that Dennis said
this as well. When you actually have an infrastructure in a
school that has a science lab when you are tying to ensure that
kids have to take science, that have the kind of new career and
technical skills so that kids can come out of school prepared
for life or prepared for college or both, these are things that
will hugely help.
Ms. BERKLEY. Let me ask another question, and maybe you can
incorporate it because my time is up. I was appalled when the
President vetoed the S-CHIP legislation. I spent a lot of time
at my elementary schools. I have got a very high incident of
single-parent households, lack of child care. So, when these
kids get sick, their moms are going to work. These are people
that don't have insurance and their kids are sitting in a
classroom sick as dogs. Do you think that passing that S-CHIP
program will be a benefit to the school children across this
Nation like those that I represent in southern Nevada?
Mr. VAN ROEKEL. Absolutely. It is just impossible to teach
a child when they are not feeling well and they are sick, and
it is so unfair to a parent. The idea that as a parent your
child is sick and you have no means of taking them to a doctor
for health care I think is just wrong. We need to change that
and we need to provide the resources for families so they can
take their kids to the doctor, and when they are well we will
teach them.
Ms. BERKLEY. Thank you very much.
Chairman RANGEL [presiding]. The Chair would like to
recognize Congressman Van Hollen.
Mr. VAN HOLLEN. Thank you, Mr. Chairman, and thank all of
you for your testimony here today. I have some questions for
Mr. Firestine. The first relates to your testimony on the
alternative minimum tax. I think a lot of us on this Committee
would like to either eliminate or revise the alternative
minimum tax going forward, but for now we have it in place, and
in your testimony you suggest eliminating the alternative
minimum tax penalty that exists for some tax-exempt bonds, and
I would like you to elaborate on that point and discuss the
impact on State and local bond issuances. That is one question.
The second, if you could comment a little bit on the
challenge many of our public transit agencies are facing across
the country right now as a result of the credit crunch, for
example, the WMATA, the Washington metro authority, because of
certain relationships and having AIG as having one of its
insurers is right now experiencing a significant potential
squeeze, which is also something I think that may be felt by
other transit systems around the country.
If you could address those two issues, please.
Mr. FIRESTINE. Thank you. On the first one on the AMT, the
issue there is it that there are a large range of categories,
types of facility bonds that there is an extra cost associated
with issuing them and there is an extra--a higher interest rate
associated with those bonds. Some of the things we have heard
mentioned today are public-private partnerships are a good way
to create infrastructure, whether it is the hot lane project
going on in Virginia, which is a public-private partnership.
Any of those types of bonds are subject to AMT, and there is a
penalty related to those. What we are saying is that plus you
heard comments earlier about the need for improvements at
airports. Airport bonds would fall within this category.
So, the theme is to relax the AMT penalty for those types
of bonds similar to what was done earlier for housing so that
they become more attractive and it is easier to find investors.
Mr. VAN HOLLEN. Just on that point do you have any idea
what kind of additional participation you might get in those
public-private partnerships or how many people are not
participating today because of the penalty? Is there any data
on that?
Mr. FIRESTINE. I don't, but I think it just makes them more
attractive in terms of as an investment because the penalty
isn't there plus the increased cost of issuance, you know,
would go away.
With respect to transit agencies, and I am surprised it
hasn't come up earlier, Metro in this region faces some huge
issues related to the elimination--there was a downgrading
guarantee provided on a lease payment deal that they had done
with respect to their projects. Because of that there was
action taken to basically require some payments by the Metro
system. I think the same thing is going on in MTA in New York.
I think New Jersey has a similar problem. These relate to lease
deals that were performed in the past. Once the guarantee--
guarantor was downgraded, suddenly it became immediate that
they would have to make certain payments. Those transit
agencies in order to make those payments they are--something
has to give. They are going to have to lay off staff, cut
service.
So, I know they have approached Treasury to see if there
are some ways to get Treasury to provide the guarantees so that
they can continue or there are options they are looking at to
work out those deals so that they don't have those payments.
But I know it is hundreds of millions of dollars in some
instances.
Mr. VAN HOLLEN. Thank you. Mr. Chairman, I think if we
could pursue this issue, it is an issue I know New York I
believe is experiencing. I know the Washington Metro, other
metro systems, the consequence of the meltdown in the financial
sectors and especially in some instances the fact that AIG was
an insurer here, and I think when you have got the Treasury
Department intervening on behalf of a lot of private sector
entities, it also makes a lot of sense that they intervene to
help some of these public sector entities that the entire--that
the public depends on for the purposes of their transportation.
So, I thank you for your testimony. This is something that
is urgent right now. We have been trying to get the Treasury
Department to at least meet with the heads of some of these
transit agencies so that we can resolve this right away. Thank
you, Mr. Chairman.
Chairman RANGEL. I thank the gentleman from Maryland and
recognize the gentlewoman from Pennsylvania, Congresswoman
Schwartz.
Ms. SCHWARTZ. Thank you, Mr. Chairman. Thank you for your
patience and for the panel's patience and we actually have
another panel coming up. So, this has been a long hearing, but
I think we are--and you have heard today from so many of us and
reasons of our interest in that we are seeing both really human
needs, the individual needs, but also we see the infrastructure
needs, and they are related. As you have talked about that
unless we can put people back to work, we are not going to get
ahead of the curve here on this. I was particularly interested
in some of the local needs.
I am thinking particularly--I represent both the city of
Philadelphia and my Montgomery County, Mr. Firestine. It is
Montgomery County in Pennsylvania. I have heard certainly from
both sides, but certainly the City of Philadelphia is going
through a difficult time and the suggestion that was actually
made by Governor Sanford that cuts are being made, that
people--that our local elected officials are not being
responsible I think is really one that certainly many of my
local folks would take offense at because they are making some
very, very difficult decisions right now. They are seeing a
very direct hit in terms of careful budgeting, States and local
municipalities that have to balance their budget. We are seeing
in Philadelphia, which has a $4 billion annual budget, they are
looking at upward of an almost $850 million shortfall over 5
years and they are under a requirement to balance the budget
every 5 years. So, finding--I think they are looking to find
$100 million in the next 6 months when most of their spending,
just as it is at the Federal level, is not discretionary. So,
the cuts are coming out of 42 percent of discretionary funding,
$100 million in 6 months. Serious dollars that has a real
effect on not only the people who are working in the city but
the people who are served by the city and that is really all of
us. I know that some of that is happening as well in my
suburban communities.
So, really what I want to ask about is the public
infrastructure. We have talked about our schools and in
Philadelphia we have gone through a serious rebuilding of our
schools. They are old and they can't meet the technological
needs for either the teachers or the students, let alone
security needs or some of the new theories about schools, and
we talked about early childhood. Some of the schools couldn't
add early childhood because they simply didn't have the space
or the facilities that are appropriate. So, if you think about
that, that was kind of stunning. But we have really made some
real progress on school construction.
The other area of public infrastructure that hasn't been
mentioned today that I wanted to get your comments on were
police and fire stations. We have been devastated in
Philadelphia at the loss of four police officers who have been
killed in the line of fire literally in Philadelphia, and when
I visit not just the families but the police officers in our
police stations and our fire stations, there literally is
crumbling infrastructure. I mean it is old. It is--talk about
not green, it is deeply inefficient. We probably overheat these
buildings and they are losing dollars every day. So, I have--
sort of building on the Chairman's notion for rebuilding
schools and school construction, use a short-term borrowing
instrument that you referred to, the tax credit bonds, these
are public-private partnerships. It is a way to use public
dollars with a little bit of help from the Federal Government
in terms of repaying the interest; so there is a stake at the
Federal level. The local communities have to repay the
interest. So, this is not a grant. This is the way we are
talking about school construction--this is not--we are being
very careful in the spending. We are looking to bring in
private investors. So, the notion that we just ourselves at the
Federal level are not being fiscally responsible is one that I
want to also address.
I for one--I will talk for myself--I am very deeply
concerned about the fiscal irresponsibility of the last 8 years
and our serious interest in balancing our budget, and in doing
so we want to look at some of these more creative instruments,
if we want to call it that, to be able to bring in the private
sector to work with the local community and to help incentivize
that through some dollars from the Federal level.
I think this question is mostly to Mr. Firestine, but maybe
Mr. Mongan would want to respond to it as well. The use for tax
credit bonds for both school construction but potentially for
public infrastructure and, as I said, I have a bill to apply
these to police and fire facilities. Theoretically you could
look at them also for recreation centers, for parks, for other
kinds of infrastructure, public infrastructure, that the
private sector might well be interested in as well. So, could
you speak to specifically both the instrument and potentially
the flexibility or other infrastructure needs on the local
level that we could really kick start very quickly through
these public-private partnerships?
Mr. FIRESTINE. Sure. I think tax credit bonds have proven
to be a good tool. I think there were challenges when they
first came out for QZABs, but certainly, and I know we have
heard testimony earlier about the value of them. I think it is
a way clearly for you to target the tax credit to a specific
problem. The QZAB program, for example, it focuses I believe
just on reconstruction or rehabilitation. Perhaps that is an
area where it could be expanded to new construction as an
option. So, I think it is another tool in the tool box. It is a
good idea. My only concern would be that we just be careful it
doesn't have--diminish the value of the general tax exemption
on tax-exempt bonds. But I do think it is a good tool. I know
renewable energy bond credits have also been an effective tool,
and initially there were some issues but we were able to work
through a more streamlined application process which I think
facilitated that. So, again, it is another good tool for the
tool box.
Mr. MONGAN. I would simply echo that. The more tools we
have in the tool box, the more opportunity we have. So, we just
need to keep allowing those to be developed and to be able to
be used.
Ms. SCHWARTZ. Right. Again the point here is these are not
make work projects. Maybe that is the other thing we ought to
talk about because the sort of suggestion somehow that cutting
back--again Governor Sanford sort of suggested that he could
make cuts seemingly to not have much impact in his State. That
is, I guess, lucky for them. But there are some cuts we can
make and we have to make because we want to be fiscally
responsible, but by not going forward on some of these
projects, as we talked about with the schools, has serious
consequences in our communities. To suggest that we could not
just not do them and it would have no effect--we just have to
be creative, give a lot of options so we can just move forward
on this. But our interest in terms of an infrastructure
stimulus is to actually do what we need to do, to do them
quickly. Stimulate those jobs, put people back to work, and
meet those kinds of requirements in our local communities.
So, I yield back, and I thank you for your patience, and
you must be starving. So, go have lunch.
Chairman RANGEL. I thank the gentlelady for yielding back.
Let me thank----
Mr. NEAL. Mr. Chairman, I didn't have a chance to be
recognized.
Chairman RANGEL. I am so sorry.
Mr. NEAL. I appreciate that. Just when you thought all the
testimony was exhausted. In fact, I want to thank Mr. Van
Hollen for asking the question that I had waited 4 hours to
ask.
Well, I do welcome the panelists with the thought that I am
an alum, one of the few really who served in Congress. There
aren't a lot of Mayors or county executives that have been
elected to Congress over the many years. So, I have great
regard for what it is you do every day in terms of confronting
the real problems that Americans have every day and the
responsibilities that you have. I really believe that improving
roads, schools, airports, bridges, highways, it really does put
people back to work very, very quickly. It is not as though
these needs are somehow made up. They are for real. Getting on
with them would make us much more competitive. A very simple
notion of how we get from one point to another, the ease with
which we travel there certainly adds to productivity and
efficiency every single day, not only in local economics but in
national economics.
But let me come back to the question that Chris Van Hollen
raised, and, Mr. Firestine, specifically to you. What is the
impact of the elimination of AMT on private activity bonds and
your ability to borrow and fund local projects, understanding
that I filed legislation on the private activity bond front as
we did last year for housing bonds in the bill that passed last
summer? Could you give us a quick analysis?
Mr. FIRESTINE. Sure. Again, the fact that there is a large
range of types of projects that are subject still to AMT that
are public-private partnerships. We said earlier it is a good
tool for us to proceed on projects. What we are encouraging is
the elimination of that AMT penalty mainly because it sort of
separates them out, they are more costly to issue, and there is
a higher cost of interest on those bonds. So, they tend to be
sort of--take the back seat to other tax-exempt instruments. To
that extent we said eliminating that penalty as you did for
housing bonds we think would certainly go far to help make them
more attractive as an investment instrument.
Mr. NEAL. The public in some regards, they tend to object
to Government spending in general but they support it in the
specific. I think that while from time to time there is a
project that garners a lot of attention here and people get
really upset because they think that it is an erroneous use of
their money, and understandably so in some instances,
nonetheless, I think local officials would argue pretty
aggressively for the idea that public funding for many of these
infrastructure projects represents a very good investment in
the future. That is what we are talking about, investment.
While I was on the subject of alumni, I know that Mr.
Sanford was a Member of this House a number of years before he
was elected to the Governor's office, and I had hoped to have
the opportunity to ask him a couple of questions, including the
fact that how might he suggest that we pay for the war in Iraq.
We are now at $750 billion of borrowed money for Iraq. The
rescue package, $750 billion. What our veterans are going to
need upon returning from Iraq, 31,000 wounded and those who are
going need services far beyond that as well, that is going to
cost more than $1 trillion. So, now between the war and the
rescue package, we are over $1 trillion. So, we are at $2
trillion and I appreciate the cut a dollar here and cut a
dollar there, but there is also another reality and that is the
President's tax cuts in 2001 and 2003 took $2.3 trillion from
Federal revenue. That is a very important consideration, $2.3
trillion over 10 years.
The reason I raise that issue is largely to make this
point: There is no end in sight in Iraq. The civil institutions
are not being put in place and the deliberations go back and
forth, but there is a pretty grim reality, and that is that it
costs $2.5 billion a week. So, to argue that we ought to
continue borrowing the money for Iraq and to make these
arguments that you can cut a dollar here and a dollar there and
to hear presidential candidates say that their budget balancing
position is that they are going to eliminate earmarks, all $18
billion worth of those earmarks, and again in a $3 trillion
budget, won't balance any budget anywhere.
I am very proud of what we did in the mid-1990s, and it was
done in a bipartisan spirit. We balanced the budget. We
projected revenues of $5.3 trillion for the next decade, and
now we find ourselves in this awful predicament because I think
of many positions that were adopted that were simply in the end
quite irresponsible.
So, thank you, Mr. Chairman, for allowing me that time.
Chairman RANGEL. Thank you for your contribution, and let
me again thank this panel for its endurance, for sharing your
time with us, and for the educators, Mr. Van Roekel and of
course my dear friend Randi Weingarten. I want you to know that
in the various meetings I have had with the Business Roundtable
in the U.S. Chamber of Commerce, they all agree that education
is a national priority and it is so important for not only our
fiscal recovery but for our international trade and
competition. The problem we have is CEOs don't lobby us. They
just send people who look for preferential tax treatment to
lobby us. But as they come to us to ask us to expand our
immigration laws to allow the technicians to come here, it
proves, as the Secretary of State has said, Condoleezza Rice,
that our failure to produce educated Americans is a threat to
our National security. I hope you might take advantage of this
Administration or the next Administration's willingness to
stand with you as we go to our businesspeople to indicate this
is in our national security interest to have an educated,
competitive workforce. It is not a question of this is the
right thing to do. It is something that we have to do as a
nation.
I just want to thank all of you for your commitment to
this. It is hard for me to think of anything that is more
important because an educated person even takes care of their
health needs better. So, that it is a win for the country and a
win for our community, and thank you all so much. We will be
come calling upon you the closer we get to finding what we are
able to do. We will still need the expertise to put together
the package. Thank you so much.
The Chair now calls the second and last panel: Jared
Bernstein. Dr. Bernstein is the Director of the Living
Standards Program from the Economic Policy Institute; Robert
Greenstein, an old friend of this Committee who does a
fantastic job at the Center on Budget and Policy; Christine
Owens, an Executive Director of the National Employment Law
Project; Dr. Jeanne Lambrew, professor at the LBJ School of
Public Affairs, University of Texas; and a neighbor, Martella
A. Turner-Joseph, Vice President of the Joseph & Turner
Consulting Actuaries; and Alan Viard, Dr. Viard, Resident
Scholar at the American Enterprise Institute.
We had no idea that the first panel would take so long, but
because of the interest it did and we were all well served. But
at this time I want to thank you for your patience and waiting
to be called. I call upon Dr. Bernstein to give testimony. As
we said earlier, your full records and statements will be by
unanimous consent entered into the record and you can proceed
for the 5 minutes as you see fit, starting with Dr. Bernstein.
STATEMENT OF JARED BERNSTEIN, PH.D., DIRECTOR, LIVING STANDARDS
PROGRAM, ECONOMIC POLICY INSTITUTE
Mr. BERNSTEIN. Chairman Rangel and Ranking Member McCrery
and Members of the Committee, I thank you for the chance to
testify today on this urgent topic.
The current downturn threatens to be longer and deeper than
the last two recessions, both of which lasted 8 months and were
relatively mild in GDP terms, though much less so regarding
jobs and incomes. A key reason for this is consumer
retrenchment. Our GDP is of course 70 percent consumption, and
it is widely expected that the combination of the recessionary
job market, sharply declining asset values, and the credit
crunch will lead to the first contraction of real consumption
in 17 years. I would also note that consumer confidence, a
strong predictor of expenditures, fell to its lowest level on
record despite the falling price of gas at the pump.
A recovery package of considerable magnitude is needed to
offset this demand contraction. At least 1 to 2 percent of GDP,
$150 to $300 billion, is likely warranted though some analysts
believe more will be needed. The package should include an
extension to unemployment insurance and food stamp benefits,
State fiscal relief, infrastructure investment, and possibly
direct payments to middle and lower income households.
The key guidance in structuring this proposal must be to
get the most bang for each stimulus buck. In this regard
infrastructure investment focused on projects that are either
ongoing or ready to launch could be a particularly potent way
to accomplish a few important goals, including filling
productivity enhancing public investment deficit and creating
much-needed good jobs.
While fiscal rectitude is of course a benchmark of any
legislation, the stimulus package, not unlike the TARP package
targeted at the financial sector will involve deficit spending.
Once the economy recovers Congress may decide it is necessary
to reduce the fiscal deficit, but at this point in economic
time budget austerity would not simply be unwise, it would be
unnecessarily damaging to both the macro economy and to the
living standards of American families.
I am going to speed it up.
Thus demand-side stimulus is warranted. What form should
the stimulus take? The first round of stimulus passed last
February focused largely on direct payments to households
called rebates. Analysts generally agree that these payments
helped generate some extra growth earlier this year, but their
impact was limited by largely emphasizing rebates. The last
stimulus package overlooked other important priorities, and
these other channels are likely to provide a bigger bang for
the buck in this round.
Other panelists will stress the importance of extending
unemployment insurance benefits given the weakness in the job
market and the literally hundreds of thousands of jobless
persons currently exhausting their unemployment insurance
benefits. This extension is both necessary and will provide a
large multiplier of bang for the buck. I urge the Committee to
consider the Unemployment Insurance Modernization Act in this
regard with its expanded eligibility, alternative base periods,
and increased replacement rates from their current ceiling to
one as high as perhaps 70 percent.
State fiscal relief was also left out of the last stimulus
package and the need to correct that omission is large and
growing.
Finally, infrastructure investment should be a significant
part of the recovery package. One common argument against such
investment is that in the context of a stimulus package, the
water won't get to the fire in time because the implementation
time lag is so long that it will be unable to inject growth
quickly enough to help the ailing economy.
However, research by economists at my institute, the
Economic Policy Institute, and others have carefully documented
current infrastructure needs that could quickly be converted
into productive job-producing projects. Consider the August,
2007, bridge collapse in Minneapolis. The concrete for the
replacement bridge began flowing last winter and the bridge was
recently completed well ahead of schedule. The American
Association of State Highway and Transportation officials claim
that according to their surveys, quote, ``State transportation
departments could award and begin more than 3,000 highway
projects totaling approximately $18 billion within 30 to 90
days from enactment of Federal economic stimulus legislation.''
Similarly, the American Transportation Association just
released a survey wherein they asked their members about
projects based on these criteria. The project could be
implemented within 90 days of Federal funding, constitutes an
eligible use of Federal funding for the agency, and would not
proceed--and these are projects that would not proceed in the
current Federal fiscal year without supplemental funding. They
find 170 public transportation agencies responding to the
survey pointing out 559, quote, ``ready to go projects'' with
an estimated cost of $8 billion.
I have many further examples in my written testimony,
including those documented by Bracken Hendricks at the Center
for American Progress Action Fund that puts an emphasis on
green production.
RPTS JURA
DCMN BURRELL
[2:10 p.m.]
Mr. BERNSTEIN [continuing]. The Congressional Budget Office
is often cited in this discussion for noting that since
infrastructure spending does have a time lag, it may not be
adequately suited for countercyclical economic stimulus. But
this claim rests on historical evidence based largely on
traditional public investments such as the outlay rate of the
Highway Trust Fund. By focusing on a different set of projects
that meet the criteria noted above, faster outlays could and
should include an eligibility criteria, as Members of this
Chamber have recently included language to that effect in the
stimulus legislation.
Former Treasury Secretary Larry Summers recently noted that
while infrastructure spending is often seen as operating only
with significant lag, I have become convinced that properly
designed infrastructure support can make a timely difference
for the economy.
Finally, I urge the Committee to recall that while the last
two recessions were both mild in GDP terms and short lived,
they were both followed by long jobless recovery. Once the last
recession ended in November 2001, payroll shed another net 1.1
million jobs, and the unemployment rate rose for another 19
months and for almost 2 years for African Americans. Private
sector employment took 51 months to reach its previous peak
after the end of the last recession, which is more than twice
as long as the average figure for prior recessions. Thus, from
the job market's perspective, these investments will still be
needed well after the recession is officially ended.
Thank you.
[The prepared statement of Mr. BERNSTEIN. follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman RANGEL. The Chair will now call on an old friend
of the Committee, Bob Greenstein, who is the Executive Director
of the Center on Budget and Policy Priorities. We thank you for
making yourself available.
STATEMENT OF ROBERT GREENSTEIN, EXECUTIVE DIRECTOR, CENTER ON
BUDGET AND POLICY PRIORITIES
Mr. GREENSTEIN. Thank you very much, Mr. Chairman. Unlike
most of the other witnesses, I have been asked to talk today
about widening inequality in the United States, and to talk
about that in the context of the current problems that we face.
There is broad consensus among economists and analysts that
inequality has grown substantially over the last 30 years or
so. The best data we have are from the Congressional Budget
Office and cover 1979 through 2004, and they do show a pretty
stark picture of sharp increases in inequality. The CBO data
show that, after adjusting for inflation, the after-tax income
in the bottom half of the population was only 6 percent higher
in 2004 than it had been 26 years earlier in 1979. The increase
was 21 percent for the middle fifth. But the average income of
the top fifth rose 80 percent. For those in the top 1 percent
of the population, it more than tripled.
In dollar terms, the CBO data show that the average after-
tax income of people in the bottom fifth was $900 higher in
2004 than in 1979, an increase of $8,700 in the middle, and an
increase of $745,000 per household for those in the top 1
percent.
Now, today, every economic indicator points to a
deteriorating economy. Normally that increases inequality
further, but the current downturn is somewhat different. The
direct fallout from recent events is likely to have a large
impact on incomes of people at the top of the income scale.
That is what happened in the dot-com collapse, when for a few
years income at the top fell pretty sharply. Yet, that turned
out just to be a speed bump, and incomes at the top then more
than made up for the lost ground from 2004 to 2006, as the
pattern of rising inequality returned.
So, we shouldn't be surprised if we see at least a
temporary decline in the concentration of income at the top of
the income scale over the next year or so, particularly given
the sharp declines in the stock market. But the larger question
going forward is whether this will be just another pause in the
rise toward greater concentration of income that we have seen
in this country since the mid-1970s, or whether, when we get
past the downturn and the economy starts growing again, it will
be possible to return to a period like we had from the mid-
1940s to the mid-1970s when the gains from economic growth were
more broadly shared.
Now, needless to say, policy decisions are important here.
For example, the rise in inequality in after-tax income in
recent years was exacerbated by the tax cuts of the decade. The
CBO data show that the percentage of income in the top fifth
pays in Federal taxes has fallen to its lowest levels.
As we look forward, our country faces tough challenges in
all sorts of areas, from the current financial crisis to an
unsustainable long-term deficit, a need for tax reform, health
care reform, and climate change. In every one of these areas,
how we address the issue can either exacerbate inequality or
lean against it.
I would like to close with a few comments about the current
economic downturn. As you know, there is a growing near
consensus that unemployment will rise to probably 8 percent or
more by the end of 2009, and that we will be facing a recession
substantially more severe than what we have seen in any other
time in the past quarter century.
We are likely to face in the next year or two very large
increases, not only in poverty, but in deep poverty; that is to
say, people living below half of the poverty line. The reason
for this is that we are going into this likely deep recession
with holes in the safety net that did not exist in the 1974-
1975 recession or the 1981-1982 recession, which were the last
two deep recessions that we had.
In particular, the unemployment insurance system has not
kept up with changes in the labor market and, as a result, many
of the female, low income, and part-time workers who are laid
off don't qualify for UI benefits. The House has passed
modernization legislation to address this, but it is not yet
law. It becomes even more important now.
In addition, and this is my final point, the basic safety
net for jobless families and individuals who don't qualify for
UI benefits and wouldn't be touched by the UI modernization
bill also is much weaker than in past major recessions. The
safety net of last resort for jobless individuals without
children, State general assistance or general relief programs,
essentially does not exist anymore. Most States had those
programs in 1974-1975, 1981-1982. Most States abolished them
between the mid-1980s and mid-1990s. In addition, only about 40
percent of very poor families with children who qualify for
TANF cash assistance actually receive it, whereas in the two
previous deep recessions that I have mentioned about 80 percent
of poor families eligible for such aid got it.
The bottom line, and I want to be clear about this, is I
think we are facing a growing prospect of levels of
destitution--not just poverty, destitution--severe hardship,
and increases in homelessness that we haven't seen in several
decades.
Thank you.
[The prepared statement of Mr. Greenstein follows:]
Statement of Robert Greenstein, Executive Director,
Center on Budget and Policy Priorities
Thank you for the invitation to testify about widening income
inequality in the United States, including the impact of recent
developments in financial markets and the economy. As former Federal
Reserve chairman Alan Greenspan has said, ``this is not the type of
thing which a democratic society--a capitalist democratic society--can
really accept without addressing,'' and I commend the committee for
holding this hearing.
My testimony falls into three parts.
The first is an overview of the data on household
income and its distribution, where I will discuss recent
developments in the context of longer-term historical trends.
The second is a discussion of the role of public
policy in influencing the distribution of income. That
discussion largely focuses on Government tax and transfer
policies--that is, on how Government policies affect the
distribution of after-tax income. But policy also can have some
influence on the distribution of pre-tax income determined by
market forces, through such things as trade policy, education
policy, and labor-market policy.
The third is a discussion of the implications for
public policy generally and some specific policy
recommendations for addressing the problem of widening income
inequality.
Recent Developments and Longer-Term Trends in Income Inequality
I would like to start by placing the issue of income inequality
into the context of recent economic developments and to review some of
the salient data on longer-term trends in inequality.
In recent years, income inequality in the United States rose to
historically high levels. This was not because the economy was in a
recession--the latest available data on inequality do not reflect the
current economic slump. And it was not a new development. Inequality
has been increasing for more than 30 years.
There was, however, something different about the increase in
inequality from 2001 until last year that I want to comment on before
discussing very recent developments and then examining the longer-run
trends. Usually, concerns about inequality move to the back burner, at
least in the public discourse, during economic expansions when most
people see their standard of living rise and feel good about their
economic prospects. That happened, for example, during the second half
of the long economic expansion of the 1990s. But those good feelings
were noticeably absent in recent years, even though economic
statisticians would characterize the economy's performance from the end
of 2001 through most of last year as a business-cycle recovery and
expansion following the 2001 recession.
The disconnect in recent years between how the overall economy was
doing statistically and how most people living in that economy were
doing was puzzling to some pundits and some elected officials and their
advisors. But it really was not that complicated. First, the post-2001
period was the weakest of all economic expansions since World War II by
almost every economic measure. Second, to an unprecedented degree, the
gains from economic growth after 2001 accrued to a narrow slice of the
population at the top of the income distribution.
When I said the recovery was weak by almost every measure, I was
alluding to the fact that there was one important exception--corporate
profits. While aggregate wages and salaries grew less than half as fast
after 2001 as they did in the average postwar economic expansion,
corporate profits grew almost 30 percent faster. Both employment growth
and wage and salary growth were weaker in the most recent expansion
than in any prior expansion since the end of World War II; growth in
corporate profits was stronger than the average of all post World War
II expansions.
What were the consequences for income inequality of that weak and
unbalanced economic recovery? First, in 2006 the share of pre-tax
income flowing to the top 1 percent of households reached its highest
level since 1928. Second, the gap between the after-tax income of
people at the top of the income distribution and the after-tax income
of people in the middle or at the bottom continued to widen. It should
not be surprising that people were pessimistic about their economic
prospects even before the stunning economic and financial developments
of the past few months. It was not just in their heads.
Now, of course, every new economic indicator points to a
deteriorating economy. That by itself should increase inequality. A
weak economy has a disproportionate impact on people who struggle
against economic hardship even in a better economy, on low- and
moderate-income households that don't have a savings cushion to absorb
unexpected expenses or losses of income, and on people who lose their
jobs and face longer spells of unemployment than they would in a
stronger economy.
At the same time, however, the direct financial fallout from recent
events is likely to have its most significant impact on income at the
very top of the income scale. This is what happened in the dot-com
collapse when, for a few years, income at the top of the distribution
fell sharply. That was just a speed bump, however, and incomes at the
top more than made up the lost ground from 2004 to 2006.
Thus it would not be surprising to see at least a temporary decline
in the concentration of income at the very top of the distribution over
the next year or so, particularly considering the sharp declines in the
stock market. What happens after that will depend on how the economy
and financial markets perform, and also on economic policy and what
kind of institutions and social norms regarding inequality emerge from
the current crisis.
Let me turn now to a discussion of the data on income inequality
and what they show about longer-term trends. There are two primary
sources of annual data on household income and its distribution. The
first is Census Bureau data on poverty and income based on the Current
Population Survey, and the second is income tax data from the IRS.
Neither alone can give a complete picture of trends in income
inequality. The tax data provide good coverage of people who pay income
taxes, including people with very high incomes, but they omit people
with low incomes who are not required to file an income tax return. The
Census data have good coverage of that low-income population but for
various reasons do not have good coverage of people with very high
incomes.
To bridge the gap, the Congressional Budget Office has developed a
method for combining the two data sources that provides the most
complete picture available of the distribution of before- and after-tax
income. Although the Census data are available in one form or another
back to the end of World War II and IRS data are available in one form
or another back to the beginning of the income tax in 1913, CBO's
comprehensive data series goes back only to 1979, and the most recent
published CBO estimate is for 2004. We do have a much longer consistent
series on concentration at the very top of the income scale derived
from IRS data thanks to the efforts of economists Thomas Piketty and
Emanuel Saez. The Piketty-Saez data series covers the years from 1913
through 2006.
What do these data tell us about long-term trends in inequality?
First, the CBO data in Figure 1, which shows the percentage increase in
after-tax income at different points on the income scale since 1979,
portray a widening gap between income at the top and income in the
middle and at the bottom, with the largest income gains accruing at the
very top. As Table 1 shows, after adjusting for inflation, income in
the bottom fifth of the population was only 6 percent--or $900--higher
in 2004 than it was twenty-six years earlier in 1979, and income in the
middle fifth of the population was 21 percent--or $8,700--higher. In
contrast, income in the top fifth of the distribution rose 80 percent--
or $76,500 per household--from 1979 to 2004, and income in the top 1
percent more than tripled, rising 228 percent--or $745,100 per
household.
TABLE 1: Change in After-Tax Income, 1976-2004, by Income Group
----------------------------------------------------------------------------------------------------------------
Bottom Second Middle Fourth
20 20 20 20 Top 20 Top 1
percent percent percent percent percent percent
----------------------------------------------------------------------------------------------------------------
Increase in 2004 dollars 900 4,600 8,700 16,000 76,500 745,100
Percentage increase 6.3% 15.8% 21.0% 29.5% 79.9% 228.3%
----------------------------------------------------------------------------------------------------------------
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
While these CBO data show a strong upward trend in inequality over
the past 25 years, it would be a mistake to think that rising
inequality and increasing concentration of income at the very top of
the income scale have been an inevitable feature of the American
economy. As Figure 2 shows, the pattern of growth in household income
over the past three decades is distinctly different from the pattern
over the first three decades after the end of World War II. The data
here are for pre-tax income, but the story for after-tax income (if it
were available for this whole period) would likely not be noticeably
different for the reasons discussed later in my testimony.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
From 1946 to 1976, the increase in the average income of the bottom
90 percent of households closely matched the growth of per capita
national income, while income at the very top grew more slowly. In
other words, the gap between the average income of the very richest
households and that of the bottom 90 percent of households narrowed
over this period. Over the next three decades, in contrast, growth in
the average income of the bottom 90 percent of households fell far
short of growth in per-capita national income, while growth in the
average income of the top 1 percent of households soared. If we had a
figure like Figure 1 for this longer period, we would see the incomes
of the top, middle, and bottom fifths trending upward together at
roughly the same rate from 1946 to sometime in the 1970s, followed by a
sharp divergence in the years since 1976 like that depicted in Figure
1.
Figure 3, which is based on the Piketty-Saez data, provides an even
longer-term perspective on trends in the concentration of income at the
very top. These data show that the relatively slow growth in income at
the very top from 1946 to 1976 was part of a longer term trend
beginning after 1928. The share of total pre-tax income in the nation
that goes to the top 1 percent of households fell from 1928 to the
1970s, but as we have seen, since then the share of income going to the
top 1 percent of households has soared. Although the upward surge was
interrupted by a major speed bump in 2001 as a result of the dot.com
collapse, by 2006 the share of income going to the top 1 percent was at
its highest level since 1928.
These data also show that the trend toward greater inequality is
once again rising sharply. From 2004 to 2006, the average before-tax
income of the top 1 percent of households increased by almost $60,000
(or 5.8 percent), after adjusting for inflation, while the average
income of the bottom 90 percent of households rose by less than $450
(or 1.4 percent). (Note: this bottom-90 percent figure is somewhat
misleading because it is heavily influenced by the larger gains
received by those in the upper ranges of this group. The typical, or
median, gain for the bottom 90 percent was smaller than the average
gain.)
As I mentioned earlier, we are likely to see another dip due to
recent financial market events. But the real question going forward is
whether that will be just another pause in the rise toward greater
concentration of income or whether it is possible to return to a period
more like the first three decades after the end of World War II when
there was both strong economic growth and broadly shared prosperity.
How Do Government Policies Affect Inequality?
TABLE 2: Pre-Tax and After-Tax Income Shares and Effective Tax Rates by Income Group, 2001 and 2004
----------------------------------------------------------------------------------------------------------------
Bottom Second Middle Fourth
20 20 20 20 Top 20 Top 1
percent percent percent percent percent percent
----------------------------------------------------------------------------------------------------------------
2001
Share of pre-tax income 4.3 9.2 14.2 20.8 52.3 14.7
Share of after-tax income 5.1 10.3 15.2 21.5 48.8 12.6
Effective tax rate 5.1 11.5 15.3 18.9 26.7 32.82004
Share of pre-tax income 4.0 8.5 13.3 19.8 55.1 18.1
Share of after-tax income 4.8 9.6 14.4 20.6 51.6 15.6
Effective Tax Rate 4.3 9.9 14.2 17.4 25.5 31.2Percent change in income, 2001-2004
Pre-Tax income -3.0% -1.6% 1.4% 2.4% 14.8% 34.8%
After-tax income -1.9% 0.3% 2.7% 4.1% 16.6% 38.0%
----------------------------------------------------------------------------------------------------------------
Government policies affect the distribution of income most directly
through taxes and benefit programs, and Federal taxes are, on balance,
progressive. As a result, there is modestly less inequality in the
after-tax distribution of income than in the before-tax distribution.
But while this difference is real, it should not be exaggerated.
Furthermore, the large tax cuts enacted in 2001 and 2003 favored higher
income groups that were already benefiting from disproportionate gains
in pre-tax income. As a result, Federal taxes, while still progressive,
are less progressive today than they were before the 2001-2003 tax
cuts.
The progressive structure of Federal taxes, as well as its erosion
in recent years, is illustrated by the CBO data in Table 2. In 2004,
households in the bottom fifth of the income scale paid an average of
4.3 percent of their income in Federal taxes, those in the middle paid
14.2 percent, those in the top fifth paid 25.5 percent, and those in
the top 1 percent paid 31.2 percent. The bottom fifth of households
received 4.0 percent of before-tax income and 4.8 percent of after-tax
income. For the middle fifth, those percentages were 13.3 percent of
before-tax income and 14.4 percent of after-tax income. The top fifth
of households, in contrast, received a larger share of before-tax
income (55.1 percent) than of after-tax income (51.6 percent) as did
the top 1 percent (18.1 percent of pre-tax income compared with 15.6
percent of after-tax income). Nevertheless, both before-tax and after-
tax income distributions reveal a high degree of inequality. Moreover,
the shares of after-tax income going to the top 20 percent and to the
top 1 percent in 2004--like their shares of before-tax income--are the
highest on record in the CBO data, which go back to 1979.
I have already mentioned how high-income households benefited
disproportionately from the economic growth that occurred after 2001.
They also benefited disproportionately from the 2001-2003 tax cuts. As
shown in the bottom section of Table 2, the before-tax income of the
top fifth of households rose by 14.8 percent from 2001 to 2004. And
because their effective tax rate (the percentage of income that they
pay in Federal taxes) fell to its lowest level on record in the CBO
data, their after-tax income grew by an even greater proportion--16.6
percent. For the top 1 percent of households, pre-tax income rose 34.8
percent from 2001 to 2004, and after-tax income rose by 38 percent. In
contrast, low-income households experienced income declines over this
period, and gains in the middle 60 percent of households were quite
modest.
We hear from some quarters the argument that the tax system has
become more progressive--and that this is proven by the fact that the
affluent are now paying a higher share of total income tax revenues.
This argument does not withstand scrutiny. A progressive tax cut, like
a progressive tax system, is one that reduces inequality. The 2001-2003
tax cuts have done the opposite. When fully in effect, those tax cuts
will boost after-tax income by more than 7 percent among households
with incomes of more than $1 million, but just 2 percent among middle-
income families, according to Urban Institute-Brookings Institution Tax
Policy Center. That is an average tax cut of $158,000 in 2010 for
households with incomes of over $1 million, but just $810 for middle-
income families. Tax analysts know that effective tax rates and shares
of after-tax income, not the share of taxes paid, are the proper
indicators of progressivity.
The CBO data are clear about effective tax rates at the top: they
are lower than they have been since at least 1979. These data show that
the tax system has become less progressive. The share of taxes paid by
high-income households has been going up, but this is because these are
the households that have gotten most of the increase in before-tax
income. Their income gains have been so large that they are paying more
in taxes even though they have gotten substantial tax cuts and the
percentage of their income that they pay in taxes has gone down.
Between 2000 and 2004, the average income tax burden of the top fifth
of the population fell by an amount equal to 4.8 percent of their
income; in contrast, the middle and lowest fifths of the population saw
their average income tax burdens reduced by amounts equal to less than
2 percent of their incomes.
So far I mainly have been documenting trends in inequality. But
what has caused those trends? Princeton economist Alan Blinder
expresses the view of many economists that market forces not Government
policies are primarily to blame:
Let me be clear: The main culprit has not been the Government
but the marketplace. While there are a number of competing theoretical
explanations, the fact is that, starting sometime in the late 1970s,
the market turned ferociously against the less skilled and the less
well educated.
Blinder criticizes Government for not doing more to use the tax-
and-transfer system and other policies to cushion the blow, and he
condemns policies of enacting tax cuts for the wealthy while either
permitting or causing large holes to emerge in the social safety net.
These policies he labels ``piling on,'' which in football would draw a
penalty for unnecessary roughness. But just as football is a rough game
to begin with, so too has been the labor market faced by workers
without strong skills and sufficient education and training.
I will not endeavor here to disentangle the complex economic
arguments about how much of the market's turning against the less-
skilled and less-well-educated is due to international trade versus
technological change or other factors, such as the weakening of the
labor unions. I think the state of our knowledge is that there is a
constellation of factors, and no single-bullet theory is sufficient.
Instead I would just like to make a couple of observations.
First, to state the obvious, if the market has turned fiercely
against those with lower skills and less education and training, smart
policies to close the skill gap should pay off over the longer term
both in boosting productivity growth and in causing the benefits of
that growth to be somewhat more widely shared.
Second, an interesting but underdeveloped strand of the economics
literature has begun to focus on the role that changing institutions
have played in producing greater inequality. In particular, I would
note the work of MIT professors Frank Levy and Peter Temin. They argue
that the quite different experiences with inequality I have described
between the first three decades after the end of World War II and the
most recent three decades were shaped by quite different sets of
economic institutions. Levy and Temin argue that the early postwar
years were dominated by unions, a negotiating framework that heavily
influenced wage-setting, progressive taxes, and a high minimum wage.
They describe this set of institutions as ``parts of a general
Government effort to broadly distribute the gains from growth.'' They
argue that the economic forces of technology and trade that most
economists look to in explaining trends in earnings inequality ``have
been amplified by the collapse of the institutions of the post-war
years.'' If they are correct, both Government intervention and changes
in the norms of private sector behavior will be necessary to avoid the
widening gaps in income that seem to be a feature of market-determined
incomes in today's global economy.
I don't think we should interpret the Levy-Temin analysis as an
argument for trying to recreate the precise institutions that prevailed
in the early postwar period. It is probably not even possible, given
the structural changes in the economy that have taken place. But the
Levy-Temin analysis is an argument for remembering the importance of
institutions and social norms in determining how market forces play out
and the ability of laws and the visions that policymakers express to
shape those institutions and social norms. Reducing barriers to labor
organizing, preserving the real value of the minimum wage, and the
other workforce security concerns of this committee would surely be a
part of the kinds of institutions and social norms that would
contribute to an economy with less glaring and sharply widening
inequality.
Before moving to a discussion of the implications of trends in
inequality for policy, I would like to note that I have been discussing
trends in income inequality. As these data show, there is a great deal
of inequality in the distribution of income in the United States. But
that inequality pales in comparison to the inequality in the
distribution of wealth. Our main source of data about wealth inequality
comes from the Federal Reserve's Survey of Consumer Finances. Those
data show that roughly a third of household wealth is held by the top 1
percent of households, another third is held by the next affluent 9
percent, and the remaining third of wealth is held by the remaining 90
percent of households. As extreme as the income inequality shown in
Table 2 is, inequality in the distribution of wealth is considerably
greater.
Implications for Policy
The United States faces a number of tough challenges ahead. The new
ones caused by the current financial crisis are front and center right
now, but the others have not gone away, including an unsustainable
long-term deficit, the need for health care reform, fundamental tax
reform, and the need to address climate change. The problem of widening
income inequality is exceedingly unlikely to go away on its own. But
how we address these other critical challenges also will have important
implications for whether policymakers make inequality worse or better
through their policy actions. In this section of the testimony, I will
discuss some broad policy implications and offer some specific
recommendations.
Addressing our long-term budget imbalance is important to achieving
strong sustainable growth over the long term. But the distributional
implications are vastly different if we address the challenge by
slashing promised benefits in programs like Social Security, Medicare,
and Medicaid to preserve the tax cuts we have enacted and add new
regressive tax cuts on top, or if we instead pursue a more balanced
approach that puts everything on the table. Similar distributional
differences attach to alternative ways of approaching health care
reform and fundamental tax reform.
Climate change legislation poses a similar challenge. Reducing
greenhouse gas emissions, through either a cap-and-trade system or a
carbon tax, works by raising the price of energy and energy-related
products. Because low- and moderate-income households spend a
disproportionate amount of their income on these products, they will
experience the largest relative hits to their purchasing power from
such legislation.
At the same time, however, either a cap-and-trade system in which
most of the emissions allowances are auctioned off or a carbon tax has
the potential to raise substantial revenues. If a portion of those
revenues are used for well-designed climate rebates to offset the
impacts of higher energy prices on low- and moderate-income households,
we can achieve the benefits of reduced greenhouse gas emissions while
protecting the purchasing power of vulnerable households and avoiding
regressive effects. In contrast, if we give away a large percentage of
the allowances to existing industrial emitters or we use the proceeds
to cut income tax rates, we would provide tax relief benefits to high-
income households that are larger than the increase in their energy
costs while leaving low- and moderate-income households worse off.
Inequality would effectively be widened further.
I believe that if we are to take the problem of increasing
inequality seriously, we need to keep these distributional
considerations in mind as we address the big challenges that lie ahead.
At the same time, strong economic growth and rising productivity are a
necessary condition for achieving widespread prosperity. Sound
investments in education, worker training, infrastructure, and basic
research are necessary to complement private investment in generating
that growth and productivity.
Having a strong economy is a necessary condition for achieving
widespread prosperity. But as we have seen for more than 30 years, the
outcomes determined by market forces alone seem to be aggravating
inequality, especially during periods when the political environment is
tilted toward skepticism about or outright hostility toward policies
that provide an effective safety net for those struggling to keep their
heads above water and policies aimed at ensuring that the gains from
economic growth are shared more equally, as they were in the 1946-1976
period.
One important place we need to start to achieve that goal is a
focused effort to reduce poverty. The poverty rate rose for four
straight years from 2000 to 2004, peaking at 12.7 percent in 2004. In
2007, the rate was still stubbornly high at 12.5 percent, and over 37
million people were poor (and the poverty rate is rising further now as
the economy slumps and unemployment climbs). Poverty is higher in the
United States than in many other developed countries, and it is costly
to the economy to have so many adults with limited skills and earnings
and to perpetuate that situation through the damaging effects of
persistent child poverty. We can do better. An effort that deserves
attention here is the Half in Ten campaign, which is calling on
policymakers to adopt the goal of cutting poverty in half over the next
ten years.
Let me conclude with some concrete steps to address the problem of
widening inequality. I'll start with the Tax Code, which includes
provisions worth hundreds of billions of dollars a year to encourage a
wide variety of activities from saving for retirement to acquiring more
education. From the standpoint of equal treatment of people with
different incomes, there is a fundamental flaw in most of these
incentives: they are provided in the form of deductions, exemptions,
and exclusions rather than in the form of refundable tax credits. That
means that the size of the tax break is higher for taxpayers in higher
income brackets For many of the activities that the tax incentive is
meant to promote, there is no obvious reason why lower-income taxpayers
or people who do not file income taxes should get smaller incentives
(or no tax incentives at all).
But it is worse that that: the central structure of these tax
breaks also makes them economically inefficient. Because a large number
of taxpayers will not have incomes high enough to benefit fully from
current non-refundable incentives, society will get less of the
activity it is trying to encourage; people with smaller income-tax
liabilities will have a smaller incentive, and people with no income-
tax liability will have no additional incentive to engage in the
activity. Moreover, high-income taxpayers are likely to save for
retirement and to invest in their children's education with or without
the tax breaks; the tax breaks do not appear to have a large effect on
their behavior. As a result, the current tax deduction structure used
for these tax breaks is inefficient. Providing more modest tax breaks
to high-income taxpayers and using the savings to provide refundable
credits to lower-income taxpayers would increase the amount of
desirable economic activity that the tax break is meant to encourage,
at no additional cost.
In a 2006 Brookings Institution policy brief, three prominent tax
policy analysts--Lily Batchelder, a professor of law and public policy
at NYU, Fred Goldberg, who was IRS Commissioner and Assistant Secretary
of the Treasury for Tax Policy under the first President Bush, and
Peter Orszag, now the director of the Congressional Budget Office,
recommended that the default for tax incentives designed to promote
socially valued activities should be a refundable tax credit (i.e., a
tax credit available to qualifying households even if they do not earn
enough to owe income tax) rather than a deduction. The authors point
out that such a credit would not only contribute to reducing inequality
in after-tax income, but for the reasons discussed above, also would
produce more powerful economic incentives.
If a system of refundable credits were in place, it also would have
the virtue of providing a form of stabilization to the economy when the
economic picture darkened, since people who lost their jobs or
experienced a sharp drop in income during an economic downturn would
continue to receive the full value of tax credits for which they
qualified, rather than losing the value of the credits or seeing them
reduced as is the case now. We could begin next year to take steps
toward such a reform of the Tax Code by making the higher-education and
savers' tax credits refundable and making improvements in the EITC.
Moving to refundable tax credits for promoting socially worthwhile
activities would be an important step toward enhancing progressivity in
the Tax Code in a way that would improve economic efficiency and
performance at the same time.
Other steps we could take that would contribute to reducing poverty
and expanding educational opportunities include: increased investment
in pre-school education and decent-quality child care for low- and
moderate-income families. Such steps would both enable more low-income
mothers to work (or enable those already working to work more) and
increase the educational attainment and skills of the children.
In the area of health care, the lion's share of those without
health insurance are low--or moderate-income. So legislation to achieve
universal health insurance coverage and begin to put mechanisms in
place to slow health care cost growth are important--both to improve
the health and alleviate the squeeze on the uninsured and to ease the
pressure on wages and salaries more broadly that rising health care
costs impose.
Finally, with all signs pointing to a deteriorating economy and the
possibility of a recession substantially more severe than what we have
become accustomed to in the past two decades, the holes that have
opened in the safety net over the past 20-30 years will become more
apparent. For example, our unemployment insurance system has not kept
up with changes in the labor market, and as a result many of the
female, low-income, and part-time workers who now make up a significant
portion of the labor force do not qualify for UI benefits when they are
laid off. UI modernization legislation like that which the House has
already passed is long overdue, and is particularly badly needed now.
Clearly, the Committee on Ways and Means will play a central role
in determining how we address a number of the challenges that lie
before us. The decisions the Committee makes will play an important
role in determining how policy can contribute to promoting more broadly
shared prosperity than we have seen recently. At the same time, if the
Levy-Temin analysis is correct and trends in income inequality reflect
an interaction between underlying market forces and institutions and
social norms that can either moderate or aggravate the effects of those
market forces, the task will be easier if those institutions and social
norms also reflect a greater commitment to promoting broadly shared
prosperity.
Chairman RANGEL. The Chair recognizes Christine Owens,
National Employment Law Project Executive Director.
STATEMENT OF CHRISTINE OWENS, EXECUTIVE DIRECTOR, NATIONAL
EMPLOYMENT LAW PROJECT
Ms. OWENS. Thank you, Chairman Rangel, Ranking Member
McCrery, and other Members of the Committee. We appreciate the
opportunity to talk with you today about what Congress can do
between now and the end of the year to respond to the growing
unemployment crisis, to promote economic recovery, to help
jobless workers, and to ease extraordinary burdens on the
States.
Our written testimony describes in detail the sharp
increases in job loss, joblessness, and long-term unemployment
over this year, and, indeed, in just the last few months since
Congress passed the Emergency Unemployment Compensation
Program.
The hard cold data that we have in our written statement
are hard cold facts for families like Tina and Tom Buzzo of
Detroit, Michigan. Thomas and his brother lost their jobs at a
construction company in March 2007, when the company failed.
Then they lost their replacement jobs a few months later when
the new company they went to also faltered. Since he was laid
off last October, Thomas has searched for and applied for
numerous jobs, but remains unemployed. He has run out of State
unemployment benefits, and he recently ran out of his Federal
extended benefits. The family scrapes by on Tina's earnings as
an administrative assistant at a Detroit automotive company,
but of course they are worried about that job, too. They try to
stay current on their mortgage and electricity payments to
maintain an appropriate home for their two and a half-year-old
son and they make minimum payments on everything else. They
have borrowed from their families, eaten away their savings,
and recently decided that, if necessary, to save their home,
they will have their car repossessed.
As bad as it is for them, it is worse for Thomas's brother.
After he lost his job, his mortgage was foreclosed, so he lost
his home. He and his family have moved north to Cadillac,
Michigan to live with relatives, and he still cannot find a
job.
Their story is the story of millions of working Americans
today. People want to work, they need to work, but they cannot
find jobs in an economy that is bleeding jobs. They are running
out of State unemployment benefits and are exhausting their
Federal benefits, too.
Since the beginning of this month, 800,000 long-term
jobless workers have exhausted their Federal benefits, and more
than 1 million will do so by the end of the year. This grave
unemployment crisis requires quick action to help jobless
workers, aid struggling States, and spur economic recovery.
Because unemployed workers spend their benefits quickly to
meet basic family needs, their unemployment assistance is
pumped back into and circulates throughout the economy,
providing stimulus that vastly exceeds the cost of the
benefits. Therefore, as a first order of business after the
election, the Senate must follow the House to extend the
Federal extended benefit program to provide 20 weeks of
extended benefits for jobless workers in all States, and 33
weeks for workers in States with unemployment above 6 percent.
Last month, 18 States met that standard.
To provide greater certainty and stability in a really
uncertain economy, Congress should also go ahead now and extend
the program through the end of next year, rather than waiting
until next spring when it is slated to expire.
In addition, Congress should enact the Unemployment
Insurance Modernization Act which this body has already passed.
This measure rewards States for closing gaps that leave far too
many workers uncovered. Because many States have not updated
decades old coverage rules, only 36 percent of jobless workers
receive benefits today, far fewer than in the 1950s. Those who
fall through the cracks are largely women, low wage workers,
and part-time workers. The GAO has found that low wage workers
are twice as likely to become unemployed as higher wage
earners, but only one-third is likely to receive unemployment
benefits.
Built from successful models pioneered in the States, and
based on recommendations by the bipartisan Advisory Council on
Unemployment Compensation, the Unemployment Modernization Act
provides significant financial assistance to all States to help
them defray program administrative costs and additional
incentive grants to reward States that choose to implement
specific reforms that close coverage gaps. If implemented by
all States, these reforms would extend coverage to 500,000 more
workers each year.
Passing the UIMA would pump 1.7 billion into the economy
right away through the combination of administrative funding
for all the States and incentive grants for those States that
have already adopted key reforms. Other States would become
eligible as soon as they adopted reforms.
These grants will pay for benefits for several years, give
States flexibility to address other program needs, expand
coverage, mitigate hardship for workers, and better position
the UI system to play the role it is intended to play, which is
helping workers and the economy when it needs help most.
Thank you.
[The prepared statement of Ms. Owens follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman RANGEL. The Chair recognizes Dr. Lambrew.
STATEMENT OF JEANNE LAMBREW, PH.D.,
ASSOCIATE PROFESSOR, LBJ SCHOOL OF PUBLIC AFFAIRS,
UNIVERSITY OF TEXAS AT AUSTIN, SENIOR FELLOW, CENTER FOR
AMERICAN PROGRESS, ACTION FUND, AUSTIN, TEXAS
Mr. LAMBREW. Thank you, Chairman Rangel and Representative
McCrery, and Members of the Committee. I appreciate the
opportunity to be here to discuss the health policy dimensions
of creating jobs by investing in America.
In my testimony, I explain why the short run economic
crisis has helped policy causes and effects, why the most
serious long-run economic challenge is our broken health care
system, and what might be done to address it.
To begin, the health care system is an integral part of our
Nation's economy. It accounts for 14 million jobs, improves the
lives of millions, and provides to some the world's best
quality care. Yet, we have by far the most expensive system.
Americans spend more on health care than on housing or food. GM
spends more on health care than steel. This cost problem
contributes to our access problem.
About 46 million Americans are uninsured. Millions more are
underinsured, paying a large fraction of their income on health
care. Last month alone, nearly half of Americans surveyed
reported having a family member who skipped pills, postponed
care, or cut back on care due to costs.
This health care cost problem is worsening. The United
States spent about $2.1 trillion on health care in 2006, twice
what was spent in 1996, and half as much as projected for 2017.
Premiums for employer-based insurance have doubled since 2000
and the number of underinsured families rose by 60 percent
since 2004 and 2007 alone.
These high-end rising health costs are one of many factors
contributing to the economic crisis. Individuals struggling to
afford health care have turned to the financial markets for
help. In 2007, 57 million Americans reported problems paying
medical bills. Many of these Americans used home equity loans
to pay for these large medical bills; others simply could not
afford to pay both mortgages and medical debt. A recent study
found that nearly half of all people in foreclosure named
medical problems as a cause.
Other Americans who struggle to afford health care have
turned to credit card systems instead. We know this is hurting
their credit card ratings; thus, their access to affordable
credit, housing, and insurance.
As well as being a cause of the economic crisis, health
problems have been affected by it. As unemployment rises,
health costs and access problems rise, too. A 1 percentage
point increase in the unemployment rate could raise the number
of uninsured by 1.1 million. Unemployed people typically cannot
afford private insurance. Some may be eligible for Medicaid or
the States' Children's Health Insurance Programs, yet States
are facing budget shortfalls and enrollment is uncertain.
These short-term problems, while significant, are dwarfed
by our long-term challenges. Health costs are a major threat to
our future economy. If trends persist, CBO estimates that the
fraction of our economy dedicated to health spending will be 25
percent by the year 2020. This affects the Federal budget as
well. Rapid projected spending growth in the public programs
account for the entire long run fiscal deficit. Jobs are at
stake. The old line industries are striving to maintain
coverage and competitiveness locally and globally. New
industries are struggling to offer coverage in the first place,
and the future of our employer-based health insurance system is
unclear.
But the good news is that the health components of the
economic crisis can be addressed. In the short run, this
Committee could reconsider some of the policies proposed during
the last economic slowdown. This includes providing financial
assistance for COBRA continuation coverage. Preventing the loss
of insurance with the loss of a job could stop the downward
spiral that occurs during recessions. Sustaining Medicaid and
S-CHIP is critical and possible. Temporarily raising the
Federal share these programs cost, plus enacting the bipartisan
S-CHIP reauthorization bill, will protect health coverage for
millions of vulnerable Americans. Given the immediacy of this
threat, I urge you to pass these policies during the lame duck
session if possible.
To address the long run challenges, this Committee and the
new Congress should consider health reform as part of
comprehensive economic reform. The linkage is clear: Job
growth, savings, and public investments and other priorities
will continue to be stifled if the health system problems
continue unchecked. The return on this investment, the long run
slowing of our health care cost growth rate, would arguably be
one of the most significant economic achievements in decades.
A number of practical plans have been proposed to provide
affordable quality and efficient health care for all Americans.
But rather than engaging on these specifics, I will end with
one suggestion; it is this: We have to address the coverage and
cost problems simultaneously. Coverage will continue to erode
even with expansions if the cost of coverage rises unabated.
The same is true in reverse. The unsustainable cost curve
cannot be lowered without ensuring coverage for all Americans.
Not only do we pay higher administrative costs due to our gap
ridden system, but we pay hidden taxes from shifting costs from
the uninsured to the insured populations. Moreover, gaps in
coverage limit the potential of policies like improved
prevention and chronic disease management in reducing our cost
trends.
So, no doubt enacting health reform in the context of
economic reform will be hard, but it will not be as hard as
letting the inaction and status quo diminish our Nation's long
run economic and health prospects.
Thank you.
[The prepared statement of Ms. Lambrew follows:]
Statement of Jeanne Lambrew, Ph.D., Associate Professor,
LBJ School of Public Affairs, University of Texas at Austin, Senior
Fellow,
Center for American Progress, Action Fund, Austin, Texas
Chairman Rangel, Ranking Member McCrery, and Members of the
Committee, I thank you for inviting me to discuss the health policy
dimensions of ``Creating Jobs by Investing in America.'' As I will
explain, the short-run economic crisis has health policy causes and
effects--and arguably the most serious long-run economic challenge is
our broken health care system. I'll conclude with suggestions on
policies to address both sets of problems.
The health care system is an integral part of the nation's economy.
It accounts for 14 million jobs, improves the quality of life for
millions, and provides--to some people in some places--the world's best
quality care.\1\
---------------------------------------------------------------------------
\1\ E. McGlynn et al., ``The Quality of Care Delivered to Adults in
the United States,'' New England Journal of Medicine 2003; 348 (26):
2634-2645.
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Yet, we have by far the most expensive health system in the world.
The United States spends nearly $500 billion more than peer nations,
adjusting for wealth.\2\ The next most expensive system spends about
half as much per person on health care. To put this in context,
Americans spend more on health care than housing or food. We spend over
five times more on health care than gas.\3\ The average annual premium
of an employer-based health insurance plan in 2008 ($12,680) is the
equivalent of 60 percent of the poverty threshold for a family of four,
and 93 percent of the annual earnings of a minimum-wage worker--not
counting cost sharing. Anecdotes suggest that businesses pay more for
health care than other costs of doing business: more than steel for
General Motors and more than coffee beans for Starbucks.
---------------------------------------------------------------------------
\2\ McKinsey Global Institute, Accounting for the Cost of Health
Care in the United States (Washington, DC: McKinsey Global Institute,
January 2007).
\3\ Council of Economic Advisors, Economic Report of the President,
2008 Report. (Washington, DC: White House, 2008). Table B-16, Personal
Consumption Expenditures.
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This cost problem contributes to our access problem. About 46
million Americans are uninsured, including 8 million children. Looking
over a two-year period, this number swells to 82 million or one-third
of all non-elderly Americans who experience a gap in coverage.\4\
Millions more are underinsured, paying a large fraction of their income
on health care. Last month, nearly half of Americans surveyed reported
having a family member skipping pills, or postponing or cutting back on
medical care due to cost.\5\ This can have serious--if not permanent--
health effects. Uninsured people who were injured or developed a
chronic illness were less likely to receive initial and follow-up care,
impeding recovery and accelerating the worsening of the condition.\6\
Roughly, 22,000 people die each year due to lack of coverage.\7\ This
is higher than the number of people who died of homicide in 2006
(17,034).\8\
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\4\ J.A. Rhoades and S.B. Cohen, The Long-Term Uninsured in
America, 2002-2004, (U.S. DHHS, AHRQ, Statistical Brief #183, August
2007).
\5\ Kaiser Health Tracking Poll: Election 2008, October 2008,
available at: http://www.kff.org/kaiserpolls/h08_posr102108pkg.cfm
\6\ J. Hadley, ``Insurance Coverage, Medical Care Use, and Short-
Term Health Changes Following an Unintended Injury or the Onset of a
Chronic Condition,'' JAMA 297(10): 1073-1084, March 14, 2007.
\7\ S. Dorn. Uninsured and Dying Because of It: Updating the
Institute of Medicine Analysis on the Impact of Uninsurance on
Mortality. (Washington, DC: The Urban Institute, January 2008).
\8\ Federal Bureau of Investigations, Crime in the United States:
2006 (Washington, DC: U.S. Department of Justice, September 2007),
available at: http://www.fbi.gov/ucr/cius2006/offenses/violent_crime/
murder_homicide.html (accessed January 21, 2008).
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This health care cost problem is worsening. The United States spent
about $2.1 trillion on health care in 2006: twice what it spent in 1996
and half as much as is projected for 2017.\9\ Since 2000, employer-
based health insurance premiums doubled, with the average increase
triple that of wage growth.\10\ The average employer premium
contributions relative to payroll rose by 34 percent between 1996 and
2004.\11\ One study found that the number of ``under-insured'' families
rose by 60 percent between 2004 and 2007 alone.\12\
---------------------------------------------------------------------------
\9\ Office of the Actuary, Centers for Medicare and Medicaid
Services, National Health Expenditure Data for 2006. U.S. Department of
Health and Human Services, available at: http://www.cms.hhs.gov/
NationalHealthExpendData/
\10\ Kaiser Family Foundation & Health Research and Educational
Trust, Employer Health Benefits 2008 Annual Survey, (Menlo Park, CA:
Kaiser Family Foundation, 2008).
\11\ California Health Care Foundation. (2007). Employer Health
Insurance Costs in the United States. Oakland, CA: California Health
Care Foundation.
\12\ C. Schoen et al., ``How Many Are Underinsured?'' Health
Affairs 27(4): w298-w309, 2008.
---------------------------------------------------------------------------
High and rising health costs are one of many factors contributing
to the current economic crisis.
Individuals struggling to afford health care have turned to the
financial markets for help. In 2007, 57 million Americans reported
problems paying medical bills, a 14 million increase since 2004.\13\
Many of these Americans used home equity loans to pay these large
medical bills; others simply could not pay both mortgages and medical
debt. A recent study found that nearly half (49 percent) of people in
foreclosure named medical problems as a cause, ranging from the cost of
injuries or illnesses (32 percent), unmanageable medical bills (23
percent), lost work due to a medical problem (27 percent), and/or
caring for a sick family member (14 percent).\14\
---------------------------------------------------------------------------
\13\ P.J. Cunningham, ``Trade-Offs Get Tougher: Problems in Paying
Medical Bills Increase for U.S. Families, 2003-2006,'' Tracking Report
21, Center for Health System Change, September 2008.
\14\ C.T. Robertson, R. Egelhof, and M. Hoke, ``Get Sick, Get Out:
The Medical Causes of Home Foreclosures,'' Health Matrix, 18 (2008):
65-104, available at: http://works.bepress.com/christopher_robertson/2
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Other Americans who struggle to afford health care have turned to
credit cards instead. A study found that nearly 30 percent of low-
income people with credit card debt named medical bills as a
contributing cause. Their debt was significantly higher (nearly
$12,000) than those who were not medically indebted (nearly
$8,000).\15\ This type of medical debt can reduce individuals' credit
ratings and thus limit access to affordable credit, housing, and
insurance. It also may be creating analogous problems to subprime
mortgages. Last year, Business Week reported the emergence of credit
cards designed solely to pay for health costs. Interest rates for some
of these accounts can be as high as 27 percent, and a number of major
as well as smaller banks are entering the market.\16\
---------------------------------------------------------------------------
\15\ C. Zeldin and M. Rukavina, Borrowing to Stay Healthy: How
Credit Card Debt is Related to Medical Expenses, (New York: Demos,
2007).
\16\ B. Grow and R. Berner, ``Fresh Pain for the Uninsured: As
doctors and hospitals turn to GE, Citi, and smaller rivals to finance
patient care, the sick pay much more,'' Business Week, December 3,
2007.
---------------------------------------------------------------------------
As well as being a cause, health problems have been affected by the
current economic crisis.
As unemployment rises, health cost and access problems rise, too. A
percentage-point increase in unemployment could raise the number of
uninsured by 1.1 million. Unemployed people typically cannot afford
private insurance, including COBRA continuation coverage. Some may be
eligible for Medicaid: The same analysis estimates that a percentage-
point increase in unemployment will raise Medicaid and State Children's
Health Insurance Program enrollment by 1 million. This in turn would
raise total Medicaid and SCHIP spending by $3.4 billion, with the state
share being $1.4 billion.\17\ Already, states project Medicaid
enrollment to surge by 3.6 percent in 2009, over twice the rate of
population growth and a significant change from the decline in
enrollment that occurred in 2007.\18\
---------------------------------------------------------------------------
\17\ S. Dorn, B. Garrett, J. Holahan, and A. Williams, Medicaid,
SCHIP, and an Economic Downturn: Policy Challenges and Policy Response,
(Washington, DC: Kaiser Commission on Medicaid and the Uninsured, April
2008).
\18\ V. Smith et al., Headed for a Crunch: An Update on Medicaid
Spending, Coverage, and Policy Heading Into an Economic Downturn,
(Washington, DC: Kaiser Commission on Medicaid and the Uninsured,
October 2008).
---------------------------------------------------------------------------
The weak economy could also speed the erosion of employer-based
insurance. The number of non-elderly Americans covered by employer-
based health insurance fell to 61 percent from 66 percent between 2000
and 2007. The percent of both firms offering insurance and workers
enrolling in it fell.\19\ This trend will likely worsen. Premiums rose
faster in 2008 than in 2007, and will likely spike in 2009 as insurers'
profits from investments plummet. This will further strain businesses
struggling to make payroll while maintaining benefits.
---------------------------------------------------------------------------
\19\ Kaiser Family Foundation, The Uninsured: A Primer, Key Facts
about Americans without Health Insurance, (Menlo Park, CA: Kaiser
Family Foundation, 2007).
---------------------------------------------------------------------------
The dual health and economic problems also affect seniors. Already,
the typical elderly couple has to save nearly $300,000 to pay for
health costs not covered by Medicare alone.\20\ Those seniors whose
savings are invested in the market have suffered significant losses in
the recent period, diminishing their ability to pay for their health
care.
---------------------------------------------------------------------------
\20\ Employee Benefit Research Institute, Savings Needed to Fund
Health Insurance and Health Care Expenses in Retirement, (Washington,
DC: EBRI Issue Brief #295, July 2006).
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These short-term problems, while significant, are dwarfed by our
long-term challenges.
Health costs are considered a major threat to our future economy.
If rapid health cost growth persists, the Congressional Budget Office
estimates that the fraction of the economy dedicated to health spending
will be 25 percent in 2025, and 49 percent in 2082.\21\ It also
estimates that roughly $700 billion of health spending cannot be shown
to improve health outcomes.\22\ Our gap-ridden health coverage system
also hurt the economy. The Institute of Medicine estimated that the
lost productivity of uninsured Americans costs our economy from $65 to
$130 billion.\23\
---------------------------------------------------------------------------
\21\ P.R. Orszag, ``Testimony: Growth in Health Care Costs,''
United States Senate Committee on the Budget, January 31, 2008.
\22\ P.R. Orszag, ``Testimony: Increasing the Value of Federal
Health Spending on Health Care,'' United States House of
Representatives, Committee on the Budget, July 16, 2008.
\23\ Institute of Medicine, Hidden Costs, Value Lost: Uninsurance
in America. (Washington, DC: National Academies Press, 2003).
---------------------------------------------------------------------------
The health problems affect our budget as well as our economic
outlook. Medicare, Medicaid, and other health program spending comprise
about one-fourth of the Federal budget. Their rapid projected growth
accounts for the entire long-run Federal fiscal deficit.\24\ At the
state and local levels, policymakers are increasingly put between the
``rock'' of health care costs and the ``hard place'' of other urgent
priorities such as education.
---------------------------------------------------------------------------
\24\ H. Aaron, ``Budget Crisis, Entitlement Crisis, Health Care
Financing Problem--Which Is It?'' Health Affairs, 26(6): 1622-33,
November/December 2007.
---------------------------------------------------------------------------
There is also a jobs and competitiveness issue at stake. The ``old-
line'' industries are striving to maintain both coverage and
competitiveness--locally and globally. New industries and businesses
are struggling to offer coverage in the first place. While
manufacturers are one-third more likely to offer health benefits than
service industry employers, service-providing industries are projected
to generate approximately 15.7 million new jobs between 2006 and
2016.\25\ Both workers and their employers are concerned about the
future of employer-sponsored health insurance. Currently, no viable
alternative exists.
---------------------------------------------------------------------------
\25\ Bureau of Labor Statistics, ``Tomorrow's Jobs'', in
Occupational Outlook Handbook (OOH), 2008-09 Edition. (Washington, DC:
U.S. Department of Commerce, 2007).
---------------------------------------------------------------------------
While the facts speak for themselves, it is instructive to listen
to what some economic leaders say. Congressional Budget Office Director
Peter Orszag stated, ``There do not appear to be other examples that
credible analysts can identify that offer a potential efficiency gain
of that magnitude for the U.S. economy.'' \26\ Federal Reserve Board
Chairman Ben Bernanke stated, ``Improving the performance of our
health-care system is without a doubt one of the most important
challenges that our nation faces.'' \27\ The former Comptroller General
David Walker testified, ``Rapidly rising health care costs are not
simply a Federal budget problem; they are our nation's number one
fiscal challenge.'' \28\ And Former Treasury Secretary Larry Summers
wrote, ``I have been emphasizing healthcare as a moral imperative and
an imperative for our competitiveness. It is now the principal fiscal
issue facing the Federal Government, too.'' \29\
---------------------------------------------------------------------------
\26\ P.R. Orszag, ``Testimony: Increasing the Value of Federal
Health Spending on Health Care,'' United States House of
Representatives, Committee on the Budget, July 16, 2008.
\27\ B.S. Bernacke, ``Challenges for Health-Care Reform,'' Senate
Finance Committee Health Reform Summit, June 16, 2008, available at:
http://www.federalreserve.gov/newsevents/speech/bernanke20080616a.htm
\28\ D.M. Walker, ``Testimony: Action is Needed to Avoid the
Possibility of a Serious Economic Disruption in the Fuutre,'' United
States Senate Committee on the Budget, January 29, 2008.
\29\ L.H. Summers, ``The Economic Agenda: Challenges facing the
next president,'' Harvard Magazine, September-October 2008.
---------------------------------------------------------------------------
Yet, the health component of the economic crisis can be addressed
through public policy.
In the short run, this committee could reconsider some of the
policies proposed during the last economic slowdown.\30\ This includes
providing tax credits or grants to make COBRA continuation coverage
affordable for those who are uninsured and unemployed. Preventing
people from losing their insurance when they lose their jobs could stop
the downward spiral in health and economic well-being that typically
occurs during recessions. And, while out of your jurisdiction,
sustaining Medicaid and SCHIP is critical. Temporarily raising the
Federal share of these program costs, plus enacting the bipartisan
SCHIP reauthorization bill that was vetoed by the president last year,
will protect health coverage for millions of vulnerable Americans.
Given the immediacy of the threat, I urge you to pass these policies
during the lame-duck session.
---------------------------------------------------------------------------
\30\ For a description of the problems and potential solutions
considered at the time, see J.M. Lambrew, How the Slowing U.S. Economy
Threatens Employer-Based Health Insurance, (New York: The Commonwealth
Fund, November 2001).
---------------------------------------------------------------------------
In 2009, this committee and the new Congress should consider health
reform as part of comprehensive economic reform. It is necessary, as
just described. Job growth, savings, and public investments in other
priorities such as education will continue to be stifled if health
system problems continue unchecked. It is also an opportunity to put
the nation on a path to prosperity. The return on the investment--
slowing the long-run rate of health care cost growth through system
improvements and seamless coverage--would arguably be the most
significant economic achievement in decades.
A wide range of visions and detailed plans have been developed to
fix the broken health system. There is a general consensus on the need
to improve quality, efficiency, and access through tools such as better
managing chronic disease, promoting prevention, investing in and using
comparative effectiveness research, and providing assistance to those
with low-income or high-risk. There is less agreement on where, when,
and how aggressively to insure more Americans, as can be seen in the
presidential candidates' plans. But rather than discussing these ideas
in depth, I will end by making two points on approaches to reform.
The first is the importance of addressing the coverage and cost
problems simultaneously. Coverage will continue to erode, even with
expansions, if the cost of coverage continues its rapid increase. This
is evident in the recent experience with children's health: Some of the
gains in kids' coverage have been lost due to the unrelenting cost
increases that have eroded employer coverage as well as states' support
for Medicaid and SCHIP. The same is true in reverse: The unsustainable
cost curve cannot be lowered without ensuring coverage for all
Americans. A major reason why we spend more than peer nations is our
system's complexity.\31\ Not only do we pay seven times more per capita
on administrative costs as a result, but we pay ``hidden taxes'' from
cost shifting. Some fraction of uncollected bills for care for the
uninsured gets added to the bills for the insured. Moreover, gaps in
coverage limit the potential of policies to bend the growth curve in
health costs. There is widespread, bipartisan agreement that improved
prevention, chronic disease management, health information technology,
and similar policies could reduce the nation's health costs. However,
the full potential of these policies to realize savings may be
constrained or even reversed if one-third of the population cycles in
and out of insurance over the course of two years.\32\
---------------------------------------------------------------------------
\31\ McKinsey Global Institute, Accounting for the Cost of Health
Care in the United States (Washington, DC: McKinsey Global Institute,
January 2007).
\32\ C. Schoen et al., Bending the Curve: Options for Achieving
Savings and Improving Value in U.S. Health Spending (New York: The
Commonwealth Fund, December 18, 2007).
---------------------------------------------------------------------------
Second, solutions should be bold but pragmatic. Important changes
to the health system are needed to improve its performance. Realigning
payments toward quality and coverage toward prevention, for example,
will be necessary but difficult. Increasing participation in health
insurance will take resources and regulation. At the same time, changes
that are risky or uncertain should be avoided. Specifically, the
employer-based health insurance system has its flaws, but remains the
primary and trusted source of coverage for most Americans. Public
programs like Medicaid and SCHIP are mainstays in the safety net that
cannot be easily replaced. And Medicare should be improved but not
undermined through arbitrary caps or deep cuts.
In closing, the current crisis has forced a critical review of the
fundamental problems in the economy as well as comprehensive solutions.
No doubt, enacting health reform in the context of economic reform will
be hard. But it is not as hard as turning a blind eye while our
nation's health and economic prospects fade due to problems that may be
prevented by policy.
Chairman RANGEL. Thank you, Doctor.
The Chair recognizes a neighbor that does business in the
Harlem community, Ms. Martella Turner-Joseph, Vice President of
the Joseph & Turner Consulting Actuaries. Thank you for taking
your time to share your views with us.
STATEMENT OF MARTELLA A. TURNER-JOSEPH,
VICE PRESIDENT, JOSEPH & TURNER CONSULTING
ACTUARIES, LLC, NEW YORK, NEW YORK
Ms. TURNER-JOSEPH. Thank you very much, Chairman Rangel,
and thank you very much, Ranking Member McCrery and Members of
the Committee, for providing me this opportunity to speak
before you today on the impact of certain provisions of the new
pension funding rules on small business in light of the current
financial crisis.
My name is Martella Joseph, and I am an enrolled actuary.
My husband and I, Eugene Joseph, are co-founders and partners
of Joseph & Turner Consulting Actuaries, located in New York
City. We provide consulting services for retirement plans,
covering thousands of participants.
Much of the discussion on the impact of the financial
market crisis has focused on the 401(k) plan participants
accounts, since they bear the burden of the investment losses.
However, retirees receiving monthly payments from defined
benefits plans will experience no change in their monthly
payment due to the decline in market. This is because plan
participants do not share in the investment experience under a
defined benefit plan; the employer who sponsors the defined
benefit plan absorbs the investment loss through increased
contributions.
Many plan sponsors will see an increase in the minimum
required contributions solely because of the new funding rules
under the Pension Protection Act of 2006. The investment losses
will substantially increase the minimum required contribution
because, generally, investment losses must be paid for over 7
years. Meeting these contribution requirements will be a
challenge for business in this economic downturn.
The Pension Protection Act made significant changes to the
rules governing contributions to defined benefit plans. Prior
to the Pension Protection Act, one of the tools available to
smooth contribution was the smoothing of asset values. Plans
could smooth assets over a 5-year period. The Pension
Protection Act has reduced that to 2 years. The Pension
Protection Act also reduced the corridors for the smoothing of
assets from a 20 percent range within the market value to the
10 percent range. In addition to the shortening of the period
and the shrinking of the corridor, there is a concept of
averaging versus smoothing. Treasury has interpreted the term
``averaging'' in the Pension Protection Act to mean only an
arithmetic average of the market value, severely limiting the
benefit of a method clearly intended to help prevent major
fluctuation in asset values and contribution requirements. I
applaud the Committee for including a provision in H.R. 6382,
the PPA Technical Correction bill, which makes it clear that
smoothed asset values, not a simple arithmetic average of
assets, was intended by PPA.
There are two additional points to consider in evaluating
the critical importance of making smoothing available to all
defined benefit plans. With the market dropping about 40
percent off its high, the corridor may govern how much
smoothing of market value is available to plans. The Pension
Protection Act's reduction of the corridor from 20 percent to
10 percent may require recognition of unrealized losses double
those that would have been included in contributions
calculations prior to PPA, even with the smoothing provision
that is included in H.R. 6382.
One solution is an increase in the corridor for a 2- or 3-
year window would help to compensate for the market's downturn.
In addition, most small plan sponsors historically use fair
value of assets. However, the combination of the changes under
the Pension Protection Act and the market downturn makes asset
smoothing very attractive to small plans. Therefore, it would
also be helpful to allow small plans to use smoothing for a 2-
or 3-year window without an application to the Internal Revenue
Service for a change in funding method.
The Pension Protection Act introduced the concept of
benefit restrictions for plans funded below 80 percent. Plans
less than 80 percent funded cannot pay lump sums and cannot
recognize amendments that would increase benefits to
participants. Plans funded at least 60 percent must freeze
accrual of new benefits. The lack of smoothing and the reduced
corridor in which smoothing can operate makes it more likely
plans will have to impose the PPA benefit restrictions, or
employers will have to contribute even more cash to avoid
restrictions. Asset smoothing, if enacted, will also permit
smoothed application of these restrictions.
There are two other provisions of H.R. 6382 that are also
important to small employers. One is the provision permitting
defined benefit plans to base their maximum lump sum under
section 415(b)(2) on a fixed 5.5 percent interest rate and not
a variable rate. Most small plans pay lump sums out, and
therefore this provision will help to stabilize benefits
promised to participants, plan liabilities, and plan
contributions. In addition, with the increase of cash balance
plans, this provision can also be very helpful to large plans
as well.
Another provision is providing Treasury with the authority
to write end-of-year valuation rules for application of benefit
restrictions, as I mentioned above.
I want to thank Chairman Rangel and Ranking Member McCrery
for their letter to Treasury on this matter, and we hope that
Treasury will act on it.
Employers of all size that sponsor pension plans need tools
to deal with the current economic environment. Large employers
with pension plans have seen the value of their assets drop,
created enormous funding obligations for 2009 that are in turn
worsening the credit and liquidity crisis, and having a
negative impact on jobs. Without additional tools to address
these unforeseeable investment losses and the resulting
increase in funding obligations, millions of participants could
face benefit restrictions, plan freezes, and job losses.
I would like to thank this panel for giving me the
opportunity to express these views, and I will be happy to
answer any questions you may have.
[The prepared statement of Ms. Turner-Joseph follows:]
Statement of Martella A. Turner-Joseph, Vice President, Joseph & Turner
Consulting Actuaries, LLC, New York, New York
Chairman Rangel and Ranking Member McCrery, thank you for this
opportunity to speak before you today on the impact of certain
provisions of the new pension funding rules on small businesses in
light of the current financial crisis. My name is Martella Joseph and I
am an enrolled actuary. My husband Eugene Joseph and I are co-founders
and partners of Joseph & Turner Consulting Actuaries, LLC located on
the Upper West Side of Manhattan in New York City. Joseph & Turner
Consulting Actuaries, LLC provides actuarial, consulting, and plan
administrative services for retirement plans covering thousands of
participants.
Much of the media discussions on the impact of the financial market
crisis on retirement have focused on the accounts of 401(k) plan
participants since they bear the burden of investment losses. For many
younger workers, these losses will be recovered over time; older
workers may have to delay retirement, and retirees may have to reduce
their retirement income at a time when they can least afford it.
However, retirees receiving monthly payments from a defined benefit
pension plan will experience no change in their monthly payments due to
the declining market. This is because plan participants don't share in
the investment experiences under defined benefit plans. The employer
who sponsors the defined benefit plan absorbs investment losses through
increased contributions. Covering investment losses would be a
challenge for business in any environment. It is clearly more of a
challenge in an economic downturn.
The Pension Protection Act of 2006 (PPA) made significant changes
to the rules governing contributions to qualified defined benefit
plans. Generally, the minimum required contribution is the cost for
benefits earned during the plan year, and if a plan suffers an
investment loss, the loss will be paid off over 7 years. The main goal
of PPA is to ensure that pension plans are funded well enough to pay
promised benefits. Under PPA plan sponsors' ability to smooth
contribution requirements was limited substantially. On the other hand,
the limit on deductible contributions was substantially increased. The
argument for making minimum funding requirements more sensitive to
changes in assets and liabilities was that plans should take advantage
of increased contribution requirements to ``fund up'', to create a
cushion to carry the plan through difficult economic times. One problem
we are facing is that the difficult economic times have come along
before even the healthiest employer has had time to build up the
cushion permitted by PPA. In my experience, most small employers are
willing, in some cases eager, to put in more than the minimum required
contribution, and to build up a reserve against hard times. But these
hard times have come too quickly on the heels of the new funding regime
to build a cushion.
One of the tools available to smooth contributions prior to PPA was
the smoothing of asset values used to determined contribution
requirements. Prior to PPA, a plan could smooth assets over a five-year
period. PPA reduced the period to 24 months plus one day--three annual
asset values instead of five. PPA also reduced the amount of variance
from the current fair value of assets that could be recognized in the
results of the smoothing. Prior to PPA, smoothed assets had to be
within 20% of the current fair value. Under PPA, the corridor has been
reduced to 10%. In addition to the shortening of the period, and the
shrinking of the corridor, there is the concept of ``averaging'' versus
smoothing.
Treasury has interpreted the term ``averaging'' in PPA to mean only
an arithmetic average of the market values, as adjusted for
contributions and distributions, severely limiting the benefit of a
method clearly intended to help prevent major fluctuations in asset
values and contribution requirements. I applaud the Committee for
including a provision in HR 6382, the PPA technical corrections bill,
which makes it clear that smoothed asset values, not a simple
arithmetic average of values, was intended by PPA.
There are two additional points to consider in evaluating the
critical importance of making asset smoothing available for all defined
benefit plans:
With the market dropping about 40% off its high, the
corridor may govern how much smoothing of asset values is
available to plans. PPA's reduction of the corridor from 20% to
10% may require recognition of unrealized losses double those
that would have been included in contribution calculations pre-
PPA, even with the smoothing provision included in H.R. 6382.
An increase in the corridor for a two or three year window
would help to compensate for the market downturn. In addition,
most small plan sponsors historically use fair value of assets.
However, the combination of PPA and the market downturn make
asset smoothing very attractive for small plans. Therefore, it
would also be helpful to allow small plans to use smoothing for
a two or three year window without an application for a change
in funding method.
The advantages of a defined benefit plan are stable
benefit promises, and the lack of smoothing not only creates
volatile contributions, but unpredictable benefits. PPA
introduced the concept of benefit restrictions for plans funded
below 80%. Plans less than 80% funded cannot pay participants
full lump sum benefits, and cannot recognize amendments that
would increase benefits to participants. Plans funded at less
than 60% must freeze accrual of new benefits. The lack of
smoothing, and the reduced corridor in which smoothing can
operate, make it more likely plans will have to impose the PPA
benefit restrictions--or employers will have to contribute even
more cash to avoid restrictions. Asset smoothing, if enacted,
will also permit smoothed application of these restrictions.
There are two other provisions in H.R. 6382 that are also important
to small employers:
A provision providing Treasury with authority to
write end-of-year valuation rules for application of the
benefit restrictions I just mentioned. I want to thank Chairman
Rangel and Ranking Member McCrery for your letter to Treasury
on this matter. The falling market makes it even clearer that
the funded status for a year must be based on the most recent
valuation date, not a future date.
A provision permitting defined benefit plans to base
maximum lump sum payments under IRC Section 415(b)(2) on a
fixed 5.5% interest rate, not a variable rate. Most small plans
pay out lump sums, and therefore, this provision will help to
stabilize benefit promise to participants, plan liabilities and
plan contributions. In addition, with increased numbers of cash
balance plans, this provision would be helpful to large plans
as well.
I have been talking about small employers, but employers of all
sizes that sponsor pension plans need tools to deal with the current
economic environment. Large employers with pension plans have seen the
value of their plan assets fall precipitously, creating enormous
funding obligations for 2009 that are, in turn, worsening the credit
and liquidity crisis and having a negative impact on jobs. Without
additional tools to address the unforeseeable investment losses, and
the resulting explosion of funding obligations pension plan sponsors
now confront, millions of employee pension plan participants could face
benefit restrictions and plan freezes and the job losses and business
contractions threatening many U.S. employers and workers will only be
made worse.
Companies must plan for funding requirements that were
unanticipated just weeks ago at a time when lenders are even less
willing to extend credit. Companies are therefore unable to dedicate
needed resources next year to job-creating business purposes. This
burden is placing even more pressure on companies to freeze or
terminate their pension plans in order to mitigate the future impact,
which further diminishes long-term retirement security. In other words,
liquidity, available credit, job creation, and retirement security are
all inextricably related.
Large employers need many of the same modifications as small
employers to deal with this crisis, including smoothing of unexpected
losses and temporary easing of restrictions on the use of smoothing.
Funding methods, such as asset smoothing or which type of yield curve
to use, generally cannot be changed without IRS approval. Given the
economic turmoil of the past several months, all employers also need
the ability to change funding methods for 2009 and 2010 without prior
IRS approval. Another problem that could be anticipated, and mitigated,
is the structure of the PPA phase-in of the funding target.
Before PPA, the funding target for large pension plans was 90% of
the liability for accrued benefits. Under PPA, the 90% figure was
phased up to 100%. However, in 2008, 2009, and 2010, for plans that
were well funded pre-PPA, the phase-in levels are 92%, 94%, and 96%,
respectively. For example, if a plan is 92% funded in 2008, there is no
shortfall to fund. If the plan is 91% funded, its funding obligation is
based on the full 9% shortfall, not a 1% shortfall. With a huge number
of plans falling below 94% funded next year, many plans will find a
dramatic increase in cost because of this trigger. The inflated costs
could be avoided if the transition relief were available to plans below
the phase-in level, as well as above. For example, the plan funded at
91% in 2008 would have to fund to 92%, not 100%. The blow could be
softened further by holding the phase-in at 92% for one additional
year.
In summary, the financial crisis has resulted in severe challenges
facing plan sponsors, large and small, for profit and not-for-profit
alike. You could provide employers with essential tools, and eliminate
unnecessary restrictions on promises made and paid to participants, by
addressing these critical matters before the end of the year.
Thank you for this opportunity to testify on the important and
timely issue of pension funding. I will be happy to answer any
questions you may have.
Chairman RANGEL. Thank you so much, Ms. Joseph. I look
forward to following through with you on these issues in the
district as well.
The Chair would like to recognize Dr. Viard, Resident
Scholar, American Enterprise Institute.
STATEMENT OF ALAN VIARD, PH.D., RESIDENT SCHOLAR, AMERICAN
ENTERPRISE INSTITUTE
Mr. VAIRD. Thank you, Chairman Rangel, Ranking Member
McCrery, the distinguished Members of the Committee. It is an
honor to appear before you today to discuss these important
topics.
The United States economy is experiencing significant
difficulties. Although the National Bureau of Economic Research
has not yet officially declared a recession, it is highly
likely to eventually declare that the economy did enter a
recession either late last year or early this year. In view of
the hard times that Americans are experiencing, it is certainly
appropriate for this Committee to consider measures to address
the economic distress. It is equally imperative, however, that
any action by the Committee be done with full awareness of the
consequences and the available alternatives.
I want to emphasize a point in my testimony that has
already been alluded to a number of times today: The belief
shared by myself and by many economists that changes in
infrastructure spending are generally not an effective method
for providing short-run fiscal stimulus to the economy. The
timing lags make it difficult to deliver the stimulus at the
time that it is needed, raising the risk that changes in
infrastructure spending will make the economy more volatile
instead of more stable.
This does not mean, of course, that infrastructure spending
is undesirable. On the contrary, it means that we should make
serious and sober decisions about infrastructure spending based
upon a comparison on the cost of construction and the benefits
from its use. Any infrastructure project that meets the needs
of the American people in a cost effective way should be
pursued for that reason. But we should not be swayed by the
largely or completely illusory hopes of job gains or economic
stabilization.
There has been some discussion here today about ways to
select particular infrastructure projects in ways that will
lessen the problem of the timing lags. I am certainly pleased
to hear that type of concern being addressed.
Even if a package is well designed in that regard, however,
it will still confront all of the problems that arise with any
use of discretionary short-run fiscal stimulus. It is always
difficult to determine when to adopt such stimulus, how quickly
it should be implemented, and to get it done in time. Monetary
easing and the automatic fiscal stabilizers already built into
our economy are generally better suited to serving the goals of
economic stabilization. The Federal Reserve has already done a
great deal of monetary easing, and I have just been informed
that they have lowered the Federal funds rate another 50 basis
points today. The automatic fiscal stabilizers are already
responding to the weakness in the economy.
I will also emphasize that, aside from stimulus concerns,
there are other actions Congress can take in the wake of a
recession not designed necessarily to stimulate the economy,
but simply to alleviate the economic distress that Americans
are experiencing and helping to ease the suffering that is
involved. Tax and spending programs can be recalibrated to take
into account the different needs that arise during these types
of economic times.
As Congress addresses the short-run difficulties, it is
important to not lose sight of long-run issues as well. The
promotion of long-run growth remains an imperative separate and
distinct from the provision of short-run fiscal stimulus. In
that regard, it is particularly important to adopt tax and
spending policies that promote private business investment,
particularly by alleviating the tax penalties that business
investment currently faces.
In the remaining minutes that I have, Mr. Chairman, let me
just sketch a few of the points that are set forth in more
detail in my written testimony.
We often hear references to infrastructure spending or
other types of public or private spending as creating a certain
number of jobs, or certain number of jobs per billion dollars
spent. It is important to realize the limitation of these types
of computation and, in some respects, how misleading they can
be. Neither infrastructure spending nor any other type of
spending creates jobs on any permanent basis. A decision to
spend more money on infrastructure in the long run represents a
decision to spend less money on other goods and services. Of
course, more workers are then employed constructing
infrastructure, but fewer workers are employed in other sectors
of the economy. In the long run, the types of policies that we
are discussing here will shift jobs rather than create them.
This, of course, applies to any type of spending that we
might want to consider. One hears arguments sometimes that
spending on renewable energy will create green jobs. You hear
arguments, usually from people of a different point on the
political spectrum, that defense spending will create jobs and
will stimulate the economy. You sometimes hear arguments that
business investment will create jobs through the process of
constructing the investment goods. All of these arguments are
vulnerable to this same critique. Once again, it does not mean
that any of these categories of spending are harmful or
unnecessary, but simply that the job creation is illusory.
In the short run, the picture is different. It is possible
that you can create jobs in the short run, though they have to
be paid back later. Obviously, if the timing of this can be
used properly, then it is effective and appropriate. Yes, we
would like to create additional output today when the economy
so desperately needs it and create job opportunities that many
Americans are longing for, even if we do have to pay that back
when times are better. But that simply stresses the importance
of the timing.
I have statements in my testimony, not my own views, but
the views of the Congressional Budget Office, the views of Alan
Blinder, the views of Doug Elmendorf and Jason Furman of the
Brookings Institution, Jason Furman actually now with Senator
Barack Obama's presidential campaign, pointing out the
consensus that the lags in infrastructure planning and
construction make it ill suited for fiscal stimulus.
Instead, we should look more toward the monetary easing
that is taking place, 425 basis points as of today, and also
the automatic fiscal stabilizers. In the meantime, Congress
could take steps to alleviate the distress felt by victims of
the recession, and can also seek to promote long-run growth
through tax and budget policies that are favorable to private
business investment.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Viard follows:]
Statement of Alan Viard, Ph.D., Resident Scholar,
American Enterprise Institute
Alan D. Viard is a Resident Scholar at the American Enterprise
Institute. The views expressed in this testimony are solely his own and
do not necessarily reflect the views of the American Enterprise
Institute or any other institution or person.
Chairman Rangel, Ranking Member McCrery, Members of the Committee;
it is an honor to appear before you today to discuss economic recovery,
job creation, and investment in America.
The U.S. economy is experiencing significant difficulties. Although
the National Bureau of Economic Research has not yet made an official
determination, it is highly likely to eventually declare that the
economy entered a recession in late 2007 or early 2008. It is
appropriate that this committee consider measures to address the
economic distress. Nevertheless, it is imperative that any action be
taken in full awareness of its consequences.
Changes in infrastructure spending are not an effective method of
creating jobs or providing short-run fiscal stimulus to the economy. As
many economists have noted, timing lags make it difficult to deliver
the stimulus at the time that it is needed. As a result, changes in
infrastructure spending that are intended to stabilize the economy may
instead make it more volatile.
Infrastructure spending should be approved if, and only if, such
spending would otherwise be economically desirable, based on a
comparison of the costs of construction and the benefits from its use.
Decisions on infrastructure spending should not be swayed by the
illusory hope of job gains or economic stabilization.
While other types of discretionary short-run fiscal stimulus have
fewer timing problems than changes in infrastructure spending, most of
them are still problematic. Monetary easing and automatic fiscal
stabilizers are better suited to serve the goal of economic
stabilization. Apart from stimulus concerns, however, Congress can take
action to alleviate economic distress by making appropriate adjustments
to tax and spending programs.
Even as Congress addresses the current economic difficulties, it is
also important to continue to promote long-run growth. Tax and spending
policies that promote private business investment are imperative.
1. Infrastructure construction cannot produce a sustained increase in
the levels of jobs or output.
If more money is spent on infrastructure, more workers will be
employed in that sector. In the long run, however, an increase in
infrastructure spending requires a reduction in public or private
spending for other goods and services. As a result, fewer workers are
employed in other sectors of the economy. Attempting to spend more on
everything simply bids up prices or interest rates without increasing
total employment.
These remarks apply to the gains from the construction of
infrastructure. The use of well-designed infrastructure can increase
the levels of jobs and output, for example when a good road system
helps people get to work, and can also improve living standards in
other ways. Those arguments for additional infrastructure spending must
be evaluated on their own merits.
Of course, this critique applies to all forms of public and private
spending, not only to infrastructure spending. For example, it applies
to arguments that spending on renewable energy will create ``green
jobs,'' that defense spending will create jobs and boost the economy,
and that business investment will create jobs though the construction
of the investment goods. This critique does not apply to arguments that
spending on renewable energy will provide cost-effective energy
resources, that a stronger defense will make Americans more secure, and
that additional investment will boost future workers' productivity by
expanding the capital stock. Those arguments must be evaluated on their
own merits.
2. In theory, a policy of increasing infrastructure spending during
recessions (a ``countercyclical infrastructure policy'') could
reduce the severity of recessions and the strength of booms,
thereby stabilizing the economy.
The short-run analysis is somewhat different. In the short run, an
increase in public and private spending may boost output. Provided that
the Federal Reserve does not counteract a desired increase in spending
with interest-rate hikes, firms will experience a higher demand for
their products. In the short run, firms may choose to expand output and
hire more workers rather than to raise their prices. This is a short-
run effect that fades away as prices and interest rates adjust.
A decision to increase infrastructure spending could therefore
cause a temporary boost in output. There is nothing special about
infrastructure in this regard; an increase in any other category of
public or private spending would do the same.
A sustained increase in any category of public or private spending
would generate a temporary increase in output and employment. It is
inconceivable that spending would be boosted for all of eternity merely
to obtain a short-run boost to output. If there were no other reason
for the spending boost, it would surely prove to be temporary.
What are the effects of a temporary boost to some category of
public or private spending? Output rises when the spending increase
occurs, but falls when spending returns to normal. Fiscal stimulus
measures that boost public or private spending do not ``buy'' us extra
output--they merely ``borrow'' it from the future.
It is not useful to boost output at one random date and lower it at
a later random date. But, it can be useful to boost output when the
economy is in a recession and lower it when the economy is booming.
Boosting output in today's dire conditions can be useful even though we
must eventually ``give back'' the gains at some later date.
In theory, then, it may be useful to boost infrastructure spending,
or some other type of public or private spending, during recessions to
provide short-run stimulus.
3. In practice, due to timing lags, a countercyclical infrastructure
policy would do little to smooth the economy and might well
make the economy more volatile.
Because short-run stimulus merely shifts output and jobs from one
time to another, proper timing is essential. If the stimulus arrives
after the economy has started to recover, it makes the economy more
rather than less volatile.
Federal Reserve chairman Ben S. Bernanke noted the importance of
timing in his testimony before the House Budget Committee last week,
``To best achieve its goals, any fiscal package should be structured so
that its peak effects on aggregate demand are felt when they are most
needed, namely, during the period in which economic activity would
otherwise be expected to be weak.'' \1\
---------------------------------------------------------------------------
\1\ ``Economic Outlook,'' Testimony Before the Committee on the
Budget, U.S. House of Representatives, October 20, 2008 (http://
www.federalreserve.gov/newsevents/testimony/bernanke20
081020a.htm).
---------------------------------------------------------------------------
As many economists have noted, this condition is precisely the one
that infrastructure spending cannot meet. The time lags built into the
spending process are too lengthy to allow the necessary fine-tuning.
In a January 2008 report on stimulus options, the Congressional
Budget Office noted: \2\
---------------------------------------------------------------------------
\2\ ``Options for Responding to Short-Term Economic Weakness,''
January 2008, pp.8, 19, 22 (http://www.cbo.gov/ftpdocs/89xx/doc8916/01-
15-Econ_Stimulus.pdf).
[B]ecause many infrastructure projects may take years to
complete, spending on those projects cannot easily be timed to provide
stimulus during recessions, when are typically relatively short lived .
. . Federal, state, and local governments are responsible for large
swaths of the economy's capital stock, which includes ports, bridges,
and roads. Those responsibilities also include various forms of
reconstruction, such as in areas badly damaged by natural disasters.
Proposals also exist for large-scale Government investment in new
technologies, such as new-generation power plants, facilities that
produce alternative fuels, and automobiles that use alternative fuels.
Conceptually, spending on these kinds of projects seems to offer an
appealing way to counteract an economic downturn . . . Practically
speaking, however, public works projects involve long start-up lags.
Large-scale construction projects of any type require years of planning
and preparation. Even those that are `on the shelf' generally cannot be
undertaken quickly enough to provide timely stimulus to the economy.
For major infrastructure projects supported by the Federal Government,
such as highway construction and activities of the Army Corps of
Engineers, initial outlays usually total less than 25 percent of the
funding provided in a given year. For large projects, the initial rate
of spending can be significantly lower than 25 percent. Some of the
candidates for public works, such as grant-funded initiatives to
develop alternative energy sources, are totally impractical for
countercyclical policy, regardless of whatever other merits they may
have. In general, many if most of these projects could end up making
the economic situation worse because they would stimulate the economy
---------------------------------------------------------------------------
at the time that expansion was already well underway. (emphasis added)
In a table summarizing stimulus options, CBO therefore lists
``Investing in Public Works Projects'' as having ``small'' cost-
effectiveness and a ``long'' lag from enactment to stimulus.
A similar view is expressed in a January 2008 article by Douglas W.
Elmendorf and Jason Furman of the Brookings Institution (Furman is now
a senior economic adviser to Senator Barack Obama's presidential
campaign): \3\
---------------------------------------------------------------------------
\3\ ``If, When, How: A Primer on Fiscal Stimulus,'' Tax Notes,
January 28, 2008, pp. 545-559, at p. 556.
[A]dditional physical and technological infrastructure
investments . . . are difficult to design in a manner that would
generate significant short-term stimulus. In the past, infrastructure
projects that were initiated as the economy started to weaken did not
involve substantial amounts of spending until after the economy had
recovered. However this approach might be more useful if policies could
be designed to prevent cutoffs in ongoing infrastructure spending (such
---------------------------------------------------------------------------
as road repair) that would exacerbate an economic downturn.
Similar concerns have also been expressed by Alan S. Blinder of
Princeton University, who served on President Clinton's Council of
Economic Advisers from January 1993 to June 1994 and served as Vice
Chairman of the Federal Reserve Board of Governors from June 1994 to
January 1996. In a 2004 paper, Blinder wrote: \4\
---------------------------------------------------------------------------
\4\ ``The Case Against the Case Against Discretionary Fiscal
Policy,'' Princeton University, Department of Economics, Center for
Economic Policy Studies Working Paper 100, June 2004, pp. 27-28 (http:/
/www.princeton.edu/ceps/workingpapers/100blinder.pdf).
The major objections to using public expenditures as a
countercyclical weapon seem to be more practical than theoretical. But
I think they are powerful nonetheless . . . there are normally quite
lengthy lags in the political process before new spending projects are
authorized by Congress. Then, since authorizing committees and
appropriating committees are different, still more time elapses between
legal authorization and the actual appropriation of funds . . . And
even if the lags in the authorizing and appropriating processes could
be completely eliminated, the slow natural spend-out rates of most
public infrastructure projects remains a serious handicap. For example,
out of each $1 appropriated for highway expenditures, less than one-
third is likely to be spent within a year. Accelerating the pace of
spending on public works for stabilization purposes would be
---------------------------------------------------------------------------
inefficient and wasteful. (emphasis in original)
In short, there is a virtual consensus that variations in
infrastructure investment are not an effective way to provide short-run
stimulus and smooth the economy.
Grants to fund state and local governments' infrastructure projects
are likely to pose timing problems even more severe than those posed by
Federal projects. Even if the grants are disbursed quickly, the
disbursement does not provide any stimulus. Stimulus arises only when
state and local governments increase their infrastructure spending,
creating an additional lag that is largely outside the Federal
Government's control.
Once again, this does not mean that additional infrastructure
spending is undesirable. Instead, that determination must be made based
on a comparison of the benefits of using the infrastructure and the
costs of constructing it. If additional infrastructure is worthwhile,
it should be constructed. Such determinations are most likely to be
accurate, however, when they are made without the haste associated with
an attempt to respond to economic weakness. Infrastructure spending
should be properly allocated, with particular care taken to avoid
short-changing maintenance. Moreover, even if some infrastructure
projects merit additional funding, others should be scrutinized to
determine whether their funding is excessive.
4. The economy can best be stabilized through monetary policy and
automatic fiscal stabilizers.
Other types of fiscal stabilizers may work somewhat better than
infrastructure spending, but they are still problematic. Rebate checks
may spur some consumer spending, but past studies suggest that the
fraction spent is relatively small. A larger fraction of transfer
payments to low-income households may be spent, although the small size
of the payments typically precludes a large impact on the economy.
Furthermore, some of this spending is on imported goods and does not
therefore add to demand for U.S. firms. Temporary incentives for
business investment can have some impact, but firms are often unable to
make large changes in the timing of their investment.
All of these policies also still encounter the difficulty of
ensuring timely implementation. The high degree of uncertainty
surrounding the future path of the economy makes the appropriate timing
of these measures unclear and raises the risk that they will take
effect after the economy recovers.
As a result, economic stabilization is generally best achieved
through monetary policy and automatic fiscal stabilizers. As Elmendorf
and Furman note: \5\
---------------------------------------------------------------------------
\5\ Elmendorf and Furman, supra note 3, p. 545.
Economists believe that monetary policy should play the lead
role in stabilizing the economy because of the Federal Reserve's
ability to act quickly and effectively to adjust interest rates, using
its technical expertise and political insulation to balance competing
priorities . . . monetary policy should generally be the first line of
---------------------------------------------------------------------------
defense against an economic slowdown.
To be sure, Elmendorf and Furman go on to note, as have other
economists, that monetary policy may not always be sufficient, even
when combined with automatic fiscal stabilizers, and that additional
fiscal stimulus may be ``essential'' or ``helpful.''
One concern is that firms and households may not adjust their
spending immediately when interest rates fall. Another concern is that
the Federal Reserve may be limited in the interest-rate changes that it
can make, due to a desire for interest-rate stability or its inability
to reduce interest rates below zero.
Nevertheless, it is worth noting that monetary policy has responded
aggressively to the current slowdown, as shown in Figure 1. From
September 18, 2007 to the present, the Federal Reserve has lowered the
Federal funds target rate by 375 basis points, from 5.25 percent to
1.50 percent. These reductions began 13 months ago and half of the
reductions have occurred within the last 9 months. Although it may take
time for the impact of this monetary easing to be felt, it is likely to
have a quicker impact than infrastructure spending increases that have
not yet occurred.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Automatic fiscal stabilizers are also significant. When the economy
weakens, tax receipts automatically fall and outlays on social
insurance and anti-poverty programs automatically rise. Figure 2 shows
CBO's computation of the cyclical component of the Federal budget
deficit or surplus, the change in budget balance that resulted
automatically from business cycle conditions. Positive entries mean
that business cycle conditions are reducing the Federal budget deficit
(or increasing the surplus); negative entries mean that business cycle
conditions are expanding the deficit (or reducing the surplus). As can
be seen, recessions (shown by the shaded areas) have been associated
with significant cyclical increases in deficits, often swings of 1 to 2
percent of GDP. The chart further shows that automatic stabilizers have
already started to respond to the current economic weakness.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In summary, monetary easing and automatic fiscal stabilizers are
generally the most effective ways to alleviate the economy and such
measures are already well under way at this time.
5. Other policy responses can more effectively alleviate the impact of
the economic downturn.
Even if Congress does not adopt discretionary fiscal stimulus, it
can and should take measures to alleviate the impact of the downturn.
Policies that are appropriate to ensure that resources are efficiently
allocated and equitably distributed during economic booms may need to
be modified during times of economic weakness. For example, transfer
payments may need to be revised to ensure that they are adequate and
unemployed workers should be given more time to find a job before
losing unemployment benefits; many of the necessary adjustments are
made automatically under current law.
Tax policy should also be configured to reflect the different
economic conditions. In particular, it may be appropriate to change the
treatment of loss deductibility and retirement-account withdrawals.
Current law restricts business firms' ability to deduct net
operating losses (NOLs) and individuals' ability to deduct capital
losses against ordinary income. Such restrictions are motivated by the
concern that reported losses may not be ``real''; business losses may
reflect deductions that do not reflect real expenses and capital losses
may reflect selective sales of assets that have declined in value.
Because reported losses are more likely to be real during a downturn,
efficiency and equity call for a relaxation of these restrictions.
Current law also penalizes withdrawals from tax-sheltered accounts.
These penalties reflect a balance between allowing people to obtain
their money when they need it and the desire to promote retirement
saving. Because the average taxpayer's need to withdraw the money is
likely to be greater during a downturn, the balance should be struck in
favor of more lenient rules.
Note that these policies can be justified without regard to
stimulus concerns. If they happen to also provide some degree of
stimulus, as they might, that is an extra benefit.
6. Long-run growth can be promoted by tax and budget policies that
increase private business investment.
The Government exists to serve both the short-run and long-run
needs of the American people. Meeting the short-run needs of the
American people involves monetary easing, automatic fiscal stabilizers,
and recalibration of tax and spending programs to reflect the weakened
state of the economy. At the same time, Congress must not lose sight of
the need for long-run growth.
The current tax treatment of business investment impedes long-run
growth. Corporate investment returns are typically subjected to
corporate income tax and also to individual tax (at a 15 percent rate)
on dividends and capital gains. As a result, savers cannot capture the
full returns from their decision to postpone consumption. Reducing or
eliminating the taxation of investment would allow an expansion of the
capital stock, which would boost output and wages. Conversely,
increased taxation of investment will further retard long-run growth.
To ensure a favorable impact on long-run growth, tax cuts on
investment income should not be deficit-financed. Such tax relief can
be financed by slowing the growth of entitlement spending. Another
desirable approach is a revenue-neutral fundamental tax reform in which
the income tax system is replaced by a progressive consumption tax,
such as the Bradford X-tax.
Conclusion
Our economy currently faces very difficult times, but short-term
fiscal stimulus is probably inappropriate. Even if short-term stimulus
is warranted, timing lags make infrastructure spending an unsuitable
policy instrument for this purpose. Congress can promote long-run
growth by lowering taxes on investment.
Mr. MCDERMOTT [presiding]. Thank you.
Mr. Stark will inquire.
Mr. STARK. Thank you, Mr. Chairman. I would like to thank
the panel for their patience and their indulgence.
I wanted to talk particularly to Dr. Lambrew. You brought
up the link between the economic crisis and health care. Is it
too much of an oversimplification to suggest that when we have
had probably 5 years of flat income growth in terms of salaries
and real wages and 5 years of double digit health care cost
increases, that it is a pretty simple graph to suggest that
perhaps more than any other basic, rent, food, that health care
is falling behind or gaining more rapidly, depending on how you
look at it; and that the nature of a serious health problem is
something that should only be postponed at often very serious
risk? Again, a heart attack, you just don't wait; you go to the
emergency room. Or if your kid is screaming from an earache.
You can wait to buy a new car or a new pair of sneakers, or you
can buy Hamburger Helper instead of fillet; but when you are
sick, you are sick, and you go to get that pain relief as you
can, which I suspect also exacerbates the need to deal with
providing health care in a downturn.
Now, just as Dr. Viard would say, it takes too long to get
a construction project going. I am not sure I agree with him
but it takes a whole lot longer to reform the medical delivery
system in this country.
So, the questions that I am getting to are in the very
short term what do we do to deal with an increasing medical
crisis, if you will? I suspect that goes mostly to those who
are unemployed or at the very lowest end of the income scale or
just above Medicaid, although the States are having problems
with that. But one of the things that I suggested, and I think
you perhaps brought up, is COBRA as a design. It has the
benefit of not costing the taxpayers anything, so you can do
away with the deficit increase. Unfortunately, it costs the
beneficiaries a lot. It probably does not cost the employer
anything.
A couple of the things that I have thought about that we
could do, and I don't know if we could do it quickly enough, is
to force COBRA extension on the insurance companies when a
company goes bankrupt. In other words, if a company fires
somebody or they are discharged or they are disabled, COBRA
kicks in; but if the company goes bankrupt they lose the chance
to pick up COBRA. It would seem to me that it is not too much
of an intrusion on the profits of private health care companies
to say if the company goes bankrupt the workers have the right
to extend COBRA benefits if they can pay for them.
That comes to step 2. The question is, how do you subsidize
COBRA? Is it worthwhile as opposed to or along with
unemployment benefits infrastructure funding to start? As the
Governor said earlier this morning, if you have a shovel ready
program, you can generally get that under construction in 90
days if you get the money. But what would you suggest as a way
to take a program like COBRA? How do we feed the funds into it
to make it work for the broadest number of people who suddenly
become unemployed?
Mr. LAMBREW. I thank you for that question, and I do thank
you for your leadership on these issues for years, because
without it I think we would be in worse shape.
I do want to begin by saying that we do need to stabilize
the system. We are going to experience a spike in the
uninsured. I think there is no doubt about that. But we also
should not forget that we have to fix it, because the
stabilization itself will not do enough.
I will go back to the fact that part of the economic crisis
today is due to unrelenting health care cost increases that are
not just affecting foreclosures, not just affecting credit card
debt, but eroding savings, hurting our seniors who can no
longer keep their Social Security benefits in real growth
because the health care costs are eroding that. So, we have to
fix the problem as well as stabilize it.
When it comes to stabilizing it, there certainly have been
ideas on the table to make COBRA more affordable, because if
you think about it, you basically pay 102 percent of whatever
the premiums are that you paid previously.
Mr. STARK. Costs, not premiums.
Mr. LAMBREW. Exactly. So, for the average family premium in
2000 is about $12,600. So, that is a significant, probably
unaffordable, amount for most unemployed families. In 2001,
this Committee proposed this idea of providing a 75 percent tax
credit to families, to make it advanceable and refundable and
get the resources to those families to make it affordable.
For those families who don't have access to COBRA, the
solution is harder, because a lot of times when you lose
access, if you don't have access to COBRA it is because your
firm has gone bankrupt, or you are in a small firm and your
ability to find alternative solutions probably needs to be
addressed in the long-run health plan. Lots of the health plans
have new pools where people can access either a public program
or private health insurance to get that coverage.
But I will say, going back to the low income population,
back in 2001 you had this proposal as well. We can instantly
create a Medicaid option for temporary coverage for the
temporarily unemployed: A year-long option, provide States with
the same enhanced matching rate that we do in S-CHIP, and
immediately quickly get the lowest income and most vulnerable
people that Bob Greenstein spoke about before into a system
that exists, no infrastructure needed to create, is ready to
go, it can be done just like that.
Mr. STARK. What do we do with the States whose Medicaid
system is going broke?
Mr. LAMBREW. That is what I was just going to say; this is
why that fiscal relief is so critical. You heard a little bit
this morning about it. But--Bobby, you can talk about your new
study that shows about $100 billion in State budget deficits
projected in the next year. Couple that with States separately
projecting that enrollment in Medicaid will go up by 3.6
percent, that is almost triple our population growth. We have
got to have this three-pronged approach: Help those people
losing employer-based coverage, keep it through COBRA, create a
new option in Medicaid and in reauthorizing the S-CHIP program,
which, P.S., is very important for that middle income set of
families who have children who are going to lose that coverage
as well.
But then the third thing is ensure that we give States
those resources to stabilize their programs so they don't turn
around and start causing more uninsured by scaling back their
programs.
Mr. STARK. Thank you.
Mr. MCDERMOTT. Mr. McCrery will inquire.
Mr. MCCRERY. Thank you for your testimony, all of you. We
appreciate your patience today and bearing with us through a
long day.
Dr. Viard, you a couple times came back to the proposition
that while we are wrestling with the short-term effects of the
economic downturn and trying to come up with temporary ways to
soften the impact of that, we should also keep our eye on the
long-term viability of our economy and do things that are
designed to make sure the long-term health of our economy is
maintained. In the context of that, you talked about making the
climate attractive to private investment.
Even though this is a global economic crisis and we are
seeing our competitors around the world from an economic
business standpoint have problems just as deep as those we are
experiencing here in the United States, is it your view that
when this economic crisis is over and the world is starting to
grow again, from an economic standpoint, that there is tax
competition in the world?
Mr. VAIRD. Thank you, Mr. Ranking Member. This is a very
important question. As I said in my testimony, I do believe
that it is important to continue to look at long-run issues
even as we also address the short-run issues. We have to pay
attention to both.
Tax competition is one of the striking features of today's
globalized environment. It is most visibly seen I think in the
area of corporate taxation, simply because corporations have
the opportunity to avoid taxation by relocating their business
operations. Dozens of governments around the world, both right
wing and left wing governments, have cut their corporate tax
rates over the last couple decades in response to this type of
competition. There are some who are distressed by that trend
who would like to see the United States and other countries
collude or cooperate with each other to try to maintain high
corporate tax rates. I think that would be a serious mistake,
even if such cooperation was feasible, which I doubt.
The corporate tax is really a flawed tax. It is a tax on
savings and investment and, therefore, an impediment to long-
run growth. It has a number of additional distortions built
into it that even other taxes on saving and investment do not
have. It has a penalty on operating as a corporation instead of
as a noncorporate firm. It has a penalty on issuing equity
instead of paying debt. It is a very flawed distortionary tax
that many economists, both liberals and conservatives, have
spoken against over the years. I think that the tax competition
that we are seeing really is an opportunity for the United
States to actually adopt a better tax system that it ought to
have gone on its own; but if the prod of global competition is
what prompts the action, then so be it. I do think that we
should try to move away from corporate taxation; that, more
generally, we should try to move away from the taxation of
savings and investment and instead move toward systems more
along the lines of progressive consumption taxation.
Mr. MCCRERY. Would you agree that, by and large, in decades
passed, say certainly from World War II forward, until fairly
recently, tax competition really hasn't been a major concern of
the United States?
Mr. VAIRD. I think that is correct. Probably the degree of
such competition has been less. It has been in the more, most
recent years that we have seen greater mobility in investment
and greater awareness of the mobility of investment.
Mr. MCCRERY. Not only that, but certainly our economy post
World War II, compared to most of our competitors, was so large
that their tax system versus our tax system was a very, very
minor, if at all, consideration in where money would go and
where investment would be made. Wouldn't you agree?
Mr. VAIRD. I do agree with that. As an economist, I can
provide a perspective I guess from the economics profession. If
you look at older studies that were done of a whole range of
economic issues in past decades, it was very common to simply
use a closed economy analysis to assume the United States or
the economy you are citing was the only one in the world and to
ignore any end tracks into other countries. Today, you see a
much greater attention to international interactions in the
study of economics, and rightly so.
Mr. MCCRERY. The reason for that is that the Europeans have
gotten their act together economically, more so than they have
ever had before. They are more unified; they act more as a true
competitor of ours. Asia certainly has increased its economic
activity and investment. So, more than we have had at any time,
certainly since World War II, we have competitors that are
approaching our size and the kind of impact on the world's
economy that the United States has?
Mr. VAIRD. Yes. I agree with that.
Mr. MCCRERY. So, you take all that together, and then you
examine the relative tax systems with respect to savings and
investment. This Committee has sole jurisdiction over this
matter, which I agree with you, Dr. Viard, is critically
important to the the future stability of our economy and
competitiveness of our economy and job creation and job
maintenance here in the United States, because capital will go
other places. There are now other places that are approaching
the attractiveness of our market for that capital. If we don't
treat from a tax standpoint that capital as nicely as other
jurisdictions around the world, we are going to continue to see
that capital go other places and jobs go other places.
So, I appreciate your bringing our attention in the midst
of what we are talking about, which is very important, but also
bringing our attention back to some of these questions of tax
policy, some of which I think could be addressed in the context
of this temporary crisis. Thank you.
Mr. MCDERMOTT. Mr. Levin will inquire.
Mr. LEVIN. I think it has been useful to talk a bit about
tax policy. Let me move on. We have had some excellent
testimony about the changes in income distribution in this
country that are really dramatic changes.
Since there was some discussion about a stimulus package, I
thought I would ask a few questions about that, and see if we
could have a little bit of discussion among you, not just
between some of you and some of us. It is so easy for us to get
polarized, and this institution has been frightfully polarized
these past few years.
So, Dr. Viard, I want to talk to you about this sentence of
yours, and then have others talk about your conclusions. You
say on page 3: Because short-term stimulus merely shifts output
and jobs from one time to another--which, by the way, I think
is oversimplified--I assume there can be investments in the
short term that have impact in the long term, and it is not
just a shift from 1 year to another. I think that is an
oversimplified statement. But that isn't the main point I
wanted to make.
Proper timing is essential. If the stimulus arrives after
the economy has started to recover, it makes the economy more,
rather than less, volatile.
I think there is basic agreement that our economy has not
yet started to recover. Right?
Mr. VAIRD. Yes.
Mr. LEVIN. I think all of you agree. So, therefore, the
issue is timing. I don't think, though you talk mainly about
monetary policy--which is what we would expect you to talk
about, I guess, in this polarized world we have been living
in--you seem to not be totally closed-minded about short-term
investments, which you then proceed to attack or question.
You know, I remember in the 1960s the accelerated public
works program and what it did for the economy where I came
from. It was all construction, and it happened fairly quickly.
I can remember the libraries that were built in places that
never had them or had just storefronts, and lots of other
things. So, why don't you--some of you have addressed this;
some of you are talking mostly about other issues. Perhaps, Dr.
Bernstein and Bob Greenstein, you can talk about it and others.
I so agree on the unemployment comp; I would hope we don't
need to discuss it. It passed, what was it, 368 to 28.
So, why don't some of you talk about this short-term
stimulus. You are very down on infrastructure. Are all of you
down on infrastructure?
Mr. BERNSTEIN. No. I am up on infrastructure.
Mr. LEVIN. So, Alan has challenged you.
Mr. BERNSTEIN. Alan is my friend. We often debate such
things. His analysis, I would argue, is based on something
quite different than what I am talking about and what I think
others were talking about on the earlier panel. Alan is
referencing what I talked about in my testimony as more
conventional infrastructure investment, the type that takes
place, for example, in a transportation bill.
Let me make two critiques briefly about Alan's points on
this.
First of all, I would argue that monetary policy, which
Alan stressed, has been seemingly ineffective, unfortunately,
in affecting conditions that we face. Interest rates have been
reduced by the Federal Reserve from above 5 percent to
something like 1 percent as of this afternoon, and there is
actually quite a bit of pushing on a string going down there.
There is not enough demand to get investors to take advantage
of that lower borrowing rate.
Alan also stressed automatic stabilizers. We heard from
both Bob Greenstein and Christine Owens about shortcomings in
that regard. Tax cuts were actually quite ineffective in the
first round of stimulus, largely because households are so over
leveraged that those cuts go right into saving and credit
relief. Not a terrible thing to do, but certainly not stimulus.
The same thing with business investments, very ineffective in
the first round of stimulus, the accelerated depreciation.
If you look at the multiplier effect from even traditional
infrastructure investment, you find that they are greater than
business investment by orders of magnitude. But that isn't even
what we are talking about here. What we are talking about here
is something new in--you correctly point out that it may have
been going on 40 or 50 years ago. But in the context of at
least the current stimulus, it is something new and different
than what I think Alan is talking about. These are projects
that, as someone said, are shovel ready.
Now, Alan and I do lots of work with spreadsheets and
calculators, not too much with bulldozers and shovels. That is
why it was interesting to me to hear a civil engineer on an
earlier panel underscore the reality--underscore the viability
of projects like this to be up and running quickly. That is
particularly the case when you have projects that are
undergoing at State levels, that are currently starved for
capital and have had to suspend work. That is precisely the
kind of projects we are talking about now.
I believe that you craft a package where eligibility
requirements are contingent upon shovel readiness. Eligibility
for a program mean that funds have to go out within something
like 90 days and start creating activity and employment shortly
thereafter.
So, we--I think Alan would agree. We simply don't have the
data points, as it were, to observe the kind of projects that
we are talking about in this context.
Mr. LEVIN. My time is up. Maybe somebody who comes after
me, let's try to stick to the 5-minute rule; maybe they will
give you a chance to respond, because it is one of the issues
that we are now talking about and needs to be resolved without
just kind of falling into expected positions. I hope
unemployment comp is settled. We have other issues, including
health issues, that need to be resolved, and some pension
issues.
So, I will give back to the Chair in hopes that somebody
else will give Dr. Viard a chance to respond to the comments.
Mr. MCDERMOTT. The gentleman from Georgia, Mr. Linder, will
inquire.
Mr. LINDER. Thank you, Mr. Chairman. I will give Dr. Viard
a chance to respond after he answers a couple of my questions.
Do we know how much of the first stimulus package went into
retiring debt versus consumption?
Mr. VAIRD. It is hard to make a precise determination of
that. But a variety of empirical studies have found that only a
modest portion, less than half, went into consumption.
Mr. LINDER. You said that some nations are colluding to
keep tax rates high, corporate tax rates. Isn't that the
mission of the OECD?
Mr. VAIRD. I am not sure if the OECD views its mission
quite that way. But there have certainly been proposals for
cooperation as it is called, or collusion as you and I would
probably call it, to maintain high corporate tax rates.
Former Treasury Secretary Larry Summers gave a speech in
December of last year, December of 2007, where he advocated
that type of international cooperation. I don't think it would
probably be feasible for it to occur; but I think it would be
harmful if it did.
Mr. LINDER. Would you care to respond to the other comments
that were made?
Mr. VAIRD. There is a distinction that I drew throughout my
testimony that I really want to reiterate. Short-run fiscal
stimulus does shift outputs in job only from one time to
another, but investment of course can indeed create jobs and
output permanently. I note that a number of times in the
testimony. That is true whether it be private business
investment or it be public investment and infrastructure.
Certainly it is quite true that I am down on infrastructure
with respect to a tool of short-run fiscal stimulus. I am not
down on infrastructure, per se, as an investment that America
needs to make. I think every project has to be evaluated on its
own merits. That is most easily done, of course, if we are not
distracted by considerations of short-run stimulus.
I think that is true for many types of policies. There are
many tax policies, such as the ones that I have advocated that
are not particularly effective at providing short-run fiscal
stimulus but are good for long-run growth, and I think that is
where most of our focus needs to be.
Jared has talked about ways to do an infrastructure
stimulus package that would be different from packages that
have been considered in the past and studied by CBO and
packages that have been attempted in the past. Obviously, I
think that if you are sitting here where you have the luxury of
saying, let's assume that everything works perfectly, let's
assume that we can really define this thing properly, then of
course you could decide at least a limited package of
infrastructure related spending that would be somewhat more
effective as a fiscal stimulus than the almost completely
ineffective packages that have been considered in the past.
Obviously, it would still have to confront all of the
difficulties that any discretionary fiscal stimulus encounters
in terms of how quickly can it be enacted, how quickly can we
actually apply the criteria that Jared has talked about to
identify which projects are shovel ready and which are not; how
effectively one would be able to apply those criteria. Then, in
the real world of administrative delays, how quickly will that
work actually begin and how quickly will it proceed?
Mr. LINDER. You probably all would agree that a study on
improving diversity in the national parks, as passed in the
Senate version, would probably not add to the stimulus of this
economy.
Mr. VAIRD. I wasn't able to hear the question.
Mr. LINDER. You probably all would agree that a study on
improving diversity in national parks is not very stimulative
to the economy.
Mr. VAIRD. It wouldn't seem to be.
Mr. LINDER. Ms. Turner-Joseph, you made some interesting
comments on your observation of the provisions in the Pension
Reform Act of 2006. How do you envision a stimulus package and
an impact on your observations about that act? Ms. TURNER-
JOSEPH. The Pension Protection Act itself was designed to make
sure that the pension plans are properly funded to meet their
responsibilities to pay benefits when participants retire. To
that I am totally in agreement with----
Mr. LINDER. Do you think a stimulus package should put
money into pension funds?
Ms. TURNER-JOSEPH. No. What I was about to say is that
right now what we have is a situation where the employers of
defined benefit plans are at a crossroads where they are
suffering because of the fact that the new rules are requiring
higher contributions from them than under pre-PPA. In addition
to that you have the downturn in the market that is going to
definitely add to their contributions and may even put some
employers in a position where they are freezing benefits and
have to restrict or even terminating their plans. What
employers are looking for is some kind of relief, and I am not
implying qualified plans. What I am implying is that there can
be some relief for qualified plans in the area of asset
smoothing, in the area of phasing in of the funded target.
Those can be looked at and probably loosened a little to give
employers a chance to, quote, unquote, fiscally catch their
breath because right now the amount of moneys that is going to
be pulling on employers to pay pension benefits, they have to
weigh do I pay pension benefits or do I handle other expenses
things that are more important in running my business? That is
what I think needs to be focused on, a chance to give employers
to catch their breath with the new rules that are now being
imposed on them and the downturn in the market
Mr. LINDER. Thank you. Thank you, Mr. Chairman.
Mr. MCDERMOTT. One of the things that troubled me in the
$700 billion bailout, which was supposed to be aimed at the
mortgage problems of the housing market, was that we never had
any hearings to actually figure out what was going on or what
we were putting that money out there to buy. So, I had a call
from a guy in my district--having Microsoft around your
district, there are an awful lot of people who have written
programs to do various things, one of which was a guy who
called me and told me that he had created a program by which
you could reconstruct those diced and sliced mortgage-backed
securities and you could actually figure out where they all
went.
Now, what I am interested in and maybe, Mr. BERNSTEIN., you
are the one or maybe if anyone else has an answer for this, how
do we find out what we are authorizing Treasury to buy? How do
we get some transparency in something that was created to be
opaque in the first place so that people wouldn't know what
kind of junk they were buying? How do we reconstruct or
deconstruct that house of cards that has now fallen down on us
and what do we need to do in the way of regulation or whatever
to make that happen?
Mr. BERNSTEIN. Well, I think where you ended up is where I
would start out. I mean I think this is a matter of regulation
and oversight and imposing rules in financial markets where
they don't currently exist. Now, obviously there is always a
balance you strike when you concoct such rules. You don't want
to stifle innovation or the ability of market players to apply
appropriate hedges and things like that. Clearly we have failed
far--gone much too far on the other side of that continuum to
the point where our assumption that these markets will self-
regulate has led to a level of deregulation and lax oversight
that got us to where we are today, which I view as a very, very
serious indictment of the regulatory structure.
Derivative markets in particular, which feed very much into
your question, are almost wholly deregulated--almost wholly
unregulated and lack transparency such that folks who trade
into those markets don't know very much about the financial
exposure of the institutions from which they are buying and
selling.
When the CFTC, the Commodity Futures Trading Commission,
raised that precise concern back in the late 1990s, early 2000,
former Chairman Greenspan and others--and it wasn't just a
Republican-Democrat thing. I think this was a bipartisan
mistake--said don't worry, those markets will regulate
themselves. We don't need that type of transparency.
Similarly, one of the factors that got us into this mess
were so-called structured investment vehicles, off-balance
sheet accounts that banks were allowed to have that investors
knew nothing about. They couldn't tell the exposure of a
particular investment institution to things like mortgage-
backed securities because these were off their balance sheets.
They got no reports.
So, the simple answer to your question is more regulation,
more oversight, and common sense kinds of things such that when
a mortgage is--a subprime mortgage is bundled into a security
with other higher quality debt, that is reported so investors
know what they are buying. I am not just talking about
investors. There is a case of a German bank manager who said--
once this thing started crumbling down, literally said, ``I had
no idea I was exposed to subprime mortgages.'' There was never
any accounting that said in this package that you are buying of
MBSs there is subprime slime in there. So, reporting
requirements, transparency.
Mr. MCDERMOTT. Is it all in the Banking Committee's
regulation, or are there things in the Tax Code that need to be
dealt with, prohibiting tax, whatever?
Mr. BERNSTEIN. Alan may have a view on that. I think it has
got to be--my inclination is that it is mostly the former, not
the latter.
Mr. VAIRD. I don't think there are many tax implications,
not that I am aware of.
Mr. MCDERMOTT. Ms. Owens, I want to ask a question about
reform of the UI system. Why should--what is wrong with the
system or who would benefit if we made some of the reforms we
have talked about in terms of part-time workers and workers who
have to leave their job and so forth?
Ms. OWENS. Well, the beneficiaries would be the people who
actually are most likely to need the UI system. They would be
low-wage workers. As I noted, the General Accounting Office has
found that low-wage workers are twice as likely as high-wage
earners to become unemployed but----
Mr. MCDERMOTT. Why is that?
Ms. OWENS. Well, there is a lot more volatility in the low-
wage labor market generally than for high-wage earners. Then
when they are unemployed, they are only--a third is likely to
collect benefits. A major reason for that is not because they
haven't been working enough months but because most States
still use a sort of conventional earnings period for
determining whether a worker meets the minimum earnings
threshold to be eligible for unemployment, and that period
excludes the preceding two quarters, so that if someone had
been working for a year but the first 6 months the earnings
were not enough to meet the minimum earnings threshold because
those two preceding--most immediate preceding quarters are
excluded, that person is not eligible to collect unemployment
benefits.
So, you can see how using that kind of a period for
determining earnings would have a disparate effect on low-wage
workers. The States that have changed this have adopted
something called the alternative base period which about 20
States have adopted. They actually consider recent earnings and
a lot more low-wage workers are therefore eligible.
One of the things I didn't say, but if Congress were to
move ahead--the House has passed the UI Modernization Act. If
the Senate were to do so as well, the 20 States that have
already adopted alternative based periods would become eligible
immediately for incentive rewards for having done so, and that
is new money to them because they are already paying out
benefits. So, they could use that money to apply to the
benefits, to increase benefits, to make some other reforms or
to make other improvements in their systems.
Mr. MCDERMOTT. Explain the business about working part
time. If I get laid off and I go and take a part-time job, I am
putting money into the benefit pool or my employer is putting
money in the pool, and then I lose my part-time job. Do I get
benefits?
Ms. OWENS. Not in most States. Again it has to do with the
earnings threshold as well as the fact that a lot of States
just don't consider part time to be--the States require that
you be available and look for work full time. So, they don't
consider full-time employment to have qualified you for
benefits or if like many working mothers all you can afford to
do is work part time because you have child care
responsibilities, you are not eligible for unemployment
benefits even though, as you say, you have been paying in as a
part-time employee as have low-wage workers. In fact they--in a
sense low-wage workers' contributions are higher because the
taxable wage base is set so low and it is taxed on the first
couple of quarters of earnings. So, most of what low-wage
workers earn gets taxed as a part of the system. For higher-
wage earnings, it is the same taxable wage base and it is a
very low wage base.
Mr. MCDERMOTT. Thank you. Mr. Pomeroy will be inquiring.
Mr. POMEROY. Thank you, Mr. Chairman. I found this to be a
very interesting day and I came in specifically of a concern
that is maybe not well understood about pensions. So, I found
the testimony of Ms. Turner-Joseph to be particularly
interesting and I would like to ask--I would like to highlight
portions of your testimony that I think make it very clear what
the issue is. You state on the bottom of page 3, ``Without
additional tools to address the unforseeable investment losses
and the resulting explosion of funding obligations pension plan
sponsors now confront, millions of employee pension plan
participants could face benefit restrictions and plan freezes
and the job losses and business contractions threatening many
U.S. employers and workers will only be made worse.''
Now, you are an actuary; so I know this is going to be
difficult, but in plain speak can you tell us why this is
happening?
Ms. TURNER-JOSEPH. Thank you for giving me the opportunity
to do it in plain speak. It is a little easier.
First, we have to understand that qualified plans are--or I
should say sponsors who decide to provide qualified plans to
their employees, it is a voluntary thing. When an employer
decides to put in a plan to benefit not only himself but his
employees, we should make sure that the rules are not so
stifling that it puts an employer in a position where they have
to make a decision: Am I going to keep my plan or am I going to
terminate it, freeze benefits, just to keep my business----
Mr. POMEROY. Right. When you talk about the cyclical
nature, ironically when the market is up, the value of plan
assets--the funding of the pension plan is up because of the
equities held. So, in good times you don't have to fund. In
good times they could afford to fund. Now, in bad times when
they can't afford to fund, it is the worst. The market crashes,
the evaluation is projected as being insufficient, and that is
the worst time for the employer to face a serious funding
shortfall; right?
Ms. TURNER-JOSEPH. I will tell you that I am looking at
this chart and I notice that in the late '90s that is when you
notice from the chart that the funded status is the highest.
That is the period, by the way, that a lot of plan sponsors
were clamoring for regulations and rules that would allow them
to aggressively fund their plans because that was a time when
the market was doing well, folks had money, and they wanted
to--I had clients that said isn't there anything else you can
do? I would really like to put some more money in the plan.
They amend the plan. They increase benefits. But you had these
rules, these artificial full-funding limitations that say okay,
your plan liability is ``X'' amount of dollars but we have this
artificial number here that is saying you can't put anything
else in.
Mr. POMEROY. I think the Pension Protection Act got part of
that problem right. In good times they can now fund more.
Ms. TURNER-JOSEPH. Unfortunately, the Pension Protection
Act is about 6 years too late. We would have loved to see this
in the late '90s.
Mr. POMEROY. The part--when I say they got part of it
right, they got part of it wrong. They do allow the funding in
the good times but they actually made things worse in the bad
times.
Ms. TURNER-JOSEPH. Absolutely. It is ironic that the
Pension Protection Act comes along and it has rules in there to
aggressively enforce funding, and just when we are about to get
started on it, the first year that the Pension Protection Act
is effective is for 2008. The 2008 valuation is the first year
that contributions are going to be calculated under these new
rules. Guess what happens. Our market crashed. You know, so you
have things going in different directions. Unfortunately, the
Pension Protection Act has not even gotten a chance to get
started to beef up pension plans and get those higher
contributions so that in a time when we have a down market you
have a cushion. There is no cushion now.
Mr. POMEROY. Now, this chart which shows--and this is done
by the Center for Retirement Research up at Boston College, and
it is done from the universe of 1,800 plans. So, this is a
pretty good snapshot and it shows that by virtue of these
depressed asset valuations you have got plans on average funded
at about 73 percent. Does that mean that these--we are likely
to have a rash of plan insolvencies?
Ms. TURNER-JOSEPH. I would start first by looking at 2007.
If you notice from the chart it is implying that in 2007 we had
plans funded at approximately 98 percent. That is a great
number. Now you are going to come down to 2008, and the year is
not done yet. Especially for calendar year plans, we are not
even sure what the true impact is because the assets that is
going to be available for funding plans in 2009, which is the
upcoming year, may even be worse than the 73 percent.
Mr. POMEROY. You are absolutely right. None of us want
insolvent pension plans. None of us want a burden falling on
the pension, or PBGC, and suddenly now taxpayers have to bail
out pension plans like we bailed out everything. But the
reality is the liabilities owed at either the 98 percent in '96
or the 73 percent in '08, those liabilities are owed over many,
many years; correct?
Ms. TURNER-JOSEPH. Absolutely. Absolutely.
Mr. POMEROY. So, as the market recovers, the funding is
going to recover also in large part, or to the extent that we
place funding requirements we could make the--we could amortize
over several years the catch-up funding; so you would have
market recovery and you would have the catch-up funding and you
would have basically these plans becoming whole again, no
disruption in benefits, but you wouldn't crush employers with
the kind of funding burden that is going to fall on them if we
do nothing.
Ms. TURNER-JOSEPH. I absolutely agree. Might I add another
thing? If your plan is not frozen, what is going to happen to
your liability? Your liability is going to increase each year
because your plan participants are earning benefits each year;
some plans, their liabilities go up as much as 10 percent only
because of benefits earned. Now you, have the asset losses in
2008 that will apply in 2009; so you have your increase in
liability and the return on assets that you were expecting
didn't come through. What you really have now is a loss. The
shortfall that is just the difference between your liability
and your assets--is a big one. Under PPA if you have a gap
between your liability and your assets, you are expected to
amortize that generally over 7 years.
Mr. POMEROY. My final question to you, and I appreciate the
Committee's indulgence on time. I really believe this is a
terribly important issue that needs to be considered right now.
We can provide funding relief for next year which will prevent
employers from having to come up with vast sums to fund these
pension plans as a result of the market crash. It will prevent
jobs from being lost as employers need to make cuts to try to
get the pension funding that they owe under the law, and we
could do that in a measured way without placing risk on plan
solvency. Is that your view?
Ms. TURNER-JOSEPH. I absolutely agree with that. I have
some suggestions here and a couple I have in my written
statement. One of them is the asset smoothing, which of course
part is already in the PPA technical corrections bill. But I
think that has to go a little bit further. We have to widen the
corridors just a little bit, and it can be done through a
window. It doesn't have--I mean we are not----
Mr. POMEROY. Even taking it to pre-PPA----
Ms. TURNER-JOSEPH. Absolutely. And 20 percent would be
helpful, but if we can go beyond 20 percent and do 30 percent
that would be even more helpful. Give a window, give a 2- or 3-
year window because we are hoping that in 3 years assets will
have rebound and we don't need the window where your corridor
is extended anymore. That is one thing that can be done.
There is one thing that I didn't touch on in my comment if
I may say that real quick, and that is actuarial assumptions
that are used to generate contributions. Plan sponsors are
being asked to make assumptions before they have regulatory
guidance, I think to allow plan sponsors to use assumptions now
to determine contributions without having to apply for approval
from the IRS to change assumptions after regulations guidance
have been provided, and that includes small plans.
Mr. POMEROY. Thank you very much. Mr. Chairman, if you
consider whether we are going to do anything in a lame duck
session or not, even if we do something as focused as
unemployment, for example, some funding relief to pensions
which would not cost the Treasury a nickel would be hugely
helpful throughout the marketplace, and you are going to have
business and labor testifying on that going forward.
Thank you, Mr. Chairman.
Ms. TURNER-JOSEPH. If I could make one quick point, we
would love to see something before year end because come year
we are looking at calculating numbers for 2009, during that
first quarters of 2009, and if we have no relief a lot of plans
are going to be terribly underfunded----
Mr. POMEROY. This is hugely time sensitive; right?
Ms. TURNER-JOSEPH. Yes, it is.
Mr. POMEROY. Thank you, Mr. Chairman.
Mr. MCDERMOTT. We would all love to work with Mr. Bush to
make it happen.
Ms. Berkley, you have to catch a plane. Do you have time?
Ms. BERKLEY. Mr. Chairman, thank you very much and Mr.
Kind, thank you for giving up your time for a few minutes. I
want to ask Dr. Lambrew something, and this was a situation
that happened about a year ago before I knew the extent of the
mortgage foreclosure crisis in my congressional district, which
of course is the worst in the country.
My husband is a nephrologist and he sent one of his kidney
patients who had passed away--he sent his wife to my office and
this was her story. She and her husband had been employed,
owned a home. It was a typical middle class existence. She
worked at the university, got a good paycheck. He worked
someplace else, got a good paycheck. He developed kidney
disease. Throughout the course of his treatments and as he
slowly lost his battle with the kidney disease, he lost his
job. His wife lost her job. They both lost their insurance and
ultimately lost their home, and this woman lost her husband.
She came to my office because she was in a state of panic, but
she also was talking to me about how can this be in the United
States of America? We did everything right. We were both
college graduates. We had good paying jobs. We were living the
American dream and we lost everything because my husband was
sick. It wasn't that they were uninsured. They were insured.
They lost that as well.
She came to me asking for relief, and I had nothing to
offer her. I mean I could commiserate with her and I was upset
and angry and chagrined, but that didn't--none of my reactions
helped this woman in the least nor would my reaction have
helped thousands and thousands of other people that find
themselves in this position.
What would you recommend that we can do to ensure that
people don't go belly up broke and bankrupt and lose everything
they have because of a prolonged illness when they have done
everything right?
Mr. LAMBREW. I think that the answer is quite clear. We
cannot simply continue to put patches on this system. I mean we
could try to create something akin to the unemployment system
for health insurance and that may solve some of these problems,
but that is one set of many different problems. Amongst the
people with medical debt, 61 percent have health insurance.
This is not just an uninsured problem. The problem is
pervasive. I will just repeat the statistic I said earlier.
Fifty percent of people report some family member who is
skipping a medicine, delaying care, not getting care because of
health care costs. That is just endemic. I think the way to
solve this is comprehensive reform. I will say this----
Ms. BERKLEY. How do you see that comprehensive reform?
Mr. LAMBREW. I think we have many good ideas on the table.
I think we build on what works today, our public works system,
our private employer-based system to fill in those gaps, create
an alternative that gives people a choice of a public-type
option like Medicare or some other type of public program or
private insurance choices like you have as a Federal employee.
We think through some sort of a sliding scale premium
assistance to ensure that low-income people have the means as
well as the access to buy health insurance, and then we
seriously look at cost because once we get people in the
system, we have to begin to identify those tools to begin to
address chronic illness, focus on prevention, squeeze out the
inefficiencies in the system because I am convinced that we
need to simultaneously get people in but then look at our long-
run trend because the system needs to be sustainable as well as
fair and efficient in the short run.
It is possible. We have bipartisan plans out there. The
business community is behind it. I think we really do have the
opportunity in this next Congress to address this crisis.
Ms. BERKLEY. It seems to me the way we deliver health care
services in this country is, you will excuse the expression,
bass ackward. We spend most of our health care dollars in the
last 6 months of life rather than putting it in the--front
loading the system where we have research and development and
try to prevent these diseases and early detection and
prevention if we can. This requires an entire paradigm change.
How do we shift these resources while we still care for
those at the back end of life who--to me it seems if we can
figure this out we can ultimately save billions of taxpayer
dollars while we keep people healthier and living longer in
this country, but how do we do that?
Mr. LAMBREW. You are asking somebody who has spent a lot of
time on this. I have several papers and a book chapter coming
out later this month about an idea called the ``Wellness
Trust,'' which basically says we are wrong in thinking about
prevention as an insurable event; that if you really want to
keep people healthy, you need to invest now in something that
won't accrue for years and maybe it will only accrue to
Medicare. We need to think of a different type of system and
make prevention and wellness more like, you know, our public
safety systems, international security, than an insurable
event.
John Podesta and I wrote a paper a couple of years ago
about the Wellness Trust, where you carve prevention out of
health insurance, consolidate our public health spending into a
trust fund and you use that trust fund independent of insurance
to try to focus on proven prevention, and that is the key.
We have to focus on what works because there is a lot of
services and vendors out there who sell things called wellness
and prevention that are not effective, which is why the
Congressional Budget Office usually doesn't give us savings on
this. If we focus on what works, targeted, making it ubiquitous
and directly pay for it through a mandatory trust fund, we
think you could get at this long-run problem, but it is
requiring it to be something different than what we have today.
Not insurance and not funded through our public health programs
that are already overstressed trying to deal with bio
preparedness and other different issues.
Ms. BERKLEY. Thank you.
Mr. MCDERMOTT. Mr. Kind.
Mr. KIND. Thank you, Mr. Chairman. The hour is late, the
panel has been great, and the hearing has been very
interesting. Mr. Greenstein, we could start with you given your
focus and your testimony on income disparity in the country and
the impact on low-income families, but for all of you, if we do
move forward on a second stimulus we are going to have a
limited amount of resources to work with here, and you have got
to help us prioritize a little bit. One of the things that is
happening right now, one of the greatest stimulus effects that
are taking place today is a dramatic decline in energy costs.
We have gone from 4 bucks a gallon in Wisconsin just a couple
short months ago to around $2.45, and that is I think going to
be very beneficial to low-income families who are
disproportionately affected with an increase in energy costs
especially at the pump.
But has anyone done any calculation--have you at the
organization done a calculation as far as what stimulus we are
going to get from the dramatic decline of energy costs that we
are seeing right now and how beneficial that will be for the
economy overall or the impact on low-income families?
Mr. BERNSTEIN. I just have a quick answer and then back to
Bob. There is a rule of thumb on that that says for every penny
that gas prices fall, it amounts to about a billion dollars in
terms of increased revenue to consumers. So, we are looking at
something like a hundred plus billion dollars stimulus based on
that. Interestingly and importantly, it hasn't offset the
downturn in any obvious way yet, and I would add to that that
the consumer confidence, which usually responds to gas prices--
when gas prices go down, consumer confidence goes up--hasn't
been functioning that way. It has been going the other way.
Mr. KIND. Right. Let me ask both of you maybe real quick as
far as priorities, where should our focus really be? Should we
be more concerned and focused on anything we do with the impact
on low-income families? Should we be more consumer focused
given that two-thirds of economic activity in this country is
consumer driven anyway? Should we be focused on helping small
businesses expand and create jobs which are going to have a
huge impact on low-income families and people working in small
businesses? Or do we need to look at longer term investment
decisions for future growth opportunities?
Mr. GREENSTEIN. Well, both the short term and the long term
are important but I would distinguish among them. There is a
quick need certainly, you know, if you can do some things in
November, good. If not, then I would urge you to try to figure
out in November and December what the package is and begin
moving on it when you come back in early January and have it on
the new President's desk.
Mr. KIND. Like unemployment, food stamps and things like
that?
Mr. GREENSTEIN. Then the question as to what to do; so we
are in a steep downward slide now. As I noted, a lot of
economists believe unemployment will rise to 8 percent or more.
We are talking about a potentially quite deep downturn. So, we
really--the number one priority is in and of itself not which
income group it affects but what gives you the biggest bang for
the buck in terms of injecting aggregate demand into the
economy. That is where the jobs are--the jobs don't come from a
program called ``jobs.'' They come from what is most effective
in injecting aggregate demand into the economy. As it turns
out, a number of the things that are most effective do focus on
low and moderate income families for the simple reason that the
more cash constrained you are, the more you are going to spend
close to a dollar of every additional dollar you get. The
higher you go on the income scale, the more it is going to be
saved.
So, my three--I think that there is a need for a large
enough package that it can cover and should cover a number of
items. So, my three top priorities--but I certainly don't think
they are the only things that should be in the package. My
three top priorities are unemployment insurance, not only the
additional weeks of benefits but the reform that Chris talked
about because under the current system some of the lowest
income workers and disproportionately female workers who were
laid off don't qualify at all, and I think it is worth
exploring whether there is a way that can be done quickly and
can be administered to kind of do some kind of bump on the
weekly unemployment benefit, which is not a generous benefit.
In the same category as the unemployment insurance, I would
put the often discussed temporary increase in food stamp
benefits. That is pretty close to 100 percent being spent.
My third item--and I am not rating these one, two, and
three, I am putting them together in a package. My third and
the biggest of the three in cost is State fiscal relief. Our
latest analysis indicates that for the State fiscal year that
starts July 1, 2009, we are looking at cumulative State
deficits of $100 billion. State revenues are really falling.
That is in addition to some billions of dollars of deficits for
the current fiscal year that States thought they had closed
that are now reopening. As States--States are now exhausting
their rainy day funds and these things----
Mr. KIND. Let me just conclude by asking when do we start
really getting worried about the long-term structural deficits
that are being created around here and the impact that is going
to have on future growth?
Mr. GREENSTEIN. I think we should be worried about that as
well. The ideal--I don't want the perfect to be the enemy of
the good. In an ideal world you would have a very robust
stimulus package and you would then have measures that paid for
at least some of it starting maybe in the third year or the
fifth year well after the economy is strong. However, in the
real world I worry that if you try to do that, either there
would be so much controversy over the offsets that we wouldn't
pass the stimulus package in a timely manner, and as long as
the stimulus package consists of temporary measures that are
not ongoing, then--we already have a long-term fiscal problem
we ultimately really have to address but a stimulus package
isn't going to materially worsen it if it is temporary
measures. I think that we do need to put first things first. We
have got to deal with the financial crisis. We have got to deal
with the economic--with the need for a stimulus package. As we
move to other policy measures in the next few years, I think we
need to start thinking about some way as the economy improves
to get back to those other issues.
Real quickly one thing--and in stimulus certainly. One
thing we might want to think about. It is not urgent. You don't
have to do it in the next 6 months, but maybe in the second
year, the next 2-year Congress, it might be worth thinking
about Social Security. There may be a better potential to
actually get an agreement than there has been in a while for a
number of reasons I won't take the time to go into now, that
would be--in the current situation where many Americans looking
at their 401(k)s are saying, my God, what is happening to my
retirement security, wouldn't it be a good thing to be able to
say, you know what? We the Congress and the next President have
restored Social Security solvency for the long term. It is
bedrock. We have guaranteed it will there for you when you
retire. I think that is worth thinking about it in the second
year----
Mr. KIND. I would agree. I want to thank you all for your
testimony here today.
Thank you, Mr. Chairman.
Mr. MCDERMOTT. Mr. Van Hollen will inquire.
Mr. VAN HOLLEN. Thank you, Mr. Chairman.
I thank all of you for your testimony here today. I think
we would all agree that as we try to find ways to get our
economy moving again as part of an economic recovery package,
to the extent we can also accomplish other national objectives
at the same time, that is a good thing, and it is that tradeoff
between trying to get things infused in the economy and getting
a quick return and then at the same time trying to make long-
term investments. I think we would all agree one area that has
been talked about is of course infrastructure, roads, bridges,
rail, schools, those kinds of things. Another area--which
obviously have long-term benefits.
Another area is of course our energy policy and trying to
reduce our dependence on foreign oil, to try to move off of
fossil fuels. I think we have all learned we export
approximately $700 billion a year for the purchase of foreign
oil. To the extent we can redirect those resources here and at
the same time address our energy needs and grow more green
jobs, we are all better off.
Mr. Bernstein, in your testimony you list a number of
ideas, some of them from the Center for American Progress, and
my question is first to you and then to everybody on the panel
who wants to answer, is a lot of the projects you have put
forth here require additional appropriations. My question is
this is the Committee on Ways and Means and we--in the last
Congress just before we left, as you know, we did increase a
lot of the tax incentives for wind power, for solar power, for
other kinds of renewable energy and energy efficiency. As part
of an economic recovery/stimulus package, are these more
effective, the kind of things you have got listed here, or are
there also ways you can use--provide tax incentives that have
the advantage of stimulating more investment in renewable
energy and energy efficiency but also get you that benefit that
we were talking about in terms of an economic recovery?
Mr. BERNSTEIN. My answer is yes. The provisional on the
point that much of this is fairly new stuff, but the evidence
we have seen is that tax policy that incentivizes retrofits,
weatherizations, solar panel implementation both for houses and
businesses is something that firms take advantage of. There are
benefits obviously in terms of stimulus. Every one of those
creates employment. By the way, employment, in part, in
construction industries, which is an area of course where we
have seen massive job losses as well as investment--by the way,
there is another wrinkle here that folks are starting to raise
that suggests that it is important that the parts that go into
these kinds of retrofits and weatherizations are made
domestically. That is I think an interesting--another dimension
to this that would help prevent stimulus dollars from leaking
out of our economy to another economy.
So, in answer to the question I think both the kinds of
direct spending and tax--more tax-oriented intervention would
be very helpful stimulus in this regard.
Mr. VAN HOLLEN. Anyone else?
Mr. VAIRD. Yes. If I could address, again I think it is
very important to distinguish between different types of policy
interventions that could be done. But one of the passages from
the January 2008 Congressional Budget Office report states some
of the candidates for public works such as grant-funded
initiatives to develop alternative energy sources are totally
impractical for countercyclical policy. I am not sure that
critique applies in full to everything that Jared was just
talking about. But I guess again I would reiterate my caution
against doing anything largely for stimulus reasons when we
don't know how the timing will operate.
I think any of these initiatives in the area of renewable
energy should be done only if they can be justified in terms of
the actual output and benefit that they are going to provide
for consumers and for the economy from the use of this energy,
not from the short-run stimulus concerns. The timing is just
too uncertain.
Mr. VAN HOLLEN. I think we would all agree that these are
all important incentives for other national policy goals and
national goals. But you are right. If you are talking about
putting together a package of a certain amount of dollars, you
obviously want it to go to the most efficient use. I do believe
that focusing on some of these green jobs and some of these
areas can accomplish that, but as we go through it I want to
make sure that we pick those that also accomplish the goal of
trying to get the economy moving in the fastest period of time.
Mr. GREENSTEIN. I was just going to say you always want to
be careful to make the distinction between things that are good
policy and you should do and things that are really effective
stimulus policy. So, there will be some policies that are
really important and they ought to be done, but they may not be
right. If you have an ``X'' billion you set as the size of your
stimulus package and then you want to fill that size with the
things that are going to be the most effective as short-term
stimulus, and there will be some things that are good policy
that don't fit that criterion and they ought to be moved in
other vehicles. But I just think it is important to sort of
have this two-part focus.
Mr. VAN HOLLEN. I agree and that is what we are trying to
get at. There are two questions here. To what extent do these
kind of investments in green energy make sense as part of a
stimulus? The second part is if some of them make sense, which
are more efficient at accomplishing that economic recovery goal
compared to others, whether it is tax credits or direct
investments or whatever it may be?
Mr. BERNSTEIN. Let me make one further point I just
remembered. Last week there was testimony given by Professor
Robert Pollin from I think the University of Massachusetts
where he looked at direct job creation through investments in
infrastructure that you might call green versus more
traditional versus--he had one which he--one column which was
oil and gas because that is often raised as an idea as well. I
will make sure I get that to you. He had a very, I thought,
elucidating table which showed that in fact just bang for buck
as measured as jobs per dollar invested that the green
investments actually did have an edge.
[Not available at the time of printing:]
Mr. VAN HOLLEN. Thank you. I would like to get ahold of
that.
Thank you Mr. Chairman.
Mr. MCDERMOTT. Listen, we want to thank the panel. I don't
know what time you got here or what time you were told it would
start. But you have been very generous with your time and your
energy. We appreciate it.
The Congress really needs what you bring to us; that is,
some differing opinions on the issues that we are trying to
decide, and we are very grateful to you for spending your time
here today. Thank you very much.
The meeting is adjourned.
[Whereupon, at 3:54 p.m., the hearing was adjourned.]
[Submissions for the Record follow:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Statement of American Apparel & Footwear Association
``Our nation's financial markets continue to be in crisis today,
which means hardworking American families are suffering and need urgent
relief. Any economic stimulus package considered by the Congress needs
to meaningfully address the pressing needs of troubled middle-America.
The Affordable Footwear Act is a responsible, tangible tax break for
all Americans, which would immediately stimulate the economy.
``The Affordable Footwear Act eliminates the import tariffs,
collectively known as the shoe tax, on all lower--to moderately-priced
footwear as well as all children's shoes, or about 60 percent of all
shoes sold in the United States. The depression-era shoe tax was
implemented to protect the domestic footwear industry. The regressive
shoe tax on footwear imports is highest--as much as 67 percent--on the
least expensive shoes. The cost is necessarily passed on to consumers
at the cash register as a hidden, regressive shoe tax that can be
nearly 40 percent of the retail price of a pair of shoes. That extra 40
percent can add up quickly and be a burden for America's hardworking
families. Today, with 99 percent of all footwear sold in America being
imported, the shoe tax has out-lived its purpose, is unavoidable and
needs to be abolished for the sake of America's families.
``Please stomp out the shoe tax by including the Affordable
Footwear Act in the next economic stimulus package.''
The American Apparel & Footwear Association (AAFA) is the national
trade association representing apparel, footwear and other sewn
products companies, and their suppliers, which compete in the global
market. AAFA's mission is to promote and enhance its members'
competitiveness, productivity and profitability in the global market by
minimizing regulatory, commercial, political, and trade restraints.
Learn more at www.apparelandfootwear.org or www.endtheshoetax.org.
Statement of American Benefits Council
We appreciate the opportunity to submit this statement on behalf of
the American Benefits Council in conjunction with the hearing you are
holding today on Economic Recovery, Job Creation and Investment in
America. The Council is a public policy organization representing
principally Fortune 500 companies and other organizations that assist
employers of all sizes in providing benefits to employees.
Collectively, the Council's members either sponsor directly or provide
services to retirement and health plans covering more than 100 million
Americans.
We urge immediate action to reform defined benefit plan funding
requirements in light of the unprecedented market, credit and liquidity
crises affecting our economy. Absent action to address the
unforeseeable and crippling funding shortfalls and funding obligations
pension plan sponsors now confront, millions of employee pension plan
participants will face benefit restrictions and freezes and the job
losses and business contractions threatening many U.S. employers and
workers will only be made worse.
We are not asking for a so-called funding holiday, nor are we
suggesting a revision of the important funding reforms contained in the
Pension Protection Act of 2006 (PPA). Rather, we are confident that if
the framers of PPA had foreseen the extent of this crisis, they would
have softened the transition from the old funding rules to the new
ones. So that is what we are suggesting below, combined with some
critical clarifications of the intent of PPA. It is important to note
that these proposals are an interrelated package and will not provide
the needed response unless they are adopted as a package.
Permit pension plans to smooth out unexpected asset
losses. In PPA, Congress permitted pension plans to recognize
unexpected asset gains and losses over 24 months. The Treasury
Department misinterpreted Congress' intent and has effectively
applied a mark-to-market rule to pension plans, which will
cause unmanageable burdens for companies in 2009. As noted
above, if companies are required to take into account all 2008
losses immediately, many will cease benefit accruals for
employees and will have enormous trouble recovering from the
economic downturn. The proposal would allow all plans to use
smoothing for 2009 and subsequent years. Moreover, for
unexpected gains and losses recognized as of the valuation
dates in 2009 and 2010, the smoothing period would be extended
to 36 months.
Remove restrictions on extent of asset smoothing.
Also, PPA only allowed unexpected gains and losses to be
smoothed out to a very limited extent, so that the smoothed
value must stay within 10% of the fair market value. In light
of the dramatic reduction in the market this year, the 10%
limit is strikingly insufficient to provide meaningful relief.
Accordingly, it is critical that we let asset smoothing apply
without percentage limitations in 2009 and 2010.
Transition to the new funding rules. Before PPA, the
``funding target'' for pension plans was generally 90%. Under
PPA, the 90% figure was phased up to 100%; in 2008 and 2009,
the phase-in levels are 92% and 94%, respectively. So if a plan
is 92% funded in 2008, there is no shortfall to fund. But if a
plan is 91% funded, its funding obligation is based on a 9%
shortfall, not a 1% shortfall. With a huge number of plans
falling below 92% funded next year, it is critical that (1) the
phase-in level stay at 92% for another year, and (2) the
transition relief be available to plans below the phase-in
level, as well as above.
Permit new funding elections to avoid benefit
restrictions and keep plans viable. Generally, funding methods,
such as which type of yield curve to use, must remain
consistent, absent IRS approval. Given the enormous changes
over the past several months, companies need to reassess their
funding methods to find those best suited to maintaining their
plans gong forward. So for 2009 and 2010, under this proposal,
funding methods can be changed without IRS approval. This is
particularly important so that employers using the 24-month
yield curve average for 2008 can switch to the spot yield curve
for 2009 to be able to benefit from the recent spike in
interest rates.
We urge the adoption of these measures immediately and strongly
recommend that they be included in any economic recovery legislation
that may be considered during a lame duck session of the current
Congress. While somewhat technical in nature, the proposals we have
outlined above are critical in order to avoid further economic harm to
working Americans and the employers upon which they rely.
The Council sincerely appreciates your consideration of our views.
We hope that we can count on bipartisan and bicameral support in the
committee for these initiatives, and we look forward to working with
you to protect the economic and retirement security of American workers
in these uncertain times.
ATTACHED: The American Benefits Council 10-Point Plan to Help
Employees and Retirees and to Strengthen the Economy and the Retirement
System
10-Point Plan to Help Employees and Retirees and to Strengthen the
Economy and the Retirement System
The recent economic turmoil is substantially and negatively
affecting virtually every aspect of our financial lives. Among the
areas most adversely affected is retirement security. Employees and
retirees have seen their 401(k) and other defined contribution plan
savings plummet, and employers with pension plans have seen the value
of their plan assets fall precipitously, creating enormous funding
obligations for 2009 that are worsening the credit and liquidity
crisis. We need to act now to restore retirement security, to protect
jobs, and to prevent pension funding obligations from undermining
companies' ability to recover.
As companies now must plan for funding requirements that were
unanticipated just weeks ago, lenders are even less willing to extend
credit. Companies are therefore unable to dedicate needed resources
next year for job-creating business purposes to help their companies
recover. This burden is placing even more pressure on companies to
freeze or terminate their pension plans in order to mitigate the future
impact, which further diminishes long-term retirement security.
Liquidity, available credit, job creation, and retirement security are
all inextricably related. Congress must act now to restore retirement
security, to protect jobs, and to prevent pension funding obligations
from undermining companies' ability to recover.
The American Benefits Council divides its proposals into three
parts. First, we must help individuals get back on their feet
economically. In developing these ideas, we built upon prior Council
recommendations and also drew on key proposals offered by the
presidential candidates and members of Congress. Second, we must
prevent pension funding obligations from triggering a massive freeze of
new benefits and widespread job loss. Third, recognizing that full
economic recovery may take a while, we must begin now to lessen the
impact of the downturn and better prepare for future economic
uncertainties.
Helping Individuals Weather the Storm
Restore savings to those who need it most and put
dollars in their pocket too. We would expand the group of
middle-income employees eligible for the Saver's Credit. This
would allow middle-income employees the ability to replenish
their depleted savings. And it would reward their savings with
a tax credit that they could use to meet day-to-day expenses
which, in turn, would assist economic recovery.
Protect retirees from excessive distributions that
deplete their retirement savings. Participants would have the
right to be exempted from the age 70\1/2\ minimum distribution
rules in either 2008 or 2009--and thus not be required to take
any distributions--whether they are in a pension plan, a
defined contribution plan (such as a 401(k) plan), or an IRA.
It is important to offer individuals a choice of 2008 or 2009,
since many have already taken their 2008 distributions.
Suspend the penalty tax on hardship distributions
made in 2009. Like both presidential candidates, we want to
help individuals whose circumstances necessitate them taking a
hardship withdrawal while at the same time mitigating the
likelihood that they will deplete their own long-term
retirement savings. In recognition of workers' need to access
the money in their defined contribution plans, we would suspend
the 10% penalty tax on hardship withdrawals made in 2009.
Preventing Funding Obligations from Costing Jobs and Triggering Massive
Benefit Freezes
The following is an internal report from the chief actuary of one
defined benefit plan service provider:
``Our projections are showing DB plans due to get slaughtered in
their next round of actuarial valuations. Lest we forget, asset
smoothing has all but been eliminated so their unfunded liability will
see a $1 for $1 increase for their investment losses this year. . . . I
haven't heard this consistent level of concern from plan sponsors in 20
years. Just to throw a real example out there, a large [organization]
has gone from 114% funded for the 1/1/2008 year down to restricted
(i.e., below 80% funded) as of yesterday. . . . You have to assume
we'll be doing a lot of freezing amendments next year.''
The benefits system has never seen this level of concern before.
Unless something is done--quickly--massive funding obligations will
trigger benefit freezes on an unprecedented scale. And freezing does
not eliminate current funding shortfalls, so companies will be forced
to direct huge resources to their plans, which will cost many jobs and
prevent companies from making essential investments in their
businesses.
In this regard, it is important to clarify recent reports that
interest rate increases offset pension asset losses to a large extent.
Those reports are based on accounting figures, not funding figures.
Because plans generally use a 24-month average interest rate, the
recent spike in corporate bond interest rates will do little to help
the funding burden, even if the spike continues. For more on this,
please see the third proposal below.
The American Benefits Council is not asking for a so-called funding
holiday. And we are not asking to undo the important funding reforms
contained in the Pension Protection Act (the ``PPA''). On the contrary,
we are confident that if the drafters of the PPA had known in advance
of this crisis, they would have softened the transition from the old
rules to new rules. So that is what we are suggesting below, combined
with some critical clarifications of the intent of the PPA.
Although the proposals below generally do not modify the benefit
restriction rules directly, they would have a very significant effect
on the application of those rules, enabling participants across the
country to receive earned benefits.
Permit pension plans to smooth out unexpected asset
losses, as clearly intended by Congress in 2006. In the PPA,
Congress permitted pension plans to recognize unexpected asset
gains and losses over 24 months. The Treasury Department
misinterpreted Congress' intent and has effectively applied a
mark-to-market rule to pension plans, which will cause
unmanageable burdens for companies in 2009. As noted above, if
companies are required to take into account all 2008 losses,
many will cease benefit accruals for all employees and will
have enormous trouble recovering from the economic downturn.
The proposal would allow all plans to use smoothing for 2009
and subsequent years. Moreover, for unexpected gains and losses
recognized as of the valuation dates in 2009 and 2010, the
smoothing period would be extended to 36 months. In light of
many plan losses of approximately 20% or 30% for 2008,
smoothing--which in the long-term neither overstates nor
understates asset values--is critical.
Permit full asset smoothing. Also, the PPA only
allowed unexpected gains and losses to be smoothed out to a
very limited extent, so that the smoothed value must stay
within 10% of the fair market value of the assets. In light of
the dramatic reduction in the market this year, the 10% limit
is strikingly insufficient to provide meaningful relief.
Accordingly, it is critical that we let asset smoothing apply
without percentage limitations in 2009 and 2010. Such smoothing
would be applied for all purposes, including the determination
of the variable rate premium payable to the PBGC (for which no
smoothing is permitted today).
Transition to the new funding rules. Before the PPA,
the ``funding target'' for pension plans was 90% funded. Under
the PPA, the 90% figure was phased up to 100%; in 2008 and
2009, the phase-in levels are 92% and 94% funded, respectively.
So if a plan is 92% funded in 2008, there is no shortfall to
fund. But if a plan is 91% funded, its funding obligation is
based on a 9% shortfall, not a 1% shortfall. In other words,
the transition relief is only available to plans at or above
the phase-in level. With a huge number of plans falling below
92% funded next year, it is critical that (1) the phase-in
level stay at 92% for another year, and (2) the transition
relief be available to plans below the phase-in level, as well
as above. The 92% phase-in level for 2009 would apply for all
purposes for which the same phase-in structure applies,
including the benefit restrictions.
Permit all new funding elections for 2009 or 2010 to
avoid benefit restrictions and keep plans viable. Generally,
funding methods, such as which type of yield curve to use, must
remain consistent, absent IRS approval. Given the enormous
changes over the past several months, companies need to
reassess their funding methods to find those best suited to
keeping their plans alive. So for 2009 and 2010, under this
proposal, funding methods can be changed without IRS approval.
This proposal (which is a clarification with respect to 2009),
along with the smoothing changes above, will provide a large
number of plans with the ability to avoid having to apply the
PPA's benefit restrictions solely by reason of the 2008 market
downturn. For example, employers using the 24-month yield curve
average for 2008 could switch to the spot yield curve for 2009
to take advantage of the recent spike in interest rates.
Without such a change, the recent spike in corporate bond rates
will provide little help with respect to funding obligations
and benefit restrictions.
Relief from 2008 plan losses and reduce plan freezes.
Under the PPA, plan losses generally must be amortized over
seven years. For losses that arose in 2008 and are recognized
in 2009, the amortization period would be extended so that such
losses are amortized over 10 years. In addition, 2008 losses
can trigger benefit restrictions for 2009. Such benefit
restrictions can be avoided through employer contributions, but
employers are discouraged from making such contributions by a
rule prohibiting those contributions from being taken into
account for minimum funding purposes. Under the proposal, that
prohibition would be made inapplicable for 2009. Furthermore,
plans would be permitted to amortize 2009 normal cost over two
years. This would help reduce freeze activity in 2009.
Plan for the Future
Enhance financial education. Plan participants have
questions about what the current economic situation means for
their long-term retirement security. The Department of Labor
(``DOL'') should publish a model notice that employers could
choose to provide to employees and retirees regarding such
things as diversification, retirement income needs, and the
importance of continuing to save. In addition, the Department
of Education should come up with a five-year plan to enhance
financial literacy through incorporating financial education
into school curriculums.
Increase the start-up credit for small business
retirement plans. Under current law, small employers are
eligible for a tax credit of 50% of the cost of starting a new
retirement plan, up to a maximum of $500 per year for three
years. For 2009 and 2010, the 50% should be increased to at
least 75% and the $500 maximum should be increased to $2,000.
It is critical that during this crisis we continue to plan for
the future by encouraging more employers to adopt plans for
their employees.
Statement of American Federation of State
The American Federation of State, County and Municipal Employees
(AFSCME) represents 1.6 million members who provide the vital services
that make America happen and advocate for prosperity and opportunity
for all working families. AFSCME members are deeply concerned that
national economic outlook continues to darken. The American economy has
lost 760,000 jobs this year. The national unemployment rate of 6.1% is
at a five-year high and is projected to significantly worsen in the
coming months. Foreclosure signs continue to spread across
neighborhoods. The repeated nosedives of the stock market have
threatened to lay waste to worker and retiree savings and retirement
accounts. The continued downward spiral of the economy has caused state
revenues to fall hard and fast, causing a fiscal crisis of major
proportions. Nearly three out of four states are in fiscal stress. And
state deficits threaten a broad range of vital services--health care,
education, child care, job training, and public safety--which help
maintain the fabric of our communities.
To begin to change the direction of our economy Congress must
develop and pass a comprehensive economic recovery package that
addresses the mounting economic challenges facing working families and
the urgent fiscal distress confronting state and local governments.
Such a package should include direct and immediate state fiscal relief,
unemployment benefits for those looking for work and strengthening of
the unemployment insurance system, investments in job creation and
infrastructure, and an increase in food stamp assistance to help
maintain a basic standard of living for those struggling to feed their
families.
This statement will focus on two key components of a needed
economic recovery package, state fiscal relief and modernizing the
unemployment insurance system.
State Fiscal Relief
According to the Center on Budget and Policy Priorities, 29 states
closed budget shortfalls of at least $48 billion in fiscal year 2009.
Since the enactment of the 2009 state budgets, revenues have dropped
sharply already causing 22 states to have new, mid-year deficits
totaling more than $11 billion. States are exhausting their ``rainy day
funds'' and other reserves dedicated for weakened fiscal times. The
expected continuing deterioration of tax revenues, rising unemployment
and declining property values is a toxic combination for state budgets.
With worsening economic conditions, states are projected to have budget
gaps in 2010 in the $100 billion range. And unlike the Federal
Government, states must balance their budgets each year, requiring
service cuts or tax increases--actions which may further exacerbate the
current recession.
During the last economic downturn in 2003, Congress provided states
with a combination of a temporary increase in the percentage of the
Federal Medicaid reimbursement rate and emergency block grant funding.
The short-term increase in the Federal Medical Assistance Percentage
(FMAP) and flexible grants proved to be an effective form of state
fiscal relief. It helped stave off additional cuts to health care and
other vital services and in fact helped stimulate the economy.
Due to declining state economies, our Medicaid system--which is a
Federal-state partnership--is experiencing particularly corrosive
pressures. Even before the recession, the effect of rising Medicaid
costs has had devastating consequences for state budgets. Moreover, the
growing strain of the rising number of uninsured Americans seeking
Medicaid assistance adversely affects other important public services.
States have not been able to adequately invest in education or meet
basic infrastructure needs because of rising Medicaid costs.
The demand for Medicaid increases during an economic downturn as
people lose their employer-sponsored health coverage, or because their
declining wages push them into poverty. New York, for example, has seen
applications for Medicaid rise 30 percent between December 2007 and
April 2008 as a result of increased unemployment. A recent analysis by
the Kaiser Commission on Medicaid and the Uninsured projects that a one
percent rise in our nation's unemployment rate--which has already
occurred--will translate into increased Medicaid and SCHIP enrollment
of approximately one million and will result in another 1.1 million
Americans becoming uninsured. This will result in a three to four
percent drop in state revenues and in increased health care spending of
at least $3.4 billion.
An analysis by Mark Zandi, chief economist of Moody's Economy.com,
demonstrates that of all the options available to Congress, state
fiscal relief through general aid or a temporary increase in the
Medicaid matching rate to state governments generates one of the
greatest economic returns. Specifically, every $1.00 increase in
spending for general aid to state governments will generate $1.36 in
increased real gross domestic product (GDP). Zandi has called aid to
states a potent stimulus. Similarly, earlier this year, the Joint
Economic Committee concluded that increasing the Federal medical
assistance percentage (FMAP) is one course of action to alleviate
increased fiscal demands on states because it would ``help buffer the
impact of the economic slowdown to preserve Medicaid coverage as people
lose their jobs and health insurance, as was done during the last
economic downturn.''
When states cut Medicaid and other public services to balance their
budgets, it hurts individuals, communities and the economy. An analysis
of the Medicaid cuts made in Oregon during the 2003 recession found
that more than 50,000 low-income adults lost health care coverage
which, in turn, spurred a $253 million increase in uncompensated care
for Oregon's hospitals because of increased use of emergency rooms and
hospitalizations.
An economic recovery package that provides state fiscal relief
through a temporary increase in the Federal share for Medicaid and
flexible grants could make a real difference in the lives of millions
of average Americans. It could help stabilize state budgets,
forestalling deep and damaging cuts to health care and other vital
public services. It could help avert state actions that would undermine
the stability of the health care sector which is important to the
economic health of many communities.
In addition to helping to avert state cuts in Medicaid and other
public services, AFSCME urges Congress to impose a moratorium on
Federal cuts in Medicaid reimbursement for outpatient hospital
services. Shifting Federal Medicaid costs onto states through a
regulation on outpatient hospital clinics is harmful to beneficiaries,
state budgets and providers.
Unemployment Insurance System Improvements
Our national unemployment insurance system was established during
the Great Depression in response to another major economic crisis. It
was designed to mitigate economic hardship for jobless workers and
their families and to help stabilize the economy during periods of
economic downturns.
Today, there is more need than ever for a strong unemployment
insurance program. Unemployment is accelerating, and long-term
joblessness is growing. Since Congress passed the Emergency
Unemployment Compensation (EUC) program in June, national unemployment
has jumped from 5.5% to 6.1% and from 8.5 million jobless workers to
9.5 million. The number of long-term unemployed workers (those
unemployed for more than 26 weeks) rose by 450,000 between May and
September to more than two million workers, while the number of states
with unemployment rates over 6% more than doubled from 7 to 18 states.
According to some projections, the national unemployment rate could
exceed 8% next year.
Congress should act now to strengthen the EUC program and the
underlying Federal-state system in order to provide greater assistance
to American families and a greater stabilizing effect on the economy.
Unemployed workers who began collecting the 13 weeks of Federal
unemployment benefits under the EUC program in July started running out
of those benefits on October 5. According to estimates by the National
Employment Law Project (NELP), 775,000 workers ran out of EUC benefits
in early October. Absent congressional action, that total will rise to
1.1 million workers by the end of December.
Shortly before the congressional recess, the House of
Representatives approved legislation to strengthen the EUC program as
part of its economic stimulus package. The legislation, sponsored by
Chairman Rangel and Representative McDermott, would provide 20 weeks of
Federal extended benefits for unemployed workers in all states and an
additional 13 weeks of benefits for workers in states with unemployment
rates exceeding 6 percent. AFSCME strongly supports the House bill and
urges continued efforts to adopt these provisions.
Earlier this year, the House of Representatives also passed
important and long-overdue legislation to modernize the unemployment
insurance program. Outdated state policies have limited the stimulative
effect of the program. Currently only about 36% of jobless workers
receive unemployment benefits--far fewer than in the 1950's. Most
significantly affected by these outdated policies are women, part-time
and low-wage workers who are twice as likely to become unemployed as
higher wage workers but only one-third as likely to receive
unemployment benefits.
The Unemployment Insurance Modernization Act would provide
financial incentives to states that adopt measures to enable these
workers to qualify for unemployment benefits, and it provides $500
million to the states to address a severe underfunding crisis in the
state agency operations. If fully implemented, it will result in an
additional 500,000 workers qualifying for unemployment benefits and a
substantial improvement in the ability of states to process benefits
accurately and in a timely fashion. AFSCME believes this legislation
should be part of the upcoming economic recovery package.
Conclusion
Since Congress passed a stimulus plan in February, the economy has
deteriorated significantly causing tremendous upheaval in the lives of
millions of working class Americans. Congress must act again to change
the direction of our economy. As an initial step, Congress must develop
and pass a comprehensive economic recovery package that addresses the
mounting economic challenges facing working families and the urgent
fiscal distress confronting state and local governments. Such a package
should include direct and immediate state fiscal relief, unemployment
benefits for those looking for work and a revitalized unemployment
insurance system, investments in job creation and infrastructure, and
an increase in food stamp assistance to help maintain a basic standard
of living for those struggling to feed their families.
Statement of American Prepaid Legal Services Institute
I am Joan Beranbaum, President of the American Prepaid Legal
Services Institute. The American Prepaid Legal Services Institute (API)
is a professional trade organization representing the legal services
plan industry. Headquartered in Chicago, API is affiliated with the
American Bar Association. Our membership includes the administrators,
sponsors and provider attorneys for the largest and most developed
legal services plans in the nation. The API is looked upon nationally
as the primary voice for the legal services plan industry.
I offer this written testimony in support of employer-paid group
legal services for working families. Employer-paid group legal services
provide a vital safety net for lower and middle-income working
families.
The hearing deals with the unique new set of economic challenges
facing American families today. Committee Chairman Rangel noted in
calling the hearing that ``This hearing will examine the growing
challenges facing working families . . . to determine how we can best
restore economic security throughout our nation.''
One effective and inexpensive way to provide relief for working
families should be the restoration of the tax exempt status of
Employer-Paid Group Legal Services. This is targeted tax relief that
works two ways:
It reduces the tax burden on working families and
businesses
It seeks to provide preventive legal services in the
face of calamitous events that without legal assistance can
quickly snowball into disaster
For example, one of the economic challenges facing working families
is surviving in an increasingly complex financial environment.
Currently working families are in an extremely precarious economic
position. A perfect storm of adjustable rate mortgage increases, credit
card interest rate increases, pension losses, layoffs and cutbacks have
put many families on the edge of economic collapse. Many working
families are living paycheck to paycheck with very little cushion in
the event of illness or injury.
In New York City, our plan, DC37, serves thousands of workers, our
foreclosure unit has seen an increase of over 70% in their caseload in
the past 12 months, with no end in sight.
In one recent case handled by my office, we represented a hospital
worker married to a security guard, each earning about 35,000 a year.
When her husband lost his job, they were no longer able to meet their
mortgage payments. They had an adjustable rate mortgage with a rate of
7.9%%, which was about to adjust to 9%. They were 12 months behind on
their mortgage and about to go into foreclosure when they sought our
assistance. We were able to renegotiate the mortgage so that their new
rate was a fixed rate of 6.35% with the arrears rolled over into the
new mortgage. The husband is now working again as a security guard and
the family is able to meet their mortgage obligations.
Group legal plans can help working Americans before they are in
financial distress. Plans provide preventative assistance with mortgage
and refinancing document review, as well as advice on sub-prime loans
and exotic financing instruments. Thousands of members were probably
spared disaster by meeting with their group legal plan lawyers before
closing. Millions more could benefit from group legal plans to help
them understand the economics of their mortgages to avoid entering into
transactions likely to result in future defaults.
If a default has occurred, plan lawyers will review the documents
for compliance with existing laws and advise on workouts that allow
reinstatement of the mortgages. The result is not only saving the
family's place to live, but safeguarding the family's primary
investment.
Group legal plans also provide employees with low or no-cost basic
legal services, including assistance with the preparation of a will,
probate, and domestic relations issues, such as child support
collection. Most plans also cover:
Addressing financial management and investment issues in
the face of a decreased income
Anticipating the need for long term care, as well as
Medicare and Medicaid issues
Informing medical professionals on how they want to be
treated in the event of a serious illness or a life threatening
accident
Instructing family members on how they want their
property handled in the event of incapacitating illness or accident
Educating clients on how to avoid identity theft and what
steps to take if a client is a victim of this crime
Yet now, when the need is at its greatest, fewer Americans have
access to inexpensive, preventative legal assistance. Since the loss of
the benefit's tax-preferred status in 1992, existing plans have been
forced to cut back and few new plans have been added.
Bills have been offered in the past several Congresses, including
this year's bill, HR 1840, introduced by Congressmen Stark and Camp and
co-sponsored by 40 members of Congress, 15 of whom are on the Ways and
Means Committee. The identical Senate version of the bill, S 1130, has
similar bi-partisan support on the Finance Committee. Throughout the
110th Congress, language to reinstate Section 120 have been included or
offered as amendments in 6 pieces of legislation in the House and
Senate, demonstrating the strong bi-partisan support of the
provision.\1\ Section 120 passed the House as part of an earlier
version of H.R. 6049 that failed in the Senate. Now is the time to
reinstate Section 120.
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\1\ H.R. 6049, Energy and Tax Extenders Act of 2008 (reinstatement
of the pre-tax status of group/prepaid legal services benefits); S.
3098, Alternative Minimum Tax and Extenders Tax Relief Act of 2008
(reinstatement of the pre-tax status of group/prepaid legal services
benefits); S. 3125, Energy Independence and Tax Relief Act of 2008
(reinstatement of the pre-tax status of group/prepaid legal services
benefits); S. 3335, Jobs, Energy, Families, and Disaster Relief Act of
2008 (reinstatement of the pre-tax status of group/prepaid legal
services benefits
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Reinstatement of the benefit's tax preference will provide direct
and immediate tax relief to employees. When this exclusion expired, it
triggered a tax increase for millions of working Americans whose
employers contribute to such plans. Currently more than 2 million
working families with legal plans offered by such national companies as
Caterpillar, J.I.Case, Mack Truck, John Deere, Ford Motor Company,
General Motors. Businesses large and small will gain direct and
immediate tax relief. Employers must pay an additional 7.65 percent of
every dollar devoted to a legal plan as part of its payroll tax.
Encouraging this benefit is also an efficient and low cost way of
offering economic protection and education to middle class working
families. Employers can provide a substantial legal service benefit to
participants at a fraction of what medical and other benefit plans
cost. For an average employer contribution of less than $150 annually,
employees and retirees are able to take advantage of a wide range of
legal services often worth hundreds and even thousands of dollars,
which otherwise would be well beyond their means.
Across the country other organizations have recognized the
importance of group legal services to assist working Americans. I have
attached a Resolution passed by the National Association of Attorneys
General supporting Group and Prepaid Legal Services as an important
part of continuing access to justice. In August, the Oregon State Bar
identified group legal services as a vital component of access to the
justice system for persons of moderate means. The Center for
Responsible Lending, in a recent presentation on the sub-prime mortgage
crisis, called for increased accountability in the mortgage industry,
stronger anti-predatory lending laws and increased funding for legal
services. Belatedly, Congress has seen to the first two
recommendations, now is the time to enact the third. The group legal
services industry already exists and can serve millions more, by
creating the incentive for business to offer the benefit. Low cost and
efficient, group legal services can help prevent legal problems that
result in foreclosure and bankruptcy.
Just as employers are seeing the benefits of medical insurance
wellness coverage to keep their employees healthy and productive (and
their own costs down), preventive legal services help ensure the
financial and legal well-being of America's workers and their families.
In conclusion, reinstating Section 120 would repeal a tax increase
on middle class Americans and businesses and restore equity to the tax
treatment of this benefit. We strongly support the inclusion of Section
120 in any legislative package addressing the economic problems of
working families, especially the Second Stimulus package now under
consideration.
Respectfully,
Joan Beranbaum
President, API
Chairman Rangel, Ranking Member McCrery and Members of the House
Committee on Ways and Means:
Thank you for the opportunity to submit testimony for this hearing
on Economic Recovery, Job Creation and Investment in America. My name
is Noel Thompson, President of the American Public Works Association
(APWA). I submit this statement today on behalf of the more than 29,500
public works professionals who are members of APWA, including nearly
2,000 cities, counties, special districts and other public agencies who
are members.
As you move forward, we urge you to include a robust investment in
job-generating public infrastructure projects in any economic recovery
proposals considered by Congress. The investment will serve as a much-
needed catalyst for economic recovery and job creation in local
communities and provide resources to reverse years of deferred
maintenance and improvement that have cost Main Street jobs and
economic opportunity.
APWA is an organization dedicated to providing public works
infrastructure and services to millions of people in rural and urban
communities, both small and large. Working in the public interest, APWA
members design, build, operate and maintain transportation, water
supply and wastewater treatment systems, waste and refuse disposal
systems, public buildings and grounds, and other structures and
facilities essential to the economy and the American way of life.
Our nation's current economic crisis requires a new fiscal policy
that injects much needed investment at the local level. I urge you to
consider a sound, robust Federal investment program that directs
funding to urgently needed ``shovel-ready'' infrastructure projects. An
economic recovery package so designed will produce timely and effective
results, while at the same time laying a solid physical foundation for
America's future economic vitality.
We welcome and commend the recent attention you have given to
issues affecting `Main Street' America. With our nation confronting the
greatest economic crisis in decades, local governments--those
responsible for the improvement and repair of America's `Main
Streets'--are finding it increasingly difficult to secure the necessary
funding to repair and rebuild aging and deteriorating critical
infrastructure in their communities. Because of the severe problems in
the domestic and global financial markets, local governments are
finding it increasingly difficult to access the capital they need to
finance these important infrastructure projects. Moreover, shrinking
state and local tax revenues are further constraining local budgets and
will continue to do so in the near term. Despite increasing local
commitments, the scale and the breadth of the nation's infrastructure
needs are such that increased Federal commitments are both urgent and
necessary to support Main Street's future economic recovery and growth.
State and local governments have billions of dollars of backlogged
infrastructure projects that are ready to go but lack immediate
funding. An increased Federal investment will put people to work,
generate orders for supplies and equipment and make improvements to key
infrastructure assets that will continue to sustain economic growth in
our communities for years to come. Targeting projects that have been
approved, yet remain unfunded, such as road resurfacing, bridge repair,
water treatment facility upgrades and pipe repairs, will create jobs,
generate immediate economic activity and spur a multiplier effect.
As local governments struggle to find the resources to pay for
essential community infrastructure projects (water, sewer, and
transportation), billions of dollars of backlogged ``shovel-ready''
projects remain delayed because of funding shortfalls. For instance,
APWA recently conducted a survey of over 8000 members and identified
approximately 3600 ``ready to go'' projects with a cost of over $15
billion. The total number and cost of unfunded, ready to go local
projects is surely greater, as the results represent a sample of our
membership. Survey respondents identified road widening, paving,
traffic light and signal repair work, highway intersection
improvements, storm drain pipe realignments, pumping station
improvements, sewer line replacements, treatment plant upgrades, water
valve replacement, pedestrian underpass safety improvements and basic
sidewalk repair projects that are ready to proceed except for the lack
of necessary funding. A stimulus proposal that provides this critical
funding will put people to work and lay a solid physical foundation for
America's economic competitiveness.
A recovery plan that targets already approved yet unfunded projects
will produce timely and effective results by generating jobs and orders
for supplies and equipment, while making necessary and long overdue
improvements to key infrastructure assets. Federal investment in these
types of projects would generate approximately 565,000 jobs, spark new
business orders, while simultaneously laying a sound physical
foundation for America's future economic vitality.
Investment in public infrastructure projects is a proven way to
boost the economy. Data show that every $1 billion invested in
transportation, for example, generates an estimated 34,700 good paying
jobs and up to $6 billion in additional gross domestic product.
Increased investments in water and sewer projects are equally relevant.
However, public infrastructure investment as a share of gross domestic
product has steadily decreased for decades. A reversal of this trend
can provide economic stimulus and build the foundation for long-term
economic growth and sustainability.
Such investment will also help repair and improve the nation's
deteriorating infrastructure, thereby improving safety, efficiency and
economic competitiveness. Without a strong public infrastructure
backbone, the nation's economy, local governments and Main Streets
across the country will not have the capacity to support the movement
of goods and services needed to revitalize communities and ultimately
the economy. Addressing the financial challenges of local governments
is just as important as addressing the challenges faced by the national
financial institutions and Wall Street. As Government spending is
increased, it creates ripple benefits through the entire economy.
According to Mark Zandi from Moody's Economy.com, each dollar of
infrastructure spending could provide a $1.59 boost to the economy,
while each dollar of refundable tax rebates only boosts Gross Domestic
Product by about $1.26.
Tackling long-standing infrastructure needs would lower
transportation costs and benefit water quality and the environment and
ultimately add a much needed boost to the flagging economy.
The decades of chronic underinvestment in our nation's public
infrastructure are jeopardizing public safety, our economic
competitiveness and environmental quality. The nation cannot remain
economically competitive with the rest of the world if our
transportation systems are inadequate, our bridges are crumbling and
our water systems are leaking and in need of repair and maintenance.
Currently, local governments pay for over 95% of the investment in
water infrastructure, and the Federal share continues to be cut while
the U.S. Environmental Protection Agency routinely upgrades water
quality standards imposing additional unfunded mandates on already
strained local budgets.
Despite the best of efforts of local government officials, the
nation's infrastructure gap continues to grow while local budgets are
faced with numerous competing needs. Our clean water infrastructure
investment needs exceed $400 billion. As a nation, we currently invest
less than 40 percent of the $225 billion to $340 billion the National
Surface Transportation Policy and Revenue Study Commission found is
needed annually to bring of our surface transportation network (roads,
bridges, public transportation, freight rail and intercity passenger
rail) into good repair. The result of this underinvestment is
diminished public health and safety and reduced productivity and
competitiveness.
A recovery plan that targets already approved yet unfunded projects
will produce timely and effective results by generating jobs and orders
for supplies and equipment, while making necessary and long overdue
improvements to key infrastructure assets. Federal investment in these
types of projects would generate approximately565,000 jobs (more than
twice the 240,000 jobs lost in October), spark new business orders,
while simultaneously laying a sound physical foundation for America's
future economic vitality.
Such investment will also help repair and improve the nation's
deteriorating infrastructure, thereby improving safety, efficiency and
economic competitiveness. Without a strong public infrastructure
backbone, the nation's economy, local governments and Main Streets
across the country will not have the capacity to support the movement
of goods and services needed to revitalize communities and ultimately
the economy. Addressing the financial challenges of local governments
is just as important as addressing the challenges faced by the national
financial institutions and Wall Street.
Infrastructure investment contributes to economic productivity by
expanding economic growth of the locality, region, state and nation as
a whole. For example, a new highway allows for increased transportation
of people, goods and services. More importantly, such investment does
more by creating opportunities for new businesses to locate near the
new road, providing additional jobs and output. Similarly,
infrastructure investment also contributes to economic growth through
expenditures associated with purchasing, installing, operating and
maintaining the infrastructure itself. Additionally, strategic public
investments in the economic backbone of the nation's economy--
transportation, water and sewer systems--will spur the economy in the
short-run and increase the long-term economic growth. The sooner these
investments are made, the sooner Main Street can start reaping the
rewards.
Mr. Chairman, thank you for holding this hearing. We are especially
grateful to you and Committee members for the opportunity to submit
this statement. APWA stands ready to assist you and the Committee as we
move forward toward economic recovery.
Statement of American Seafaring and Longshore Labor Unions and
U.S.-Flag Shipping Organizations
We are writing on behalf of the undersigned American seafaring and
longshore labor unions and U.S.-flag shipping organizations to ask your
support for a proposal to amend the Internal Revenue Code of 1986 to
exempt the waterborne transportation of domestic and Great Lakes non-
bulk cargo from the Harbor Maintenance Tax (HMT).
As applied today, the HMT is imposed on cargo entering a U.S. port
from an overseas market. However, if that same cargo were to be
transferred to another vessel for transportation along our coasts to
another American port, this same cargo would be taxed again under the
HMT. Most importantly, this dual or multiple taxation of cargo under
the HMT only applies to waterborne transportation; it does not apply to
cargo moving domestically by truck or rail. Since the payment of the
HMT is the responsibility of the shipper of the cargo, the multiple
taxation of waterborne cargo under the HMT discourages shippers from
considering the use of vessels and, consequently, has impeded the
development of a U.S. marine highway system.
The American maritime labor and U.S.-flag shipping organizations we
represent believe very strongly that the establishment of a short sea
shipping industry is in the national interest and should be encouraged
and supported by our Government. The utilization of commercial vessels
for the carriage of cargo along our coasts will be a cost-effective,
efficient, and environmentally-sound way to supplement and complement
the rail and truck traffic that is already pushed to capacity in most
major transportation corridors. A short sea shipping transportation
network will offer shippers an additional means to transport the ever-
increasing volumes of imported cargo expected to move in interstate
commerce between American ports in the coming years. Most importantly,
by moving this cargo by ship, we will not be adding to the congestion
that plagues our nation's surface transportation systems.
We would note that Congressman Elijah Cummings has introduced
legislation, HR 1499, to achieve this goal and, according to
Congressman Cummings, the Congressional Budget Office estimates that HR
1499 will reduce revenues by approximately $12 million over ten years.
We would greatly appreciate your willingness to support this
extremely important proposal and to include it as part of the economic
stimulus legislation to be considered by Congress prior to adjournment
this year. As we have stated, we strongly believe that this much-needed
and long overdo change in America's tax law will ease landside
congestion, increase the use of environmentally and economically
efficient merchant vessels, and create new seafaring, longshore and
shipbuilding employment opportunities for American maritime workers.
We ask that this letter be included as part of your Committee's
hearing record on economic stimulus legislation.
______
Thomas Bethel, President, American Maritime Officers
Timothy Brown, President, International Organization of Masters, Mates
& Pilots
James Henry, President, Transportation Institute
Richard Hughes, President, International Longshoreman's Association
Don Keefe, President, Marine Engineers' Beneficial Association
Gunnar Lundeberg, President, Sailors' Union of the Pacific
Karen Myers, Legislative Director, American Maritime Officers Service
C. James Patti, President, Maritime Institute for Research and
Industrial Development
Anthony Poplawski, President, Marine Firemen's Union
Matthew Dwyer, Legislative Representative, American Maritime Congress
Michael Sacco, President, Seafarers International Union
Statement of Associated General Contractors of America
The Associated General Contractors of America (AGC) is the largest
and oldest national construction trade association in the United
States. AGC represents more than 33,000 firms, including 7,500 of
America's leading general contractors, and over 12,500 specialty-
contracting firms. More than 13,000 service providers and suppliers are
associated with AGC through a nationwide network of chapters. Visit the
AGC Web site at www.agc.org.
THE ASSOCIATED GENERAL CONTRACTORS OF AMERICA
The Associated General Contractors of America (AGC) is submitting
these comments for the record of the hearing on ``Economic Recovery,
Job Creation, and Investment in America.'' AGC would like to express
its appreciation to the Committee for conducting this important
hearing. AGC believes that investing in America's infrastructure will
create jobs and lead to economic recovery.
The AGC is the largest and oldest national construction trade
association in the United States. AGC represents more than 33,000
firms, including 7,500 of America's leading general contractors, and
over 12,500 specialty-contracting firms. Over 13,000 service providers
and suppliers are associated with AGC through a nationwide network of
chapters. AGC contractors are engaged in the construction of the
nation's commercial buildings, shopping centers, factories, warehouses,
highways, bridges, tunnels, airports, waterworks facilities, waste
treatment facilities, dams, water conservation projects, defense
facilities, multi-family housing projects, site preparation/utilities
installation for housing development, and more.
AGC urges this Committee to recommend to the full House economic
stimulus activities that would have an immediate positive impact on
economic activity. Specifically, AGC strongly encourages the Committee
to make recommendations on provisions that would immediately boost
construction activity. The construction industry employs more than 7
million people and represents more than $1 trillion annually in
economic activity, including $500 billion in materials and $36 billion
in new equipment. There is excess capacity throughout the construction
industry. With additional investment, the industry will create jobs,
contribute to economic recovery, and build a world class infrastructure
to improve the nation's overall quality of life.
State of the Economy
When budgets are tight, private and public investment at all levels
is cut. At the state and local level, budgets have declined
significantly because of the decline in incomes, sales, and home
values, resulting in lower personal and corporate income, sales, and
property tax collections. The recent financial crisis has also hampered
the ability of state and local governments and public agencies to
borrow short term, delaying or eliminating various infrastructure
improvement projects. According to Municipal Market Advisors, a
consulting firm that specializes in municipal bonds, $100 billion of
new infrastructure projects have been delayed because of the
constricted credit markets. In addition, volatility in construction
materials prices, driven by inflation, has reduced the purchasing power
of public works dollars. As a result, fewer contracts are going out to
bid, which means less work for contractors and fewer jobs for their
employees.
Construction Inflation Data
Construction materials continue to drive up the cost of our
product. AGC's economic research shows that the Producer Price Index
(PPI) for construction rose 45 percent from December 2003 to September
2008. This compares to a 19 percent increase in the Consumer Price
Index (CPI). Indexes for highway and street construction and other
heavy construction--activities under the jurisdiction of this
Committee--are more dramatic. They rose 76 percent and 60 percent,
respectively, over the same period. The PPI reflects the increase in
the cost of basic building materials including steel, cement, asphalt,
aggregate, and other materials. Diesel fuel price increases also impact
this cost as construction activity is energy intensive. Recent dramatic
drops in the price of oil and scrap steel have barely been reflected so
far in the cost of asphalt, concrete, rebar or steel for bridges.
Impact on Employment
The impact of fewer contracts being bid is reflected in increasing
nationwide unemployment numbers. Heavy and civil engineering
construction employment peaked in June 2007 and has steadily decreased
over the past 16 months. There was more than a 6 percent decrease in
these jobs over that period, which equates to 62,000 construction
employees. Swift enactment of an infrastructure spending package would
enable these skilled workers to be rehired promptly.
AGC's Chief Economist is projecting a decline of as much as 9
percent in non-residential construction activity in 2009, which is in
line with the 10 percent decline projected by McGraw-Hill Construction
economists. Moreover, AGC's economist reports that an additional loss
of 10-15 percent nationwide is possible if the economy does not turn
around. That could add another 100,000 or more lost jobs to the 62,000
lost over the last 16 months.
Broader Economic Impact
This decline in the construction market also has broader
implications for the economy--for equipment manufacturers, materials
suppliers, and so on. AGC member companies have been forced shelve or
trim down plans for expansion and reduce their usual annual investment
in equipment. Companies have already canceled some planned purchases
for next year and are putting many others on hold until they see what
funding is going to be available for new work. In fact, the Census
Bureau reported on November 4 that factory orders fell 2.5 percent,
seasonally adjusted, in September and 4.3 percent in August. This
suggests that economic uncertainty is causing businesses to refrain
from making new purchases.
Leading Economists Support Infrastructure Investment
An infusion of Federal infrastructure funding would have a direct
stimulus effect by putting more contractors and their employees back to
work and many leading economists agree that infrastructure investment
does have a powerful stimulating effect on the U.S. economy.
Mark Zandi, Chief Economist for Moody's Economy.com has found that
the ``boost to GDP from a dollar spent on building new bridges and
schools is estimated to be a large $1.59.'' He argues that ``if
infrastructure projects can be identified that could be started quickly
then this could prove to be an efficacious form of fiscal stimulus.''
Lawrence Summers, former Secretary of the Treasury, further argues
that ``there is reason to believe today that a significant amount of
stimulus can be delivered with reasonable rapidity . . . If one looks
at the several hundred million dollar infrastructure commitment that
was made after the bridge collapse in Minneapolis about a year ago, 86
percent of the money had not just been obligated, but had been spent
within a 9 month interval. The sense that there is a backlog that can
be moved rapidly is reinforced by the extensive anecdotal evidence of
projects [that] have been slowed partially through the process of
construction, or that are ready to let, but have been held back for
budget reasons . . . ''
As these economists have stated, there are stimulative effects
attributable to infrastructure investment. To maximize the speed with
which the money is sent into the economy, funds should be directed
through existing successful Federal infrastructure investment programs.
Economic Stimulus Legislation--Ways and Means Committee Recommendations
AGC greatly appreciates the action taken by the House in September
in passing H.R. 7110, which would provide additional supplemental
appropriations for a number of major Federal construction programs to
stimulate economic recovery through infrastructure investment and
direct and indirect job creation. AGC strongly supports this additional
investment and urges the Congress to reconsider this or other similar
legislation as soon as possible in the upcoming weeks.
In addition to a substantial infrastructure investment component,
AGC recommends the Committee consider the following tax provisions that
would have a positive impact on construction industry and the economy
as a whole:
Depreciation Bonus and Section 179 Expensing Levels
AGC urges the Committee to extend the Economic Stimulus Act's
capital investment incentives, including the depreciation bonus
and increased Section 179 expensing levels. The Economic
Stimulus Act enacted in February 2008 created a 50 percent
depreciation bonus and increased the amount that small business
can expense to $250,000. These provisions were designed to
incentivize business capital investment this year; however, the
depreciation bonus expires at the end of 2008 and the higher
Section 179 levels apply only to 2008 tax years. AGC urges
Congress to extend these incentives for at least one year.
A survey of contractors conducted in summer 2008 found that
the capital investment incentives included in the Economic
Stimulus Act have had some positive impact on equipment
purchasing. Approximately one-third of the survey respondents
said that they purchased equipment in the first half of 2008 to
take advantage of the depreciation bonus and/or the increased
Section 179 expensing levels. The reason cited most often by
the survey respondents for why their companies had not taken
advantage of the incentives was that the economic slowdown had
let to a considerable drop in construction work (and need for
additional equipment). That is why increased infrastructure
investment, combined with targeted tax incentives, is so
important. The survey also found that more than three-quarters
of contractors would be more likely to buy additional equipment
in 2009 if the depreciation bonus and the increased Section 179
expensing levels were extended.
Multi-Employer Pension Plans
The drop in the value of pension plan assets coupled with the
current credit crunch has placed defined benefit plan sponsors
in an untenable position. At a time when companies desperately
need cash to keep their businesses afloat, the new funding
rules require huge, countercyclical contributions to their
pension plans. Consequently, many companies will divert cash
needed for current job retention, job creation, and needed
business investments and instead contribute the cash to their
pension plans to fund long-term obligations.
Many AGC members contribute to multi-employer defined benefit
plans. AGC urges Congress to enact temporary relief designed to
moderate the effects of the aggressive funding targets
contained in the Pension Protection Act. Such relief is
necessary to avert devastating burdens and job losses arising
from massive contribution increases and unavoidable benefit
reductions that would be required to comply with those rules.
Specifically, AGC urges Congress to consider following three
proposals:
An optional and temporary ``freeze'' of the
plan's 2008 zone certification (with a special rule for
plans with a plan year that begins in the last quarter
of the year);
The use of actuarial value of assets for
projecting the plan's zone status in future years; and
A five year extension in the remediation
periods for both the Funding Improvement Period and
Rehabilitation Periods from 10 to 15 years.
3 Percent Withholding Tax
Section 511 of P.L. 109-222 requires a 3 percent tax
withholding on all Government payments, which affects all
Government contracts as well as other payments, such as
Medicare, grants, and farm payments. While this requirement is
not set to go into effect until January 1, 2011, companies, as
well as Federal, state, and local governments are expending
funds starting to prepare for implementation now. These are
needless preparation expenses, particularly during rough
economic times, for a requirement that most believe should
never have been enacted and should be repealed. The Department
of Defense, for instance, estimated that the costs to comply
with the 3 percent withholding requirement will be in excess of
$17 billion over the first five years, which is far more than
any estimated revenue gains. Moreover, $17 billion is only a
portion of the additional costs with which governments and the
private sector will be burdened. AGC urges Congress to include
a repeal of the 3 percent tax withholding law in any upcoming
stimulus package.
Concluding Remarks
AGC members are ready to build, so we can create and sustain jobs
throughout the country. Construction has always been an engine of
economic stimulus and can play that role once again. Increases in
infrastructure investment can be quickly put to work and will have a
direct, immediate, and dramatic impact on the economy. Moreover, since
some construction contracts take many years to complete, investments
made today will provide economic growth through any prolonged period of
economic downturn. Most importantly, however, the long-term economic
benefits of infrastructure investment today should not be overlooked.
Through additional investment in infrastructure, our nation would be
well positioned to emerge from the economic downturn, rebuild our
world-class infrastructure system, and ensure our continued economic
prosperity well into the future.
At the same time, AGC members would benefit from extending tax
incentives to purchase more equipment, especially if there is more
work, and their businesses would benefit from some relief to their
pension plan obligations and from the upcoming implementation of the 3
percent withholding tax.
Thank you for this opportunity to comment. AGC looks forward to
working with the Committee to enact an economic recovery package that
will create jobs in the construction industry and invest in the
nation's infrastructure.
Statement of Burnett County Wisconsin Child Support Agency
On behalf of the Burnett County Wisconsin Child Support Agency and
the families we serve, I respectfully ask you to consider the effect of
funding cuts made to the child support program in the 2004 Deficit
Reduction Act when considering a second Economic Stimulus Package and,
if possible, to restore funding to this critical program. Wisconsin
child support agencies alone lost $9 million as a result of the 2004
Deficit Reduction Act.
The National child support program is one of the most cost-
effective programs in the history of this Nation. Child support
agencies are the last line of defense for the well-being of children
and families as the successful collection of child support enables
families to be self-supporting, reduces the number of families needing
public assistance and thereby results in lower costs to taxpayers.
Thank you for your consideration and for your continued commitment
to the well-being of children and families!
Statement of Center for Law and Social Policy
In the past few months, the collapse of financial markets, a credit
crunch, and tumbling consumer confidence have pushed what was already a
weak economy into a full-out recession. Economists predict that this
recession will be longer and more severe than any the United States has
faced in recent decades.\1\ America needs more than another stimulus
package aimed at temporarily boosting consumer demand. We must shore up
our tattered safety net and extend a helping hand to those who are most
vulnerable in this period of uncertainty and distress. And we must
secure the American dream by ensuring that all of us have the
opportunity to share in the benefits of recovery.
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\1\ Jared Bernstein, Testimony Before the House Committee on Ways
and Means, October 29, 2008. http://waysandmeans.house.gov/
hearings.asp?formmode=printfriendly&id=7463
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Shoring Up the Safety Net
Encourage States to Provide Cash Assistance to Needy
Families
Expand Food Assistance to Low-Income Individuals and
Families
Provide Child Care Help to Low-Income Families.
Leverage Income for Single-Parent Families by
Restoring Child Support Enforcement
Protect Vulnerable Children from Abuse and Neglect
Ensure Adequate Resources to Provide Low-Income
Families Health Care
Securing the American Dream
Ensure Access for Low-Income People to Good New Jobs
Created Through Infrastructure Investments
Fund Summer Jobs in Areas with High Youth
Unemployment Rates
Increase Support for Education and Training During
the Downturn
Expand Transitional Jobs for Individuals with
Barriers to Employment
Low-Income Workers and Families are Especially Vulnerable in Recession
Over the past 12 months, the national unemployment rate has climbed
by 1.7 percentage points to 6.5 percent, with 10 states plus
Washington, D.C., hitting unemployment rates of 7 percent or higher. In
October 2008, 2.8 million more Americans were unemployed than a year
previously.\2\ Low-income workers and families are especially
vulnerable to the challenges of a weak economy. Less-educated workers
have higher unemployment rates in general, and employers are quick to
cut their hours, or to lay workers off, when faced with a recession.\3\
---------------------------------------------------------------------------
\2\ Bureau of Labor Statistics http://www.bls.gov/news.release/
empsit.nr0.htm. State rates are from September 2008, http://
www.bls.gov/news.release/laus.nr0.htm
\3\ Jim Hines, Hilary Hoynes, and Alan Krueger. ``Another Look at
Whether a Rising Tide Lifts All Boats,'' The Roaring Nineties: Can Full
Employment Be Sustained?, Russell Sage Foundation, 2001. Between 1981
and 2006 workers with the lowest education levels, especially high
school dropouts, have lost jobs at higher rates than more educated
workers. Younger workers also face a greater risk of job loss than
more-experienced workers, Henry S. Farber. Job Loss and the Decline in
Job Security in the United States, Working Paper #520, September, 2007.
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Nearly half (44.2 percent) of all households in the lowest income
quartile are ``asset poor,'' meaning that they do not have enough
savings to allow them to get by without income for three months, even
at the low level of the Federal poverty threshold.\4\ Low-income
families also have poor access to mainstream financial institutions,
such as bank loans and credit cards, and the credit crisis is making
these options even less accessible. When they are able to borrow money,
it is often through mechanisms such as payday loans and bank
overdrafts, with extremely high effective interest rates.\5\
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\4\ CFED, Asset Poverty in America. http://www.cfed.org/
focus.m?parentid=31&siteid=2471&id=
2565
\5\ Lynette Rawlings and Kerstin Gentsch, How Households Expect to
Cope in a Financial Emergency, Opportunity and Ownership Facts #9, The
Urban Institute, March 2008.
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Even in good times, basic needs--food, housing, health care,
energy, transportation, and child care--consume most of low-income
workers' budgets.\6\ Low-income workers, including many with incomes
well above the official poverty line, often find themselves deciding
which bills can and cannot be paid each month, and relying on food
banks or other community supports to make up any shortfall. When they
experience a decline in income due to job loss or reduced hours, lose
child support payments, or face unexpectedly high costs, there is no
fat in their budgets that can be sacrificed--they have to cut into the
meat. In particular, there is good evidence that when faced with
unusually high heating bills, poor families are forced to spend less on
food, sometimes with serious nutritional consequences.\7\
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\6\ Randy Albelda and Heather Boushey, Bridging the Gaps: A Picture
of How Work Supports Work in Ten States, Center for Economy and Policy
Research and the Center for the Study of Social Policy, October 2007.
\7\ Jayanta Bhattacharya, et al., ``Heat or Eat? Cold Weather
Shocks and Nutrition in Poor American Families,'' American Journal of
Public Health, Vol. 93, No., July 2003.
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The collapse of the housing market is another source of instability
for many low-income families, including those who are renters. About
one-third of the million-plus homes currently in foreclosure are being
rented.\8\ In many cases, renters only discover that the bank is
foreclosing on the house they live in when the sheriff shows up at
their door to evict them. Many of these houses then sit empty for
months, because the banks do not have the capacity to manage them as
rental properties.
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\8\ Associated Press, ``Sheriff tells deputies not to help in
foreclosures: Illinois lawman too many innocent renters are being made
homeless,'' October 8, 2008. http://www.msnbc.msn.com/id/27090355/
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Job loss or eviction can be the trigger that sets off a cascade of
negative consequences for vulnerable children and families. Mayors in
many cities are reporting increases in family homelessness and requests
for shelter.\9\ Child abuse and neglect are known to increase during
times of economic distress.\10\ Even for families that do not
experience such dramatic effects, consequences can include malnutrition
and higher risk of illness, having to change schools and child care
settings, sometimes multiple times, increased marital stress and family
breakups.\11\
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\9\ Wendy Koch, ``Homeless Numbers `Alarming,' '' USA Today,
October 22, 2008. http://www.usatoday.com/news/nation/2008-10-21-
homeless_N.htm
\10\ Domarina Oshana and Lori Friedman. Prevention Funding Project:
Synthesis of Research on Economic Change, Welfare Reform, and Child
Maltreatment. Prevent Child Abuse. Arloc Sherman, Wasting America's
Future: The Children's Defense Fund's Report on the Cost of Child
Poverty, Beacon Press, 1994.
http://member.preventchildabuse.org/site/DocServer/
pfp_lit_review.pdf?docID=146
\11\ Ariel Kalil, ``Unemployment and job displacement: The impact
on families and children,'' Ivey Business Journal, July/August 2004.
http://www.iveybusinessjournal.com/view_article.asp
?intArticle_ID=570
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Job loss can also have long-term economic consequences. Few laid-
off workers can now expect to be rehired to the same job when the
economy improves. Displaced workers frequently remain unemployed or
under-employed for extended periods, and only slightly more than half
of those who get full-time jobs earn as much or more than before.\12\
An increasing share of the unemployed remain jobless for extended
periods--in October 2008, 2.3 million workers, 22 percent of all
unemployed workers, had been out of work for more than six months.\13\
Young adults who enter the labor force during periods of recession
continue to earn less than their counterparts who began working during
years of growth as many as 10 years later.\14\
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\12\ Bureau of Labor Statistics, Displaced Workers Summary, August
2008, http://www.bls.gov/news.release/disp.nr0.htm
\13\ BLS Employment Situation, Table A-9. http://www.bls.gov/
news.release/empsit.t09.htm
\14\ Phil Oreopoulos, Till von Wacther, and Andrew Heisz. The
Short- and Long-Term Career Effects of Graduating in a Recession:
Hysteresis and Heterogeneity in the Market for College Graduates.
National Bureau of Economic Research, 2006. http://www.columbia.edu/
%7Evw2112/papers/nber_draft_1.pdf.
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Beyond Stimulus: Recommendations for an Inclusive Recovery
To date, the response to the economic downturn has been primarily
focused on stimulating aggregate demand, as in the ``rebate'' checks
issued earlier this year. Many of the recommendations here will indeed
stimulate the economy, by putting money in the hands of low-income
individuals and families who are likely to spend it immediately to meet
their urgent needs. Similarly, our recommendations for fiscal relief to
the states will also prevent states from having to cut spending, layoff
workers, and reduce services. But the need for a recovery package goes
beyond stimulating the broad economy. We must commit to an inclusive
recovery that protects the vulnerable and provides opportunity for all.
The Federal Government must play a central role in any recovery
effort. First, only the Federal Government has the ability to make
significant counter-cyclical investments. Almost all states are
required to balance their budgets each year. When the economy is bad,
tax revenues fall; without additional Federal investments, states are
forced to cut services exactly when they are needed the most. Second,
states vary widely in their capacity and commitment to serving low-
income families and workers.\15\ Federal policy can act as a balancing
force, reducing the inequities faced by residents in different parts of
the country.
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\15\ Thomas Gais, Stretched Net: Spending on the Poor, Rockefeller
Institute of Government, October 2008. http://www.rockinst.org/
observations/gaist/2008-10-stretched_net_spending_on_the
_poor.aspx
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Shoring Up the Safety Net
The United States is entering this recession with large holes in
our core safety net programs, which were created in response to the
Great Depression. Unemployment Insurance only reaches one in three
workers who lose their jobs--with low-wage and part-time workers only
half as likely to receive benefits. In the wake of welfare reform,
Temporary Assistance for Needy Families only provides cash assistance
to 40 percent of those eligible under state rules--down by half since
1996. Federal funding cuts to the child support program are expected to
result in a loss of $1 billion per year in support payments collected
for families, Medicaid, child welfare, child care; and other programs
that serve low-income families are under severe pressure due to budget
deficits in the states.
Extend and Modernize Unemployment Insurance
Despite its weaknesses, Unemployment Insurance (UI) is the first-
line response to a declining economy. It is a crucial source of
temporary financial assistance for jobless workers and their families.
The need for temporary assistance is growing with 2.8 million more
American workers unemployed in October than at this time last year.\16\
---------------------------------------------------------------------------
\16\ Bureau of Labor Statistics http://www.bls.gov/news.release/
empsit.nr0.htm
Recommendation: As part of the stimulus package, Congress
should approve an extension of federally funded extended
benefits to workers who exhaust their UI benefits. The
extension would include seven additional weeks of emergency
unemployment compensation for workers in all states and another
13 weeks for workers in high-unemployment states. This
extension is necessary since 800,000 workers have already
exhausted their benefits under the first extension.\17\
However, an extension of benefits for current recipients is
just the first step because it will still leave out large
numbers of low-wage, part-time, and other workers in some
states.
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\17\ http://www.nelp.org/page/-/UI/WaysMeansTestimonyOct292008.pdf
Recommendation: To ensure that low-wage, part-time, and other
vulnerable workers have access to UI, Congress should
immediately pass the Unemployment Insurance Modernization Act.
This legislation provides incentive funding to states that
count the most recent earnings of workers and extend benefits
to part-time workers and others who leave jobs for compelling
family reasons. Enacting the UIMA now will allow state
legislatures to take action to draw down the funds when they
reconvene.\18\
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\18\ For more information about unemployment insurance, see http://
www.nelp.org/page/-/UI/WaysMeansTestimonyOct292008.pdf
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Encourage States to Provide Cash Assistance to Needy Families
Historically, many low-income single mothers who did not qualify
for Unemployment Insurance benefits were able to receive financial
support through Aid to Families with Dependent Children (AFDC). However
Temporary Assistance for Needy Families (TANF), which replaced AFDC in
1996, provides a much more limited safety net, leaving millions of
children in low-income families without the income assistance and
employment services that TANF can provide. One recent study found that
only half of former TANF recipients who experienced spells of
unemployment lasting least three months received benefits from either
unemployment insurance or TANF.
During the 2001 recession, TANF caseloads continued to decline even
as poverty levels rose significantly. The changes made by the Deficit
Reduction Act (DRA) of 2004 further discourage states from allowing
jobless workers to receive assistance that can help families meet their
most basic needs. The funding and participation rate structure both
create strong incentives for states to keep their caseloads low even
when poverty and need are rising.
Recommendation: Congress should provide additional funding to
those states that, in the face of rising need, provide more
families with basic assistance. States that are making good
faith efforts to help needy families should receive relief from
fiscal penalties that will create further holes in their
stressed budgets. Congress should also make other temporary
revisions to TANF to reduce the incentives created by the work
rules and caseload reduction credit to keep caseloads low even
when need rises, and to allow states to make greater use of
education and training when the labor market is weak.
Expand Food Assistance to Low-Income Individuals and Families
Over the past year, the cost of food has been rising far faster
than inflation. Just from June to September, the cost of buying the
foods in the Thrifty Food Plan has increased by 3 percent.\19\ This
means that the value of Supplemental Nutritional Assistance Program
(SNAP; formerly Food Stamp) benefits has fallen behind even before the
start of the new fiscal year. In addition, many food pantries are
themselves experiencing shortages.
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\19\ U.S. Department of Agriculture, Cost of Food at Home, http://
www.cnpp.usda.gov/USDAFoodCost-Home.htm.
Recommendation: A temporary increase in SNAP benefits to
current recipients will help low-income families afford more
food. This is critical, because food is a part of the budget
that gets squeezed when other living expenses increase or
income declines. An increase in SNAP benefits is also one of
the fastest and most effective ways to put additional spending
power in the hands of low-income individuals and families, and
thus to stimulate the economy.
Provide Child Care Help to Low-Income Families
Families need safe and stable child care in order to find and
retain employment, yet for many low-income families the cost of child
care is a barrier to work. These families need help paying for the
child care that best meets their needs, yet funding for the Child Care
and Development Block Grant (CCDBG), which provides child care
assistance to low-income working families, has been nearly flat since
2002--as the cost of child care has been increasing consistently. In
just the period from 2006 to 2007, the price of full-time center care
for young children increased at nearly twice the rate of inflation. In
every state, monthly child care fees for two children at any age exceed
the median rent cost and are nearly as high or even higher than the
average monthly mortgage payment.\20\ Seventeen states have waiting
lists for child care assistance, as high as 204,063 children in
California and 47,603 children in Florida.\21\ Getting families back to
work is a key component in reviving the economy, and child care is a
key piece of this recovery.
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\20\ NACCRRA: Parents and the High Cost of Child Care 2008 Update
http://www.naccrra.org/docs/reports/price_report/Price_Report_2008.pdf
\21\ NWLC: State Child Care Assistance Policies 2008: Too Little
Progress for Children and Families
Recommendation: CCDBG should be increased by $956 million. This
will allow states to provide funding for child care for more
than 164,000 children in low-income working families who are
suffering from the economic crisis. Congress should signal that
these funds ought to be available to low-income families who
are working and to those who are involved in education, job
training and skill building and reemployment activities.
Leverage Income for Single-Parent Families by Restoring Child Support
Enforcement
One in four children in this country participate in the child
support program. Along with EITC and Food Stamp benefits, child support
is one of the main sources of income support for low-income working
families. Next to earnings, child support is the second largest income
source for poor, single-mother families that receive it--30 percent of
the family's budget. Support payments play a stabilizing role during
economic downturns, helping families get from paycheck to paycheck and
weather job losses. Families spend the money very quickly. State data
suggest that 97 percent of child-support funds dispensed to family
debit cards are spent down by the end of the month. In addition, the
child support program is one of the few programs that help connect
unemployed fathers to jobs. The child support program is cost-
efficient, collecting $4.73 for every public dollar spent.
A number of states and counties are in the process of laying off
child support enforcement staff and cutting back on services, as a
result of the 20 percent Federal child support enforcement funding cut
included in the Deficit Reduction Act of 2004 (DRA) and state budget
cuts. Other states expect to do so in coming months. According to the
Congressional Budget Office, $1 billion in support payments to families
will go uncollected every year, even if states replace half of the
Federal funding cut by the DRA. In addition, critical initiatives to
help low-income fathers obtain jobs will be eliminated or cut back.
Recommendation: Congress should permanently reverse the 20
percent Federal child support enforcement funding cut included
in the Deficit Reduction Act of 2004 (DRA). In the short run,
Congress should include a two-year moratorium on implementing
the cuts in an economic recovery package at a cost of $1.1
billion per year.
Protect Vulnerable Children from Abuse and Neglect
During times of economic distress, child abuse and neglect rates
often rise. Poverty is the single best predictor of child maltreatment.
Children living in families with incomes below $15,000 annually are 22
times more likely to experience abuse or neglect than children living
in families with incomes of $30,000 or more.\22\ However, the vast
majority of poor parents do not maltreat their children--consider that
there were 13 million poor children in 2006 but less than 1 million
victims of child abuse or neglect that year.\23\ While the connection
between poverty and maltreatment is complex, the research suggests a
link between job loss--changed economic circumstances--and increased
rates of abuse and neglect.\24\ Families may be forced to choose
between paying for heat or food or they may lose their homes. If they
don't have a safety net to fall back on, the children may experience
neglect and end up in foster care. The stress that flows from job loss
and economic hardship may also push parents over the edge so their
behavior becomes harsh, even abusive. Thus, during times of crisis
families need additional supports and services to prevent maltreatment
from occurring. Unfortunately, such times are precisely when states cut
such services to balance their budgets.
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\22\ A. Sedlak, and D. Broadhurst, Third National Incidence Study
of Child Abuse and Neglect (NIS-3) (1996)
\23\ New Statistics Reveal No Change in Child Poverty, Columbia
University, Mailman School of Public Health, National Center for
Children in Poverty, August 28, 2007, http://www.nccp.org/media/
releases/pdf/release_31.pdf; Child Maltreatment, 2006, U.S. Department
of Health and Human Services, Administration on Children, Youth and
Families, 2008
\24\ Domarina Oshana and Lori Friedman. Prevention Funding Project:
Synthesis of Research on Economic Change, Welfare Reform, and Child
Maltreatment. Prevent Child Abuse. http://member.preventchildabuse.org/
site/DocServer/pfp_lit_review.pdf?docID=146 Arloc Sherman, Wasting
America's Future: The Children's Defense Fund's Report on the Cost of
Child Poverty, Beacon Press, 1994; Kristen Shook Slack, Jane L. Holl,
Marla McDaniel, Joan Yoo and Kerry Bolger, Understanding the Risks of
Child Neglect: An Exploration of Poverty and Parenting Characteristics,
Child Maltreatment, 2004, No. 9, 395-408.
Recommendation: Congress should help the most distressed states
provide additional prevention and early intervention services,
as well as child protection services, by increasing the Social
Services Block Grant (SSBG). Specifically, states which are
struggling with significant job loss and unemployment should
receive additional SSBG funds to provide such services. In
addition, Congress should increase the funds that go to
community-based child abuse prevention programs through the
Child Abuse Prevention and Treatment Act (CAPTA). These
community-based organizations play a critical role in
delivering prevention services, but their budgets--often based
on charitable donations--are likely to suffer during difficult
economic times.
Ensure Adequate Resources to Provide Low-Income Families Health Care
Health insurance is critical to the well-being of children and
families. It is only because public health insurance has expanded
coverage over the past decade that the overall number of uninsured
children has fallen, as employers have continued to reduce family
coverage, and many low-income workers can not afford to buy family
coverage even when available. But Medicaid is highly vulnerable to cuts
during a recession, because its costs naturally rise when individuals
lose their jobs and health insurance for themselves and their families.
Already, 17 states have planned cuts that will affect health insurance
eligibility or reduce access to health care services for low-income
children and families. In the 2001 recession, 1 million people lost
health insurance because of cutbacks in Medicaid and SCHIP in 34 states
before Congress provided fiscal relief.\25\
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\25\ Iris Lav, Testimony before the House Budget Committee, Center
on Budget and Policy Priorities, October 20, 2008, http://www.cbpp.org/
10-20-08sfp-testimony.pdf and Nicholas Johnson, Elizabeth Hudgins and
Jeremy Koulish, Facing Deficits, Many States are Imposing Cuts that
Hurt Vulnerable Residents, Center on Budget and Policy Priorities,
updated October 20, 2008, http://www.cbpp.org/3-13-08sfp.htm
Recommendation: The Federal medical assistance percentage
(FMAP) for Medicaid should be raised temporarily to ensure that
states have sufficient revenues to continue to provide low-
income families and individuals access to critical health-care
services.
Securing the American Dream
American workers and families want a hand-up, not a hand-out. One
way to invest in the future of our country is to build the physical
infrastructure--roads and bridges, high-speed internet connections and
public transportation--that will support economic development in the
years to come. Another way is to develop the human capital
infrastructure by investing in education and training, transitional
jobs and work-study.
In good times, a major barrier that prevents workers from upgrading
their skills is what economists call ``opportunity cost''--the fact
that there are only so many hours in a day, and time spent studying is
time not spent working or caring for their families. When unemployment
rises and jobs are scarce, the opportunity cost of education falls. It
makes sense to increase funding for workforce and education programs so
that unemployed and under-employed workers can improve their skills.
Ensure Access for Low-Income People to Good New Jobs Created Through
Infrastructure Investments
Congress is considering investing significant funds in our nation's
infrastructure in order to stimulate the economy and create badly
needed new jobs in the face of growing unemployment.
Recommendation: Congress should structure this investment to
help create job opportunities for traditionally underserved
populations and to build our workforce by dedicating funds to
increase access to job training and education. Congress should
require that at least 15 percent of work hours on
infrastructure projects receiving Federal funding be performed
by veterans, low-income individuals, out-of-school youth,
homeless individuals, or ex-offenders. To ensure that low-
income individuals and those with barriers to employment can
gain the skills necessary to access the new jobs created by
Federal investments in infrastructure, states should be
required to dedicate at least 1 percent of available funds for
skills development. States should have flexibility to identify
and fund creative and effective workforce development programs
and partnerships, including those run by nonprofit
organizations, labor organizations, employers, local workforce
investment boards, community colleges, and other state and
local entities.
Fund Summer Jobs in Areas with High Youth Unemployment
This summer, even before the latest economic decline, the youth
employment rate was only 32.7 percent, the lowest in over sixty
years.\26\ There are 3.8 million 18- to 24-year-olds out of school and
out of work. Dollars spent on summer jobs flow immediately into the
local economy. Just as important, these jobs will be the first exposure
to the work environment for many youth, and will help them develop
appropriate work skills and behaviors, and provide important community
service.
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\26\ The Collapse of the 2008 Summer Teen Job Market: A Record 60
Year Employment Low for the Nation's Teens by Andy Sum, et. al., Center
for Labor Market Studies, Northeastern University, August 1, 2008
http://www.nyec.org/content/documents/collapse_2008_summer_
teen_job_market.pdf
---------------------------------------------------------------------------
The Workforce Investment Act of 1998 substantially curtailed the
use of Federal funding for summer jobs. Nonetheless, each year,
communities across the country mount summer jobs efforts, although at a
substantially reduced level from past years, with long waiting lists
and thousands of young people turned away. Stimulus money directed to
those communities with the summer jobs programs in place could
eliminate waiting lists and ensure that these dollars circulate in the
local economies throughout the summer.
Recommendation: Summer jobs for youth should be funded at $1
billion for the summer of 2009, with the provision that 30
percent of funds can be spent beyond summer months for
transitional jobs for out-of-school youth.\27\ Providing the
money now will allow for better planned and managed summer jobs
programs.
---------------------------------------------------------------------------
\27\ National Youth Employment Coalition letter of March 26, 2008
to Senator Kennedy and Representative Enzi. http://www.nyec.org/
content/documents/SummerJobsStimulusActMarch0
8final.pdf
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Increase Support for Education and Training During the Downturn
Unemployed workers or suddenly under-employed workers could benefit
from skill development while they are out of work or working reduced
hours. Nearly half the U.S. workforce has only a high school education
or less. Some 25 million workers aged 18 to 64 lack a high school
diploma or GED,\28\ while another 52 million adults have no
postsecondary education, which is increasingly the doorway to family
sustaining employment.\29\ Investing in the skills of our workforce is
also critical to preparing our workforce for the jobs of the future,
and to rebuilding our economy.
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\28\ Creating Postsecondary Pathways to Good Jobs for Young High
School Dropouts: The Possibilities and the Challenges by Linda Harris
and Evelyn Ganzglass, Center for Law and Social Policy, October, 2008.
http://www.clasp.org/publications/postsecpathyouth.pdf
\29\ Crosley, Adair and Brandon Roberts, Strengthening State
Policies to Increase the Education and Skills of Low-Wage Workers,
Chevy Chase, MD: Working Poor Families Project, 2007.
Recommendation: Congress should provide an additional $1.25
billion in funding for programs authorized under the Workforce
Investment Act to enhance the nation's capacity to help
unemployed and under-employed people gain access to career
counseling the skills to compete for family-sustaining jobs.
Congress should also provide an additional $250 million for re-
employment services targeted to those most likely to exhaust
---------------------------------------------------------------------------
their unemployment benefits.
Recommendation: An additional $500 million should be provided
for adult education. Funding should be directed at programs
that integrate basic skills, English language and occupational
training and focus on transition to postsecondary education and
job training in order to ensure that lower-skilled people are
not left behind in this labor market.
Recommendation: Congress also should provide $250 million to
expand the Federal Work-Study program to help financially
disadvantaged college students earn the funds they need to pay
for college and attain a postsecondary credential with value in
the labor market. This program provides funding for jobs on
campus, in the community, and in the private sector thereby
providing a financial stimulus and helping students develop
strong work habits and gain exposure to potential employment
opportunities.
Expand Transitional Jobs for Individuals with Barriers to Employment
During tough economic times, individuals with barriers to
employment are particularly hard hit. Transitional Jobs are a
successful program model aimed at helping individuals with barriers to
employment enter and succeed in the workforce. Transitional Jobs help
individuals overcome employment obstacles by using time-limited, wage-
paying jobs that combine real work, skill development, and supportive
services, to transition participants successfully into the labor
market. Studies have shown that transitional jobs programs increase
short- and long-term employment opportunities for people facing the
most significant barriers to employment. More than 30 states and
numerous localities across the country have implemented transitional
jobs programs for populations with barriers to employment, including
TANF recipients, homeless individuals, at-risk youth, people being
released from prison, refugees and immigrants, and disabled
individuals. The number of Americans that currently face or will face
these and other barriers to employment is alarming and rising.
Recommendation: As part of the recovery package, Congress
should provide $400 million dollars for the development and
expansion of Transitional Jobs programs. A portion of these
funds should be reserved for technical assistance for new and
existing programs.
Conclusion
In his victory speech this week, President-elect Barack Obama
called upon Americans to recognize our connections to each other, and
our interdependence. He knows that we cannot prosper as a nation; we
cannot recover from our economic troubles, unless all of us share in
that prosperity and in that recovery. As he said, ``let us summon a new
spirit of patriotism, of responsibility, where each of us resolves to
pitch in and work harder and look after not only ourselves but each
other.''
CLASP: Policy Solutions That Work for Low-Income People
CLASP develops and advocates for policies at the Federal, state and
local levels that improve the lives of low income people. We focus on
policies that strengthen families and create pathways to education and
work. Through careful research and analysis and effective advocacy, we
develop and promote new ideas, mobilize others, and directly assist
governments and advocates to put in place successful strategies that
deliver results that matter to people across America.
For more information, please contact Elizabeth Lower-Basch, Senior
Policy Analyst [email protected]
Statement of Chippewa County Child Support Agency
ECONOMIC SECURITY AND ECONOMIC STIMULUS LEGISLATION
Wisconsin Child Support Agencies and more particularly Chippewa
County Child Support Agency in Chippewa Falls, Wisconsin, are asking
you to restore the Federal funding that was taken away by the 2004
Deficit Reduction Act.
The Federally mandated Child Support Program has been and continues
to be one of the most lucrative programs that maintain families
throughout the nation. In Wisconsin, approximately $6.00 in child
support is collected for every dollar spent on its child support
program.
Chippewa County was never on the tax levy nor was this program a
tax payer's responsibility. With the 2004 Deficit Reduction Act we will
be entering our third year of being a tax levy to our county. States
and Counties are struggling due to the economic crisis. Attempts to
give the same and/or improved services to our customers with less to
work with (less staff, less money) is evident by the reduction in our
State's overall child support collections. Without child support single
families are unable to help stimulate the economy as any money earned
must go for the basics with no extra to allow the children an
opportunity for any extracurricular activities and most likely the tax
payer will absorb another family to support by way of being taxed more.
Let it be known, States and Counties do not have the extra monies
to backfill this mandated void. Thus again you are urged to reinvest in
the Federally Mandated Child Support Program in the next economic
stimulus package.
Statement of Coastwise Coalition Joint Letter
As the Congress considers elements for the economic recovery/
stimulus legislation, the Coastwise Coalition recommends that any such
legislation create an exemption from the Harbor Maintenance Tax for
carriage of domestic and Great Lakes non-bulk cargo. Doing so would
remove a barrier to use of U.S. flag shipping and thus foster job
creation in the maritime sector.
The Coastwise Coalition is a diverse group of public and private
sector organizations and individuals including ports, maritime labor
unions, shipyards, transportation professionals, vessel operators and
other transportation providers, and others in the maritime industry and
workforce.
The Coalition's purpose is to promote the use of waterborne
transportation as a safe, economical, energy efficient, environmentally
beneficial, and sustainable means to meet a growing need for reliable
transportation options and capacity. Congestion on our land routes is a
fact of life in many major corridors and most metropolitan areas of the
country. Greater use of marine transportation on domestic ocean and
water routes and on the Great Lakes can relieve part of the increasing
demands on the nation's major highways and rail system by providing
additional routings for cargo.
Increasing domestic coastwise and inland shipping services would
stimulate job creation in the maritime industry while providing cargo
owners, transportation intermediaries, trucks, and rail carriers a
safe, reliable, and cost competitive transportation option. In the
process, our transportation system can improve in terms of energy
efficiency, environmental impact, and reduced stress on corridor
communities.
To achieve these short and long-term benefits, Congress should
promptly enact legislation that would exempt carriage of non-bulk
domestic and Great Lakes cargo from the Harbor Maintenance Tax. This is
cargo currently moving largely on congested and aging highways that can
have the option of moving on water routes. There are some exemptions to
this tax already, notably when the vessel movement in question pays the
inland waterways fuel tax, for passenger ferries, and for certain
shipping that serves Hawaii, Alaska and U.S. possessions. However,
absent applicability of exemptions, or an unusually strong special
niche market, the HMT is a serious barrier to moving these non-bulk
cargoes on water in domestic or Great Lakes service, as we explain.
The Harbor Maintenance Tax is an ad valorem charge--0.125 percent--
on international cargo entering this country, on domestic cargo moving
between U.S. ports, and cruise passenger tickets. The tax, which is
paid by the cargo owner, discourages the use of marine transportation
by intermodal cargo in several ways.
First, at a time when all business is extremely cost conscious, the
charge itself can be a major barrier. It is a charge not imposed on
land transportation moves. Second, there is an administrative barrier.
A considerable amount of the freight moving on the congested
Interstates and major corridors is in consolidated shipments such as
you would find in a UPS trailer. Use of the marine highway alternative
would obligate the owners of goods with a value over $1,000 in the
truck to file separately the appropriate HMT payment with Customs and
Border Protection, the collecting agency. That, of course, assumes that
the shipper knows that the truck opted for the water route.
Similarly, if an international containership operator wanted to
consider routing import cargo to its destination via a coastal shuttle,
new charges and customer paperwork would apply that does not apply if
land carriers were used. Further, in this context, where the import
cargo is already assessed the HMT for the transportation to the entry
port in the U.S., using the marine highway can result in the cargo
having to pay the HMT twice. This is the case even though the coastal
vessel has a far shallower draft than the importing vessel. In the
larger gateways the harbors are being dredged to maintain depth
principally for the large transoceanic vessels. There the shallower
vessel is not causing the need for the dredging that is paid for by the
proceeds of the HMT.
In short, when one is trying to persuade potential customers to try
a new solution to their transportation problems, it doesn't help to say
that extra charges and paperwork would be a part of the new approach.
The HMT is a serious barrier to success for vessel operators trying to
establish new services and attract non-traditional customers of marine
transportation.
Because of these barriers, however, these marine services have had
difficulty being developed at all. As a result, the Treasury collects
very little revenue from the HMT in the context of carriage of non-bulk
domestic and Great Lakes cargo (including cargo carried on rolling
stock such as trucks, trailers and rail cars, as well as cargo in
containers or in the form of vehicles). Further, these barriers
discourage shipbuilding plans for these services, with the attendant
lost opportunity for American shipbuilding jobs. So, enacting the
exemption will provide stimulus and longer term economic and societal
benefits with little if any cost to the Treasury.
This is well illustrated by the facts regarding the Detroit-Windsor
Truck Ferry, which operates between the U.S. and Ontario and primarily
serves trucking carrying hazardous cargo. It provides an essential
alternative to the heavily traveled Ambassador Bridge and long distance
alternatives. The operator of this barge service testified on February
15, 2007, before the Coast Guard and Maritime Transportation
Subcommittee that hazmat trucks use the service in the direction of
Canada but that trucks bearing cargo and originating in Canada do not
use the service expressly because of the Harbor Maintenance Tax. Thus,
the most desirable route for hazardous cargo--away from the crowded
international bridge and a significantly shorter distance than other
route alternatives--is discouraged by current law.
In summary, there is an opportunity for innovative, new maritime
service that would:
create U.S. citizen maritime jobs, strengthening the
active base of U.S.-flag vessels and mariners for national
defense;
stimulate shipbuilding, with the associated jobs;
ease landside congestion;
ease the need to construct new, expensive landside
capacity;
utilize an energy efficient, less polluting mode;
and,
involve very little cost to the Treasury.
The merits are compelling, short and long term.
Accordingly, we strongly urge the Committee and the Congress to
enact now legislation to exempt carriage of domestic and Great Lakes
non-bulk cargo from the Harbor Maintenance Tax.
We thank the Committee for its consideration of our views and we
respectfully request that this letter be included in the record of the
Committee's hearing of October 29, 2008.
______
Paul H. Bea Jr., Chairman
Coastwise Coalition
James Henry
Transportation Institute
David Sanford
American Association of Port Authorities
Karen Myers
American Maritime Officers Service
Joseph J. Cox, President
Chamber of Shipping of America
Horizon Lines, LLC
Crowley Maritime Corp.
Peter Drakos, President
Coastal Connect LLC
Captain Timothy A. Brown
International Organization of Masters,
Mates & Pilots
Arthur W. Moye, Jr., Exec. Vice President
Virginia Maritime Association
David C. White, Chairman
South Atlantic Marine Transportation System Organization
Ron Silva, CEO
Westar Transport
Rosemary Lynch, Exec. Director
Atlantic Intracoastal Waterway Association
Roberta Weisbrod, Ph.D.
Partnership for Sustainable Ports LLP
Thomas Bethel, National President, American Maritime Officers
Gregg M. Ward, Vice President
Detroit-Windsor Truck Ferry
Vice Adm. Albert J. Herberger, USN (Ret)
Vice Chairman, American Ship
Management and Former Maritime Administrator
John Horsley, Executive Director
American Association of State Highway and Transportation Officials
Richard Hughes, President
International Longshoremen's Association
C. James Patti, President
Maritime Institute for Research and
Industrial Development
Richard Blouse, Jr., President & CEO Detroit Regional Chamber
Steven A. Fisher, Executive Director
American Great Lakes Ports Association
Matthew Paxton, President
Shipbuilders Council of America
Stephen Flott, Chairman
SeaBridge USA, Inc.
Bruce Fenimore, Owner,
Columbia Coastal Transport, LLC
Matt Dwyer
Legislative Representative
American Maritime Congress
Torey Presti, President
National Shipping of America
Tom Adamski
New Jersey Motor Truck Association,
Bi State Harbor Carrier Conference
Joseph A. Riccio, Executive Director
Bridgeport Port Authority
Hank Hoffman, President & CEO
SeaBridge Freight, Inc.
Stan Wheatley, Director
Center for the Commercial Deployment of Transportation Technologies
California State University, Long Beach
Jeanne Cardona, Executive Director
Association of Ship Brokers & Agents
Dennis Rochford, President
Maritime Exchange for the
Delaware River and Bay
Raymond R. Barberesi, President
Marine Transportation Specialists Corporation
Stuart H. Theis, Executive Director
United States Great Lakes Shipping Association
Mark Yonge, Managing Member
Maritime Transport & Logistics Advisors, LLC
H. Clayton Cook, Jr., Counsel
Seward & Kissel LLP
Alan Gray
MetroMarine Holdings
George E. Duffy, President/CEO
NSA Agencies, Inc
Statement of Columbia Country Child Support Agency
I am writing on behalf of the Columbia County Child Support Agency
and pleading on behalf of the taxpayers (custodial parents and children
of Wisconsin) of which our agency collects child and medical support to
allow theses families to provide food, health insurance and clothing
for their children.
I wanted to let you know how critical it is to restore the Federal
funding cuts that were made to the Child Support Enforcement Program
under the 2004 Deficit Reduction Act (DRA).
Putting together an economic stimulus package which includes the
restoration of pre-DRA funding levels for the nation's Child Support
Program is critical, especially now, when America's children and
families have been financially devastated by the country's recent
economic downturn as they struggle each and every day to ``just get
by''.
The Child Support Enforcement Program is charged with establishing
legal fatherhood for children unwed parents (Wisconsin alone had 22,000
new paternity cases for non-marital children in 2007), as well as
establishing and enforcing all child support and medical support
obligations (affecting over 400,000 children in Wisconsin in 2007). As
part of the medical support program, Child Support Agencies establishes
and enforces the requirement that parents obtain private health
insurance for their children, thereby reducing reliance on Medicaid,
while the collection of child support by the program reduces reliance
on other Federal benefit programs in addition to Medicaid, specifically
Food Stamps, TANF, SSI and Housing.
I urge you, in moving forward with the second stimulus package to
please demonstrate your concern for our children and families and
support the reinstatement of the DRA funding for child support as part
of the next economic stimulus package. It is those American families
who have the ability to maintain economic stability within their
households (in part through the assistance of child support), who make
up the backbone of our economy.
I want to thank you and all the Congressional leaders that support
our interest in protecting the nation's Child Support Enforcement
Program, as is evidenced by the strong bipartisan support this year for
H.R. 1386, The Child Support Protection Act. I want to also thank you
for this opportunity to submit this statement for the record, and for
your leadership on this important issue.
Statement of Congressman Luis G. Fortuno
I want to thank Chairman Rangel and Ranking Member McCrery for
holding today's hearing on the prospect of a second economic stimulus
package and for providing me with the opportunity to submit this
statement for the record. I believe that a well-designed stimulus
package is both appropriate and necessary in order to restore economic
security and to create new jobs. I look forward to working with my
colleagues to craft a package that the President will sign into law
before the new year.
Earlier this month, I wrote a letter to Speaker Pelosi, Majority
Leader Boehner, Chairman Rangel and Ranking Member McCrery. In that
letter, I urged the leaders of this body to ensure that the U.S.
citizens of Puerto Rico are included in any package that is ultimately
put forward to help working families and invigorate the national
economy. I respectfully reiterate that request now. Thanks to our
collective efforts, and in particular to the efforts of this
Committee's chairman and ranking member, Puerto Rico and the other U.S.
territories were included in the first stimulus package enacted in
February. Residents of the territories were also included in the
stimulus package that was approved by the House, but not the Senate,
just before the October recess. In light of Congress's record of
inclusiveness, I am confident that my constituents will benefit, no
less than their fellow citizens in the states, from the package now
under consideration.
Although I know the precise content of the contemplated legislation
is still being worked out, it is my understanding that the package
might contain some or all of the following components: an extension of
unemployment benefits, a temporary increase in aid to states and
territories for Medicaid, funding for public infrastructure projects
like roads and bridges, a second round of rebate checks, and increased
food stamp payments.
I believe that each of these measures would provide a much-needed
boost to the national economy, and to the Puerto Rico economy in
particular. As Chairman Rangel noted in his statement announcing this
hearing, the national unemployment rate is 6.1 percent, a five-year
high. The unemployment rate in Puerto Rico is the highest in the
country by roughly three percentage points. According to the most
recent figures, the rate of unemployment on the Island now exceeds 12
percent--double the national average.
With respect to Medicaid, between one-quarter and one-third of my
constituents rely on this Federal-state program for their health care.
Unlike in the states, the Federal contribution to Puerto Rico's
Medicaid program is subject to a spending cap. The upshot of this
spending cap is that the local government pays more than 80% of the
cost of providing Medicaid to beneficiaries on the Island. In
Mississippi, by contrast, the state Government pays less than 20%. I
have never been shy about expressing my belief that this state of
affairs is deeply unfair and requires a long-term fix. Nevertheless, a
temporary but meaningful increase in Federal funding for Puerto Rico's
Medicaid program would more fairly distribute the respective financial
burdens now being shouldered by the local and Federal Government.
With respect to infrastructure, 50 National Highway System bridges
in Puerto Rico have been deemed structurally deficient by the
Department of Transportation and many other vital construction projects
on the Island cannot be commenced or completed due to insufficient
funding. I hope that the second stimulus package will provide increased
funding for public infrastructure projects like road-building and
bridge-building, and that Puerto Rico will receive its fair share of
those funds. Among the many benefits that will result from increased
infrastructure funding is the creation of well-paying new jobs in the
construction and other sectors.
Finally, over one million low-income residents of Puerto Rico rely
on food stamps to feed themselves and their families. As you know, the
economic crisis on the Island--and it is a crisis--has taken a
particularly heavy toll on individuals of limited means. Increasing
Federal funding for this vital program will make sure that this
economic crisis does not become a battle for survival for our most
vulnerable citizens.
I thank the Committee again for conducting this timely and
important hearing and I urge my colleagues in Congress and the
President to quickly approve a stimulus package that will benefit all
hard-working American families, including those in Puerto Rico and the
other U.S. territories
Statement of Denise Soffel
Medicaid Matters New York (MMNY) believes that an increase in the
Federal Medicaid Assistance Percentage (FMAP) must be a part of any
emergency supplemental stimulus appropriation package. A temporary
increase in FMAP would provide all states with critical fiscal relief
during the current economic downturn. Medicaid is a counter-cyclical
program, experiencing a growth in enrollment at the very time states
are experiencing tightened budgets. Absent Federal relief, New York and
many other states will be confronted with the need to make budget cuts
to Medicaid that would harm the most vulnerable members of our
communities.
Medicaid Matters New York is a statewide coalition of over 130
organizations that advocates on behalf of the over four million New
Yorkers who rely on Medicaid for their health and well-being. MMNY
includes within its coalition a diverse set of organizations united in
their determination to ensure that the voices and concerns of Medicaid
beneficiaries are included and met in any discussion about Medicaid. We
remind the Legislature that for the consumers we represent, any cut
backs in Medicaid result in more people who are without health coverage
of any sort.
New York is facing an economic downturn of unprecedented
proportions. As the home of the financial services industry, New York
is at the epicenter of the economic crisis confronting the nation. The
state faces a deficit of $1.5 billion in the current fiscal year, which
is expected to grow to $12.5 billion next year. A temporary increase in
the FMAP would substantially ease the state budget deficit at this time
of economic crisis, thereby minimizing cuts that inevitably hurt the
have-nots in a disproportionate way. Community-based health care
providers and grassroots organizations, many of whom are MMNY members,
sustained significant cuts in the first round of midyear budget cuts
enacted in August. Another round of cuts is expected on November 18th
when the Legislature has been called back for an unprecedented special
session, whose sole purpose is to identify further budget cuts.
Families already struggling with increased costs for fuel, the fear of
housing instability and foreclosure, and ever-rising prices for food
and clothing should not have to fear losing their health coverage as
well. Together we must ensure that the most vulnerable Americans have
the health security that Medicaid offers.
MMNY supports the proposal laid out in H.R. 5628 which calls for a
2.95 percent FMAP increase for all states over a 15-month period.
Mirroring Congressional action taken in 2003, this will ensure that
continued healthcare services are available to low-income and disabled
children and families.
Statement of Diana Aviv
The 25 percent rise in the number of unemployed Americans and the
millions of families who have lost their homes to foreclosure over the
past year can be seen in the growing lines of people coming to
nonprofit organizations for the food, shelter, medical care, and
financial and crisis counseling they need to survive this difficult
economy. The numbers of individuals and families seeking assistance--
and the types of assistance they are searching for--have expanded
considerably as a result of the most recent economic developments.
Millions of older Americans will be living in reduced circumstances
because of the dramatic drop in their retirement savings; many young
people can no longer access the loans they need to stay in school; and
there has been an alarming rise in calls for help with domestic
violence, depression, and substance abuse.
The same conditions that have expanded the numbers of people in
need have also left the nonprofit organizations people turn to for
assistance struggling. Cuts in Government funding, coupled with
diminished private resources and rising costs of doing business, have
left nonprofits facing significant challenges in meeting the increased
demand for services. As the Committee on Ways and Means and the
Congress consider measures to address state and local Government budget
shortfalls, home foreclosures, and long-term unemployment, we offer
five proposals that would also help our nation's charities and
foundations provide the vital programs upon which communities
throughout the nation rely. Specifically, we recommend simplifying the
excise tax on private foundations, lifting the ceiling on individual
giving above 50 percent of AGI, raising the annual cap on giving from
individual retirement accounts, providing temporary transition relief
from the new funding rules under the Pension Protection Act, and
establishing a revolving loan fund to enable foundations to meet their
commitments to communities.
Impact of State and Local Government Budget Crisis
Our nation's 1.5 million nonprofits receive roughly one-third of
the funding they use to provide services to individuals and communities
from Government, and those that provide health and human services
derive over 55 percent of their funding from Government. As state and
local governments have cut their budgets for these vital areas, many
nonprofits have been forced to curtail programs, reduce their hours of
service, or even close their doors.
The fiscal challenges facing state and local governments have hit
charities hard. For example, New Jersey eliminated from its 2009 fiscal
year budget $42.4 million that was slated to cover the rising costs of
nonprofits serving 500,000 people with developmental disabilities and
mental illnesses, as well as children and families suffering from
domestic violence and other problems. In New York, the 211 hotline
program, which refers people in need to groups that can help them, was
cut by more than 90 percent. Legal Aid in Sonoma County, California
lost 15 percent of its operating budget when the county Human Services
Department could not afford to renew its contract for Fiscal Year 2009,
and the local YWCA may lose nearly $700,000 in Government funding. With
at least 36 states experiencing fiscal stress,\1\ the likelihood of
sweeping cuts in nonprofit programs is expanding while the need for
those programs grows.
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\1\ Testimony of Iris J. Lav, Center for Budget and Policy
Priorities, before the House Budget Committee, October 20, 2008.
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Declining Private Contributions
Private contributions from individuals, foundations, and
corporations are another critical source of support for the programs
and services nonprofit offer, comprising another \1/3\ of the funding
for nonprofit organizations. In the last two years, total private
contributions have remained relatively flat, and a recent study by the
Center on Philanthropy at Indiana University indicated that fundraising
in the first half of 2008 was less successful than anticipated due to
``the economic environment--including layoffs, corporate losses, stock
market declines, and rising gas prices.'' \2\ The recent economic
turbulence has caused many individual donors to hold back on their
charitable contributions at a time when their support is needed even
more. Many corporations have severely cut back or suspended their
giving programs, and private foundations have experienced major
reductions in their investment portfolios, which will mean substantial
reductions in their grantmaking activities in the coming years. All of
these factors indicate that nonprofits will continue to be hard pressed
over the next few years to find the resources needed to continue, much
less expand, vital programs and services.
---------------------------------------------------------------------------
\2\ ``Philanthropic Giving Index,'' (Center on Philanthropy at
Indiana University, July 21, 2008)
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Effects of the Credit Crunch
The current credit crisis has left many nonprofits without
sufficient funds to meet current program obligations. In addition to
their common practice of reimbursing nonprofit contractors only after
they have incurred expenses, many state and local governments have
delayed payments to nonprofits that are delivering vital community
services. Without access to quick-turnaround, short-term, low-cost
financial assistance, the nonprofits may find it impossible to provide
necessary services such as supporting foster families caring for abused
children or purchasing supplies needed for educational programs. Other
organizations, such as health clinics, will be forced to cut back on
the hours of service they provide to communities in need. Some
community and private foundations have been a critical source of such
short-term loans for nonprofit organizations. The market downturn,
however, has left many foundations with severely reduced financial
resources, and some must now choose between selling assets at the
current depressed rates or failing to meet their funding obligations.
Over time, these foundations may decide to cut back on the ongoing
support they provide to vital programs and may not consider new
requests to support programs developed to address emerging needs of
individuals and communities.
To ensure that essential community programs are able to continue
during this difficult economic period, short-term loans, using current
assets as collateral, must be made available to both nonprofits that
offer services and foundations that provide emergency assistance..
Rising Health Insurance Costs
Nonprofits are also facing challenges in retaining the skilled,
experienced employees necessary to support their high-quality service
programs because of the rising costs of health care coverage and
retirement benefits. In the most recent study of nonprofit health
insurance, researchers found that nonprofits ``are being especially
hard hit, experiencing higher than average health benefit cost
increases and finding it necessary to shift a disproportionate share of
the resulting burden on their already less well-paid employees in order
to reduce the impacts on the populations they serve.'' \3\ Smaller
organizations, and particularly children and family services agencies,
have been particularly affected by rising insurance premiums. In
addition to layoffs and reduced hours of work, the study found that
organizations have been forced to raise fees or cut services to their
communities.
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\3\ Lester M. Salamon and Richard O'Sullivan, ``The Health Benefits
Squeeze: Implications for Nonprofit Organizations and Those They
Serve.'' Communique No. 3. Baltimore: The Johns Hopkins Center for
Civil Society Studies, October 2004.
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This year, these challenges have only grown, and nonprofits are
increasingly forced to lay off workers, adding to the unemployment
rolls, or reducing or eliminating the health care coverage they provide
to employees. Both actions reduce the amount and quality of services
nonprofits can provide. Because nonprofits, as tax-exempt
organizations, do not benefit from employer tax credits and similar
proposals for addressing health insurance cost and coverage issues, it
will be necessary to find other methods to ensure that this vital group
of workers are not forgotten in the quest to make affordable health
care accessible to all.
Defined Benefit Plan Obligations
Nonprofit organizations that provide defined benefit pension plans
to their employees are being particularly hard hit by new funding
obligations enacted with the Pension Protection Act of 2006. As tax-
exempt organizations, nonprofits offer retirement benefits not as an
opportunity to take a tax deduction, but as a means for attracting and
retaining qualified employees committed to serving their communities.
The Pension Protection Act of 2006 significantly increased the funding
obligations for pension plans, which nonprofits have endeavored to
meet. The abrupt market decline has turned those obligations into a
severe problem never anticipated when the act was drafted.
Specifically, organizations will be required to restore the market
losses of upwards of 35 percent of assets in only seven years, starting
next year. Even if nonprofits freeze their pension plans to curb costs,
this provision will require nonprofits to divert millions of dollars
away from programs at the time they are needed most.
Recommendations
In addition to measures the Committee is considering to respond to
the state and local government budget shortfalls, home foreclosures,
and long-term unemployment, we strongly urge the Committee to consider
the following five measures that could help nonprofits to provide the
critical services our communities need.
Lift the ceiling on individual giving: Congress
should temporarily allow individuals to give more than the
current ceiling of 50 percent of their adjusted gross income.
Under current law, the amount allowed as a charitable
deduction in any taxable year may not exceed fifty percent of
an individual's adjusted gross income. When Congress raised
this limit to encourage giving in response to Hurricane Katrina
and more recently the Midwestern floods, Americans responded by
digging deeper to help their neighbors. The current economic
crisis warrants a similar incentive to help the millions of
Americans who need the services, solace and support nonprofit
organizations offer.
Raise the annual cap for gifts to charity from IRA
holdings: Congress should temporarily allow older Americans
(age 70\1/2\ and older) to give back to their communities
through nonprofit organizations in amounts beyond the current
annual cap of $100,000 when they feel their accumulated
retirement resources exceed the amounts they require to meet
their own needs.
Simplify the excise tax on private foundations so
that foundations are not penalized for increasing gifts in
times of greatest need. Private foundations that maintain a
minimum distribution rate averaged over a five-year period are
currently subject to a one percent excise tax on their
investment holdings, whereas those that substantially increase
their distributions in a given year may be subject to a two
percent tax rate. Significant increases in distributions at
times like these inflate the rolling average, requiring
additional spending in subsequent years to avoid the higher tax
rate. The current two-tiered taxing system, therefore, has the
perverse effect of discouraging foundations from increasing
their distributions for charitable purposes during times of
greater need. This disincentive should be corrected either by
eliminating the excise tax or by replacing the current two-
tiered tax with a single-tier rate.
Establish a Revolving Loan Fund: Congress should
establish a temporary revolving loan fund that would provide
short-term loans with a reasonable interest rate to nonprofit
organizations that are facing short-term cash flow problems due
to delayed payments from Government contracts and private
grants. Existing contracts and grant commitment letters could
be used as collateral, and financial institutions involved in
the broader economic recovery program could administer such a
fund. The fund could also be available to help foundations meet
their commitments to charitable works in the near term without
having to sell assets that are temporarily but significantly
undervalued.
Defined Benefit Obligations: Congress should provide
relief to nonprofit organizations that sponsor defined benefit
pension plans by extending the transition period for
implementing the new funding obligations enacted as part of the
Pension Protection Act of 2006, by allowing flexibility in
choosing funding election methods, and by permitting smoothing
of unexpected losses. Without this relief, nonprofits that
sponsor defined benefit plans will be forced to meet the
unexpected losses that occurred as a result of the market
downturn by shifting substantial financial resources away from
vital community services.
Independent Sector is a national, nonpartisan charitable
organization with approximately 600 members, including public
charities, private foundations, and corporate giving programs,
collectively representing tens of thousands of charitable groups in
every state across the nation. Our coalition leads, strengthens, and
mobilizes the charitable community to fulfill our vision of a just and
inclusive society and a healthy democracy of active citizens, effective
institutions, and vibrant communities. IS members represent a broad
cross-section of our nation's nonprofit community, which exists to meet
society's needs, frequently in partnership with Government, in diverse
areas such as the arts, education, human services, community
development, and health care.
Statement of Frank Hugelmeyer
On behalf of the Outdoor Industry Association (OIA), I would like
to thank the Committee for the opportunity to present this written
testimony and respectfully submit the following in support of a
comprehensive economic recovery strategy. Specifically, OIA asks
Congress to pass an economic stimulus package this year that:
Provides greater financial security to the American
people and more certainty for America's businesses by reducing
their costs and stabilizing retail prices.
Includes H.R. 3934/S. 2372, the Affordable Footwear
Act--legislation that repeals many of the anachronistic tariffs
on footwear.
Outdoor Industry Association (OIA) is a national trade association
with a mission to ensure the growth and success of the outdoor
industry. OIA's members include the leading manufacturers and retailers
of outdoor recreation equipment and services such as The North Face,
Columbia Sportswear, Timberland, Patagonia, W.L. Gore, Cabela's, REI,
L.L. Bean to name a few. The industry includes more than 4000
businesses in every state across the country.
In addition to the economic contributions of businesses specific to
our sector, outdoor recreation impacts the health of major economic
sectors across the economy including manufacturing, retail trade and
travel and tourism.
More than three out of every four Americans participate in active
outdoor recreation each year. Americans spend money, create jobs, and
support local communities when they get outdoors.
According to a recent report \1\ by the Outdoor Foundation, the
outdoor recreation economy:
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\1\ The Active Outdoor Recreation Economy, Outdoor Foundation, 2006
Contributes $730 billion annually to the U.S. economy
Supports nearly 6.5 million jobs across the U.S.
Generates $88 billion in annual state and national
tax revenue
Provides sustainable growth in rural communities
Generates $289 billion annually in retail sales and
services across the U.S.
Touches more than 8 percent of America's personal
consumption expenditures--more than 1 in every 12 dollars
circulating in the economy
The outdoor industry though, like most other sectors of the
economy, is substantially threatened by the current economic downturn.
The majority of our industry are small businesses--entrepreneurial
manufacturers and independent retailers--which are facing the stark
reality that current economic conditions may deteriorate further and
may be extended over several months.
The upcoming winter months are of greatest concern for many of
these businesses, which are reacting by reducing their inventories and
postponing some production. Some retailers are already struggling with
credit issues and planning to be 10 to 15 percent down this season.
An economic stimulus package passed by Congress that places a focus
on reducing costs for small businesses and stabilizing and even
reducing retail prices for American consumers can go a long way towards
easing these anxieties while providing more certainty with which to
plan towards next year.
History indicates that Congress will see a good return by focusing
on small business and the outdoor segment in any economic stimulus
package. During the recessions of the late 1980's and early 1990's,
several outdoor retailers reported that sales slowed to single-digit
growth. However, sales quickly rebounded and returned to double-digit
growth before the rest of the economy recovered. Anecdotal evidence
from long-time industry leaders suggests that it was a consumer shift
to affordable and simple activities like family camping that helped
fuel growth in tough economic times.
Fast-forward to the economic slow down over the last eighteen
months and we now have hard data to back these claims. According to the
OIA Topline Retail Sales Report, U.S. outdoor industry retail sales
grew 10 percent in 2007 \2\ and another healthy increase of 9 percent
was posted in the first six months of 2008.\3\ At same time, the U.S.
Gross Domestic Product (GDP) slowed measurably and posted an average
increase of only 2 percent over the same eighteen-month period.
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\2\ Topline Retail Sale Summary, For Calendar Year 2007, Outdoor
Industry Association, 2007
\3\ Monthly Topline Market Summary, Outdoor Industry Association,
Jan-June, 2008
---------------------------------------------------------------------------
Why did the outdoor industry remain so strong through the difficult
time frame leading into this economic downturn? In short, Americans
returned to low-cost transportation and recreation activities. Cycling
and camping sales shot up and the equipment, outerwear, footwear and
accessories related to these activities realized strong growth.
While many outdoor businesses have weathered the recent economic
downturn, they are not immune to its effects. Stagnation and even
negative growth has begun to appear across the outdoor industry.
Despite these troubling signs, businesses that support cycling,
camping, hiking, fishing and paddling activities are well-positioned to
help lead our nation's economic recovery. Congress can foster that
economic recovery by passing an economic stimulus package that reduces
costs for businesses and stabilizes or reduces retail prices for hard
working American families.
More specifically, OIA respectfully urges Congress to include H.R.
3934/S.2372, the Affordable Footwear Act in a comprehensive economic
stimulus package or other appropriate legislative package Congress
considers this year.
The Affordable Footwear Act, or AFA, eliminates outdated tariffs on
most kinds of footwear. These extremely high U.S. footwear tariffs are
the remnants of policies from more than 75 years ago (instituted in
1930 under the Smoot-Hawley Tariff Act). Some of the highest tariffs
are applied against hiking boots, trail shoes and other outdoor
footwear. These tariffs no longer serve the intended purpose of
protecting a U.S. footwear industry and are now an excessively high and
unnecessary tax. In fact, these tariffs translate into a $4 to $5
billion tax each year on U.S. consumers. The current, arcane tariff
structure puts products like hiking shoes out of reach of many
consumers. Americans at all economic levels should be able to enjoy the
great outdoors and have access to affordable products.
Introduced in Congress with the support of the few remaining
domestic footwear manufacturers, the AFA has attracted a bipartisan
group of 157 sponsors in the House of Representatives, including 21
members of the Ways and Means Committee and 14 U.S. Senators, six of
whom serve on the Finance Committee.
OIA believes the cost savings that will be realized through passage
of the AFA will alleviate some of the impact of the economic downturn
and will allow businesses to plan for future growth, but the AFA will
also provide a direct and tangible benefit for American consumers on
one of the most basic necessities, shoes.
Statement of Honorable Anibal Acevedo Vila
I would first like to commend Chairman Rangel for his leadership in
shepherding into enactment the first economic stimulus bill this past
January. I believe that it was crucial that you included the U.S.
citizens of Puerto Rico in the rebate program, and I appreciate having
had the opportunity to work with you and the House leadership in
securing these important resources for our constituents. The
Commonwealth has effectively managed the funding and trust that was
afforded to it under this legislation, and has ensured the efficient
disbursement of rebate checks to the people of Puerto Rico. We thank
you for the partnership that this enabled, and assure you that the
economic benefits have been felt.
The Commonwealth has distributed over $1 billion in tax rebates to
1 million taxpayers, Social Security beneficiaries and veterans. The
U.S. Treasury Department approved the Commonwealth's plan within eight
weeks of Congressional enactment and the Puerto Rico Treasury
Department was able to distribute over 90% of the checks within 45 days
of the approval of the plan. While some may have questioned the
Commonwealth's capacity to administer this program, it is clear that we
accomplished our goals and met the requirements of the U.S. Treasury
and the Congress both accurately and in a timely manner.
As we move forward, it is clear that the United States economy,
which drives the Puerto Rican economy, faces significant challenges and
it is critical that the Congress move forward on a stimulus agenda.
Though Puerto Rico has not been affected by the economic burdens of the
sub-prime market and the resultant spike in foreclosures, the Island
does have significant delinquency rates and our financial institutions
have been impacted by the sub-prime mortgage market through their
financial activity elsewhere in the U.S.
The economic stimulus bill passed by the House of Representatives
in September, H.R. 7110, is an important step towards investing in
America's workers and providing resources for recovery to our families
and communities. That bill would provide critical resources to Puerto
Rico for the development of infrastructure, training and assistance for
workers, and additional support for low-income families and medical
care. I have worked closely with your colleagues in the House,
including Transportation and Infrastructure Committee Chairman Jim
Oberstar, to outline the needs and opportunities for recovery in Puerto
Rico, and appreciate that this is reflected in that stimulus bill.
Likewise, S. 3604, as proposed in the Senate, would fund a wide range
of programs that would bring economic and quality of life benefits to
communities in Puerto Rico and elsewhere.
Yet, as has been noted in recent days by Federal Reserve Chairman
Ben Bernake, Speaker Nancy Pelosi and other leaders, there remains a
vital need for the quick enactment of a new economic stimulus bill. It
is also clear that the size of any such recovery legislation be
substantial in order to address the looming recession.
I believe that the House-passed bill represents a strong starting
point for that stimulus. Investing in our infrastructure will not only
get people working, but it will also improve our highways, airports,
transit, water systems and public housing stock, and will also generate
activity that grows state and local tax revenues. Extending
unemployment and funding training programs will aid workers in their
pursuit of jobs. Providing funds for food stamps, our local Nutrition
Assistance Program and increasing Medicaid FMAP percentages will help
protect our low-income populations during these difficult times.
In addition to funding for those programs, I strongly support
investment in the following additional proposals:
Fiscal Relief to States, Commonwealths and
territories--The slowing economy has greatly reduced state and
local tax revenues, and will undermine their investment in
important Government services. Congress provided similar
assistance to the States and Puerto Rico in 2003, and it would
provide resources for critical program security at this time.
Rebate Checks--The previous round of stimulus rebate
checks provided crucial funding directly to families that were
spent primarily on retail purchases or to pay down debt, both
which result in economic and quality of life improvements. A
second round of rebate checks, as proposed by Senator Barack
Obama, would provide important resources to families and help
stimulate the economy.
Energy Investment--While oil prices have fallen, they
remain relatively high. Gas prices and electricity bills eat
away at family budgets. Providing funding through the Low-
Income Home Energy Assistance Program and the Weatherization
Assistance Program will reduce the impacts of increased energy
bills on working families. Further, investment in `green'
projects, including energy efficiency, renewable energy
infrastructure, and research and development would not only
help improve our economy, but will also bolster workforce
skills, increase energy security, and lessen energy burdens on
families, industry and Government.
Housing Preservation--As I noted previously, while
the foreclosure crisis has not greatly affected Puerto Rico, I
realize that it is a predominate concern across the nation. To
address the continuing problem of families losing their homes,
housing stock sitting idle, and falling bank assets, I would
encourage the Congress to provide additional funding for
homeowner counseling, foreclosure prevention, mortgage
restructuring, and other programs that will avert future
foreclosures.
Investment in these programs, I believe, will help in many ways
stimulate the economy, while also improving the stock of our
infrastructure, providing income security for families, and assisting
State and local governments weather this storm.
Once again, I appreciate having worked with you, Chairman Rangel,
as well as your colleagues on the Ways and Means Committee and
throughout Congress, in pursuing effective economic recovery and
stabilization opportunities. I look forward to continuing to partner
with you as legislation is developed and implemented to restore the
economic growth of the United States and Puerto Rico.
Statement of Honorable John P. DeJongh, Jr.
Chairman Rangel, Ranking Member McCrery, and Distinguished Members
of the Committee, I am honored to present the views of the Government
of the U.S. Virgin Islands on the growing economic crisis facing the
United States--as well as the U.S. Virgin Islands--as a result of the
current financial meltdown, and to present recommended options to
address these unprecedented challenges.
But first, I would like to thank the Chairman for his leadership
and his tireless efforts to ensure that this country responds
vigorously and appropriately to the critical challenges we face.
Largely as a result of his leadership, the first economic stimulus bill
enacted into law at the beginning of the year addressed the needs of
the Virgin Islands and other U.S. territories, as well as the mainland
United States. The Economic Stimulus Act of 2008 reaffirmed the
principle that Congress has an important responsibility to ensure that
the U.S. Territories are treated fairly and equitably in Federal
programs and economic policies. In particular, this legislation
included special provisions to ensure that the tax rebate program,
which was the centerpiece of the Act, did not cause unintended revenue
losses for the Virgin Islands and other mirror code jurisdictions and
thus negate the intended stimulative effect of the tax rebates.
Looking ahead, it appears that even greater economic challenges now
confront the nation, including the U.S. Territories. Along with my
fellow governors, I believe it is critical that Congress pass
additional stimulus measures as soon as possible to address the rapidly
deteriorating economic situation. The growing economic pain and
hardship suffered on Main Street have not spared the Virgin Islands or
the other outlying areas of the United States. Unemployment and poverty
have increased, projected revenues have declined, and the ability of
insular area governments to deliver essential public services has been
compromised as a result of the economic downturn. It is clear that
further stimulus is needed to avoid even more serious economic
deterioration in the Virgin Islands, as well as in the nation at large.
Any legislative effort to address the current situation should use
H.R. 7110--the economic stimulus bill that the House of Representatives
passed in September--as the starting point. H.R. 7110 would provide
increased funding for critical infrastructure repairs and improvements,
extend Federal unemployment insurance, expand worker training, and
provide additional funding for food stamps and Medicaid costs. H.R.
7110 extends eligibility to the Virgin Islands and other Territories
for each of these stimulus programs, but in some cases, as described
below, the program formulas for allocating such stimulus are not always
equitable or fair to the Territories. I will continue to work with the
Members of this Committee and the other committees of jurisdiction to
ensure fair treatment of the U.S. Territories in any stimulus
legislation enacted by the Congress and to ensure the full
participation of all Americans in our nation's economic recovery.
In particular, we are concerned with the way the Virgin Islands and
the other U.S. Territories are treated under Title III of H.R. 7110,
which would temporarily increase the Medicaid FMAP. While States and
the District of Columbia could qualify for up to a four percentage-
point increase under this provision, the Virgin Islands (and other
Territories) would receive only a one-percentage-point increase. Not
only is this limitation unfair to the Virgin Islands, but the
unfairness is exacerbated by the fact that this smaller increase is
based upon a permanent FMAP for the Virgin Islands that is set lower--
and in most cases substantially lower--than the FMAP for States and the
District of Columbia. Accordingly, we respectfully urge the Congress to
amend the Title III language in any second stimulus bill to ensure that
the Virgin Islands is eligible, on the same basis as States and the
District of Columbia, for the additional FMAP increases authorized
under H.R. 7110. Alternatively, we request that the Virgin Islands be
provided a higher base FMAP increase.
It is also apparent, after the last several weeks, that the
magnitude of our economic problems is much greater than Congress
anticipated just one month ago. The Government of the Virgin Islands is
facing an operating deficit approaching $80 million in the current
fiscal year--an extraordinary sum equal to nearly 10 percent of our
General Fund budget. My Administration has attempted to address our
fiscal problems by imposing a hiring freeze, cutting already under-
funded programs, and further deferring urgently needed capital
improvements. But we cannot close the gap without additional Federal
assistance. Accordingly, I respectfully urge Congress to consider
enacting a much broader and more comprehensive stimulus program than
that which was contemplated in September. In particular, I would urge
that Congress consider legislative action in at least five additional
areas which I believe can help mitigate the current economic damage and
help restart the engines of growth for the Virgin Islands as well as
the country at large.
First, Congress should consider approving a new round of tax
rebates similar to the program enacted in the first stimulus bill. Most
economists believe that these stimulus checks played a significant role
in keeping the economy from sinking into recession before the current
credit freeze. While it is hoped that the financial stabilization
legislation enacted earlier this month quickly begins to ``thaw'' the
credit markets, it is also essential that Congress not ignore the
immediate needs of our citizens who are suffering financial hardship as
a result of this unprecedented economic storm. A second round of
stimulus checks will help alleviate this hardship and help jumpstart
economic growth by encouraging increased consumer spending. I
understand that some are concerned that direct taxpayer rebates may be
used to pay down household debt or increase savings rather than for
consumer spending. In this regard, I would respectfully submit that
increased household savings, by themselves, are a critical element in
ultimately ending this, and any, recession, as families must regain a
sense of financial security before they can begin to spend in
confidence once again. Simply stated, it is time that we pay attention
to rebuilding the balance sheets of American families that have been
devastated by market losses that were no fault of their own, even as
the Treasury and the Federal Reserve together appropriately tackle the
problem of rebuilding bank balance sheets. In enacting any new tax
rebate program, however, I respectfully request that Congress include
the same special rules for the U.S. Territories that were included in
the earlier stimulus bill.
Second, all States and Territories, including the Virgin Islands,
face increasing budget deficits as revenues decline and public needs
increase. As noted above, the Government of the Virgin Islands is
facing a deficit of $80 million, or nearly 10 percent of our already-
reduced operating budget for the current fiscal year. Accordingly, I
also respectfully urge the Congress to consider enacting ``counter-
cyclical'' block grant assistance to States and Territories, similar to
the program enacted by Congress in 2003. Such assistance will help our
governments to close these deficits without destroying vital public
services and, in the process, thwarting economic recovery.
Third, H.R. 7110 provides $12.8 billion for highway projects across
the country, including $8.4 million for the Virgin Islands, provided
that such projects are ``ready-to-go,'' i.e., contracts can be bid
within 120 days and funding can be obligated within 180 days of
enactment. In the case of the Virgin Islands, we have over $40 million
of highway projects that are ``ready to go,'' but lack available
funding. In addition, the Government has a backlog of some $400 million
of deferred (non-highway) capital projects, of which at least $25
million meet the ``ready to go'' criteria. Most economists agree that
infrastructure projects are an important and effective way to stimulate
the economy by creating construction and construction-related jobs and
generating substantial indirect hiring and economic impacts. Because of
the backlog of ``ready to go'' projects in the Virgin Islands and
across the nation, I respectfully urge Congress to consider
substantially expanding the program for infrastructure funding and
broadening the types of eligible projects to include public facilities
such as schools, hospitals, and environmental infrastructure, as well
as transportation-related projects.
Fourth, we would strongly encourage the Federal Reserve to
immediately expand its asset purchase programs that now provide for the
purchase of asset-backed corporate bonds and corporate commercial paper
to include the direct purchase of investment grade municipal bonds for
infrastructure investment purposes. Today, state and local governments
across the country have tens of billions of dollars of projects ready
to go that would have been funded by now had the markets functioned as
they should. While Congress is considering a stimulus package that
would provide for direct funding of projects, allowing for direct
purchases of municipal bonds by the Federal Reserve would be the
fastest and most cost-effective way of putting money, and people, to
work.
Governments across the country depend upon reliable access to low
cost, fixed rate capital for investment in all manner of infrastructure
projects funded at the state and local level. Year after year, the
municipal bond market has been the source of several hundred billion
dollars of capital for investment in our roads, schools, community
facilities, and wastewater and solid waste projects, among other
essential public infrastructure. But today, the municipal bond market
is in turmoil. One of the first casualties of the subprime mortgage
problem was the virtual disappearance of the monoline municipal bond
insurance companies that are critical to effective market access for
many governmental bond issuers. Then, as the financial crisis deepened,
the major commercial banks that have been the source of credit support
and liquidity for municipal issues shut down their credit windows.
Finally, lending simply stopped, and today a wide range of governments
and agencies, with projects ready to put shovels into the ground,
remains excluded from the market.
A direct bond purchase program would literally cost the Federal
Government nothing. Municipal bonds are bankruptcy remote, and Moody's
Investors Service data have demonstrated in a thirty-year time series
study that the incidence of default among all investment grade
municipal bonds, from the triple-A category to the triple-B category,
is less than the rate of default among triple-A rated corporate bonds.
The Federal Reserve can borrow funds at interest rates well below those
of state and local governments (which was true even before the crisis
began). Therefore, the Federal Reserve, through a direct purchase
program, could achieve three important goals that are timely and
critical to the nation's economic recovery. First, it would make
funding available for critical infrastructure projects that are
``ready-to-go'' today. Second, it would fund projects that state and
local governments are prepared to fund, providing needed assurances of
essentiality. And, third, it would accomplish these goals at zero net
cost to the Federal Government.
Finally, we also believe that dramatically higher energy costs--
particularly petroleum-based energy costs--will only increase the
financial hardship for American families. Accordingly, we respectfully
request that Congress consider significantly increased funding for the
Low-Income Home Energy Assistance Program (LIHEAP) to help reduce the
impacts of increased energy bills on households. In doing so, we urge
that the Virgin Islands be treated fairly and equitably in how those
funds are allocated. Because of our geographic isolation, the Virgin
Islands must rely upon oil for production of 100 percent of our
electricity needs. As a result, and because of the high price of oil,
we are paying more than any State to generate power. Yet, all of the
U.S. Territories collectively receive only a small portion (0.135%) of
LIHEAP funds. The Secretary of Health and Human Services, whose
Department administers the LIHEAP, has discretion to increase the
Territorial apportionment to 0.5%, but has never exercised his
authority to do so. Accordingly, I respectfully request that the
Territorial apportionment be adjusted statutorily to 0.5%. This
proposed amendment would be a progressive step towards the program's
goal to provide equal assistance to low-income households based upon
need rather than geographic location.
Again, I appreciate the opportunity to work with the distinguished
Members of the Ways and Means Committee in developing effective
economic stimulus measures to restore the economic health of the U.S.
Virgin Islands and the United States as a whole.
Statement of J. Lee Pickens Project
This submission goes to the heart and soul of the average American
who have not reached Main Street priority in the recovery, bailout or
have received program intentions before the melt down. Where the
homeowners and grassroots businesses are not the cause for the failure,
they can be part of the solution to create a strong dollar
collectively. They are part of the solution, if combined with an
upgrade to 21st Century methods to compete globally. Conversely, the
grassroots can a factor to further the extent of the failure, if their
victimization is unchecked. The back street failure moves working and
middle class assets to the secure upper class that profited from the
economic good times that precipitated the bailout, those who's holdings
in turn legitimately concentrates assets in a few hands.
Local government can be the solution or the source of problems on
either end of the spectrum, depending on the quality of leadership and
organization. If special interest has influence, whether initiated at
the Federal or state level, the impact will be injected at the local
level somewhere, as all politics are local. Certainly pharmaceutical,
insurance, lawyers, oil and financial services have powerful lobbyist
that approach congress and get provisions that may impact the consumer
in many ways but the local government are in on roads, programs, small
and medium business (SMB) support and generally planning. Local
government can surgically squeeze or relieve a community, an impact far
more personal than big business perks. Spoken or unspoken, political
affiliation can influence choices on various issues. The history of
Block Grants clearly demonstrates that local government can redirect
funding, support policy and mask activity for special interest benefit.
Mis-management or any reason that hinders the ``cream rising to the
top'', hold back entrepreneurial exploration, business expansion or
individuals to improve the way they live and uplift their community is
a stake in the heart of the nation. Tax issues before return on capital
that yield jobs and more opportunities
The bail out does consider Wall Street and Main Street. However,
behind Main Street are the ``Community Streets''. These streets are not
administered equally or demonstratively appropriately in some cases, to
the credit of local government. Pet projects get staff time, funding
and support disproportionately. The Federal Government hears what the
priorities are from local government. If local government favors one
group or project over others, then those interests are the requests
forwarded. Further, local government can skew or warp information for
program re-direction. That is, Federal program funding for poverty
prevention or economic development in stricken urban areas can be
transposed at the local level and placed in special interest projects
for Main Street by mimicking the needs across the tracks in request
justification.
A CRA can be presented as well used and blight in inner city
continue to grow until gentrification has taken place. Some how the
reports show great progress and the reality is people are displaced
from systemic and endemic poverty. Surely as if the public would make a
total pull out of bank deposits, bank defaults would cause a great
depression . . . the inverse of small business deposits into banks,
including wages passed on from jobs, in the accumulation of unleashed
small businesses across America, this volume will recover the economy
quickly. Local government is indelibly linked to this promoting
potential, supporting growth. The private sector is directly
responsible for wealth generation. Congress accountability is dependent
on functions that achieve purpose; the efficient match of local
government/private partnerships.
When grant money intended for balanced economic growth, lifting the
blighted areas is diverted for use in downtown parks, established
business infrastructure and wealthy area's facade, all mentioned having
above average capital access, influence and per capita on Main Street .
. . funds failing to reach blighted areas are left as prey; they go
further into their personal melt downs. It is a continuation for them,
a hardening more than the pinch just now being felt on Main Street. If
this sounds like mistrust in Government, where these practices exist,
mistrust is justified.
II. SIZING LOCAL GOVERNMENT IN THE MELT DOWN; ``BOTTOM-UP'' AS A FACTOR
Federal programs restoring America's productivity and small
business converted or transformed for optimized utility is, in part,
where local government's awareness of community realities can respond
with modifications that remedy conditions; this is an ideal. Wealth
generation springing up from the bottom, met by funding opportunities
unleashed from the top that meet in middle class or urban/rural
America, in a locally controlled design, to create supply that meet
local consumption and even export to global users will accelerate
recovery and strengthen the dollar. All the people with good ideas and
a willingness to work hard should be able to enter the market to do
business, producing revenues, paying taxes and creating jobs is how the
system should work. If this was the standard, the nation would have an
immunization from the Wall Street folly, as local economies would have
the resistance to hold on until credit and 21st Century modernization
could catch up from the abuses.
Programs or grants funded from the Federal level of Government
should go where local government can show matching relevance to
comprehensive programs at the local level. These program's congruity
must be verifiable, in deeds, echoed by more than local government
reporting. Instead progress measurements should include real recipients
acknowledging inclusion that raised their economies, bottom-up. This
means entrepreneurial new starts and modernization of micro enterprises
(mom/pop) should show they are on track in growth projects. This is a
radical change from local government is the first and last word of how
economies are going at the grassroots. Waiting to vote a local official
in or out is not the efficient way to see that the amalgamation of
America's core, the middle class is okay. A President or congress
allocating money or policy that is not matched with reforms, also,
designed from the ground up is unlikely to reach the optimums that
boost America's economic recovery and acceleration back to a leadership
position, community-by-community.
County or Municipal leaders voices should be heard but congress is
advised to keep in mind ``power corrupts, and absolute power . . .
corrupts absolutely''. Expanding economies must include areas that have
not been significant participants in the past, or those called
historically poor. Gentrification is not the answer for improvements.
Displacing blighted areas with Main Street Players only concentrates
power into fewer hands and frankly is disingenuous behavior from a
government. Exasperating economic slow downs is when wealth or business
opportunities never trickle down to communities. Instead, selective
support only forces the poor to lose what they already have, only to
intensify the slow down or reversing economic growth.
Congress acting on local short sighted public support or
misrepresentation that cloak outcomes in deceptions, are practices that
lead to increased crime, youth delinquency and gentrification in
addition to pushing the economic tipping point to a melt down. As
rating agencies are suspect for companies that were thought to be
strong the state of credit and local economies should have be displayed
more closer to the reality. It will be said more than once, if people
earn a living wage, which infer there are companies enough to create
jobs, then they can pay bills, save and expand incomes. Credit is not
the ``end all'' for even the overextended, where an income comes
closer.
III. SOLUTION DISCUSSIONS
If local government will produce a strong local tax base the strain
on Federal dollars should be lessened.
Local Government should be a ``Dog that will hunt''. It must
produce jobs and ownership opportunities. Job and wealth creation is
more important than spending taxes. A direction for business prosperity
is preferred more than the medieval image of taking people property or
the speed traps to finance the Government.
In a conversation with a Fortune 500 company's sale manager, he
explained the lack of success from their ``partnership'' with outside
companies in strategy to downsize yet penetrate markets. The large
company wanted its partners to be innovative to generate sales, but
instead the partners relied on the big name company to prospect and
deliver potential work, which they would then hope to close on. The
sales manager referred to this situation as ``Dogs that won't hunt''.
If a local government fails to have a functional policy that
inspire innovation they are remiss. The nation as a whole is harmed as
a result. Locally, governments can help implement these innovations
into the market (see SBIR). Further, where municipal and county leaders
themselves lack entrepreneurial learning in areas vital to 21st Century
Modernization, logistics and project planning ``they are not in the
hunt''. Belly aching about Federal support may be related to inaction
or poor execution at the local level.
Community Based Economic Organizations devoted to economic
development for outreach in blighted area present a novel bottom up
approach to reduce the drag on a local economy and at the same time
make geometric improvements as a network participant; understanding
Metcalfe's Law. The Community Based Organization must be a design that
can work with higher ed, Chambers of Commerce and local government
departments/agencies for a real world representation of the facts. The
same design must also be a provider, or a Forth Party Logistics (4PL)
that can lead to fill gaps for real people to be successful.
Local government or Main Street who have manipulated policy, for
the few, their input will not reflect across the tracks. If the
proverbial ``tide'' that lifts all boats includes permanent residents
that will ``cast their buckets where they are'', and they manage to
pull them up with what is needed to feed their own and share the wealth
from the bottom up, then intervention is well placed. This simple
difference is one for the national level Government to know, risk
communities being left behind. If a community has a culture of self-
determination then schools and organizations will promote it further,
that in turn will restore the reality of ``rags to riches'' or America
as the Land of Opportunity. The friends, family and fellow political
affiliates choke hold can have an economic strangle hold that is
detrimental to any recovery.
The private sector is the source for wealth creation. Where gaps in
education, capital acquisition or resource attainment contribute to or
limit poverty levels or the progress of an emerging middle class,
community based organizations built with capacity to integrate these
private sector innovators in a Fed/State/Local Partnership for growth
creates opportunities.
There are gaps to fill. Gaps that come to mind consists of:
Expanded modernization, technical assistance to
obtain global/21st Century capacity. This refers to
infrastructure, hardware, software and other networking
improvements for connectivity, broadband and otherwise.
Business process, re-engineering for suitable small
business utility, those abilities to send and receive data,
where that data is made into useful information by the
indigenous community population, considering their average
educational and business background levels of attainment.
Making a business plan that pertain to item (2) and
all processes, competition for dollars and showing acceptable
risk requires this as a necessity for a startup, expansion,
growth and sustainment. Business plans are complex and
expensive, and even with the best plan it maybe effective; they
are not silver bullets. Having local support infused in the
plan, here advantages can be seen as to how it fits in a larger
economic development plan, as well as local resources and the
information to construct technology, outsourcing and best
practices in the core mission will outperform the SBA
projections of a 80 percent failure rate.
Protection from mal-practices in finance, quality
deterioration and fair business impropriety in proactive local
policy improves growth and reduces litigation. Products and
services that work increase productivity by elimination wasted
time and money to undo harmful affects and then start from the
low point to a recovery in process.
The Community Based Economic Recovery Centric Organization offers
risk management for Federal contribution in two channels, where it is
allocated 1) directly to SMB and 2) Local Gov programs. A community
based facility role can reach out to SBA or Department of Commerce as a
grassroots voice to make funding productive and monitor total progress.
The Community Based Organizations built with Government cooperation may
seem like duplication, and it may be. However, ``garbage in'' still
results in ``garbage out'' is more likely from a local government with
no verification on what happen on the ground. Efficiency should be
measured in productivity seen in GDP or per capita. So the suggestion
of having an operational (community) and administrative (local
government) report will provide a clear picture and a mechanism for
better application.
In this manner, the investment in America can be monitored for
effect. Progress is more real time in a connected community based
organization monitoring the bottom, where the rubber meets the road.
Certainly, policy like the Community Reinvestment Act (CRA) are not
white washed with users reporting. Metaphorically as this paper may be,
the ``Fox'' should not be reporting on the well being of the ``Hen
House''. The ``fox'' being a icon for one not to be trusted is
intentional. Congress can do everything perfectly, but if the effect is
bastardized at the local level, the congress looks bad or ineffectual
and America suffers economically. Progress should be hands-on until
results is achieved, and the Congress like others only get what it
``inspects not what it expects''. The bail-out to save a person's house
is best done by making an income and that is more likely with
functional local policy. Local government cannot be a bucket with holes
in it to carry out successful programs.
Congress should be able to ask the community if their efforts have
arrived and are being handle responsively. Walmart has a system to
track every item on the shelf. Technologies exist, and this is a low
technology item to give progress reports on starts, impact, needed
adjustments and interventions for decision making. Will this put local
government under the scrutiny of Federal Government? Yes, unless local
projects come from non-Federal funded budgets. Local government
oversight is crucial when funding in the form of grants are directly
placed with a community or individual project.
IV. SPECIFIC SUGGESTIONS
Growth incentives:
-- Public Land, must be as a matter of state law, first
offered for public programs, non-profit economic development,
social improvements before sales to private developers. Local
budgets that fall short should not be free to sell the people's
asset for short falls accumulated from lack of creating a
stronger tax base from wealth creation activity.
-- Until all public money, taxes or other government collected
money that is used in creating the economic recovery package,
no private land for operational small business or occupied
home/dwelling should be taken or sold for delinquent taxes.
Local government should meet a standard employment rate,
precipitated by ownership or business establishment before they
can take private land and sell it. That is, local government
must have a performance standard before the Federal Government
puts good money after bad. The deciding factor for assistance
is an existing plan for growth.
-- Local government shall have ordinance, policy and guidance
for small business growth. These policies shall include a
intellectual property protection, guidance for business starts,
fair business practices and reporting. Strong consumer
protection and quality insistent policy will make a measurable
improvement to recovery. Consumer spending is key to a
recovery; credit, product safety, quality and pricing has to be
appropriate and is in the preview of the local system. City
Hall and County Seats must be effective for consumer
confidence. This is critical to consumer spending and business
starts. It is almost a proverb for startups to get ripped off
from promises form web site creators, networks, financial
products or business services. With scarce dollars in the
startup stages, such losses can shut down a business start
before the doors ever open.
-- Local government shall have an updated 3 and 5 year plan
that lifts the poor sections to average standards, these feed
into Federal planning of budgets and policy construction. These
should be viewed more favorably when endorsed by Community
Based Economic Development Organizations.
-- Community based organizations with a mission to improve
business capacity that balances the influence of local
government. That is if funding is allocated for a community
project the community should verify the impact. There should be
a ``truth in impact'' much like the ``truth in lending'' for
credit that is employed. Many times communities are not aware
or understand funding appropriated for them or in their name
that may arrive in part or at all.
-- Community based organizations that will capture information
and distribute information. This is on a subject well presented
by Deloitte & Touche, explaining how companies hire to extract
learning for better practices, and how that is used to make
institutional improvements. Local government may publicly say
it support private enterprise, in reality it is likely to be a
controlling and deciding entity where communities are less
influential.
-- Simplify Federal programs for average users and speed up
process. Many Federal grants and programs are literally hundred
of pages to apply. The instructions are hundreds of pages. Many
application packages are carry-overs, where verbiage is added,
convoluting the process beyond the response of the average
person. Afflicting the situation moreover, is an application
error can cause total rejection or a review set back for over a
year. Concerning is many times application items can be
wavered, favoring certain sources. Related to the same issue,
an established company, perhaps one waved can re-submit on the
basis of having the contract or grant, where the approving
authority takes the path of lease resistance to approve.
-- Un-bundle contracts. Where bundling may save money at the
originating level, locally the small company is disadvantaged,
specially if the contract bundle is mixed with unrelated
specifications.
-- Connect with entrepreneur and owners who generate wealth
and create opportunities for wealth accumulation (savings and
investments) and wage earnings. Local government as a middle
man can act contrary to capitalism or the free market. The
local level cannot be indifferent. Innovations start with
private enterprise, then to business, yet to Government and
finally higher ed. Being proactive, government can project the
equivalent of ``Small Business Innovation Research'' (SBIR) at
the local level to push economic development projects from the
bottom up and draw down specific support to make broad markets,
even those that compete globally. In a partnership, state/local
and Federal, real world information will improve trust and
effectiveness.
-- Stimulus package that has funding to and for small
businesses. Money to small business will be spent. Returns from
ownership spending are wages, taxes and resulting complementary
business opportunities. Support systems that effectively
modernize small business ``on site'' in the community, is
fundamental. Funding to study groups or Government departments
that result in documents on the shelf, are not the same as
people opening doors and learning as needed to keep them open.
One university I know, got several million dollars to make a
community based plan. No money was put in the plan and the
community was no better off. Incidentally, no community member
was on the planning staff.
-- Evaluate compliance capacity for prime contractors. In
contracts a certain amount of labor or estimated pricing is
expected. This topic goes to unfair bids. The lowest bidder may
lead to illegal labor, labor abuse or substandard components to
get a bid; then complications mentioned in the simplification
issue discussed above apply. Bundling with mixed unrelated
items is harder to track. In any case workers are forced to
work over 40 hours without compliance with laws and if people
need their jobs they are less likely to report. If local
government is not pro-active to have policy or enforce laws for
fair competition the community will be in a ``race to the
bottom'', as wages are lowered or hiring is not as needed to
handle requirements.
V. A PILOT PROGRAM, A MODEL IN PROGRESS FOR COMMUNITY SUPPORT
This is not a complaint without a solution.
The Multi Educational Cultural Center for the Arts is a non-profit
registered with the Florida Secretary of State. The parent organization
has taken startup steps sponsoring a pilot program for such a community
based organization as described in the sections above.
The J. Lee Pickens Project proposal has been submitted to local
government with requests for 1) Inclusion in existing economic recovery
plans, 2) talks for a Memorandum of Understanding, 3) leadership to
align local business centric non-profit organizations, 4) fair business
policy review and 5) a fair share financial support. A response is
pending.
Please note the parent organization's mission statement:
``The Multi Educational Cultural Center of the Arts is formed to
research, develop, maintain data, augment better practices and sustain
information technologies as they can be used to further the art of
business and self-expression. Particular emphasis is given to
innovative concepts and ways of empowering minority owned small to
medium sized companies and individuals to act within a collective of
services which gives knowledge based assistance and facilities, devoted
to understand creating markets, and having national as well as
international access for social and economic improvements, especially
those creative solutions to over come contributing factors responsible
in furthering the information gap. Relieve burdensome transactions by
providing assistance through networking and pooling talent, service and
goods using information management where economic and information short
falls are evident in communities by reason of absence or lacking
technology. Create a center to improve cultural enhancements, including
awareness, by causing partnerships such to assist in public and private
participation toward entrepreneurship to improve skills ultimately for
community based efforts to do commerce and spread a positive image of
African Americans engaged in social and economic change.''
The pilot project is entitled ``The J. Lee Pickens Project''. The
purpose speaks to a logistics lead that adds viability for community
based small businesses to succeed. In speaking, wealth generation,
wealth accumulating and wages are distinctly different income types.
All forms have a place in economic development but operate with
separate rules.
Surely communities may or may not have a culture for ownership, the
entrepreneurial spirit or global outreach ambitions, which they should
in this ``Information era''. This transformation directs the reflection
on leadership and less on the innate composition of the people.
A copy (in PDF Format) of our letter of support and the Pensacola
Eastside Plan is available upon request for your consideration.
Undercapitalization is a main cause for SMB failure. The lack of
assets, education attainment, influence, organization and experience in
historically poor areas create high risk for capitalization. Business
plans that originate from these areas, unsupported and not aligned is
more wishful thinking. The J. Lee Pickens Project is devoted to
organize and plan so as to show scale and scope that make sense for
community based banking and Main Street to become willing in support
for joint grant, equity and debt packaging.
The J. Lee Pickens Project presence as a 4PL, a source that fill
gaps to support success in market making will add confidence for
economic recovery. The same organization assists disaster preparedness
and global outreach. The community requires an enabler to operate in
the startup mode as a 21st Century operation and from there grow to
have these internal capabilities. As a 4PL, the J. Lee Pickens Project
is more than a business incubator, or a passive design who's main point
is offering a discount. J. Lee Pickens Project will have ``skin in the
game'', the parent organization, local government and private sector
investors/business.
Improvements go to:
-- Counter affects of blight, as these areas are often
associated inner city or rural where community per capita is
poverty levels and business 2activity is low precipitating
joblessness, less public safety and lower educational
attainment.
-- Such centers should have a designated commerce, VA and SBA
representatives on site or directly involved on a weekly, if
not daily basis.
This paper is written with a background for a project proposal
submitted in Pensacola, FL, a small city located in West Florida. The
city has a rich labor base. It has a strong military presence to
provide trained active, separated and retired personnel. The BRAC
closure of the Depot Level Repair facilities places a high volume of
production skill in the market, under utilized. The proposal benefits
are focused on small business for veterans, minorities and willing and
able traditionally poor communities, these aligned with Main Street and
larger companies in 21st Century modernized processes for
effectiveness.
The project was announced and presented for support to the city,
chamber and local economic centric organizations since 2000. Where none
of these entities offered significant support to join in with our
organization, multiple examples exist where J. Lee Pickens Project
information provided can be found in attempts by some of the same to
duplicate our project. Top city officials have in fact advised us to
``give the information to others so they can be successful''.
The city has no guidance or policy for supporting fair business,
innovations or new starts for small business. At best, a policy on how
to contract with the city is attempted. There is no policy for
protection of intellectual property. In fact, this is a major issue,
along with the lack of policy to form accountability in handling fair
advantages from information. The city manager insist on information but
makes no attempt to prevent unfair use of information despite examples
of policy used by the Patent Office or SBIR who demonstrates the
ability to maintain confidentially. Meantime, this same office has a
history of taking our information, items we choose to guardedly share,
and we find it in use by others.
A city plan was approved by council for economic development in a
generational depressed area, one with a per capita of less than 20
thousand dollars. The plan has a title and wording for improving a
historically poor area but is arguably serving a Main Street project,
with no visible rise of economic activity or per capita in the stated
community. The community has no control of dollars allocated from state
or Federal sources, where all projects are handled solely by city
staff. Where the plan for action was approved for completion by 2004,
no public reports have been conducted. The subject area defined by
geographic boundaries still remains impoverished in 2008, a community
experiencing melt down decades long and per capita unchanged.
Resources for broadband, capital improvements and talent are
sufficient for 21st Century adaptations for business. The city has
access to technical education for skill development and higher ed for
research and development in the public domain. The level of existing
skills in the private sector is rounded to create several market
sectors.
Speculative as to where, but there are local area or city that has
families with strong standing influence in the area. Where the concept
of ``Old Money That Talks'' or the ``Good Ole Boy Network'' are
nebulous terms, these same concepts are as ``the glass ceiling'', an
excellent cloak for swaying policy or behavior. Whether evidence exists
of fair policy execution or the absence is clear to the researcher who
examines business progress, minority, middle class or not. Failed
policy clearly has to do with the melt down today, but much of the melt
down in historically poor areas came from low wages or insufficient
businesses to produce jobs. Where relationships are admirable, they
should not supercede vetting a project based on the merits. Then
permission for a local project to proceed is other than a matter of
democratic process, then the melt down is economic dynamics sandwiched
between Wall Street abuse on the top and Main Street manipulation on
the bottom, false controls directing the advantages of supply and
demand away from 70 percent of potential originators that can bring
innovation to power the nation's economy. Relationships that use
Government to manipulate are no better than violations of Sherman Anti-
Trust or de factor R.I.C.O., said for comparison, as these laws are
non-applicable in distorted appearances as being for public interest.
Allowing inner city decay or not tapping into middle class
expansion lowers the tipping point for Main Street to fall into a melt
down, and Old Money still stands to profit on the fallout. Government
managers and old money, arguably may get a pass, meanwhile, across the
tracks communities continues to fail, ``two out of three isn't bad?''
The worry about America, in the end, is household to household, not
exactly included in concepts of Main or Wall street. If blight or the
middle class is to emerge, congress must reach them directly and hold
state and local governments in their proper administrative role to
interface with the private sector who are free agents to generate
wealth, hence creating jobs and accumulate.
The project is a pilot program that is reproducible, customizable
to find and fit markets suitable to a locality. Reproducibility is to
scale and scope for initial implementation and diversification as
opportunities can be identified. The city is well suited
geographically, demographically, technologically and is a
representative of small town America to make good assumptions for
economic development modeling with scientific methods.
The purpose of the proposal is to roll out a community based
organization that can house the connectivity capacity for 21st Century
business that matches the community education and business experience,
and fill gaps with consultant services and learning for operational and
administrative capacity. As a model manager, the project connects for
best practices. Further, where gaps hinder logistics, this
organizations will develop or find means to supplement small business
ability to operate on site or obtain information, services or skills
that move academics to function. The organization is key to plan
evaluation, filling gaps in function, providing solution where ``if I
could'' limits a community member's business plan. This organization
measures and codifies progress for policy construction, budget planning
and best practices. Here where large companies can relate to real world
business creation and joint projects can take wings. This is a big
picture community/private investment with some public support project.
In a time where fast tracking economic development, making a market
place where credit fulfills the purpose of return on capital, to repay
and yield significant profits is important, this project is the bottoms
up system of choice; at least worth exploring on the merits.
The yield has collateral benefits to homeland security, economic
recovery, industrial capacity retention, market recovery and nation
building contributions. Where some believe distribution of wealth is an
evil, the project points that most economist contribute the Great
Depression to wealth concentrated in too few hands. This is a way for
the nation to grow a new generation for business from the roots in
places that are now blighted. Money in local government's hands, even
in places affected by natural disasters can fast track pass the
disaster and melt down.
V. FINAL COMMENTS
Again this paper is an overview on bottom up or grassroots
improvements to promote economic recovery; that grassroots part below
Main Street. The requirements here is the collective of America small
business power, the pool of Small Businesses realized or not yet
materialized that make nearly 80 percent of jobs and incomes. Local
government and established business operate on Main Street, it is
conceivable they traditionally have linked agendas. If you agree that
local government can accelerate economic growth with new market
incentives, attracting companies (see ``Retooling for Growth''--
McGahey/Vey), intervene in risk reduction and favorable business policy
as minimums, then Congress should have a watch dog for their priorities
on the ground, where the impact is intended, by the People or community
itself. To be clear, there is a long drop from the level of Main Street
down to the ground or grassroots.
This is not to say all local government and established business
are in cahoots, profiteering or working with indifference to their
communities. However, if they are, then Federal grants, program money
and local budgets are unchecked ``cash cows''. Such activities may not
be illegal, even as the ``Credit Default Swaps'' or derivatives had a
severe negative impact to cause even a global melt down. Where no
performance standards exist there is plenty of latitude for variations
on due diligence.
The agitate of low income or joblessness creates the sound of
silence when otherwise there should be bustling dynamic business
activity at the grassroots. Investing in small companies at the
grassroots is not necessary in line with Main Street or large companies
prune to offshore potential growth opportunities. Local government can
be as much the problem as the solution. Where the voice of the public
cannot reach the level for corrections, progress is delayed or stopped.
Credit has a place, but should not be the expected support for
daily life. Credit to expand or in any case create wealth generation
for a return on the dollar, that pays the lender with interest and
yield a profit to the borrower, is the standard for a prosperous
community. In the greatest credit crisis, if people can generate
wealth, manage returns on accumulated wealth or earn a sufficient wage,
they can keep their house, educate the young, get health care and feed
their families. Local government must have a positive role, as seen in
policy, to small business starts, growth and participation in the local
area.
I believe communities sounded the alarm that jobs, wages and new
starts were not supporting a reasonable way of life, but the crisis
comes as new news. I know one community whose city council meetings
were always vociferous on the topics concerning the rate of economic
dynamics.
As a disclaimer, where statements here-in are not indicative of all
local governments or even members that make up whatever form of local
government, the net effect is the main focus here. There is no value
sought from impugning reputations but where credibility is essential
the generalizations here-in are provided.
In any regard, recovery from the grassroots up is separate from
Main Street and certainly Wall Street issues. Grassroots getting
capital is a longer standing issue than the melt down. In terms of
volume, a million or two from here and there at the grassroots, it soon
adds up to be real money.
Statement of Jicrilla Apache Nation
On behalf of the Jicarilla Apache Nation in New Mexico, I would
like to thank you for convening this hearing to gather testimony on
economic recovery and more specifically about how targeted funding for
infrastructure projects across the country can drive job creation. The
Jicarilla Apache Nation (``Nation'') is a federally recognized Indian
Tribe, and our Reservation, which consists of approximately 1 million
acres, is located in Northern New Mexico. We have over 4,000 members
and 85 percent of the population lives on our Reservation in the town
of Dulce, which serves as our tribal headquarters. We understand
Congress' desire to quickly provide state and local governments with an
infusion of funds for infrastructure projects, and we respectfully
request that you work to ensure that Native American Tribal governments
are also considered as potential recipients of funding through the
proposed second economic stimulus. Like state and local governments,
Tribal governments provide essential governmental services to our
citizens and neighbors and are similarly in dire need of basic
infrastructure development.
For our part, during the last nine years we have been working to
address the failing public drinking water and wastewater systems, which
were constructed, owned, operated and managed by the Federal
Government, on our Reservation. We worked with Congress to authorize a
project to repair and replace the dilapidated and failing Federal
infrastructure and since that time we have committed significant
additional funds and resources to the project.
We worked tirelessly to implement the statutory directive placed on
the Secretary of the Interior to comply with the law and construct our
project. Unfortunately, although Congress authorized our water system
infrastructure project and President Bush signed it into law in
December of 2002 (P.L. 107-331), the Bush Administration has repeatedly
failed to include any funding for out project in the Administration's
annual budget to Congress. We also understand our project is the only
one that acknowledges and mandates corrective action for the Federal
Government's liability in establishing and creating a deficient and
unsafe public drinking water system serving an Indian reservation
population.
Through the leadership and commitment of our New Mexico
Congressional delegation we have received almost $2 million
appropriations funding for the effort, however a much larger infusion
of funds is needed. The current situation requires action now as it has
forced the Nation to put other construction projects on hold due to
lack of infrastructure. In addition to fully meeting our statutory
project share (approx. $15 million), we have invested millions of more
additional dollars into repairing and replacing the system, but we have
reached our debt capacity. The Nation is prepared to immediately
utilize funding to continue our work on the water system so that we can
ensure a safe and reliable water supply for our people. In addition, we
expect that funding for this infrastructure project will provide
between 30-50 jobs immediately in our community which is significant in
the extreme rural and depressed region where we reside. The long-term
effect of investing in this project will provide greater employment
opportunities to the approximately 2,300 tribal members ready for work,
as more construction and development opportunities will move forward
once the water infrastructure is in-place.
BACKGROUND
The dilapidated condition of the current public water system and
waste water infrastructure on the Jicarilla Apache Reservation stems
from generations of neglect by the Bureau of Indian Affairs (``BIA''),
an agency of the U.S. Department of the Interior, which, as creator,
owner and operator of the system, did not properly design, plan for,
manage, repair and upgrade portions of the system over the last 90
years. The system diverts water from the Navajo River--a pristine water
source, and its initial structures served the original BIA facilities
on the Reservation in the early part of the 1900's. As the community of
Dulce became the center of activity, members began moving there from
other areas of the Reservation. In response to the growth, the BIA
expanded the water line to allow members to access the water from
common areas. As the area grew with housing and other facilities, water
lines were extended, on an ad hoc basis, with no planning or recording.
By the 1990's the community's system had every type of water piping,
including clay, asbestos lined, other metals, as even some wood piping
has been unearthed.
In October 1998, the system completely collapsed at the river and
left the Nation without water for a week. The home of one of our elders
burned down, with no water to put out the fire. The National Guard
brought in bottled water and portable restrooms. The Nation funded
emergency efforts to restore water delivery and received no funding
from the BIA. In 2006, the wastewater system failed and caused a backup
in the Jicarilla Apache Public Library forcing it to close for a long
period of time. Other buildings and homes were similarly condemned due
to these dire conditions.
The Federal Government's neglect and failure to manage and maintain
its public water system serving our people has caused many dire health
threats and circumstances and economic hardship including: degraded
water quality in the lines, obsolete and non-compliant sewage lagoon
ponds which were operating without properly permits because the ponds
did not meet the Federal standards, pollution from unlined sewage ponds
spilling into the community and into a nearby arroyo which fed back
into the Navajo River towards downstream users and stymied economic and
housing development opportunities. The most disturbing circumstance,
however, is that a large number of tribal members are experiencing
serious intestinal and other internal diseases and more community
members have been diagnosed and are dying from stomach and other forms
of cancer, many documented cases of those living on and served by the
main and oldest stem of the water system.
STATUTORY PROJECT AUTHORIZATION
A combination of the water outage, delayed housing and economic
develop opportunities and the dire health related circumstances led the
Nation's leaders to Washington D.C. to request assistance repairing the
Federal Government's broken system. Our first step was to approach the
owner and operator of the system, the BIA headquarters in the U.S.
Department of the Interior in Washington. They told us they had no
funds to address the problem. The Nation sought help from other Federal
agencies, who were sympathetic but generally unable to assist because
the BIA owned and operated the system at the time. They also informed
that the enormity of the problems with the system required a
significant investment of resources that they would not be able to
accommodate.
Working with our Congressional delegation from New Mexico and
others sympathetic to our case, we developed and pursued a legislative
route to authorize a project specifically to repair the system. In
2000, Congress passed a law which directed the Department of the
Interior, through the Bureau of Reclamation (``BOR''), to conduct a
feasibility study on upgrading the system. See Public Law 106-243. The
Nation worked directly with BOR on conducting the study which was
completed in September of 2002.
The study concluded that $45 million would be needed to replace the
existing water delivery and wastewater infrastructure. The report
acknowledged the Nation's efforts in contributing $15 million to
improve portions of the system including: replacement of the diversion
structures and pipeline at the river and up to the water treatment
plant; building a new water treatment plant and expanding its capacity;
repairing and replacing old water towers; and replacement of
infrastructure on the expansion Mundo Ranch property.
Following the completed report, our New Mexico Congressional
delegation introduced legislation to direct the Secretary of the
Interior to repair and replace the infrastructure based on the
recommendations in the feasibility report; the legislation also
authorized the Department to expend funding to undertake this project.
On December 13, 2002, President Bush signed into law the Jicarilla
Apache Reservation Rural Water System Act, Public Law 107-331, Title
VIII, which directs the Secretary of the Interior to proceed with a
project to replace the defunct infrastructure, as outlined and
recommended in the feasibility report, and which authorizes the
appropriation of funds ($45 million) for our project. There are no
sunset provisions in the law and its construction mandate is
specifically not subject to the availability of appropriations.
INADEQUATE FEDERAL FUNDING & FAILURE TO IMPLEMENT THE LAW
Since Congress authorized our project and mandated the Secretary of
the Interior to commence construction of the project nearly six years
ago, the Nation has worked tirelessly to secure funding for the
development of our project through the Bureau of Reclamation's account
in the Energy and Water Development Appropriations bill and through the
annual budget process. In spite of our diligence, neither Congress nor
the Administration provided any funding for our project in the Fiscal
Years (``FY'') 2003, 2004 and 2004 appropriations cycles. Finally, in
FY 2006, Congress provided $250,000 for our project in the Energy and
Water Development Appropriations bill. In total, since Congress
authorized our project which was signed into law nearly six years ago,
the Nation has received less than $2 million for our project.
Currently, Congress has included $3 million in the House FY 2009 Energy
and Water appropriations bill and $1 million in the Senate FY 2009
Energy and Water appropriations bill, though it remains unclear the
fate of the remaining un-enacted appropriations bills. While we are
very grateful for these funds in a tough fiscal environment, there is
an overwhelming need for Congress to provide a greater infusion of
funds for this project.
The Administration has failed to include funding for our fully
authorized project in their annual budget request to Congress. We have
regularly met with the Office of Management and Budget, the Assistant
Secretary for Water and Science and the BOR Commissioner urging them to
implement the law and take action to help us address this serious pubic
health crisis. Sadly, our pleas have fallen on the deaf ears of the
Bush Administration.
``READY-TO-GO'' PROJECT & IMPACT OF INADEQUATE INVESTMENT
The Nation is ready to move forward on repairing and replacing
existing water lines in the town of Dulce and also completing water and
sewer line extensions to new housing projects. The Nation's rural water
infrastructure project meets the criteria set forth by the House
Transportation and Infrastructure Committee's memorandum
(``Memorandum'') outlining ``ready-to-go'' projects.
More specifically, the Nation's project mirrors an example of a
project located in the state of New York, the ``Village of Cuba, New
York'' wastewater treatment system. The Memorandum states that the
Village of Cuba project ``is served by a sanitary sewer collection
system constructed in the 1920's that utilizes mainly vitrified clay
tile piping.'' Similarly, the Nation's water system was also
constructed in the early 1900's and currently consists of clay and wood
pipes. As a result, the Nation suffers constant line breaks from the
clay pipes, which have no flexibility and are more prone to root
intrusions and structural cracks.
The Memorandum further states that ``most wastewater treatment
utilities have small capital-related projects on the shelf that could
be carried [out] very quickly,'' thereby citing the cost of the Village
of Cuba as $2.1 million. The Nation's economic stimulus needs for our
rural water infrastructure project falls between the cost range
provided by the Memorandum (wastewater projects ranging from $2.1
million to $103 million).
Furthermore, Village of Cuba example details that the median
household income is well below the New York State median household
income, therefore, further justifying Congressional investment in the
project. Indian Country comprises some of the most depressed and remote
areas of the country. The Nation's location in the rural and remote Rio
Arriba County limits economic development tied to the major
metropolitan areas of the state of New Mexico and affects the Nation's
overall economy. Specifically, according to the 2000 Census, the
Nation's unemployment rate was 14.2 percent and the per capita income
was $10,136. However, in comparison to the State of New Mexico 2000
Census data, the unemployment rate was 5 percent (the U.S. average was
4 percent) and the per capita income in 2000 was $17,261.
In addition, the BIA 2004 Labor Force Report (``Report''), the most
recent report available, details that the Nation's unemployment rate is
52 percent. According to the Bureau of Labor and Statistics, the State
of New Mexico's unemployment rate for 2004 was 5.2 percent. Notably,
the Nation's unemployment rate is 10 times higher than the state's
average. Also, of the Nation's tribal members, approximately 2,310
individuals are available for work and approximately only 1,112
individuals are employed. This data illustrates the overwhelming need
for employment opportunities for the Nation's tribal members and
reflects the critical need for Congressional investment in the Nation's
rural water infrastructure system.
NATION'S HOUSING AND ECONOMIC DEVELOPMENT NEEDS
Similar to the current crisis state and local governments are
experiencing with stalled infrastructure and development projects, the
Nation also has authorized economic development opportunities for its
community and tribal members and is currently foregoing further
progress until the proper infrastructure and investment are
established. For example, the Jicarilla Apache Utility Authority
(``JAUA'') is developing the Mundo Ranch property to accommodate
multiple facilities including institutional, single family housing, and
small commercial properties. To date, the Nation has authorized the
expenditure of $7.5 million in funds towards the development of the
Mundo Ranch.
The first phase of the single family housing plan includes $3.5
million expended by the Nation through JAUA to construct utilities,
roads, and site preparations for 46 housing units. To date, 35 units
have been completed and are currently rented at $300 per month, under a
15-year-rent-to-own program. However, the Nation still has a current
waiting list of over 400 families for housing. To provide additional
housing resources for its tribal members, the Nation has acquired post-
Katrina Federal Emergency Management Agency (``FEMA'') mobile homes
that have been allotted to tribes. As the Nation continues to receive
the mobile home units, it is vital for the Nation to set-up and
establish the proper infrastructure to serve the newly-acquired mobile
homes for families to immediately inhabit them.
The Nation is an oil and gas producing tribe. Therefore, safe and
reliable roadways must be constructed and maintained to access the oil
and gas resources on the Reservation. The Nation contracts their roads
program from the BIA under P.L. 93-638 and employs tribal members for
the roadway work. The Nation maintains about 700 miles of BIA and
tribal roadways. However, there are still dirt streets in our
residential areas in Dulce and across the Reservation, and the Nation
plans to extend the bike and pedestrian path to a new housing
development and new elementary school. It is difficult for the Nation
to proceed with these initiatives when the water infrastructure is
incomplete and non-existent in certain areas on the Reservation.
The Nation's rural water infrastructure system is a vital link in
providing adequate services to our tribal members and communities.
Without a completely updated and properly-repaired system, the Nation
is unable to move forward on pending projects. Therefore, the Nation
cannot provide employment opportunities in roadwork for our tribal
members; maintain, expand, and upgrade our roadways for community and
economic development use; and further construct and make available
housing units to our tribal members. It is our responsibility as a
tribal government to provide the necessary services for our tribal
members, and the Nation has continuously and consistently made the
investment in our community to the extent possible. However, the Nation
is in-need of assistance in this current crisis from Congress, just as
state and local governments are requesting.
CONCLUSION
Since the legislation's enactment in December 2002, the Nation has
been forced to borrow millions of additional dollars on the project
because of the urgency and crisis facing our people. But, we have
reached our debt capacity. While progress has been made on the project,
the Nation has been forced to put a number of important projects on
hold due to the lack of infrastructure and funding shortfalls. For
example, there is a tremendous need for new housing on the Reservation.
In fact, we currently have over 400 people on a waiting list for homes.
We cannot build these new homes until the infrastructure is available
to support them.
It is time for the Federal Government to invest in Indian Country
and meet its statutory and moral obligations owed to the Nation. The
United States has a trust responsibility to the Nation, our citizens
and our trust resources. Notably, ours is the only project Congress has
authorized which is fully encompassed in an Indian reservation and
which has100 percent Indian project beneficiaries. We hope that you
will work to ensure that Native American Tribal governments are
included as governmental recipients of funds, along with state and
local governments, for infrastructure work in the second economic
stimulus.
Again, thank you for holding this very important hearing and for
the opportunity to express our views and concerns as you move forward
with the economic stimulus legislation.
Statement of Jim Gibbon
Goodwill Industries International, Inc represents 184 local and
autonomous Goodwill Industries agencies in 48 states and 16 countries
that help people with barriers to employment to participate in the
workforce. The roots of today's Goodwill Industries International began
as a simple idea in 1902 when Rev. Edgar Helms set out to help poor
immigrants in Boston's South End by collecting clothes and household
items from wealthier Bostonians to give clothing and household items
for the struggling immigrants. He discovered, to his surprise, that the
immigrants were too proud to simply accept the items. So he took his
idea a step further by enlisting volunteers to repair, clean, and sell
the items at reasonable prices. He used the revenue to provide wages to
the workers--and the first Goodwill Industries store was born.
More than 100 years later, Edgar Helms' idea of ``a hand up, not a
handout'' has become a powerful one. In 2007, the Goodwill Industries
network raised more than $3 billion through its retail, contracts, and
mission services operations. Nearly 84 percent of the funds Goodwill
Industries raised last year was used to serve more than 1 million
different people, including more than 163,000 job placements. As our
nation--our World--faces an economic crisis that many experts believe
to be the worst since the Great Depression, Goodwill Industries stands
ready to continue in its long tradition of enhancing the dignity and
quality of life of individuals, families, and communities by
eliminating barriers to opportunity and helping people in need to reach
their fullest potential though the power of work.
Local Goodwill Industries agencies are seeing first hand the
effects of the recent economic crisis. In terms of retail, sales in
North America increased by approximately 7 percent during the first
eight months of this year, a statistic that is likely to demonstrate
that more people, particularly more middle-class people, are shopping
at Goodwill Industries stores in an effort to cut costs. On the supply
side, donations, Goodwill Industries International has been concerned
that donations may decrease as people, short on cash, decide to hang on
to the items they have longer than usual. While some local Goodwill
Industries agencies, particularly those in areas affected by recent
hurricanes, have seen donations decrease, Goodwill Industries agencies
nationwide report that the number of drop-offs in North America has
remained stable; however it is just too soon to tell. For these and
other reasons, Goodwill Industries International has been closely
monitoring Congressional efforts to stabilize the financial sector and
stimulate the economy. We are hopeful that the package Congress
recently passed, the Emergency Economic Stabilization Act of 2008, will
be good for both Wall Street and Main Street as Congress intended. We
are also encouraged by Federal Reserve Chairman Ben Bernanke's recent
testimony before the House Budget Committee, in which he stated that
``consideration of a fiscal package by the Congress at this juncture
seems appropriate.''
Considering the nearly 900,000 lost jobs since January and the 6.1
percent unemployment rate, Goodwill Industries International believes
that such a package should reflect a strategy to stimulate the economy
while investing in job training that support efforts to restore
struggling and discouraged workers to employment. Therefore, Goodwill
Industries International was encouraged by Speaker of the House, Nancy
Pelosi's September 18 letter to President George W. Bush, which called
for a second stimulus bill that invests ``in infrastructure for
economic growth and job creation here at home.'' While extending
Unemployment Insurance benefits is necessary to extend a lifeline for
people who have exhausted or are close to exhausting their benefits, a
second stimulus bill should include additional investments in job
training. For example, it should include funds such as those proposed
in a Senate economic stimulus proposal to provide $300 million for
``part-time jobs after school, paid internships, and community service
jobs for older youth,'' and an additional $300 million for employment
and training activities for dislocated workers.
Beyond such existing proposals, Goodwill Industries International
urges Congress to include significant funding in the second economic
stimulus bill that would allow us to do more. For example, with a
minimal investment on the front end, our agencies can expand into new
areas to increase transitional employment placements until job losses
and the unemployment rate show a sustained trend in a positive
direction. Goodwill Industries is in a unique position to become an
administrative conduit and employer for putting workers into public
sector jobs while providing the training and supports necessary to move
their careers toward permanent jobs that help stabilize their family
financial situation. Such an investment would help stimulate the
economy and help restore people to employment in a number of ways.
First, the provision of temporary employment would provide a much
needed lifeline to unemployed workers. For example, those who have
exhausted or those who are likely to exhaust their Unemployment
Insurance benefits could be quickly placed in temporary employment,
providing an immediate source of income in addition to other available
public supports that they will quickly spend on basic needs such as
housing, food, and utilities. As this money starts to circulate in the
economy, our employment specialists could assist their efforts to find
more permanent employment.
While most Goodwill Industries agencies provide transitional
employment opportunities, Goodwill's 2007 Annual Statistical report
shows that at least 82 local Goodwill Industries agencies in the United
States provided more than $61.6 million in paychecks to 11,470
individuals participating in training. Goodwill's Annual Statistical
Report includes a wealth of information about all the local Goodwill
Industries agencies; however, I'll highlight the contribution made by
Goodwill Industries of the Greater East Bay, which provides workforce
development services, including transitional employment, job readiness
training, and placement services to people facing barriers to
employment in Alameda, Contra Costa, and Solano Counties. In 2007,
Goodwill Industries of the East Bay reported that 324 individuals
earned more than $6.2 million by participating in its paid employment
training programs.
As I stated earlier in this testimony, last year, local Goodwill
Industries agencies raised more than $3.1 billion through retail,
contracts, and mission services. Nearly 84 percent of that revenue was
used to provide services and activities, including transitional
employment, to help people become productive contributing members of
their communities--individuals who face such disadvantaging conditions
as welfare dependence, homelessness, a criminal background, or a
physical, mental, or emotional disability. During these uncertain
times, the unemployment levels and social needs of Goodwill Industries
constituents are likely to expand, despite the steady and disturbing
trend observed over the past several years of reduced Federal funding
for workforce development.
Many of our local agencies operate One Stop Centers or function as
service providers in the public workforce system. As Members of the
Committee know all too well, the Workforce Investment Act expired in
2003. Although Congress has continued to appropriate funds for WIA's
expired Adult, Youth, and Dislocated Workers programs, funding levels
for these programs have steadily eroded--from $3.9 billion in FY 2002
to $3.2 billion FY 2007. Certainly, the time to reverse this trend is
now. A time of recession is no time to cut funding for job training.
Goodwill Industries International urges Congress to make funding for
and the reauthorization of WIA a top priority. The reauthorization of
WIA offers an opportunity to ensure that our public workforce system is
responsive to the diverse needs of workers and employers. Goodwill
Industries International looks forward to working with Congress and the
new Administration toward developing a bi-partisan WIA reauthorization
bill that invests in the future of our workforce while assisting
individuals with barriers to employment to obtain the job skills
necessary to become self-sufficient and meet the needs of our nation's
businesses.
Earlier in my testimony, I cited Goodwill Industries of the Greater
East Bay to illustrate the positive impact that just one Goodwill
Industries agency can have on the communities it serves; yet Goodwill
Industries agencies nationwide are making similar contributions that we
will gladly share with this Committee. In closing, Goodwill Industries
International would like to take this opportunity to extend an open
invitation to Members of this Committee--as well as to other interested
Members of the U.S. House of Representatives and the U.S. Senate--to
visit the local Goodwill Industries agency in your district when it is
convenient for your busy schedule. I hope that many of you will accept
my offer to get a first-hand look at how Edgar Helm's entrepreneurial
vision lives on in the communities you represent and others across the
country.
Statement of Kenneth J. Kies
Mr. Chairman, Ranking Member McCrery, and members of the Committee,
my name is Ken Kies. I am managing director of the Federal Policy
Group, a practice of Clark & Wamberg, LLC. In addition to my positions
in the private sector, I formerly served as Chief of Staff to the Joint
Committee on Taxation, and as a tax counsel to this Committee.
I appreciate the opportunity to submit this testimony in connection
with the Committee's hearing on ``Economic Recovery, Job Creation and
Investment in America''. Clearly, the topic of the hearing is of
critical importance, and I commend the Committee for its focus on these
issues.
The Committee has heard from many witnesses who have identified a
variety of initiatives within the Committee's jurisdiction which may
promote much needed economic growth. Many of those suggestions have
great merit, and are worthy of the Committee's consideration. However,
rather than review all the proposals before the Committee, I wish to
focus my testimony on a single issue which I believe can be of
particular value in unlocking capital which may be used to create jobs
and promote economic growth: the tax treatment of corporate capital
losses. I believe that current law has greatly impeded the effective
deployment of capital, particularly in the current economic crisis, and
much needed reforms would do much to help our economy move forward.
Under current law, capital losses by corporate taxpayers are
allowed in any tax year only to the extent of capital gains in that
year. Capital losses which exceed capital gains generally may be
carried back to each of the three years preceding the loss year, and
carried forward to each of the five taxable years succeeding the loss
year. (Section 1212(a)(1)(B)). In the case of a regulated investment
company (as defined in Section 851), a capital loss carryover is
permitted for each of the eight years succeeding the loss year.
(Section 1212(a)(1)(C)(i)). To the extent a capital loss is
attributable to a foreign expropriation capital loss, a capital loss
carryover is permitted for each of the ten years succeeding the loss
year. (Section 1212(a)(1)(C)(ii)).
The tax treatment of corporate capital losses under current law
presents three fundamental problems.
First, the current tax treatment of corporate capital losses is far
more restrictive than analogous provisions of the Internal Revenue
Code. For example, Section 904 of the Code permits foreign tax credits
to be carried forward up to ten years. Congress extended the carryover
period for the foreign tax credit from five years to ten as part of the
``American Jobs Creation Act of 2004''. In doing so, Congress expressed
its concern that limiting the carryover to five years too often denied
taxpayers a legitimate tax benefit by disallowing a very real cost for
no other reason than the passage of time, thus resulting in the payment
of greater taxes than properly due. A similar concern has led Congress
to extend the carryover period for net operating losses to twenty
years. Individual taxpayers may carryover capital losses indefinitely.
Second, the current tax treatment of corporate capital losses does
not comport with economic reality. A corporation's financial position
may be assessed accurately only over the long term. Business decisions
and market conditions may have short term consequences that do not
reflect their longer term impact. The economic realities of a loss
incurred in one year only may be gauged accurately in the context of a
business's long term performance. Executives should be encouraged to
make decisions that have the most beneficial impact on their business's
long term prospects, not short term tax consequences. Sound tax policy
should seek to conform the tax burden of a taxpayer, individual or
corporate, to that taxpayer's economic reality. For that reason, there
are no policy grounds for placing greater restrictions on carrying
capital losses forward than, at a minimum, the ten years permitted
foreign tax credits, or preventing the carryback of losses for a
similar period. Corporations which incur capital losses, like taxpayers
who pay foreign taxes, experience a real, quantifiable change in their
financial position. Disallowing capital losses for corporate taxpayers
for no other reason than the passage of time would fail to account for
the economic reality of those losses, and would arbitrarily increase
their tax burden, a concern which led Congress to extend the carryover
period for foreign tax credits.
Third, present law limitations on the carryforward and carryback of
corporate capital losses unnecessarily impede investment, misdirect the
allocation of capital from its most productive uses, and, in the end,
cost jobs. Because aiding recovery, creating jobs, and promoting
investment is the focus of this hearing, I would like to focus the
remainder of my testimony on how the current tax treatment of corporate
capital losses acts counter to those goals, and how those adverse
policy results may be reversed.
Current law discourages corporate taxpayers from reallocating
capital from less productive assets to more promising uses--that is,
uses which would generate added revenues and job growth--because of a
concern that losses incurred upon the sale of those assets ultimately
would expire and thus be disallowed for tax purposes. Perhaps worse,
current law also encourages taxpayers to sell valued and productive
assets which would otherwise be retained in order to generate capital
gains to ``match'' against soon-to-expire losses. For those reasons,
current law violates the basic tenet of sound tax policy that the Tax
Code should not distort taxpayer behavior; decisions should be made on
the basis of their economic benefit, not their tax consequences.
The adverse effects of the current tax treatment of corporate
capital losses are far more pronounced in the current distressed
economic environment.
Because the unrealized losses on so many assets are now so great,
and the economic outlook is so uncertain, corporate taxpayers quite
rightly lack confidence that they will ever be able to utilize the tax
benefits associated with sales of assets at depressed prices. As a
consequence, whereas an individual, who may carryforward capital losses
indefinitely, knows that if he or she sells at a loss, he or she may
later recover as much as half of that loss (depending on then
applicable Federal and state tax rates) by offsetting future gains, a
corporate taxpayer risks losing that tax benefit, particularly if the
loss is great and the intermediate term outlook for offsetting gains is
poor. Simply put, given current economic conditions, the prospects are
not at all clear that assets with little or no built-in gain will
appreciate sufficiently over the next five years to provide gains
sufficient to offset significant corporate capital losses. Under such
circumstances, there is a very strong inducement for a corporate
taxpayer to hold on to a devalued asset, thus further clogging already
sluggish markets.
In addition to providing a disincentive for sellers, current law
also reduces the pool of buyers--unless a corporation has the ability
to make its current assets liquid through sale or financing, it lacks
the means to purchase the assets of others. Reducing the pool of buyers
at a time when prospective purchasers already are scarce merely
exacerbates the impact of the current economic troubles. Moreover,
because of the ongoing credit crisis, it is essential that existing
capital losses, as well as losses that may be incurred in the future,
be included in an extension of the carryforward period. Currently,
potential buyers simply may not have access to the credit needed to
purchase assets with unrealized gains, transactions that would enable
sellers to manage the tax attributes of their existing capital losses.
As a result, those losses continue to be carried forward, even if it
means doing so beyond the current five year window, after which the
losses no longer have value for tax purposes.
Restricting the carryback period of corporate capital losses to a
mere three years also impedes economic activity and stifles job growth.
A corporate taxpayer which has, or could realize, a loss now has only
two options. It can apply those losses to very recent gains, or it can
hope that it has enough intermediate term gains to offset those losses
in the succeeding five years. By permitting taxpayers to carryback
corporate capital losses over a longer period, Congress could greatly
increase the capital immediately available to employers to invest in
new plants, equipment, and jobs. Also, it would facilitate the
productive allocation of capital by providing greater certainty about
the tax consequences of those decisions, that is, executives would
often know immediately about the tax impact of their decisions, rather
than having to speculate about what will happen in the next several
years.
The bottom line is that the cumulative effect of the current tax
treatment of corporate capital gains is harmful to investment, harmful
to job creation, and harmful to economic recovery. Fortunately, these
adverse effects may be not just be remedied, but reversed, through
conforming the provisions relating to corporate capital losses to
analogous provisions in the Tax Code. In particular, Congress should,
at a minimum, extend the capital loss carryover period from five to at
least ten years, as it did with foreign tax credits in 2004, but which
would still be less than that afforded for capital losses realized by
individual taxpayers. The carryover should be extended for all losses
which have not yet lapsed as of the date of enactment, as also was done
with respect to foreign tax credits.
In fact, the policy rationale for extending the capital loss
carryforward period is even more compelling than that for foreign tax
credits. As with foreign tax credits, limiting the carryover period to
five years for capital losses could result in an excessive, and
unjustifiable, tax burden. However, unlike the case of foreign tax
credits, an overly restrictive carryover period for capital losses has
the further adverse effect of impeding investment and promoting the
misallocation of capital.
In addition, the carryback period should be similarly extended.
Doing so would free up impaired assets, generate liquidity, and provide
taxpayers with immediate capital to make needed investments and to
create jobs.
Mr. Chairman, Ranking Member McCrery, and members of the Committee,
I thank you again for conducting this important hearing, and for the
opportunity to present my views. I believe that by acting on many of
the ideas presented to the Committee in this hearing, including making
critically needed changes to the tax treatment of corporate capital
losses, the Committee can contribute in a very significant way to
setting our country on course for a robust recovery that benefits all
Americans.
ATTACHMENT: CLIENT AND WITNESS LIST
Hearing on Economic Recovery, Job Creation and Investment in America
Wednesday, October 29, 2008
WITNESS: Mr. Kenneth J. Kies
Managing Director
Federal Policy Group
101 Constitution Avenue, N.W.
Washington, D.C. 20001CLIENT: Starwood Hotels and Resorts
Worldwide, Inc.
Statement of Meg Torgerud
Economic Security and Economic Stimulus Legislation
This submission is to support reinstatement of funding for Child
Support programs lost by the passing of the Deficit Reduction Act of
2004.
There are many statistics available that indicate it is sound
public policy to invest in Child Support programs. Nationally, 25
percent of our nation's children are dependent on child support
payments, which, when received, make up 30 percent of an average
poverty-level family's total household income. Investing in child
support enforcement, according to the current Administration, has
returns of $4.73 to families for every dollar invested in the program.
In Wisconsin, approximately $6.00 in child support is collected for
every dollar spent on its child support program.
Child Support agencies provide a vital economic stimulus by virtue
of the work we do every day and empowers families to be more self
sufficient. There are additional benefits in reduced reliance on public
assistance programs when families receive child support routinely. I
urge you to reinstate child support funding in this legislation.
Statement of National Association of Home Builders
On behalf of the approximately 235,000 members of the National
Association of Home Builders (NAHB), thank you for the opportunity to
submit testimony for the hearing entitled, Economic Recovery, Job
Creation and Investment in America. We applaud the Committee for
continuing to investigate options for hastening the nation's recovery
from the current economic downturn. As a federation of 850 state and
local Home Builder Associations, NAHB appreciates the additional focus
of the hearing on the situation at the state and local levels. Housing
and home building play as critical of a role in the economic strength
of state and local economies as they do for the national economy.
NAHB continues to believe that the housing crisis must be addressed
head-on if there is any hope for a speedy national economic recovery.
Whether it's the family facing foreclosure, the community bank on the
verge of failure or the Wall Street investment house with plummeting
asset values, the housing crisis is at the source. NAHB is not alone in
this belief--Alan Greenspan, Warren Buffett, Glenn Hubbard (Dean of the
Columbia School of Business), Treasury Secretary Henry Paulson and
Federal Reserve Chairman Ben Bernanke all state unequivocally that
challenges in the housing market are the root of the problem. NAHB is
grateful for the work of the Committee and the Congress overall in
crafting the Housing and Economic Recovery Act of 2008 (HERA), which
took several important steps to addressing the crisis in the housing
markets.
The HERA legislation provided for several critical tools to help
mitigate the housing crisis, including creation of a temporary first-
time home buyer tax credit, provision for additional tax-exempt bond
authority for the states and modernization of the nation's central
affordable housing production program. NAHB, and many other members of
the housing community, have spent significant time and resources since
the passage of HERA to promote these tools and get them implemented in
the marketplace. Unfortunately, the effectiveness of these provisions
seems to have been hindered by the dramatic decline in the financial
markets both here and abroad. We believe that even more aggressive
steps must be taken, building on the strong foundation of the HERA
legislation, as other financial rescue plans are being implemented.
This statement is divided into four sections. First, it provides an
update on the current state of the housing and mortgage markets.
Second, it contains a recent analysis conducted by NAHB of the impacts
of the contraction in housing and home building on state economies.
Third, the statement describes NAHB's efforts to date in promoting the
provisions of the Housing and Economic Recovery Act of 2008 (HERA),
feedback received on specific provisions and impacts of the current
financial crisis on their implementation. Our hope is that this is
instructive as Congress crafts economic recovery/stimulus proposals,
especially in regards to stabilizing the housing market. Finally, the
statement offers several policy options for the Committee's
consideration as it crafts an economic recovery package.
Current Housing Market and Economic Conditions
Housing is central to the economic crisis that now affects the
world economy. The declines in house prices, the surge in foreclosures,
and the reduction in home building activity are historic in scope and
threaten to generate the most severe recession in decades. Policies
that aim to improve the current economic environment must address
conditions in the housing market. Indeed, in testimony before the House
Budget Committee on October 21st, Federal Reserve Chairman Bernanke
highlighted the importance of stimulating housing demand:
Finally, in the ideal case, a fiscal package would not only
boost overall spending and economic activity but would also be
aimed at redressing specific factors that have the potential to
extend or deepen the economic slowdown. As I discussed earlier,
the extraordinary tightening in credit conditions has played a
central role in the slowdown thus far and could be an important
factor delaying the recovery. If the Congress proceeds with a
fiscal package, it should consider including measures to help
improve access to credit by consumers, homebuyers, businesses,
and other borrowers. Such actions might be particularly
effective at promoting economic growth and job creation.
A review of several key housing statistics reveals the historic
nature of the downturn and its impacts on the overall economy.
Economic Impact
The impact of home building and housing in general, in good times
and bad, on the national economy should not be underestimated.
According to the Bureau of Economic Analysis, in 2004 home building was
responsible for 5.4 percent of gross domestic product (GDP). Housing in
general contributed another 10.2 percent, for a direct housing impact
on GDP of 15.6 percent. When counting indirect effects, such as
furniture, housing wares, and other related housing activities,
housing's total share of the economy was equal to 25 percent in 2004.
Moreover, housing was responsible for 22.3 percent of the growth of
GDP in 2004. While impressive, it pales in comparison to the role
housing played in 2001--the year housing held strong while the rest of
the economy was in recession. In 2001, housing was responsible for
nearly 40 percent of the growth of GDP.
Likewise, as housing has slowed, so has the national economy. In
recent quarters, the decline in home building activity has subtracted a
percentage point or more from annualized GDP growth. These facts
suggest that the recovery from the current economic crisis must begin
in the housing sector. Without addressing the crisis in home prices and
residential construction, no recovery effort will be successful. Key to
this effort is stimulating housing demand.
Home Sales
The reduction in housing demand can easily be seen in the decline
of sales of new and existing homes. According to Census data, since
July of 2004 sales of newly constructed homes have fallen from an
annual rate of 1.389 million homes to a rate of 464,000, a decline of
66.6 percent. This is the most dramatic decline of new home sales since
the Great Depression. In contrast, the decline in home sales from 1977
to 1980--a very severe downturn for the housing sector--resulted in a
57.6 percent decline from peak to trough.
For existing homes, the decline in single-family sales is masked by
recent increases in foreclosure and short sales. According to National
Association of Realtors (NAR) data, since September of 2004, existing
home sales have declined 32.8 percent, from an annualized rate of 6.34
million units to 4.26 million.
Inventory
The historic increase in foreclosures, tightened mortgage
qualifying criteria, and general declining economic conditions have
significantly cut demand for housing. The result has been a surge in
new and existing home for-sale inventories. According to Census data,
newly-constructed home inventories increased to 572,000 in July of
2006. Since that time, inventories have fallen to 394,000. However,
sales have fallen even more dramatically. Consequently, the months-
supply measure (the number of months required to sell all inventory at
current sales rates) has increased from 4.5 months-supply in August of
2004 to 10.4 months-supply in September of 2008. A healthy market has a
months-supply measure of no more than 6.
A similar story has played out in the existing homes market, where
according to NAR data inventories of homes-for-sale have increased from
2.8 million in August of 2004 to 4.3 million in August of 2008. The
months-supply measure in the existing homes market is 10.4. These are
historic levels of excess housing supply.
Home Prices
Relative to sales, the elevated levels of home inventories have
placed strong downward pressure on prices. The Case-Shiller Composite
20 house price series indicates that house prices have declined by 20.3
percent since June of 2006. Some metropolitan areas have seen much more
drastic declines. Phoenix and Las Vegas are down by 36 percent from the
peak of their markets. Miami is down by 35 percent. San Diego is down
33 percent. Detroit is down by 27 percent. Washington, D.C. is down 22
percent.
While some price adjustment is healthy for the housing market to
bring price-to-income ratios back to sustainable levels, an overshoot
of prices on the downswing due to anemic housing demand will hurt not
just those in the real estate industry but homeowners as well.
According to Federal Reserve data, housing wealth constitutes
approximately one-half of the median U.S. household's net worth.
Declines in home prices necessarily produce a negative wealth shock for
American families, which results in reduced consumption and investment,
producing long-run negative impacts on economic growth.
Housing price declines are also clearly responsible for the vicious
cycle taking place in financial markets. The slew of financial
institution failures and bailouts is directly attributable to the
decline in value of mortgage-backed securities. These assets have
fallen in value, requiring aggressive reductions in the book values of
their owners, because the expected revenues attributable to these
assets are declining. This is due to the increasing level of
foreclosures, which are increasing in no small part due to falling
house values, which impede the ability of strapped homeowners to
refinance problematic mortgages. The fallout from these interrelated
impacts in the financial sector have caused a liquidity crisis for
buyers and small business, including many home builders, which in turn
place additional pressure on home prices, thus feeding the vicious
cycle. Only an increase in housing demand can stop this downward
spiral.
Housing Starts
Due to the need to bring housing supply and demand back into
balance and restore health to the housing market, home builders have
prudently, if painfully, significantly slowed construction of new
homes. Since the peak of housing construction activity in January of
2006, Census data demonstrate that housing starts have declined from
2.3 million housing units (on an annual basis) to 817,000 housing
units, a decline of 64 percent. This is the most dramatic decline in
housing construction activity since the end of World War II.
Multifamily starts are down by 51% since the peak, and single-family
starts are off 70 percent since that time. Given the impact of home
building on the economy, this reduction in activity means lost jobs,
reduced tax revenue for state and local governments, and lost economic
activity for businesses that supply the home building sector. For
example, NAHB analysis of Census data indicates that construction of an
individual single-family home is tied to the creation of 3.04 jobs and
the payment of $89,216 in Federal and state/local taxes.\1\
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\1\ The Direct Impact of Home Building and Remodeling on the U.S.
Economy. Helen Liu, Ph.D. and Paul Emrath, Ph.D. Housing Economics
Online. October 2008. National Association of Home Builders.
http://www.nahb.org/
generic.aspx?sectionID=734&genericContentID=103543&channelID=311
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Employment
The decline in home building has had devastating consequences for
builders and workers whose livelihood depends on construction activity.
According to Bureau of Labor Statistics data, since the peak in
industry employment in February of 2006, home builders and associated
trades have experienced a loss of 575,000 jobs--16.6 percent of the
total--with more expected as the slump continues. However, this
estimate understates the impact because it does not count related
industries whose economic activity has declined along with home
building. This net impact can be seen in the national unemployment
rate, which has increased from a low in December of 2006 of 4.4 percent
to a current rate of 6.1 percent. Many economists expect this measure
to increase in the coming months. NAHB's forecast is for it to increase
to 7.4 percent by the fourth quarter of 2009. As with the vicious cycle
noted before, increasing unemployment will make the situation worse by
reducing housing demand, thus hurting the real estate sector, and
producing more job losses.
This bleak picture of past, current and future economic events
suggests that effective fiscal policy must stimulate the market at the
center of the economic crisis: housing. Further, the rapid development
of this crisis since the passage of the HERA legislation and the depth
to which it is impacting the nation calls for even more robust housing
stimulus measures.
Effects of Home Building Contraction of State Economies
It is important to also discuss the impacts of the housing and home
building contraction on state economies in addition to the national
effects, as the contagion of the financial crisis has flowed down to
this level of government. A comprehensive measure of home building's
effect on national and state economies is the contribution of
residential investment to Gross Domestic Product (GDP) and Gross State
Product (GSP).\2\ At the peak of the housing boom in 2004, home
building contributed more than $768 billion to the U.S. economy. In
2007 this contribution shrunk to $641 billion, a 16.6 percent decline,
and the slide continued further in the first quarter of 2008. In real
terms (i.e. adjusted for inflation) the decline from 2004 to 2007 was
an even more dramatic 20.8 percent. When calculated from the peak final
quarter of 2004 to first quarter of 2008, it registers an even more
striking 33.9 percent decline. Clearly, the slump in home building has
been and continues to be a major drag on U.S. economic growth.
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\2\ The Effect of the Home Building Contraction on State Economies.
Natalia Siniavskaia, Ph.D. Housing Economics Online. August 2008.
National Association of Home Builders. http://www.nahb.org/
generic.aspx?sectionID=734&genericContentID=99676&channelID=311.
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Residential fixed investment (RFI) is a significant component of
the U.S. economy and of GSP in each state. It includes construction of
new single-family and multi-family structures, residential remodeling,
production of manufactured homes, and brokers' fees. The contribution
of home building to state economies decreased dramatically from 2004 to
2007. The estimated reduction in each state from 2004 to 2007 is based
on the decline in real value of permits in each state.
All states, with the exception of Wyoming and Katrina-struck
Louisiana and Mississippi, registered significant declines in
residential fixed investment between 2004 and 2007. Some of the biggest
declines showed up in previously overheated states like Florida,
California and Arizona. Florida showed the steepest fall of all states,
38.1 percent. Declines like this translate into multibillion dollar
losses for state economies. In California, shrinking residential
construction subtracted more than $38 billion from the growth of state
output over two years. In Florida, the decline exceeded $29 billion,
and in Arizona it reached $6.5 billion. Michigan, Minnesota, Ohio--
transition economies of the industrial Midwest--also registered steep
declines in home building, 35.1, 29.5, and 26.0 percent respectively,
by far exceeding the national average of 20.8 percent.
Unfortunately, available data and forecasts indicate that unabated
the contraction in home building activity will not only persist but get
worse in 2008 and 2009, thus suppressing growth of state and national
economies even further. NAHB forecasts that a residential construction
decline will continue at a faster pace. The forecast shows a reduction
in housing starts in all states in 2008, with no exceptions.
The results show that residential fixed investment in Arizona, Utah
and Florida are expected to shrink by more than a third during 2008.
Arizona is predicted to post the largest percent decline of all states,
35.4 percent. In the case of Utah, the decline is expected to be not
only large, 34.2 percent, but also precipitous, exceeding the two-year
2004-07 drop more than three times and subtracting roughly $2.3 billion
from the growth of the Utah economy.
There are three states where losses are expected to slow down in
2008 compared to the last two years. Home building in New York, Alaska
and New Jersey is expected to continue contracting but at a slower
pace.
It is worth mentioning that, even though the contribution of RFI is
a reasonably comprehensive measure of the effect of home building, it
does not capture all channels through which residential construction
affects the economy of a particular state. A contraction in home
building will also eliminate jobs in industries that are linked to home
building, such as real estate, finance and insurance, lumber, wood,
paint, cement, metal and other product manufacturing. Families that
would have moved into these new homes will now not be spending money on
new furniture and appliances. In addition, unemployed or underemployed
workers will cut their spending on a broad range of goods and services
produced within the state, triggering production cuts across various
industries. The reduced economic activity means that state and local
governments within the state will be collecting less in taxes and fees.
Experience Thus Far on Housing Stimulus
First-time Homebuyer Tax Credit
NAHB began promoting the Homebuyer Credit literally on the day HERA
was signed into law with a consumer-targeted web site (in both English
and Spanish)--www.federalhousingtaxcredit.com--that contains basic
information on the credit, answers to frequently asked questions, quick
summaries of other aspects of the HERA legislation and additional
housing resources for homebuyers and homeowners. To date, 460,000
unique visitors have viewed the site. Additionally, NAHB ran a series
of advertisements in various publications and online to promote the
credit and the web site itself. Finally, NAHB continues to work with
our 850 state and local Home Builder Associations to educate our
members on the homebuyer credit so they in turn can promote it among
potential homebuyers.
In addition to promoting the Homebuyer Credit, NAHB is surveying
our members as to the state of the housing market including the impacts
of higher foreclosure rates, higher energy costs, tighter mortgage
lending standards and higher mortgage interest rates on sales. The
latest of these comprehensive surveys was completed in September and
also contained questions on the HERA legislation and the impact of the
Homebuyer Credit.\3\ The survey results are based upon 459 responses
from builders from all regions of the country and included those who
build for the first-time homebuyer market, the first-time move-up
market (meaning those selling their first home to move into their
second) and second-time and more move-up market. The survey itself
consists of specific questions for the builder and an open-ended
opportunity for anecdotal feedback.
---------------------------------------------------------------------------
\3\ Builders Economic Council Survey: Special Analysis. Economics
Group, National Association of Home Builders. September 2008.
---------------------------------------------------------------------------
Initial feedback from those responding to the survey was mixed as
to the impact of the Homebuyer Credit on housing sales. When asked for
their opinion as to the impact of the Homebuyer Credit on the builder's
housing sales and the sales in their market area during the eligibility
period, 32 percent felt it would have Some or a Significant impact on
their sales and 48 percent felt it would have Some or a Significant
impact on sales in the builder's market area. Of this group, 17 percent
said they had already seen significant or some benefits already on
their sales and 21 percent said benefits had already been seen on sales
in the builder's market area. Forty-nine percent said it would have no
impact on their housing sales while 25 percent felt it would have no
impact on sales in their market area. Finally, 19 and 26 percent,
respectively, said they did not know or were not sure if the Homebuyer
Credit would have an impact on their sales or sales in their local
market area.
Especially informative in the survey are the narrative comments
provided by the respondents as to the HERA legislation; most of which
were targeted at the Homebuyer Credit. Generally, they note a high
level of initial interest in the credit by potential home buyers which
is not, however, followed up by an actual purchase. Many of the
comments are revealing as to the reasons why this strong initial
interest does not translate into home sales. They are also informative
as to ways in which the credit could be enhanced as part of economic
recovery legislation.
By far, the most often cited reason for the lack of positive impact
of the credit thus far is the recapture provision. Many responses note
that potential home buyers lose interest in the Homebuyer Credit once
they realize that they have to pay it back. Some builders noted the
inherent value of the credit as a zero-interest loan and felt that it
should have a more positive impact, but potential homebuyers view this
aspect of the credit negatively, regardless. Other reasons cited as
hurdles to a more effective credit are a lack of clear process for
turning the credit into downpayment resources (monetization), tighter
mortgage lending requirements and fears about job losses and the state
of the economy.
Low Income Housing Tax Credit Modernization
Another especially significant piece of the HERA legislation was
that devoted to affordable multifamily housing developed via the Low
Income Housing Tax Credit (LIHTC). This portion of the bill contains
several important provisions that should make the LIHTC even more
effective and efficient to the benefit of low- and moderate-income
families around the country. To date, feedback on the utility of these
provisions is very positive, although implementation is somewhat slower
than initially hoped due to delays in regulatory guidance for some
provisions. More importantly, however, in the intervening months since
the passage of HERA, the troubles of the larger financial markets have
spilled over into affordable housing where equity investment in the
LIHTC has deteriorated significantly. This is a serious problem for the
nation's only significant affordable housing production program.
Equity prices for LIHTC investment are declining to levels at which
it is extremely difficult to finance new affordable housing properties.
One primary reason for this is the departure from the tax credit
investor market of Fannie Mae and Freddie Mac who at one time were
almost 40 percent of the investor pool for tax credits. Taken together
with the troubles in the banking and financial sectors (which also
traditionally are the strongest source of equity financing through the
LIHTC), the program's ability to produce affordable rental housing is
significantly impaired. Additionally, should investors that currently
hold credits, but are now unable to use them because of a lack of
income to offset, decide to sell them at fire sale prices, the market
for new credits will decline even further.
The LIHTC has been successful for many years in attracting
investors and providing much needed housing for low- and moderate-
income Americans. NAHB is confident the current environment is only a
temporary condition. However, with the market not expected to improve
for several years, and many people losing their homes to foreclosure,
it is not a time to slow down the production of new affordable units.
In short, the program needs a temporary stabilizer for investment to
carry it through this economic crisis.
Policy Recommendations
NAHB recommends the following policies as effective ways to
stimulate housing demand, stabilize home prices, buttress affordable
housing production, provide security to financial markets, protect
jobs, and begin an economic recovery.
Enhance the Home Buyer Tax Credit
Expand to all home buyers
Increase credit amount
Repeal recapture requirements
Facilitate use at the closing table
H.R. 3221 established a Homebuyer Credit that is in effect a no-
interest loan. Based on feedback from the field, the provision is
having a minimal impact on the housing market. While this can be
explained in part by the ongoing financial turmoil, it is also due to
structural characteristics of the Homebuyer Credit itself.
NAHB recommends perfecting the Homebuyer Credit established in the
HERA legislation to provide an even greater incentive and speed the
stabilization of the housing market. This would include making it
available to all home buyers and increasing the credit amount, perhaps
defined on a pro rata basis according to variations in local Federal
Housing Administration (FHA) loan limits. We also believe a worthwhile
enhancement would be to eliminate the recapture provision and reshape
the incentive as a true tax credit. This will maximize the economic
incentive for home buyers to enter the market.
Finally, the market has struggled to translate the credit into help
for homebuyers at the time of purchase. NAHB recommends a change that
allows the credit to be transferred to the home seller (who could claim
the refundable tax credit on their on tax return) in exchange for cash
from the seller that may only be used for a downpayment in equity in
the home. Doing so will increase the amount of ``skin in the game''
that home buyers have in their home.
Expand the Net Operating Loss Carryback
Small businesses, especially home builders, are struggling to keep
their businesses afloat right now and are desperate for capital to
weather the economic storm. Options are limited and running out
quickly. In 2002, during the last economic crisis, Congress expanded
the Net Operating Loss deduction carryback period from two-years to
five-years to help businesses facing a similar crisis. This was
effective policy in a time of economic recession because it allowed
struggling businesses to claim future tax deductions for operating
losses today, when they are most needed to meet payrolls, pay
creditors, and conduct business. The need for this provision is
critical given the on-going credit crunch for business loans. Further,
Congress should include appropriate technical modifications to
Alternative Minimum Tax and other business tax rules to ensure this
fiscal policy tool benefits businesses large and small.
It is worth noting that an expansion of the NOL carryback is not a
tax cut; rather, it is a change in the timing of tax deductions that is
economically efficient during a downturn. If scored according to a 20-
year budget window, an expanded NOL carryback proposal would have a
negligible score.
Stabilize Low Income Housing Tax Credit Investment
Downturn in the financial markets severely effects on the nation's
only affordable housing production program--the LIHTC. The
conservatorship of Fannie Mae and Freddie Mac, along with increasing
corporate losses, has reduced the financing available for purchasing
Low-Income Housing Tax Credits in the syndication markets. This has
produced a decline in credit prices, which results in less equity being
invested into LIHTC projects.
To improve the financial health of this important program, NAHB
recommends Congress take two actions. First, the carryback rule for
Low-Income Housing Tax Credits is currently limited to one-year under
the General Business Credit rules. Expanding this carryback to five-
years will ease the downward pressure on LIHTC prices by ensuring that
the credits can be claimed today. This is similar to the application of
an expanded NOL carryback, as described above. Second, also similar to
an expanded NOL carryback, Congress should temporarily accelerate the
period under which LIHTCs are claimed from ten-years to five-years.
Doing so will enhance the LIHTC market, attract new investors, and
ensure investment in affordable housing.
Conclusion
NAHB once again thanks the Committee for the opportunity to comment
on proposed economic recovery legislation. This past summer the
Congress established critical tools in the HERA legislation to respond
to the nation's housing crisis, however, since that time the state of
the financial markets has declined precipitously. This new environment
calls for an even more aggressive response by the Federal Government.
Despite the current weakness in the housing sector, the long-run
prospects for housing and spillover benefits are strong. Due to
population growth, an aging housing stock, and increased demand for
multifamily properties, NAHB is forecasting long-run sustainable demand
for home construction at 1.5 million units once our economy clears the
current crisis. The recommendations outlined above are intended to get
the nation through this current crisis. Housing and homeownership play
a critical role in our society, one with enormous documented social and
private benefits. NAHB looks forward to working with the Congress to
ensure a speedy and effective near-term recovery as well as the long-
run success of one of the most critical engines of the nation's
economy.
Statement of National Black Chamber of Commerce
I am Harry C. Alford Jr., President and Chief Executive Officer of
the National Black Chamber of Commerce (``NBCC''). The NBCC is a non-
profit, non-partisan, non-sectarian organization dedicated to the
economic empowerment of African American communities. Headquartered in
Washington, DC, the NBCC is an organization that is on the leading edge
of educating and training Black communities in an effort to expand
their knowledge base of government, quasi-government and private-sector
business opportunities, respectively. The NBCC reaches 100,000 Black-
owned businesses and their respective employees; many of whom are
currently seeking affordable professional counsel and guidance in the
midst of these uncertain financial times. I offer this written
testimony in support of Employer-Paid Group Legal plans on behalf of
working families.
This hearing exposes the unique new set of economic challenges
facing American families today. Committee Chairman Rangel noted, in the
hearing advisory notice, that ``[t]his hearing will examine the growing
challenges facing working families . . . to determine how we can best
restore economic security throughout our nation.''
Many families, especially African American families, have fallen
victim to the predatory lending practices of certain financial
institutions through their sub-prime loans and other exotic financing
instruments. The end result is that many African American families are
faced with foreclosure notices that threaten their economic stability.
Unsure of their rights under the law, numerous African American
families are spiralling into financial ruin. If only they had access to
affordable legal counsel to whom they could turn when analyzing these
often complex and sophisticated issues. This committee should be
commended for fighting for the rights of working Americans. However, if
this Committee fails to provide working Americans with all the tools
(i.e., access to affordable legal counsel) necessary to understand and
invoke their rights, this Committee's efforts may fall well short of
its intended purpose.
One effective and inexpensive way to provide relief for working
families should be the restoration of the tax exempt status of
Employer-Paid Group Legal Services.
If a mortgage default has occurred, group legal plan lawyers can
review the financial documents for compliance with existing laws and
advise on workouts that allow reinstatement of the mortgages under
mutually beneficial terms and conditions. The result is not only saving
the family's place to live, but safeguarding the family's primary
investment.
Group legal plans also provide employees with low or no-cost basic
legal services, including assistance with the preparation of a will,
probate, and domestic relations issues, such as child support
collection. Most plans also cover:
Addressing financial management and investment issues
in the face of a decreased income
Anticipating the need for long term care, as well as
Medicare and Medicaid issues
Informing medical professionals on how they want to
be treated in the event of a serious illness or a life
threatening accident
Instructing family members on how an individual wants
their property handled in the event of incapacitating illness
or accident
Educating clients on how to avoid identity theft and
what steps to take if a client is a victim of this crime
Yet, when the need is at its greatest, fewer Americans have access
to inexpensive, preventative legal assistance. Bills have been offered
in the past several Congresses, including this year's bill, HR 1840,
introduced by Congressmen Stark and Camp and co-sponsored by 40 members
of Congress, 15 of whom are on the Ways and Means Committee. The
identical senate version of the bill, S 1130, has similar bi-partisan
support on the Finance Committee. Throughout the 110th Congress,
language to reinstate Section 120 has been included or offered as
amendments in 6 pieces of legislation in the House and Senate,
demonstrating the strong bi-partisan support of the provision.\1\
Section 120 passed the House as part of an earlier version of H.R. 6049
that failed in the Senate. Now is the time to reinstate Section 120.
Reinstatement of the benefit's tax preference will provide direct and
immediate tax relief to countless Americans while throwing them a legal
life line when battling the hardships of life.
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\1\ H.R. 1540, S. 1689, Civil Rights Tax Relief Act of 2007; H.R.
6049, Energy and Tax Extenders Act of 2008 (reinstatement of the pre-
tax status of group/prepaid legal services benefits); S. 3098,
Alternative Minimum Tax and Extenders Tax Relief Act of 2008
(reinstatement of the pre-tax status of group/prepaid legal services
benefits); S. 3125, Energy Independence and Tax Relief Act of 2008
(reinstatement of the pre-tax status of group/prepaid legal services
benefits); S. 3335, Jobs, Energy, Families, and Disaster Relief Act of
2008 (reinstatement of the pre-tax status of group/prepaid legal
services benefits
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Across the country, other organizations have recognized the
importance of group legal services to assist working Americans. For
example, the National Association of Attorneys General strongly
supports Group and Prepaid Legal Services as an important part of
continuing access to justice. In August, the Oregon State Bar
identified group legal services as a vital component of access to the
justice system for persons of moderate means. The Center for
Responsible Lending, in a recent presentation on the sub-prime mortgage
crisis, called for increased accountability in the mortgage industry,
stronger anti-predatory lending laws and increased funding for legal
services. Belatedly, Congress has seen to the first two
recommendations, and it would behoove Congress to enact the third. Just
as medical insurance coverage for preventive care keeps sick Americans
out of emergency rooms, preventive legal services can keep working
Americans out of foreclosure, bankruptcy and economic ruin.
In conclusion, reinstating Section 120 would repeal a tax increase
on working class Americans while demonstrating your committee's
commitment to access to affordable legal counsel in these challenging
times. We strongly support the inclusion of Section 120 in any
legislative package addressing the economic problems of working
families, especially the Second Stimulus package now under
consideration.
Respectfully,
Harry C. Alford, Jr.
President & CEO, NBCC
Statement of National Child Support Enforcement Association
As representatives of national and regional child support
associations listed below, we very much appreciate your leadership in
working to ensure that America's economy recovers. We are very
concerned that action taken by the Congress with regard to fiscal
policy includes recognition of the importance of children to the
continued health of our nation. We stand united in support of the Child
Support Protection Act of 2007, HR 1386. This bill which is pending in
your Committee will restore lost funding for the Child Support
Enforcement program--a universally-acclaimed, cost-effective program
that indisputably keeps thousands of families from slipping into
greater poverty. We believe that repealing the provision of the Deficit
Reduction Act (DRA) of 2004 that would end the ability of states to use
performance incentives as match for Federal funds is critical. Since
the Congress has been unable to act on HR 1386, we urge you to take a
temporary action to restore the funding as a part of any economic
recovery legislation.
In December 1974, Congress passed Title IV-D of the Social Security
Act, creating the Federal/state/tribal child support program (IV-D
program). Since then, Congress has nurtured this bipartisan program
through the passage of numerous bills that strengthened the tools
needed to establish legally-recognized fathers for children born out of
wedlock and to ensure that children receive the support to which they
are entitled.
The DRA provided important new tools to assist state and local
government agencies to improve their collection rate, such as lowering
the passport denial threshold, adding tax offsets for older children,
simplifying distribution of support, and expanding medical support
options. However, three funding provisions in DRA unmistakably undercut
the IV-D program, offsetting much of the recent gains made by the child
support agencies in the country. By far the most devastating reduction
is the provision that repeals the long-standing authority to match the
state-earned incentive dollars with Federal Financial Participation
(FFP). Indeed this provision of DRA 2004 undercuts a covenant between
the Federal Government and states to promote efficiency and success.
When Congress passed the Child Support Performance and Incentive
Act of 1998 (CSPIA), it created an innovative incentive program that
rewards efficient, results-oriented IV-D program efforts. Until October
2007, about one in four dollars that were used to fund the child
support program come from CSPIA incentives and matched FFP dollars. The
match alone represented about one of six program dollars. To suddenly
reduce Federal support for the program while maintaining all of the
current state program requirements constitutes an unfunded mandate.
Congress made a pact with state and local child support agencies when
it passed CSPIA. Congress agreed to invest in efficient, successful
programs and in return the states agreed to accept a cap on annual
incentive dollars, which did not exist before CSPIA. CSPIA led to
remarkable improvements in performance as states compete for their fair
share of the incentive pie. In fact, the Office of Management and
Budget recognized the IV-D program as the highest-rated social services
and block-grant formula program, awarding the child support program a
90% score through its Program Assessment Rating Tool (PART). The great
strides made in the years since Congress passed CSPIA are jeopardized
by the DRA incentive match loss. While most states and local
governments were able to appropriate funds to minimize the impact of
the cut in their 2008 budgets, many states are unable to do so in 2009.
In addition, the cycle of funding in local programs is such that we are
just seeing the impact at the local level in the offices of prosecuting
attorneys, sheriffs, courts, and social service agencies. Budget
difficulties in states are leading to reductions in services to
families, curtailment of programs which promote services for fathers
which assist them in meeting their parental responsibilities, and a
lessened availability of personnel to answer parents' questions,
establish orders and enforce existing orders.
The facts are clear that the work of the child support community
directly impacts the economy.
Income in the form of child support collections will
decrease at the rate of $1 billion per year. Child support
collections are a major source of income to low income single
parent families and loss of those collections will force those
families to use other economic services of state Government
such as Medicaid, TANF, Food Stamps, and housing assistance.
Please note that 17 million children in low income, single
parent families currently receive child support services. Child
support is the second largest source of income for single
parent families making up 31% of their total income.
The child support collections are quickly spent in
the local economy for basic needs. Data from states and
financial institutions indicate that at least 97% of all
support payments are spent within the month of collection.
These dollars are typically spent on basic family needs, such
as rent, food, child care, and clothing.
Programs that help fathers in securing employment and
pay child support will be curtailed or eliminated. The child
support program is one of the few programs that connect low-
income fathers to jobs. Without the employment assistance that
child support programs offer, fathers are less likely to obtain
a job, maintain their income, support their children, and pay
their child support. taxes to Federal and state governments.
Expenditures in other programs will increase as the
safety net is torn. Research shows that the collection of child
support actually reduces the expenditures in need-based
programs such as Medicaid, Food Stamps, and housing assistance.
Reduced state and local government resources limit
service delivery effectiveness. Reduction in program resources
will mean poorer outcomes for families, including a reduction
in the number of orders established and enforced on time and
slower implementation of family distribution options included
in the DRA.
Reversing the child support cuts would produce a
timely, well-targeted stimulus. Economists agree that child
support collections are a major contributor to the economy and
the efforts of state and local agencies is highly efficient.
Every dollar spent by the Federal Government produces $6.50 in
collections for working families. State and county staff
layoffs will worsen the economy overall.
Because of the drastic cuts mandated by the DRA, state and local
agencies will no longer be able to provide the level of child support
services that poor and near-poor parents and children deserve. The cuts
mean a rollback in everyday services, a reduction of staff (especially
in local office of the prosecutor, sheriff, child support agency and
the courts) and fewer dollars available for initiatives involving
automation improvements, hard-to-collect and large-arrearage cases,
customer service and employer outreach. For the 17.2 million children
who live apart from their non-custodial parents, the negative impacts
will be enormous.
Today over 60,000 child support professionals assist families. We
are committed to the success of our program and are very proud of the
success the program has enjoyed the past few years as we have utilized
the tools provided by Congress to improve outcomes for the nation's
families. Estimates of the DRA impact made by the Congressional Budget
Office and the Lewin Group study pre-dated the current drastic downturn
in the economy. The well-being of families we currently serve, as well
as those who may soon turn to us is more precarious now than ever
before. The importance of a vigorous child support program to help them
stay financially afloat is crucial.
We are very concerned that the impact of the funding reductions
from the DRA will not only curtail new initiatives, but also the
improvements we have been able to attain over the past few years and
will likely in the end result in performance falling to levels we
experienced in the early 1990's. The end result will be children lost
in a system, no longer enabled to provide the critical services they
need and deserve.
Respectfully submitted October 29, by:
National Child Support Enforcement Association
National Council of Child Support Directors
Eastern Regional Interstate Child Support Association
Western Interstate Child Support Enforcement Council
Statement of National Complete Streets Coalition
Building Complete Streets Aids Economic Recovery in Two Ways
Economists agree that investing in America's transportation
infrastructure is a good way to start the nation on the path of
economic recovery. The challenge is to invest wisely, in ways that will
help American families who are hurting.
Unfortunately, we've learned in the last few months that our over-
reliance on transportation investments that provide only for automobile
travel has backed many Americans into a corner. The spike in gasoline
prices this summer led many people to realize their options for cutting
back on transportation expenses were severely limited: too many
Americans live in places where they cannot walk because sidewalks are
crumbling, they cannot ride a bicycle because roads are too fast and
narrow, and they cannot take the bus because public transportation is
inaccessible or infrequent. For too many, the only option is to drive
and pay the going price for gasoline. The problem is even more acute
for low income Americans who must come up with a minimum of $3,000 a
year \1\ to own a car.
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\1\ Consumer Expenditures in 2006, released in February of 2008 by
the U.S. Department of Labor's U.S. Bureau of Labor Statistics
---------------------------------------------------------------------------
The highway projects funded by this recovery package can do more to
aid recovery than provide individual jobs: they can help create
complete streets that provide Americans with transportation choices
that are easier on their wallets. Complete streets are safe and
comfortable for bicycle riders, transit patrons, and pedestrians of all
ages and abilities, as well as for drivers.
Many projects in the highway funding pipeline date from the last
century, when the primary concern was to simply move cars. But now that
people are driving less--more than 67 billion miles less in 2008 than
2007, according to FHWA--a higher priority must be placed on investing
in road projects that provide transportation options. This will help
insulate Americans from future gas price shocks, help reduce our
dependence on foreign oil, and help everyone from school children to
older adults get where they are going safely.
For this recovery package, it only makes sense to direct state and
local transportation agencies to prioritize projects that will help
create complete streets to ease the burden of the economic slowdown on
Americans. Many communities have ready-to-go projects aimed at
retrofitting corridors for complete streets. Many of these projects are
already in the pipeline as part of routine reconstruction and
rehabilitation of formerly `incomplete' streets. And these projects are
often labor-intensive and small enough in scale to ramp up quickly.
Here are a few examples of the types of projects that could provide
both jobs and low-cost travel options for Americans. Planners in Kalama
and Longview, Washington are ready to begin construction on three
streets that will provide sidewalks, better drainage, lighting, and
other features to improve safety for those traveling by foot or
bicycle. In Scottsdale Arizona, a project is ready to add bicycle lanes
and wider sidewalks, as well as raised pedestrian safety medians and
other street-scaping features to Scottsdale Road. In Livermore,
California, the transit agency is ready to create Bus Rapid Transit
service, with street features such as improved bus stops and new
technology that gives buses priority at traffic signals. The State of
Maryland is ready to retrofit pedestrian routes along state highways in
three counties to provide for people with disabilities. Activities will
include installing curb ramps, widening sidewalks, removing
obstructions, and improving cross-slope.
While bicycling and walking infrastructure are often seen as
`local' concerns, they hold great potential for easing the
transportation woes on a national scale. Forty-eight percent of
metropolitan-area trips in the United States are three miles or less,
and 28 percent are one mile or less \2\--easy distances for bicycling
or walking or catching a shuttle bus. Yet two-thirds of these trips are
now made by automobile. Safe infrastructure for pedestrians is also an
integral part of every transit trip. It is in the national interest to
promote travel by foot, bicycle, and public transportation. We know
that these low-cost modes can help reduce our dependence on foreign oil
and can reduce greenhouse gas emissions by millions of tons
annually.\3\ The Federal transportation program must do more to support
these `capillaries' of our transportation system.
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\2\ FHWA, National Household Travel Survey, 2001.
\3\ Rails to Trails Conservancy, Active Transportation for America:
the case for Increased Federal Investment in Bicycling and Walking,
2008; American Public Transportation Association, Public
Transportation: Benefits for the 21st Century, 2007.
---------------------------------------------------------------------------
States and local governments across the country are recognizing the
importance of completing their streets for everyone. Governor Arnold
Schwarzenegger signed the California Complete Streets Act of 2008 this
September; last year Illinois joined Oregon, Florida, Maryland, and
Massachusetts and more than 60 local jurisdictions with complete
streets policies on their books. In Congress, HR 5951 and S 2686 call
for adoption of complete streets policies at the state and metropolitan
level. (For more information, visit www.completestreets.org.)
The National Complete Streets Coalition is a broad-based group
working for the adoption and implementation of Complete Streets
policies and practices at the Federal, state and local level. Members
include the American Planning Association, American Public
Transportation Association, America Bikes, America Walks, American
Council of the Blind, the Institute of Transportation Engineers, and
many more organizations.
Focusing economic stimulus funding on projects that build complete
streets will help Americans in two ways: by creating immediate jobs and
by building a transportation infrastructure that will give them more
low-cost transportation options. Please consider asking states and
regions receiving this funding to prioritize projects that create
complete streets.
Barbara McCann
Coordinator
National Complete Streets Coalition
Statement of National Employment Opportunity Network
The National Employment Opportunity Network (NEON) wants to thank
the Committee for this opportunity to submit testimony for its hearing
on Economic Recovery, Job Creation, and Investment in America. NEON is
comprised of service bureaus and tax professionals who work with
employers to establish, and manage tax incentive programs such as the
Work Opportunity Tax Credit, Indian Employment Credit, and Tax
Incentives for the District of Columbia, Empowerment Zones, Renewal
Communities and New Markets. Consequently, NEON members have a long
history as well as an existing infrastructure which places them in a
position to educate employers about hiring incentive programs and gives
them the ability to quickly set up systems that will allow them to
integrate such programs in their business plan.
Hiring tax incentives have been instrumental in the effort to
revitalize inner city communities in New York City, Washington DC,
Boston, Los Angeles, and Oklahoma City. Similarly, the Work Opportunity
Tax Credit has helped approximately 5,000,000 people coming off public
assistance to find gainful employment since its enactment in 1996. And
more recently, the Katrina WOTC credit was very successful in
encouraging local businesses in the impacted areas to make a special
effort to hire individuals who lost their jobs in the wake of the
Hurricane. Tens of thousands for New Orleans residents were able to
secure a new job because employers in the area were informed that they
would receive a tax credit if they hired someone who had lived in the
impacted area when Katrina hit.
Today, the country is facing a new and all encompassing economic
crisis. With, according to the Bureau of Labor Statistics, more then
1,000,000 people having lost their jobs this year alone and the
prospect that many more will become unemployed as a result of what most
economists now agree is a deepening recession, the need for Government
action is clear. Currently unemployment is a little over 6% with some
projections estimating unemployment going to 7.3% by May of 2009 and
even more recent projections of its going as high as 8% before job
growth begins again.
With many people out of work or at risk of losing their jobs, it
only makes sense for Congress to consider corrective action in the near
term rather then waiting. If we learned anything from the great
depression of the 1930s, it was that President Herbert Hoover's
inaction during the first three years of the crisis made it all the
more difficult for the U.S. and world economy to recover. It was not
until President Franklin Delano Roosevelt came into office in 1932 and
tried many different public works and jobs programs that first
America's confidence and then our economy began to recover. By taking
action now, Congress need not see a repetition of the 1930s.
As in the 1930s, we can not be certain what will work and therefore
should pursue numerous options from providing states and localities
with financial aid, to building long over due infrastructure projects,
to supporting green energy projects, to providing an expanded safety
net through expanded food stamp benefits and providing extended UI
benefits. Other then the sorely needed safety net UI and other safety
net proposals, the one thing these initiatives all have in common is
the realization that through such action jobs will be created. However,
nothing in any of these proposals will help to insure that those who
have lost their jobs because of the recession and end up having to rely
on an expanded social safety net will be the ones who are hired as a
result of an economic stimulus. If fact, while most of the proposals
will in all likelihood help to shore up both the economy and state and
local governments, there is little assurance that the jobs created will
go to the unemployed.
NEON believes that one way of assuring that those who have lost
their livelihood because of the recession would be to enact a one year
temporary Work Opportunity Tax Credit Unemployment Insurance (WOTC-UI)
initiative. In an effort to help those individuals who have lost their
jobs as a result of the economic crisis, NEON would propose that anyone
currently receiving unemployment insurance, extended unemployment
insurance or who exhausted their UI benefits during the year prior to
being hired would be eligible. As an added incentive for employers to
hire from this pool and quickly employ these individuals, employers
would receive a significantly higher wage tax credit then under the
traditional WOTC program. The maximum credit would be claimed against a
$9,000 wage base (vs. $6,000 under traditional WOTC) and the credit
would be equal to 50% (vs. 40%) of the wages paid which would translate
into a $4,500 credit vs. the traditional WOTC credit of $2,400. The
advantage of this proposal is that it only costs to the extent that the
eligible individual is actually working.
By reducing the cost of labor, employers would be in a position to
do more hiring then they would have without such an incentive. To the
degree that employer's can quickly apply the WOTC-UI hiring credits
against their tax liability, the stimulative impact on the economy in
terms of increased hiring and increasing employer's access to capital
will be enhanced. To that end, NEON proposes that employers be given
the option much as they had under Katrina WOTC to either seek a
traditional WOTC certification of eligibility through the State
Workforce Agency (SWA) or to claim the credit, without a certification
if they can produce documentation that the worker being hired is
receiving UI or has received it during the year prior to being hired.
Such documentation is currently issued by the SWA to the worker and
his previous employer. For example, workers receive a letter telling
them that they will begin receiving UI benefits as of a date certain as
well as a letter telling them when their benefits have been exhausted.
Similarly, the original employer who lay off or discharged the worker
is notified by letter that the employee will be receiving UI. In
addition, individual on UI often receive a document that informs them
that the SWA has established a bank or debit card account for them on a
date certain. If the new employer can secure a copy of any of those
letters or notifications, it would provide them with a clear indication
of whether the worker was eligible or not and entitle them to begin to
take the credit when they calculated their quarterly Federal tax
liability. Such documentation would have to be kept on file and be
produced in case of audit as with many other credits such as the
Federal Empowerment Zones, and Indian Employment Credits. This approach
would greatly reduce the administrative burden on the already
underfunded and backlogged SWAs and help to insure that the economic
benefits of the hiring credit act as a true incentive by quickly
becoming available to the employer.
As noted earlier, hiring tax incentives have worked and continue to
successfully address areas of need for our labor force. Providing a
safety net without added job opportunities will not be enough. To make
a significant difference, employers must incorporate screening and
recruitment efforts to target those who have lost their jobs, find
themselves on UI and will then need to move from UI to gainful
employment. One way to help those who are or will become unemployed
would be to utilize the private sector hiring infrastructure already in
existence--WOTC to help match employers' needs with those unemployed
workers who require assistance changing to new careers. The most
effective implementation having the earliest impact on the economy of
WOTC-UI will be through reduced involvement with SWAs using UI
documents in lieu of WOTC Certification as was done with Katrina WOTC.
As President Roosevelt said in 1932, ``The country needs and,
unless I mistake its temper, the country demands bold, persistent
experimentation. It is common sense to take a method and try it. If it
fails, admit it frankly and try another. But above all, try something.
The millions who are in want will not stand idly by silently forever
while the things to satisfy their needs are within easy reach.'' NEON
recognizes that the challenges we face today, while not as severe as
the country faced in 1932, still are formidable but if we act quickly
and are not afraid to try a number of solutions, we stand a good chance
of coming out of this stronger then ever. NEON believes that a new
WOTC-UI provision would be a cost effective way to encourage employers
to hire those who have been hurt the most by the financial crisis--
those who have lost their jobs and now are dependent upon Unemployment
Insurance. We are ready to work with the Committee on a development of
hiring tax incentives such as a WOTC-UI program.
Statement of National Retail Federation
The National Retail Federation (NRF) submits the following comments
in support of the need for Congress to enact additional economic
stimulus legislation this year. By way of background, NRF is the
world's largest retail trade association, with membership that
comprises all retail formats and channels of distribution including
department, specialty, discount, catalog, Internet, independent stores,
chain restaurants, drug stores and grocery stores as well as the
industry's key trading partners of retail goods and services. NRF
represents an industry with more than 1.6 million U.S. retail
establishments, more than 25 million employees--about one in five
American workers--and 2007 sales of $4.5 trillion. As the industry
umbrella group, NRF also represents over 100 state, national and
international retail associations.
Early this year, Congress and the Administration worked together in
a bipartisan fashion to enact economic stimulus legislation to aid a
slowing economy. The NRF commends the Congress for its quick action to
address the nation's economic needs. Although our evidence shows that
the taxpayer rebate payments helped consumer spending, additional
stimulus is needed.
Today's hearing is part of an evaluative process to determine if
further stimulus is needed, and, if so, what type of stimulus would be
most effective. We believe further economic stimulus is needed.
Economists are forecasting a weaker economy through the end of this
year and well into 2009. In the retail industry, NRF is forecasting the
worst holiday season since 2002. Yesterday, the Conference Board
released its monthly survey of consumer confidence, finding that
consumer confidence is at a record low. With consumer spending
accounting for 70% of GDP, it is difficult to foresee an improvement in
overall economic growth until consumer spending improves. Therefore, we
urge you to include relief for the consumer as part of any economic
stimulus package that is enacted.
Impact of Economic Stimulus Act of 2008 on Consumers
To assist the Committee in making a determination with respect to
the type of stimulus that may be most helpful, we share the NRF's
findings with respect to the impact of tax rebate payments distributed
earlier this year.
Direct deposits of tax rebate payments began the last few days of
April, followed by the mailing of rebate checks through July 11 for all
eligible taxpayers who filed a tax return. After a decline in retail
sales in March, there was a bump in retail sales of general merchandise
\1\ for April, May, June, and July, which we attribute to the
distribution of the tax rebate checks. Although the amount that
taxpayer rebate payments were used to make new purchases in the economy
was somewhat diminished because of higher costs for gas and groceries,
consumer spending in other areas still received a boost in the second
quarter as a result of the tax rebates.
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\1\ Retail sales of general merchandise exclude automobiles, gas
stations and restaurants.
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The April bump in retail sales was.6 percent seasonally adjusted
month-to-month, which was the largest month-to-month increase since
November of 2007. The April bump accounted for an increase of 2.3%
unadjusted year-over year.
With substantially more checks distributed in the month of May,
amounting to more than $40 billion in rebates, retail industry sales
increased by.9 percent on a seasonally adjusted month-to-month basis,
and by 3.8% unadjusted year-over-year. Most of the May increase went to
discounters and grocers, although some shoppers splurged on electronics
and appliances.
The Treasury Department distributed almost $30 billion in rebate
checks in the month of June, which accounted for an increase in retail
sales of.3 percent on a seasonally adjusted month-to-month basis, and
1.3% unadjusted year-over-year. Most of this increase seemed to be
focused on necessities.
Although only a small amount of the rebate money was distributed in
July, it still helped retail sales for the month. Less than $12 billion
was distributed, but retail sales of general merchandise increased.3%
seasonally adjusted month-to-month and rose 4.7% unadjusted year-over-
year \2\ Most retail categories enjoyed gains in July, with the
strongest gains enjoyed by general merchandise retailers, including
discounters.
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\2\ Total retail sales for July, which also include non-general
merchandise categories such as autos, gasoline stations and
restaurants, decreased by.1% seasonally adjusted from the previous
month, but increased 4.5% year-over-year.
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In August 2008 a consumer survey was conducted on behalf of the NRF
to determine what recipients did with the tax rebate payments they
received \3\ 45.6% of survey respondents used their rebate checks to
purchase something. This was an increase over the 40.6% of respondents
that expected to use the rebate money to make purchases in a February
2008 survey,\4\ prior to the distribution of the rebate checks. The
August survey also showed that consumers spent less of their rebates on
savings and investment and paying down debt than they predicted in the
February survey. The most significant diversions in how the money was
actually spent from the predictions made in February occurred with
respect to purchases of gas and necessities.
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\3\ Survey conducted by BIGresearch, 8/5-8/12/08.
\4\ Survey conducted by BIGresearch, 2/5-2/12/08.
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Our surveying also showed that to some extent those taxpayers that
initially saved their rebate money planned to use it for purchases in
upcoming months. For example, the August survey showed that
approximately $1 billion of the rebate money that was initially saved
was expected to be used for the upcoming holiday season. Our Back-to-
School Survey,\5\ conducted in July, found that one-fifth of parents
nationwide set aside a portion of their stimulus check for back-to-
school purchases.
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\5\ Survey conducted by BIGresearch 7/1-7/8/08.
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The Need for Additional Relief
Economic forces impacted the consumer in the second quarter of the
year that were not foreseen when the economic stimulus package was
first enacted, particularly the escalating costs of fuel and food. As a
result, consumers used some of their rebate money to pay for the higher
costs of these items, rather than increasing consumption of goods.
Despite the modest rise in retail sales over the last few months, we
believe the results are better than they would have been if Congress
had not enacted the tax rebates.
With most economists predicting a weak economy into 2009 and
consumer spending at record lows, the NRF believes that additional
Congressional action would help the economy and soften the negative
impact on the American people. We believe that an immediate stimulus
that will put money into the pockets of consumers where it can have a
ripple effect throughout the economy is needed. That stimulus could be
accomplished in a number of different ways, including more rebate
checks, a nationwide sales tax holiday, a payroll tax holiday or other
alternatives.
We urge the Congress to work in the bipartisan and expeditious
spirit of cooperation that enabled the first round of stimulus to be
enacted so quickly. Over the next few months, consumers will be facing
a challenging time. A new economic stimulus effort can help consumers
and help the economy at the same time.
Statement of National Retail Federation
As the Ways & Means Committee convenes on October 29 to examine the
impact of the current economic crisis on the nation during its hearing
on Economic Recovery, Job Creation, and Investment in America, the
National Retail Federation (NRF) wishes to reiterate our support for
expeditious passage of H.R. 3934--the Affordable Footwear Act (AFA).
The AFA relieves the American consumer of very high, regressive and
outdated taxes on shoes.
The economic situation is hitting the retail industry particularly
hard just before the critical holiday season, which is forecast to be
the worst since just after the
9/11 terrorist attacks. Credit needed to run retail operations is
increasingly difficult to obtain. Retail bankruptcies are on the
increase, and tens of thousands of retail workers are losing their
jobs. Meanwhile, the economic crisis is squeezing finances for retail
customers--American families--so that many are now finding it
increasingly difficult to afford even essential items like shoes and
clothing.
The AFA is a modest, but extremely helpful step to assist one part
of the struggling retail industry--footwear retailers--and their
employees. Because of the keen competition in the U.S. footwear market,
the AFA will also quickly put $4-5 billion in needed cash into the
pockets of U.S. consumers, particularly low and middle-income Americans
with children. Thus, the bill is pro-consumer, pro-worker, and pro-
retailer.
With 158 cosponsors of H.R. 3934, the AFA has broad bipartisan
support in the House. Since it exempts footwear products still produced
in the United States, the AFA is also non-controversial and has the
support of domestic footwear producers.
NRF is ready to assist the committee in any way we can to ensure
expeditious passage of this important piece of legislation.
The National Retail Federation is the world's largest retail trade
association, with membership that comprises all retail formats and
channels of distribution including department, specialty, discount,
catalog, Internet, independent stores, chain restaurants, drug stores
and grocery stores as well as the industry's key trading partners of
retail goods and services. NRF represents an industry with more than
1.6 million U.S. retail companies, more than 25 million employees--
about one in five American workers--and 2007 sales of $4.5 trillion. As
the industry umbrella group, NRF also represents over 100 state,
national and international retail associations.
Statement of Ohio CSEA Directors
Chairman Rangel and Members of the Committee, the Ohio County
Associations representing elected officials and professional human
services staff thank you for the opportunity to provide testimony on
the need for economic stimulus legislation to assist Ohio's families
and the counties serving them.
Given the issues under your Committee's jurisdiction, this
testimony focuses on the urgent need to restore the cuts made to the
child support enforcement program in the Deficit Reduction Act of 2004
(DRA). Administered by Ohio's 88 counties, the child support program is
a fundamental component of our State's human services system. Ohio's
counties provide direct services to over 1.3 million children and their
families. Given the tremendous budget pressures faced by our State and
counties and the tenuous household budgets of an increasing number of
Ohio families, restoring lost funding for a universally-acclaimed,
cost-effective program that indisputably keeps thousands of families
from slipping into greater poverty is needed now more than ever.
Congress must act to restore the cut.
The DRA repealed the ability of states and counties to use earned
Federal incentives for exemplary child support performance as local
match. Repealed on October 1, 2007, the incentives match policy was for
years a key element of a carefully crafted set of penalties and rewards
created by Congress to spur improvements in program administration. All
incentives earned are required to be reinvested in the program and
states could not supplant other funds used for child support
enforcement. The policy enacted under the DRA was never proposed by the
Administration, nor was there ever separate legislation introduced to
make this change.
We understand that Congress is considering an economic stimulus
package containing a temporary increase in the Federal contribution to
Medicaid, a boost in benefits under the Supplemental Nutrition
Assistance Program (formerly known as food stamps) and an extension of
unemployment insurance. Those measures are also critically important.
Compared to the funding contemplated under those initiatives, however,
restoring child support marks a modest reinvestment of Federal funds.
Reinvestment in child support will place much-needed payments in the
pockets of families who will spend those dollars quickly. Reinvestment
in child support will stabilize the Federal, state and county financial
partnership which collects $4.73 for every dollar invested in the
program. Reinvestment in child support will also save jobs by assisting
state and county governments facing human services staff cuts at the
very time when service needs are rising. Without reinvestment, we will
see a reversal of the substantial progress made in the program over the
past decade.
Establishing and enforcing support orders is not only pro-family,
it also makes economic sense by reducing demands on low-income
programs. When the DRA was enacted, the Congressional Budget Office
estimated that reducing incentives would reduce the amount of
collections due families by $11 billion over ten years, while saving
the Federal Government less than half that. That loss of funds due
those families will affect their economic stability and will place
pressure on other services.
An economic stimulus package should assist those most in need.
Child support does just that. National in scope, support payments are
received by one in four of our nation's children. Support payments
constitute 30 percent of an average poverty-level family's income who
receive such payments.
In Ohio, we collected over $2 billion for more than one million
children. Our return on investment was $6.72. When the DRA cuts were
enacted, it was estimated that collections for Ohio families would be
reduced by over $197 million in the first five years alone. Not only is
that money that would be spent quickly by needy families, it would help
avoid costs in many other social service programs such as day care,
food assistance, housing and utility assistance, and Temporary
Assistance to Needy Families (TANF) services. These cuts have increased
the economic vulnerability of over one-half of our low-income cases in
Ohio. Currently, 13% are receiving TANF and 40% have received TANF
assistance in the past. Child support collections and medical support
enforcement assist these families in maintaining economic self-
sufficiency.
Ohio's Governor and General Assembly recognized the importance of
Ohio's Child Support program and initially filled almost the entire
funding loss to Ohio counties administering the program. However,
continued economic down turns in the State have begun limiting and
reducing the funding available. We anticipate this trend to continue
into the next budget cycle. In Ohio, the first year loss of Federal
funding totaled $60 million, and represented approximately 28% of total
county expenditures in FFY2007. Ohio collects approximately $600,000
per child support worker. Additional reductions will result in a very
large loss of available staff to establish parentage, cash and medical
support orders and enforce these orders, let alone the day-to-day
impact on answering phones and pursuing new initiatives to continue
improving our program.
Given Ohio's economic downturn, the Federal cuts to our markedly
successful child support program could not have come at a worse time.
Our total collections have ranked third nationally and we have been
third in earning performance incentives. Due to the manner in which the
incentive match is structured, Ohio is penalized disproportionately
compared to other states. That funding has been reduced as budget
reductions continue in Ohio. Currently, we have lost one-third of the
restoration and there are fears that the losses will continue.
Restoration of the child support cuts makes sense not only for our
nation's families, but it will also contribute to jump-starting the
nation's economy. Federal child support investments will put more money
in family households that will spend those dollars quickly and will
help to maintain or restore jobs filled by those county employees who
are key to establishing and enforcing support orders. These factors
make a compelling case for including child support re-investment in the
economic stimulus package.
Please feel free to contact any of our organizations directly for
more information regarding this testimony and Ohio's Child Support
Program or contact our Washington Representative Tom Joseph.
Statement of Pamela S. Pipkin
As Coordinator of the Monroe County Child Support Agency, Sparta,
WI 54656 I am urging you to restore the Federal funding cuts that were
made to the Child Support Enforcement Program under the 2004 Deficit
Reduction Act (DRA).
That funding is needed for Wisconsin to continue to maintain their
Standard of Excellence in collecting child support on behalf of the
people of Wisconsin.
Statement of Patrick Smith
My name is Patrick Smith, I live in Corona, California (My rep is
Ken Calvert). I, due to no fault of my own have been unemployed since
January 11, 2008.
I have been working in my industry 31 years (Electronics), I have
started from the bottom and worked my way to the top, after working for
several years as a General Manager, I decided to step down to a less
stressful career. I chose Purchasing as my new career. I very rapidly
worked my way to a ``Purchasing Manager'' position, that was about 10
years ago. For a number of years I excelled in this position. At one
point the company I worked for was sold and absorbed by a foreign
company, so I was laid off on 10/15/2004. I put my resume out on the
internet job boards. I had no less than 2 interviews a day for 4 weeks,
than I was hired by another company.
Now that I have been laid off again, I am lucky to get an interview
with the same resume I had 4 years ago. The few interviews I have had,
a couple of employers had asked me how the ``job market'' is. I have
answered their question with ``soft''. I had 2 employers inform me that
I was 1 of 200+ applicants (a very high experience level was required
for this position), another informed me that I was 1 of 400+++ (this
was a position with moderate requirements) applicants.
I have gone from being a good find in my industry to being 1 of 400
applicants. One employer told me that I should feel honored that they
called me because they only called ``10 of the best'' applicants in for
an interview.
Well, needless to say, I don't feel honored. I feel cheated by my
government. This Administration has sent so many jobs offshore that
speaking Mandarin Chinese is now a requirement for a Purchasing Agent
position. My business lunches have went from eating a normal American
meal to eating things that I am not even sure what they are.
Now, after almost 10 months out of work, I have sold most of my
personal belongings just to subsidize my unemployment so I don't lose
my home and my car (I need the car in case I get a job).
I have 3 children, 1 in college (her work hours have been cut back
to almost nothing and she can't even get an interview as a waitress
with 3 years of waitressing experience). My 2 sons are still in high
school, one is not old enough to work, the one that works has had his
hours cut back so far he is having a hard time making his $100 a month
car payment, let alone his $150 a month insurance payment. My wife is
with the County Sheriff's office, where cuts are being threatened also.
I did not buy a home I could not afford, I did not send my kids to
Ivy League and Private schools as I would liked to have and I don't
drive a leased car I cannot afford, even when times were good, if I got
a vacation, it was in the local Mountains by my home for less than
$1000, not $100,000 like Wall Street has been enjoying.
Now I have to worry about my unemployment insurance running out
when even a job for minimum wage is impossible to find (yes, I have
applied for jobs much less then my customary wage for my trade).
Also, I see the Government is now bailing out the people that
purchased houses for more than they could afford, driving cars and
taking vacations they could not afford. They are getting rewarded for
not acting responsibly, I will probably loose everything. I live down
the street from the local High School, several years back I was
wondering where all these kids got their high end cars, much better
than I was able to afford, even in a high profile well paying job that
I had. Now I know. I don't see those Hummers and Lexus any more.
My story is now my nightmare. I can't even fathom my family losing
our home of 12 years. I pray nightly, but I think there are too many
people that need help too.
Statement of Patti L. Worzalla
In December 2004 I received a notice that my child support payments
will be drastically reduced by 59% in the next year. I have been known
as the ``driving force'' as Congressman Paul Ryan has stated in the
past with regards to the TANF bill he has coauthored in 2006 with
Senator Herb Kohl and Congresswoman Gwen Moore. I am here to explain
the lengths of why support for funding the Child Support Agencies and
the jobs of collection, monitoring and disbursing funds are important
to the Economic Stimulus of the below poverty level class of Americans.
In 2004 I myself was a single divorced stay at home mother of a
child with a number of medical problems. I divorced my son's father
just after our son's birth in 2001, at that point my son's father a
District Manager at Circuit City withheld the paperwork sent from the
Kenosha Court house so that he would not have to have child support
garnished from his wages. In 2002 I had to file a contempt charge to
inform my former husband and his attorney that this is not acceptable
or lawful in this state and that he needs to pay into the fund or risk
a warrant for arrest. At this point he then agreed to pay his child
support through direct wage assignment. In the years to follow my
former husbands' employer decided they did not need to follow the
lawful ways of collection and disbursement of child support. I needed
the support of the Child Support Agency to assist me in my efforts to
receive my child support in a timely manner. Which, the legal time line
is 7 business day from the date of his payroll check to receive child
support payments.
Why am I this mother sending this letter to the Hearing before the
Ways and Means Committee? My reason is to inform all members of the
Committee of how real persons, real custodial parents have it, how your
rules affect what really happens to real parents in real America.
If Child Support did not instill laws and protect parents and
process child support payments than my former husband and many other
parents could just do exactly what they want to do with regards to
Child Support. I believe that without the agency and trust fund systems
I would still be waiting for payments, still waiting for my former
husband to pay what the state laws require. I would be spending dollars
on an attorney to fight for my rights as a parent but not really have a
leg or agency to stand on or with. Is the agency expensive? Yes, but
what agency is not expensive that can actually provide the exact
service it claims to provide. Child Support Agency is a necessary step
in keeping the non custodial parents paying, collection and
disbursements, holding people accountable for the funds they are paying
in or receiving. I am a parent that receives child support and believes
that is a necessary step in keeping the funds in the right place at the
right time. Monitoring is necessary and funding to monitor is
important.
I fought with Congressman Paul Ryan and Senator Herb Kohl or the
fundamental of Child Support, Child Support is for the child and those
non-custodial parents that pay into the Child Support Agency like to
know that the funds are directly sent to the child. I stayed at home so
not to charge the taxpayers more money in skilled nursing care for our
child. I could have gone back to work in Chicago making $98,000 yearly,
however, I was asking for the $628per year for TANF (welfare) so I
could stay home and care for all of my child's extensive medical needs.
Like the 22 surgeries, or the Medical Port I have to infuse his
medications through AM and PM. I was making it in Kenosha living in my
own apartment, driving a used car and living on $854.00 in child
support and $628.00 in welfare and $69.00 in food stamps per month to
make our lives work. On December 5, 2004 I received a letter that
funding had been cut and I would lose 59% of my income in the next 10
months. I ask you all WHO CAN LIVE WITH A 59% CUT IN YOUR FAMILIES
INCOME IN THE NEXT 10MONTHS? This is when I petitioned Cong. Paul Ryan
to hear me out. Let me explain my story and that repaying the Federal
Government with child support dollars from any family but more
importantly families all ready below the poverty level is obscene. So
this is how and why we have the TANF bill before the Senate now and why
I am here to express my concerns.
I am a college educated person, my son is still very medically
challenged and I am no longer receiving help from any Welfare agencies.
I am married and my child is on Social Security Disability and we have
a very happy life. I receive my child support on time because we choose
to have my former husband and his wife send the funds directly to the
state agency which in turn pays me directly. Since I have started to
use the agency back in 2002 I have seen many changes to the system to
assist in families getting their funds quicker, this shows how
efficient the organization is currently moving forward. I have
relatives in Denver and the system they use is not nearly as efficient
as the State of Wisconsin.
Please realize the help to the real American people that are below
poverty getting child support need this funding to keep the money
moving towards families in need. This will assist in less need for
families pounding on the door of food stamp agencies, energy assistance
and soup kitchens for the basics in life. The Economic Stimulus is
necessary for the parents raising children of the Child Support
Agencies across this great country. Economic Stimulus is able to help
right now putting dollars back into the hands of the poverty stricken
Americans that receive Child support. The Agency of Child Support is
necessary for all parents. Please support the efforts of Jeff Witthun
of the Wisconsin Child Support Agency and the Wisconsin TANF program
for funding of the agencies patch from December 2004.
Statement of Pre-Paid Legal Services
I am Keri Prince, General Counsel to Pre-Paid Legal Services, Inc.
(``Pre-Paid''). Pre-Paid is a publicly traded company (NYSE: PPD) that
facilitates pre-paid legal services to more than 1.6 million households
across North America. Headquartered in Ada, Oklahoma, Pre-Paid employs
approximately 750 individuals and provides business opportunities to
over 400,000 vested independent sales associates through the marketing
and sale of various pre-paid legal plans on either an individual or
group basis. Almost 100,000 sales associates will make at least one
sale of a legal service plan in 2008. Pre-Paid's founder, current
president, and chief executive officer, Harland Stonecipher, founded
Pre-Paid on the belief that working class Americans, when faced with
everyday life events and with hardship and/or tragedy, should not have
to go bankrupt to pursue their legal rights in defense of their
American dream. In sum, Pre-Paid seeks to, among other things, provide
affordable access to the judicial system through competent legal
counsel by charging customers a modest monthly fee.\1\ I offer this
written testimony in support of continued affordable pre-paid legal
plans on behalf of working families.
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\1\ The monthly cost of the family pre-paid legal plan is $26.00.
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This hearing addresses the unique new set of economic challenges
facing American families today. Committee Chairman Rangel, in the
advisory notice, noted that ``[t]his hearing will examine the growing
challenges facing working families . . . to determine how we can best
restore economic security throughout our nation.''
Americans, in the wake of the current foreclosure crisis, face
tough decisions about their future. These decisions, often times,
involve complex and sophisticated financial and legal issues where
legal counsel would serve as a valuable resource in the decision-making
process. Unfortunately, the costs associated with engaging legal
counsel during challenging economic times can be quite prohibitive,
and, indeed discouraging.
One effective and inexpensive way to provide relief for working
families would be the permanent restoration of the tax-exempt status of
employer-paid group legal services. This targeted tax relief works
threefold:
It reduces the tax burden on working families and
businesses
It provides assurances relative to long-term tax
planning for families and businesses \2\
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\2\ We request that this Committee consider increasing the current
$70.00 cap as enumerated in Section 120 so as to factor in cost of
living increases.
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It provides pre-paid legal services in the face of
calamitous events that without legal assistance can quickly
worsen
The need for access to legal services plans is seen most vividly
against the current economic backdrop. When financial institutions and
working class families convene to restructure mortgage provisions,
group pre-paid legal plan lawyers can review those documents for
compliance with existing laws and advise on workouts that allow
reinstatement of the mortgages under fair and evenly negotiated terms
and conditions.\3\ Working families who are members of such pre-paid
legal plans will generally not incur additional legal fees for such
services. The result is not only saving the family's home, but
safeguarding the family's primary investment without tapping into
already strained financial resources.
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\3\ Industry colleagues have shared with Pre-Paid, anecdotally,
that the foreclosure crisis is having a devastating effect upon their
constituents. In New York City alone, the foreclosure unit of the pre-
paid group legal service plan of DC 37 Municipal Employees has seen its
caseload increase over 70% in the past 12 months, with no end in sight.
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Group legal plans also provide working class Americans with low or
no-cost basic legal services, including assistance with the preparation
of a will, probate, and domestic relations issues, such as child
support collection. Most plans also cover:
Legal advice and consultation addressing financial
management and investment issues in the face of a decreased
income
Anticipating the need for long term care, as well as
Medicare and Medicaid issues
Living wills or advanced directives--informing family
and medical professionals on how an individual wants to be
treated in the event of a serious illness or a life threatening
accident
Wills--Instructing family members on how they want
their property handled in the event of a death
Educating clients on how to avoid identity theft and
what steps to take if a client is a victim of this crime
Bills have been offered in the past several Congresses, including
this year's bill, H.R. 1840, introduced by Congressmen Stark and Camp
and co-sponsored by 40 members of Congress, 15 of whom are on the Ways
and Means Committee. The identical Senate version of this bill, S 1130,
found similar bi-partisan support on the Finance Committee. Throughout
the 110th Congress, language to reinstate Section 120 has been included
or offered as amendments in 6 pieces of legislation in the House and
Senate, demonstrating the strong bi-partisan support of the
provision.\4\ Section 120 passed the House as part of an earlier
version of H.R. 6049 that failed in the Senate. Now is the time to
reinstate Section 120.
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\4\ H.R. 1540, S. 1689, Civil Rights Tax Relief Act of 2007; H.R.
6049, Energy and Tax Extenders Act of 2008 (reinstatement of the pre-
tax status of group/prepaid legal services benefits); S. 3098,
Alternative Minimum Tax and Extenders Tax Relief Act of 2008
(reinstatement of the pre-tax status of group/prepaid legal services
benefits); S. 3125, Energy Independence and Tax Relief Act of 2008
(reinstatement of the pre-tax status of group/prepaid legal services
benefits); S. 3335, Jobs, Energy, Families, and Disaster Relief Act of
2008 (reinstatement of the pre-tax status of group/prepaid legal
services benefits
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Reinstatement of Section 120 will provide direct and immediate tax
relief to working Americans while, simultaneously, providing working
Americans with the means (i.e., the tax-exempt pre-paid legal plans) to
avail themselves of the rights enacted by Congress, e.g., this proposed
economic stimulus plan. When this exclusion expired, it triggered a tax
increase, felt in the pocketbooks of millions of working Americans
whose employers may otherwise contribute to such plans. Currently more
than 2 million working families benefit from plans offered by such
national companies as Caterpillar, J.I.Case, Mack Truck, John Deere,
Ford Motor Company, and General Motors. Businesses, large and small,
will gain direct and immediate tax relief. The American Prepaid Legal
Services Institute reports that employees currently pay an additional
7.65 percent of every dollar devoted to a legal plan as part of its
payroll tax. We deemed this an unnecessary burden upon employers when
they simply seek to provide their employees with peace of mind.
Across the country, other organizations have recognized the
importance of group legal services to assist working Americans. The
National Association of Attorney Generals (``NAAG'') strongly support
group and pre-paid legal services and consider them as an important
part of continuing access to justice. At the NAAG June 2008 meeting,
this organization acknowledged that ``those individuals who have access
to pre-paid legal services plans are able to access an attorney in time
of need and are further able to access the advice and counsel of an
attorney in advance of need and thus are able to practice `preventative
law' in the same manner as `preventative medicine'. . .'' \5\ In
August, the Oregon State Bar identified group legal services as a vital
component of access to the justice system for persons of moderate
means. The Center for Responsible Lending, in a recent presentation on
the sub-prime mortgage crisis, called for increased accountability in
the mortgage industry, stronger anti-predatory lending laws and
increased funding for legal services. Belatedly, Congress has seen to
the first two recommendations, now is the time to enact the third. The
group legal services industry already exists and can serve millions
more, by creating the incentive for business to offer the benefit. Low
cost and efficient group legal services can help prevent, as
illustrated above, legal problems that result in disaster. Just as
medical insurance coverage for preventive care keeps sick Americans out
of emergency rooms, preventive legal services can keep working
Americans out of foreclosure, bankruptcy and economic ruin.
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\5\ Resolution adopted by the NAAG at it's summer meeting dated
June 17-19, 2008.
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In conclusion, permanently reinstating Section 120 would repeal a
tax increase on working class Americans and businesses while providing
working class Americans with the means to protect the fruits of their
labor at a modest expense. We strongly support the inclusion of Section
120 in any legislative package addressing the economic problems of
working families, especially the Second Stimulus package now under
consideration.
Statement of Public Human Services Association
The American Public Human Services Association represents the
nation's state and local administrators of health and human service
programs, including Medicaid, the State Children's Health Insurance
Programs, child welfare, and economic support programs among others. As
those responsible for the day-to-day administration and delivery of
these vital assistance and support programs, we know first-hand the
growing economic distress that the nation's most vulnerable children
and families are now experiencing. We applaud your continued commitment
to an economic stimulus package, and urge you to quickly enact this
important legislation. As you know, 49 states have constitutional
mandates to balance their budgets each year, and in this time of
increasingly severe economic stress, we require the support of the
Federal Government to properly serve those who come to us in need.
We are aware of the many thoughtful ideas that are now being
considered, but wish to especially highlight the following proposals
that bear directly on the programs we administer.
Enhanced Medicaid FMAP--As urged in a previous letter from APHSA's
affiliate, the National Association of State Medicaid Directors, we
strongly support the proposal to provide states increased amounts of
Federal Medical Assistance Percentage (FMAP) funds. While these funds
will help all states, they will flow particularly to those experiencing
the largest demand for Medicaid and thus will serve to target the
states and regions in greatest economic need. Because of the nature of
the Medicaid program, enrollment and costs increase at exactly the same
time that state revenues decrease during difficult economic times.
Also, because economic conditions tend to be cyclical, it is likely
that the crucial need for more Federal revenues to maintain our
Medicaid programs at current levels will be time-limited; when the
economy improves, state revenues rebound, enrollment declines, and the
need for additional Federal funds subsides.
Prevent the implementation of harmful Federal regulations--We urge
Congress to halt the implementation of two proposed regulations:
The Centers for Medicare and Medicaid Services proposed outpatient
hospital regulation--As detailed in an earlier NASMD letter, this
regulation would significantly affect the Medicaid program in every
state. As proposed, the rule places a limit on the amount states can
pay for outpatient hospital services by limiting Medicaid reimbursement
for outpatient hospital services to those costs reimbursed by Medicare.
This limitation clearly does not recognize the inherent difference
between the Medicare and Medicaid programs; Medicaid covers a younger
population, but provides more extensive mental health and substance
abuse than the Medicare program.
The Administration for Children and Families proposed regulation to
end the excess TANF maintenance-of-effort option --This proposal would
eliminate the incentive that states currently have to exceed their
required Temporary Assistance for Needy Families MOE spending levels on
services directed to children and families. This incentive has
encouraged states to invest their own funds on services that help low-
income families by rewarding them for spending above required minimum
MOE level. Congress clearly intended that states should have this
option and continue to be able to take advantage of it; in the current
downturn, states need this option more than ever. Further, this
proposal was issued after Administration's announcement this past May
that it would henceforth issue only those regulations that were
``absolutely necessary.''
Supplemental Nutrition Assistance Program (formerly the Food Stamp
Program)--We support an increase in SNAP benefit levels that can
provide quick relief to participants in this critical nutrition support
program. In addition, because of this program's rapidly growing
caseloads and administrative complexities, we ask that Congress
accompany the benefit increase with the following administrative
relief:
Additional matching funds to help states handle the
accompanying administrative tasks, particularly the increased
inquiries and applications that will come with announcement of
the change. States are at a great disadvantage because of the
lowered levels of Federal administrative support in this
program; the 2008 farm bill made permanent the reductions in
state SNAP match (first enacted in 1998) that have brought the
average net match percentage for all states down to just 46
percent. This reduction comes on top of the absence of enhanced
match for SNAP automation upgrades.
Adjustments and changes in a number of critical
requirements--time-limited, if necessary--that will ease state
administrative burdens and enhance client access, including:
Lift the three-month participation limit on
able bodied adults without dependents (ABAWDS) for at
least two years;
Allow states (that have the ability) to
provide 36-month certification periods to households
receiving only Supplemental Security Income;
Let states process applications/
recertifications with no interview under certain
conditions (e.g., when the household's income can be
verified through electronic data matches), as is done
in the Medicaid program, and allow other steps to
reduce face-to-face interview requirements;
Let states use community nonprofit partners
to help applicants complete applications and offer
other assistance without requiring such projects to be
demonstration projects;
Let states reinstate ineligible households
under certain conditions without a new application/
interview if they become eligible in the month
following the month of ineligibility.
Child Support Enforcement Match--We strongly encourage Congress to
repeal, either permanently or temporarily, the specific provision in
the Deficit Reduction Act (P.L.109-171) that prohibits states from
using incentive payments to draw down Federal funds for the purposes of
enhancing the state agency's ability to collect child support and
distribute the money collected to children and families. Child support
generates an estimated $4.73 for every dollar spent in Federal funds;
this money goes directly to the working families who need it.
Child Care and Development Fund--We support increased funding and
flexibility in state administration of the Child Care and Development
Fund block grant, which provides Federal child care funds to low-income
working families. States are challenged in providing families with
high-quality, adequate, and affordable child care--care that is an
economic necessity and a critical support to the nation's workforce.
The link between child care and our economy is clear: business leaders
and economists calculate that every dollar invested in early childhood
programs, including child care, results in a return on investment as
high as $17. Such an investment yields immense benefits to children and
the public, including reduced crime, abuse and neglect, and welfare
dependency, while equipping workers with the skills and incomes they
need to better withstand the type of economic stress we are now
encountering.
Social Services Block Grant-- The SSBG allows a community to build
and sustain a strong social safety net through a broad range of health
and human services. This Federal program is one of the few that focuses
on the need for community collaboration to successfully serve clients.
SSBG reinforces public child welfare's need to reach out to community
partners, and funds services for low-income individuals and families;
people in jeopardy of entering a nursing home or institution because of
a lack of services and support; children and adults who have been
abused or neglected; and other vulnerable populations. Providing
support for these efforts is more vital than ever. We also strongly
urge an increase in funding for this important program.
Low Income Home Energy Assistance Program --Sharp increases in
energy costs are compounding the general economic distress so many
vulnerable families are feeling. We urge an increase in LIHEAP funding
to assist low-income families at risk of meeting their heating needs.
We appreciate your consideration of these proposals. If we can
answer any questions, please contact me or Larry Goolsby, APHSA's
Director of Legislative Affairs.
Statement of Richard L. McNeel
The Lord Corporation applauds your efforts on the Emergency
Economic Stabilization Act, and we look forward to seeing your work on
a second economic stimulus plan. As you contemplate options for a new
economic stimulus bill to help prevent a protracted recession, we would
like to make some suggestions that will help prevent further declines
in the economy. Specifically, we would like to recommend changes to
Defined Benefit Pension Plan regulations that would allow smoothing of
assets and would expand the fair market corridor.
In 2006, legislation was passed to reform defined benefit pension
plans (Pension Protection Act 2006). Prior to this legislation plan
sponsors could smooth plan asset gains and losses over a maximum of
five years, subject to a fair market corridor of 80% and 120%. This
restricted the actuarial value of assets to no less than 80% and no
more than 120% of the fair market value. The reason for five year
smoothing of assets was intended to reduce the volatility in
investments and increase stability in funding requirements. Smoothing
prevented the temporary under or over-funding of defined benefit
pension. The Pension Protection Act eliminated this smoothing of assets
over five years and replaced it with an averaging of 24 months and
narrowed the fair market corridor of no less than 90% and no more than
110%.
However, due to recent turmoil in the equity and bond markets,
since smoothing is no longer allowed, many plan sponsors with defined
benefit pension plans, will face staggering funding requirements in
2009 to fund their plans based on their 2008 plan year-end valuations
using assets valued at fair market or a 24 month average. This
excessive funding will either result in many companies diverting
precious resources necessary to re-tool and develop new products, to
fund these plans or it will result in many sponsors declaring
bankruptcy, resulting in these plans turned over to the Pension Benefit
Guarantee Corporation (PBGC). Either of these alternatives would
significantly impact economic recovery and cause further job loss.
We have studied the impact the current legislation would have on
our required pension contributions next year, and based on the current
legislation and market conditions, it could require us to contribute
over $27 million to our plans in 2009 alone. To put this in
perspective, that would represent over 60% of our needed capital
spending on property, plant and equipment in 2009. Without changes to
the current regulations, we will be forced to dramatically curtail
capital investments, product development and potential job growth in
2009 and beyond.
As you review options for the next stimulus package, please
consider allowing plan sponsors to return to a five year smoothing of
pension assets and expanding the fair market corridor to no less than
80% and no more than 120% to avoid excessive funding of these plans and
the diversion of funds away from business growth and job creation.
This legislative relief will cost zero dollars to the U.S. tax
payers, while providing greater stability to U.S. industrial and
manufacturing companies. In fact, if this change were enacted, it could
save taxpayer money, by reducing the number of companies turning their
pension liabilities over to the PBGC as a result of bankruptcy.
Statement of Rod R. Blagojevich
I want to thank the Committee for the opportunity to provide this
written testimony about the impact of state child support programs on
economic recovery, job retention and investment in America.
As the Governor of the great State of Illinois, strengthening
families, providing healthcare access, and providing economic
opportunities for working parents has been the centerpiece of my
Administration. One of the many ways we in Illinois have addressed the
needs of working families is through a dramatic turnaround in the child
support program administered by the Illinois Department of Healthcare
and Family Services. Recent comparisons indicate that the Illinois
program is the 7th largest in caseload and 8th largest in collections
in the country. We collected $1.33 billion in State Fiscal Year 2008
and provided enforcement services for more than a half-million
families. Forty-three percent of the families served are former TANF
families striving for financial self-sufficiency.
Since 2001, the Illinois program has experienced dramatic
improvement in all areas of performance. In 2006, our program was
recognized as the most improved child support program in the nation.
From Federal Fiscal Year (FFY) 2000 to FFY 2007 we registered the
following significant gains: 92% increase in collections for IV-D
families from $393 million to more than $754 million; more than 100%
increase in collections per full time employee from $200,000 in
collections per FTE to more than $478,000; and 87% increase in cost
effectiveness from $2.26 in collections for every dollar spent to
$4.26.
Participants in the Illinois IV-D program have significantly fewer
resources than the general population. Single custodial parents rely on
regular payment of support to provide safe housing, safe day care, and
adequate food to their children. The child support enforcement program
helps working single parents meet their every day needs.
For low-income single-parent working families, there is a calculus
of everyday living that includes counting on every possible source of
income. Lack of child support may mean that the day care bill cannot be
met, resulting in loss of a day's work and ultimately can mean the loss
of the parent's job. Or the calculus may result in the parent leaving
the child alone rather than risk the loss of a job--with possibly
tragic consequences. Regular child support payments help low income
families leave welfare and not return, keep their day care providers
payments regular and help the parents keep their employment. Children
are safer and healthier when the family has a level economic
foundation.
Performance incentives earned by Illinois have doubled in the most
recent five years. Moreover, Illinois has consistently reinvested every
dollar of the Federal incentive payments in its child support
enforcement efforts. Not only has this reinvestment paid off in the
ongoing performance improvement of the Illinois program, but it has
become a fundamental component of the annual financing of the program.
Unfortunately, the cut in Federal financial support through the
prohibition under the Deficit Reduction Act (DRA) of matching Federal
funds for reinvested incentive payments will have the effect of
punishing states who are engaged in successful performance improvement
efforts, Illinois among them.
For Illinois, the loss of Federal incentive matching funds will
have an impact on the financing of its child support program of at
least $16 million annually. The Illinois state budget has absorbed some
of this loss and implemented a partial gap funding for the program.
Nevertheless, the budget constraints are affecting both the state
program and the county level funding for legal representation and other
services. Nearly forty percent of Illinois' program budget is
redirected to counties through intergovernmental agreements with Clerks
of Circuit Court and State's Attorneys. This funding shortfall will
affect the Illinois' child support programs ability to meet performance
goals at a time when working single heads of households most depend on
regular child support payments.
A funding shortfall also means that we may no longer be able to
develop new approaches for the most challenged families. Illinois has
recently embarked on an arrearage compromise program--Project Clean
Slate--that trades old, uncollectible debt owed by low-income non-
custodial parents for current support payments paid now to their
families--who are no longer on assistance. This program brings together
mothers and fathers in support of their children, and allows low-income
fathers to not only make a contribution to their family now but also to
get out from under a crushing burden of debt that holds down their
economic future. This is the kind of program that promises well for
future self-reliance of families, and the kind that often are not
funded when resources become unavailable.
Although the Illinois program has partial gap funding through
scarce state general revenue funds, we have an interstate caseload that
could suffer. More than 60,000 of the cases in the Illinois child
support program's caseload have parents who live across the other 49
states, the District of Columbia, and the U.S. territories. Reduced
Federal funding of child support programs in these other jurisdictions
means that thousands of families whom we serve may not receive the
child support they are due and urgently need. Interstate cases are
among the most difficult of cases even without the added difficulties
of working with other states whose lost funding has not been replaced
and who are expected to reduce staff and services as a result.
Additionally, the funding support recently provided here comes at the
expense of other state-funded services. The additional funds provided
to the child support program did not come from additional revenue, but
instead required difficult decisions about funding other programs.
The great importance of the child support program lies not just in
ensuring that families receive the support they are owed, but also in
helping avoid additional costs in other programs. Many of our families
would have to turn to income-support programs if they did not receive
child support. In FY 2006, 17,000 families moved from assistance to
former assistance after beginning to receive child support payments. In
addition to collecting support and reducing state and Federal
expenditures for public assistance, state child support programs
provide children with the emotional support that comes through the
legal establishment of paternity, and provide a range of programs to
promote responsible parenting, including job referral services to low-
income non-custodial parents and programs that promote the involvement
of the non-custodial parent in their children's lives.
The child support enforcement program is a state-Federal
partnership that has demonstrated its value many times over in helping
families achieve and sustain financial well-being and in promoting the
active and responsible involvement of both parents in the lives of
their children, for the long-term benefit of their children.
Investing in a program that helps working families maintain their
budgets and promotes parental involvement is an investment in America
and supports the economic recovery we are all striving to achieve. I
commend the Committee on its work and I urge you to include the
restoration of the funding match for child support incentive funding in
your deliberations.
Statement of Shirley Franklin
I want to thank you for holding a hearing October 29th on economic
recovery, job creation and investment in America's infrastructure. As
you may recall, I attended Speaker Pelosi's Economic Summit earlier
this year to discuss a second economic stimulus package, with my focus
on assistance for cities--including infrastructure funding--which could
create immediate jobs. I commend your continued leadership in
addressing the challenges of our citizens and looking for ways to
expedite our nation's economic recovery.
As Congress debates alternative approaches to stimulating the
economy, I urge you to consider the following perspective of the City
of Atlanta:
Local governments are on the bleeding edge of the
economic crisis facing the nation. The City of Atlanta's 1st
quarter revenues (ending Sept. 30) are down 11% from our
projections in June. And that is likely to be the best quarter
we have this year.
To accommodate this revenue shortfall, we are facing
potentially additional layoffs, having already reduced payroll
by 30% in non-public safety departments earlier this year. New
York, Philadelphia, Phoenix, Chicago, and others have already
announced the elimination of several thousand jobs.
The lack of liquidity in the financial markets is
forcing the suspension of billions of dollars of infrastructure
investments that could otherwise help to offset the struggles
in the private economy. We are estimating that 3,000 jobs are
at risk at Hartsfield Jackson Atlanta International Airport
alone due to an inability to issue bonds in this financial
environment.
With the private sector hemorrhaging jobs, it makes no sense to add
much-needed public sector workers to the ranks of the unemployed. Since
private job creation of any magnitude will take significant time to
take hold, it is imperative that government at all levels maintain
their workforces and continue to deliver much-needed services. With
that goal in mind, we need a comprehensive financial rescue package
that attacks these economic issues across a broad front. We need:
Direct Federal investments in local public
infrastructure that will allow cities to keep their workforce
employed and at the same time begin to carve away at the $1.6
trillion ``infrastructure deficit'' the nation faces. The City
of Atlanta--despite a $4 billion investment in our water/sewer
infrastructure and a $6 billion expansion underway at
Hartsfield-Jackson Atlanta International Airport--faces a $750
million infrastructure deficit. And as the City of Atlanta is
grows, this deficit widens. We have added 100,000 residents in
the last eight years (nearly a 25% increase) and we expect that
growth to continue for the foreseeable future. Based on a
recently completed study of our future transportation needs, we
have identified an additional $2.2 billion in new
infrastructure that the City needs if it is to effectively
accommodate the businesses and residents moving to our City.
Federal dollars directed toward infrastructure would represent
an investment in the long-term productivity of private economy
while at the same time preserve jobs that are at immediate
risk.
Immediate injection of liquidity into the financial
sector--through investment guarantees or other mechanisms--to
jump start the market for public bond issuances. The waiving of
the Alternative Minimum Tax related to airport bonds would be
one effective method for stimulating the market for public
bonds.
Immediate investment of Federal funds into public
safety operations. This might include direct funding for police
and fire personnel (through COPS or Title II types of
allocations).
Immediate injection of Federal funds into job
training and placement programs. It is imperative that people
recently laid off be put back to work as quickly as possible.
Programs such as those provided under the Workforce Act and
other Department of Labor initiatives have been proven
extremely effective in getting people placed in productive
work.
Don't Spend, Invest Instead
The City of Atlanta could create 5,500 jobs in 18 months if Federal
funding for maintenance and repair of essential public works
infrastructure were available. Within 3-5 months we could implement $30
million worth of work and create 300 immediate jobs that would ``seed''
our longer term efforts. There is little question that targeted
investments in public infrastructure will yield the immediate benefit
of significant job creation. Perhaps just as important is the fact that
high-quality public infrastructure drives the growth and productivity
of the private economy. Since in a global economy access to high
quality airports, roads, railways and ports is a critical driver of our
competitiveness, our country's future economic prosperity is directly
related to the level of investment we make in our public
infrastructure. In our short-term efforts to pull our economy out of
recession, we should not miss this opportunity to make investments in
infrastructure that will improve our economic prospects in the long
run.
Bottom line: I urge you and your colleagues to look hard at what is
happening to the municipal governments in your districts. They are
facing the gravest threat to their financial future than in any time in
the last 30 years. We ignore them at our peril. The future prosperity
of this country is tied directly to our ability to provide basic
services and quality infrastructure to our citizens. We are at serious
risk in failing in that most basic public responsibility.
I urge you to support direct investments in our urban centers--
through CDBG grants, Workforce Act funding and other direct support
programs--that will create good jobs in the short term and stimulate
sustainable job creation in the long term. I am eager to work with you
and your colleague members to put in place a public infrastructure
investment strategy that can truly transform our urban landscape and
the future economic prospects of our nation.
Thank you again for your leadership.
CC: Congressman Jack Kingston
Congressman Sanford Bishop
Congressman Lynn Westmoreland
Congressman Hank Johnson
Congressman John Lewis
Congressman Tom Price
Congressman John Linder
Congressman Jim Marshall
Congressman Nathan Deal
Congressman Paul Broun
Congressman Phil Gingrey
Congressman John Barrow
Congressman David Scott
Council President Lisa Borders
Councilmember Carla Smith
Councilmember Kwanza Hall
Councilmember Ivory Lee Young, Jr.
Councilmember Cleta Winslow
Councilmember Natalyn Mosby Archibong
Councilmember Anne Fauver
Councilmember Howard Shook
Councilmember Clair Muller
Councilmember Felicia A. Moore
Councilmember C. T. Martin
Councilmember Jim Maddox
Councilmember Joyce Shepherd
Councilmember Ceasar C. Mitchell
Councilmember Mary Norwood
Councilmember H. Lamar Willis
Statement of Starwood Hotels
Starwood Hotels is grateful to the Committee on Ways and Means for
this opportunity to submit testimony for its hearing on Economic
Recovery, Job Creation, and Investment in America. Starwood is uniquely
situated to understand the impact of the economic downturn on the
hospitality and real estate industries and appreciates the Committee's
interest in considering additional economic stimulus measures to assist
in bringing about an economic recovery. There is no question that both
of these industries have been negatively affected and are in need of
economic stimulus.
We ask the Committee to consider extending the current law five
year capital loss carryforward period from five years to ten years or
longer. The five year carryforward period has been rendered essentially
ineffective as a result of the decline in the markets. In effect,
companies have very few appreciated assets currently with which to
offset capital losses and values may not recover quickly enough for the
losses to be absorbed on a carryforward basis in five years or less.
And the frozen credit markets exacerbate this problem making it even
more difficult for corporation currently to undertake capital
transactions.
There is precedent for this type of extension of a tax benefit. In
the American Jobs Creation Act of 2004 Congress extended the excess
foreign tax credit carryforward period from five to ten years (section
417 of the Act). According to the Joint Committee on Taxation, one of
the reasons Congress felt the extension was warranted was that ``the
purposes of the foreign tax credit would be better served by providing
a larger window within which credits may be used, thereby reducing the
likelihood that credits may expire.'' General Explanation of Tax
Legislation in the 108th Congress, Joint Committee on Taxation p.301
(May 2004).
Congress has acted to help the banking industry by permitting
certain capital losses to be taken as ordinary losses, and in addition
to the proposal set forth above, Congress could permit all gross profit
from homebuilding and timeshare sales to be treated as capital gain at
the taxpayer's election. This proposal would permit taxpayers to elect
to use their capital losses against current timeshare gains with the
effect of providing taxpayers some immediate capital which could be
used to create jobs or expand as the economy itself bottoms out. By
infusing capital in the industry we could help accelerate an eventual
economic recovery.
We urge the Committee to consider these proposals as a stimulus for
an industry that is in a significant downturn. Both proposals would
have the effect of reducing short term tax liabilities and in so doing,
infuse these industries with badly needed capital.
We are eager to work with the Committee on these and other
proposals to help bring about an economic recovery and we understand
that Congressional Leaders have not decided whether to pursue a tax
stimulus approach to the economy. However, given the depth of the
economic downturn and the complexity of the American economy, we
believe that Congress should try a variety of approaches; this is not a
one size fits all economy, and any recovery plan should be diverse.
The real estate and hospitality industries are critical to the
overall well being of the economy, and we hope that the Committee will
recognize this in designing the next package of recovery proposals.
Statement of National Roofing Contractors Association
Mr. Chairman and distinguished members of the committee, the
National Roofing Contractors Association (NRCA) commends you for
holding a hearing entitled ``Economic Recovery, Job Creation, and
Investment in America.'' NRCA greatly appreciates the opportunity to
submit a statement for the hearing record on this important topic.
Introduction
Established in 1886, NRCA is one of the nation's oldest trade
associations and the voice of professional roofing contractors
worldwide. It is an association of roofing, roof deck, and
waterproofing contractors; industry-related associate members,
including manufacturers, distributors, architects, consultants,
engineers, and city, state, and Government agencies; and international
members. NRCA has approximately 4,500 members from all 50 states and 54
countries and is affiliated with 104 local, state, regional and
international roofing contractor associations.
NRCA believes that the roofing industry can play a significant role
in quickly stimulating economic growth and job creation across the
nation. In particular, NRCA believes that current trends toward the
adoption of ``green'' buildings are key drivers of economic growth in
our industry, and we are working to maximize the economic,
environmental and energy conservation benefits of these trends. NRCA
members are in the forefront of developing and installing a wide
variety of green technologies, such as vegetative roofs that have
numerous environmental benefits, ``cool'' roofs that reduce energy
consumption by reflecting sunlight, and roofs that incorporate solar
panels. Further development of green technologies in the roofing
industry will provide opportunities to stimulate economic growth and
job creation, while simultaneously reducing energy consumption and
protecting the environment.
NRCA produces two technical publications aimed at educating roofing
contractors and building owners about the availability and benefits of
green roofing technologies. The NRCA Green Roof Systems Manual provides
technical know-how to contractors on the installation and maintenance
of vegetative roofs, and the NRCA Guidelines for the Design of Energy-
Efficient Roof Systems is written for design professionals who want to
incorporate energy-efficient roofs into their building designs. By
providing these detailed technical publications to roofing contractors
and other industry participants, NRCA hopes to facilitate and
accelerate investment in energy-efficient buildings that provide for a
sustainable environment.
The Roofing Energy Efficiency Tax Act (REETA)
NRCA believes enacting Federal policies that facilitate greater
levels of investment in green technologies will spur economic growth
within the construction industry. To help attain this objective, NRCA
strongly urges Congress to pass the Roofing Energy Efficiency Tax Act
of 2007 (H.R. 4126), bipartisan legislation sponsored by Rep. Bill
Pascrell (D-NJ) and Rep. Ron Lewis (R-KY). REETA amends section 168 of
the Internal Revenue Code to provide a realistic recovery period for
the tax depreciation of commercial roof systems that meet a specific
energy-efficiency standard. This legislation will immediately stimulate
economic growth and job creation in the roofing industry by
accelerating the installation of new energy-efficient, environmentally
beneficial commercial roofing systems. In fact, it is estimated that
REETA will stimulate over $1 billion in economic activity per year and
create nearly 40,000 new ``green'' jobs in the roofing industry.
Between 1981 and 1993, the depreciation recovery schedule for
nonresidential property was increased from 15 years to 39 years in
order to, at least in theory, raise additional revenue for the Federal
treasury. However, the current 39 year depreciation schedule is not a
realistic measure of the average life span of a commercial roof. A
study by Ducker Worldwide, a leading industrial research firm,
determined the average life expectancy of a commercial roof to be 17.5
years.
The large disparity between the current 39-year depreciation
schedule and the average life span of a commercial roof serves as a
significant disincentive for building owners to replace failing roofs.
This disincentive is slowing the adoption of more advanced energy-
efficient and environmentally beneficial roofs, because an owner who
replaces a roof before 39 years have elapsed must carry that roof on
his or her books for tax purposes even though it no longer exists. A
Treasury Department Report to Congress on Depreciation Recovery Periods
and Methods (July, 2000) corroborated this quandary, finding `` . . . a
`cascading' effect, where several roofs are being depreciated at the
same time, even though only one is physically present.'' Given this
situation, many building owners choose to do only piecemeal repairs,
most often with older technology, rather than replace a failing roof in
its entirety with a new, more energy-efficient product. Thus, the
current unrealistic depreciation schedule for commercial roofs serves
as a significant disincentive to new investment in green roofing
systems for commercial buildings across the nation.
REETA would rectify this situation by reducing the tax depreciation
schedule for commercial roof systems from 39 to 20 years for roofs that
meet the energy efficiency requirements of Standard 90.1 of the
American Society of Heating, Refrigerating, and Air Conditioning
Engineers (ASHRAE). Enactment of this legislation will accelerate the
adoption of energy-efficient commercial roof systems by eliminating the
disincentive in the Tax Code for building owners to install such
systems. This will have a positive impact on economy and job creation
by spurring greater demand for energy efficient roofing systems that
meet the ASHRAE 90.1 standard. REETA will also provide environmental
benefits by reducing carbon emissions through enhanced energy
conservation.
According to the Ducker Worldwide study, a more realistic
depreciation schedule for commercial roofs, as provided by REETA, will
have the following positive impacts on the U.S. economy and the
environment:
Add an additional 250 to 300 million square feet of
roofing material installations annually;
Create 40,000 new ``green'' manufacturing and
contracting jobs;
Add $1 billion of taxable annual revenue to the
economy;
Reduce U.S. energy consumption by 13.3 million
kilowatt hours annually;
Cut carbon dioxide emissions by 20 million lbs. per
year; and,
Provide millions in savings to small businesses
through a simpler and more equitable system of taxation and
lower energy costs.
Enactment of REETA also would benefit millions of small business
owners by eliminating or mitigating the ``cascading effect'' of having
to depreciate more than one roof in instances where a roof must be
replaced before the 39-year depreciation schedule has been completed.
This tax simplification feature of REETA for commercial building owners
that install energy efficient roofs is an even greater benefit for
small businesses that own their building.
Given the many economic as well as environmental benefits of REETA,
the legislation enjoys strong support among both business and organized
labor. The bill is supported by the United Union of Roofers,
Waterproofers and Allied Workers, the AFL-CIO's Building and
Construction Trades Department and the Joint Roofing Industry Labor and
Management Committee, as well as numerous organizations in the
construction industry.
Conclusion
Approving the bipartisan REETA legislation is one way that Congress
could take quick action to immediately stimulate the economy while also
enhancing energy conservation and reducing carbon emissions. NRCA
strongly urges the inclusion of H.R. 4126 in any economic stimulus
legislation that Congress considers in the near future and looks
forward to working with members of the committee and other members of
Congress on this issue.
Statement of Transportation For America Coalition
The Transportation For America Coalition (see Attachment A) is
pleased to submit written testimony on the important and related issues
influencing our nation's ability to respond to the current economic
crises in the financial markets and in our communities. Our coalition
represents a broad diversity of national and local organizations
focused on the important need to modernize and maintain our national
transportation infrastructure. We believe that investments in
transportation are critical to the health of the national economy.
When considering investments in transportation infrastructure as
part of an economic recovery package, funding needs to go to
investments that provide immediate economic benefits and ultimately
help Americans compete and thrive in a globalized world. To better
ensure the attainment of these goals, it is critical that language be
included in the stimulus package that directs and prioritizes
infrastructure dollars toward preserving and improving public
transportation, fixing our crumbling bridges and aging highways, and
begins to lay the groundwork for a clean, green recovery. We cannot
afford to simply put more money into a system with poor accountability.
America's transportation system--the network of highways,
railroads, public transportation, bikeways and walkways--serves as the
backbone of our economy, connects our communities, and provides access
to the American Dream of opportunity for all. Unfortunately, that
system today is both broke and broken. The interstates have been built
and need upkeep. Bridges badly need repair. Many Americans--young, old,
rural, and suburban--are stranded without transportation options that
are affordable, efficient, and convenient.
Build for America: Infrastructure Investments for Economic Recovery
Given the context of these challenges to our economy and the
infrastructure that supports it, the Transportation for America
Coalition believes Congress is warranted in looking at transportation
investment as a core strategy for recovery. Such action could put
millions of Americans to work in the near term, while building the
cutting-edge transportation networks we need for the 21st century
economy. However, to succeed, we must follow five core principles for
transportation investment in the modern era:
BUILD TO COMPETE. We must catch and pass competitors
in China and Europe, who are far ahead in building
comprehensive, resilient and sustainable transportation
systems, by modernizing and expanding our rail and transit
networks to reduce oil dependence, connect the metro regions
that are the engines of the modern economy and improve freight
connections.
INVEST FOR A CLEAN, GREEN RECOVERY. Our nation's
clean-energy future will require cleaner vehicles and new
fuels, but it also must include support for the cleanest forms
of transportation--modern public transit, walking and biking--
and for energy-efficient, sustainable development.
FIX IT FIRST. Before building new roads, that will
themselves have to be maintained, we should restore our
crumbling highways, bridges and transit systems and protect the
investments we have made in existing communities.
Stop Wasteful Spending. Although there are many
transportation projects in the ``pipeline'', we must reevaluate
them to eliminate wasteful spending on projects with little
economic return, especially any that could deepen, rather than
relieve, Americans' dependence on oil and gasoline.
SAVE AMERICANS MONEY. We must provide more travel
options that are cheap and efficient, while helping people to
avoid high gas costs and traffic congestion, so that Americans
can spend their money and time in economically productive ways.
We also can save taxpayer dollars by asking the private
developers who reap real estate rewards from new rail stations
and transit lines to contribute toward that service.
Investing according to these principles will pay enormous dividends
for the economy and American households in both the near and long term.
In 2009, Congress will begin work on the authorization of the Federal
surface transportation program, set to expire September 29, 2009. This
will present an opportunity to consider substantial reforms in how we
fund transportation, and what types of investments are in the national
interest.
Congress earlier this summer passed an $8 billion emergency
spending package to fill the current shortfall in the national highway
trust fund, the primary mechanism for funding America's surface
transportation system. Recognition of the need for an $8 billion filler
should serve as a warning of the transportation fiscal crisis to come.
Projections show that the Federal gas tax cannot keep pace with
maintenance needs for highways and transit, much less provide capital
for new investments to modernize and expand the system.
State and local governments also are finding it increasingly
difficult to finance infrastructure. Borrowing costs and the ability to
access private capital are challenging almost every state department of
transportation and hundreds of local governments. Changes on Wall
Street are severely impacting the potential rebuilding and preservation
of Main Street. Strains on the capital market will likely generate more
costly municipal financing and severely constrain bank financing
driving down valuations and reducing the number and size of projects.
The current credit crisis has created a crippling financial situation
for a number of transit agencies. As an example, the collapse of
insurance giant AIG has caused deals between banks and transit agencies
to fall apart, allowing banks to demand billions of dollars from the
agencies.
Transportation Infrastructure Impacts Personal Economic Security
At the same time, American households are feeling the pinch in
their pocketbooks from increasing energy costs and access to few
meaningful alternatives to automobile driving. Car dependency affects
every aspect of family life. Personal economic security is closely
linked to transportation options. On average, transportation accounts
for the second highest annual household expenditure after the rent or
mortgage. In auto-dependent regions such as Atlanta, GA and Detroit,
MI, working families who make less than $50,000 a year now spend more
on transportation than they do on housing. A recent report by the
American Public Transportation Association found that people who use
transit regularly can achieve average savings of $9,499 a year. This is
the equivalent of paying for 75% of a health care policy or a sizable
portion of a home mortgage each year. A 2007 study found that
households living in neighborhoods near a transit station spend 16
percent less on transportation than families who live in auto-oriented
communities.
The set of financing tools for the national transportation system
has barely changed since the 1950s when gas was 20 cents a gallon and
President Eisenhower launched the interstate highway system. We still
rely primarily on the gasoline tax, making ourselves reliant upon oil
consumption even as we take steps to reduce our oil dependence in the
face of threats to our national security and economy. As cars attain
higher MPG ratings and high prices at the pump and reduced economic
activity depress miles driven, gas tax revenues have fallen.
At the same time, the demand on our transportation system and
construction costs have risen dramatically. State departments of
transportation, local governments, businesses who rely on
transportation to ship goods and services, are feeling the resulting
financial pinch. It is also hurting millions of Americans who have
found themselves paying more at the gas pump and the fare box. Even as
transit ridership has hit record levels in recent months, agencies are
being forced to cut service because of rising fuel costs and falling
tax receipts.
On the revenue side, we believe that all options must be on the
table for consideration. First, however, Congress needs to establish a
clear set of National Transportation Objectives to guide our
investments and national transportation policy. Before we can answer
the challenging question of how to finance our system, we need a much
improved statement of purpose and vision for what we are investing in
as a nation. We must also ensure that these investments are being made
wisely, and monitor this by improving reporting on how American
taxpayer dollars are being used at both the state and local levels.
High gas prices can be particularly devastating to those living on
a fixed income who live in neighborhoods where the existing
transportation system fails them. A study of older Americans by AARP in
August 2008 showed that due to high gas prices, 29 percent of
respondents are walking, 16 percent were using transit and 15 percent
are biking instead of driving for some trips. This is despite the fact
that 40 percent said they did not have access to adequate sidewalks, 55
percent do not have access to bike lanes, and 48 percent do not have a
comfortable place to wait for the bus.
The high cost of gas and lack of transportation options forces
Americans to choose between breaking their budget or feeling unsafe on
the roads. Sidewalks, bike lanes and trails are critical components of
any transportation network by creating safe routes to schools, to work,
to shopping and to transit. Including bicycling and walking projects in
the recovery bill will not only create new jobs in the short term but
also contribute to longer term economic recovery and growth.
Include Infrastructure Investments as part of an Economic Recovery
Package
In the short term, the Transportation for America coalition
supports additional infrastructure investments to stimulate an economic
recovery. Including transportation investments in an economic recovery
bill is a tremendous opportunity to get our economy moving again if we
use the funds as a down payment to build a 21st Century transportation
system. Already, transportation is the sixth largest Federal
expenditure. Government, at all levels, spend over $85 billion a year,
yet considerably more annual funding is needed. According to the U.S.
DOT, $94.6 billion is needed annually through 2024 to maintain the
current system and $153.5 billion to upgrade it.
There are many arguments for infrastructure investments as a tool
for stimulating job creation and economic activity. While there may be
debate over the size of the job creation bounce, most economists agree
that infrastructure investments can yield positive employment and
economic impacts.
Economic Recovery Funds Should Not be a Blank Check to State DOTs
Simply sending additional revenues out to state departments of
transportation (DOTs) through traditional formula funding mechanisms,
without a clear congressional mandate of priorities and provisions for
states to report on how these funds were used, is not the route to
take. It poorly serves our national interest. Far better to target
economic recovery dollars to those investments that would reduce the
enormous backlog of needed maintenance and also for rail and rapid bus
projects that could support millions of jobs.
The Federal Highway Administration reports that over $512 billion
(adjusted for inflation) is needed in the next five years to restore
our nation's crumbling bridges, roadways and transit systems. According
to the Association of Civil Engineers, more than 72,000 of the nation's
bridges are structurally deficient. These are infrastructure
investments that can usually be undertaken more quickly than new road
construction and have the potential to yield higher job creation
numbers, because they require less spending on acquiring land and
completing impact studies. One 2004 study by the Surface Transportation
and Policy Partnership of the U.S. DOT job-creation model estimated
that road repair and bridge maintenance create 9 percent more jobs than
construction of new road capacity. Congress should make system
preservation, maintenance and improvement a priority in any
transportation funds it allocates in an economic recovery bill.
Transportation for America believes that we cannot afford to wait
to invest transportation as a way to enable our communities to better
compete and thrive in a global marketplace. Given the credit crisis
affecting almost every community seeking private funds, and tighter
state and local public budgets, Federal support for transportation is
urgently needed in the short term to help preserve current jobs in the
transportation sector, and to make a down payment on new investments
that could put additional people to work building for America.
A recent report by Reconnecting America identified more than $240
billion worth of new transit investments being planned across the
country. Providing additional revenues to expedite some of these
projects could help to reduce financing costs for transit agencies, put
people to work in their construction, and ultimately provide more
transportation choices and economic development opportunities around
new transit lines.
Improvement projects should also include projects that create or
improve access for biking and walking on our roadways. America Bikes
has identified $500 million dollars worth of ready to go bike and
pedestrian projects that will create jobs, as well as improve access
for the millions of Americans who cannot or choose not to drive. These
projects, which are often more labor intensive and less material
intensive, not only increase transportation choices, but also improve
safety for motorists, bicyclists and pedestrians. Many of these
projects could be undertaken as roads are being repaired providing even
greater job creation opportunity from these roadway investments.
As noted by Nobel laureate economist, Paul Krugman, ``The usual
argument against public works as economic stimulus is that they take
too long: by the time you get around to repairing that bridge and
upgrading that rail line, the slump is over and the stimulus isn't
needed. Well, that argument has no force now, since the chances that
this slump will be over anytime soon are virtually nil. So let's get
those projects rolling.''
Our coalition does not support earmarking these funds, but we do
believe that the economic crisis and challenge for transit agencies and
local governments to obtain loans or private bonding could be assisted
through increased funding for the Section 5309, Title 49 program to
fund new ready-to go fixed guideway capital transit projects. A
relatively small portion of the overall Federal transit program funds
new construction--roughly $1.6 billion annually. Over 300 projects are
competing nationally for these funds, and a number of smaller scale bus
rapid transit and streetcar projects could be expedited and jobs
created in construction of these lines, and the manufacturing of
vehicles and equipment. Transportation For America has identified over
$2.4 billion worth of investment in new fixed-guideway transit service
that could put people to work not only in the building of these
projects, but also in the longer term provide new jobs in operating
transit and in associated economic development opportunity around new
transit lines.
To cite just one example of a ready-to-go transportation investment
that could yield job creation and immediate economic impact, the
proposed Portland Streetcar Loop project in Oregon is a $147 million
project that includes $72 million of committed local funds and is
awaiting approval of a $75 million Federal transit construction grant.
If funded, expenditures would commence within weeks of the commitment.
Over 100 new jobs would be created by a new U.S. manufacturer of
streetcars, Oregon Ironworks. There are many other similar examples
from across the country.
In short, the Transportation for America Coalition believes that
for the maximum effect as a stimulus, infrastructure spending for
transportation should be directed toward high-impact investments. We
support efforts by Congress to include infrastructure investments in an
economic recover bill, provided that these investments include the
following:
1. Fixing What's Broken: Highway Repair and Maintenance
To keep our economy functioning smoothly, we need to maintain our
existing infrastructure in good repair. These projects typically do not
require complex and expensive impact analysis or purchase of right-of-
way, and so most funds go directly toward putting people to work. An
economic recovery bill should send clear direction to states that new
money is to be prioritized for repair and preservation needs of the
transportation system, and to investments that connect transportation
networks, improve safety and provide least cost transportation options
like bicycling and walking.
2. Preserving Existing Transit Jobs and Service
Agencies nationwide are faced with severe cutbacks as costs rise
and local tax revenues fall--preserving service will save transit jobs
and won't leave people who depend on transit without a way to get to
work. Preserving current transit jobs is equally important as
investment in new service to create additional economic activity and
should be included in an economic recovery bill.
3. Creating a Clean, Green Infrastructure
Funds for ready-to-go rail projects that can put people to work and
begin building the resilient, 21st-century infrastructure needed to
reduce our oil dependence and get people where they need to go. We
should invest equally in our transportation modes.
$18 billion targeted to fixing crumbling bridges and
preserving the national highway system to help erase the
enormous backlog of ready to go maintenance projects.
$500 million for ready to go bicycling and pedestrian
facilities that connect transportation networks, improve
safety, and provide least cost transportation options.
$1.6 billion in energy assistance operating grants to
assist transit operating grants like those contained in last
month's economic stimulus package to preserve current jobs in
transit and ensure that affordable transit options remain for
those currently served by transit.
$8 billion for improving existing transit
infrastructure, including the purchase of clean energy public
transportation vehicles and retrofitting existing public
transportation vehicles and facilities with green technology to
reduce GHG emissions and save money in the long term.
$2.4 billion for Section 5309, Title 49 program to
fund new ready to go transit capital investment to expand
transit options to more communities and get people building
these new systems.
$500 million for Amtrak and state intercity rail
corridor investments authorized in the recently passed
Passenger Rail Investment and Improvement Act.
Infrastructure financing is in a crisis mode. This crisis is
compounded and paralleled by the larger economic crisis impacting Wall
Street, with profound implications for Main Street. State and local
governments are facing funding challenges not previously witnessed as
capital markets have seized, while debt on bonding and loan agreements
continue to escalate, and previous agreements with institutions like
AIG have unraveled. Federal revenues for transportation are not keeping
pace with inflation, and have also been severely impacted by rising
gasoline costs and changes in travel patterns. Congressional action is
needed to help chart a new, more economically sustainable path for
infrastructure investments to respond to current and future
transportation challenges. America is running on empty and Americans
are ready for a new direction.
Now is not the time to squander money on projects that do not help
save Americans money, free us from oil dependence or create long-term
jobs that are clean and green. Infrastructure investments as part of an
economic recovery package should be viewed as a down payment on putting
people to work quickly to begin creating a 21st Century transportation
system.
Attachment A. Transportation For America Executive Committee Members
The Transportation for America is a broad coalition of housing,
environmental, public health, business, urban planning, transportation,
labor, real estate, local businesses, and other organizations. We're
all seeking to align our national, state, and local transportation
policies with an array of issues like economic opportunity, climate
change, energy security, health, housing and community development. Our
coalition includes over 85 national and local organizations that care
about reforming national transportation to better serve our communities
and economy. For a current list of partners and more information,
please visit our website: www.america.org
Executive Committee member organizations include:
Action! For Regional Equity (Action!)
America Bikes
American Public Health Association (APHA)
Apollo Alliance
LOCUS--Responsible Real Estate Developers and
Investors
National Housing Conference
National Association of City Transportation Officials
(NACTO)
National Association of Realtors
Natural Resources Defense Council
PolicyLink
Reconnecting America
Smart Growth America
Surface Transportation Policy Partnership (STPP)
Transit for Livable Communities (TLC)
US PIRG
Statement of U.S. Chamber of Commerce
The U.S. Chamber of Commerce is the world's largest business
federation, representing more than three million businesses and
organizations of every size, sector and region.
More than 96 percent of the Chamber's members are small businesses
with 100 or fewer employees, 71 percent of which have 10 or fewer
employees. Yet, virtually all of the nation's largest companies are
also active members. We are particularly cognizant of the problems of
smaller businesses, as well as issues facing the business community at
large.
Besides representing a cross-section of the American business
community in terms of number of employees, the Chamber represents a
wide management spectrum by type of business and location. Each major
classification of American business--manufacturing, retailing,
services, construction, wholesaling, and finance--numbers more than
10,000 members. Also, the Chamber has substantial membership in all 50
states.
The Chamber's international reach is substantial as well. We
believe that global interdependence provides an opportunity, not a
threat. In addition to the U.S. Chamber of Commerce's 101 American
Chambers of Commerce abroad, an increasing number of members are
engaged in the export and import of both goods and services and have
ongoing investment activities. The Chamber favors strengthened
international competitiveness and opposes artificial U.S. and foreign
barriers to international business.
Positions on national issues are developed by a cross-section of
Chamber members serving on committees, subcommittees, and task forces.
Currently, some 1,800 business people participate in this process.
The U.S. Chamber of Commerce would like to thank Chairman Rangel,
Ranking Member McCrery, and members of the Committee for the
opportunity to provide a statement for the record. The Chamber
appreciates your efforts to explore ways to spur economic recovery, job
creation, and investment in America--and a key aspect of such a task is
addressing new challenges the economic downturn has presented to the
retirement security of American workers. The U.S. Chamber of Commerce
is the world's largest business federation, representing more than 3
million businesses and organizations of every size, sector, and region.
Many American employers proudly provide their employees with
retirement benefits, including defined benefit plans. While workers
with defined benefit pension benefits do not see the immediate effect
of the current economic climate on their retirement security in the
same way as workers with 401(k) plans, the problems are just as
significant. Moreover, in order to meet the transition requirements for
the new funding rules enacted in the Pension Protection Act of 2006
(the ``PPA''), plan sponsors must contribute unexpectedly large sums
into their plans. This may result in the loss of jobs, reduced
enrollment in plans, and economic instability for plans.
The PPA was a landmark reform effort that required negotiation and
compromise from all interested parties. As such, the rules created
therein must be preserved. However, the drafters of the PPA could not
have foreseen the current credit crisis, and temporary, targeted relief
will go a long way toward helping plan sponsors navigate the crisis and
minimize the negative impact on retirement plans.
As Congress explores ways to help combat the economic downturn,
increase job creation and security, and promote investment in healthy
American companies, we urge the passage of technical corrections that
implement Congressional intent and specific, temporary provisions for
both single employer and multiemployer plans.
Provisions Needed for Single Employer Plans
Permit smoothing of unexpected losses. The PPA
intended pension plans to be permitted to spread unexpected
gains and losses (smooth) over a 24-month period. However, due
to erroneous interpretations by the IRS, plans are effectively
forced to use fair market value, which creates unexpectedly
large funding obligations due to the current economic
situation. Congress should clarify the rule pertaining to
smoothing.
Remove restrictions on the extent of asset smoothing.
The so-called ``smoothing corridor''--the maximum percentage of
fair market value that gains and losses can be smoothed--is
also overly constrictive. The PPA changed the corridor from a
20% to a 10% max. Unfortunately, due to the extreme volatility
of today's markets, even going back to a 20% restriction would
be insufficient relief--Congress should consider loosening the
smoothing corridor even further.
Allow sufficient transition to new funding rules. The
PPA transition rule requires companies to meet the current
funding benchmarks each year in order to take advantage of
measured funding targets, rather than having to aim for 100%
funding. Unfortunately, the market has caused many plans such a
large setback that they will be unable to meet next year's
benchmark, and will thus lose the benefit. We recommend that
the rule be modified to allow the transitional funding
requirements to apply to companies below the current phase-in
level.
Permit new funding election methods to keep plans
viable. Due to IRS rules, companies find it onerous to change
funding methods. However, flexibility in this matter would
greatly aid companies that seek to maintain their plans.
Approval from the IRS should not be required in order to change
funding methods.
Clarify end-of-year valuations. Congress should grant
the Treasury authority to write rules providing that the
adjusted funding target attainment percentage (``AFTAP'') for a
year is based on the funded status as of the end of the
preceding year. Small plans are currently operating with a
great deal of uncertainty as to the date plan assets are valued
for the purposes of applying current year benefit restriction
rules.
Permit fixed interest rate for Code section 415
limits. The current economic situation is causing interest
rates to fluctuate unpredictably. Prior to enactment of the
PPA, plans were permitted to use a fixed interest rate to
calculate lump sum benefits. This included the limit on cash
balance account accumulations. Although the PPA added a
variable rate limitation, higher interest rates will create
lower Code section 415 limits. Therefore, Congress should enact
the 5.5% provision included in PPA technical corrections, and
expand it to all plans.
Provisions Needed for Multiemployer Plans
Extend amortizations of plan gains and losses. Under
current law, plans may amortize gains and losses over a 15-year
period. When ERISA was enacted, liabilities had a 40-year
amortization schedule. Congress should extend the current
period to at least 25 years temporarily, provided that plans
match their gains to their losses.
Allow losses funding zone status to be frozen for a
limited period. If plans were permitted to freeze their current
funding zone certification status, including funding
improvement plans and rehabilitation plans, for a limited
period, perhaps three years, it would greatly contribute to
staving off the job loss and retirement security uncertainty.
Temporarily extend remedial periods. Congress should
consider extending the standard remedial periods for Seriously
Endangered and Critical status plans to 20 and 15 years,
respectively--and provide that each such plan that has a pre-
PPA amortization extension is deemed to meet any requirement of
that extension that is based in whole or part on the value of
plan assets.
Expand IRS smoothing limit. Allow limited recognition
of current market losses and future market gains in plan status
determinations. This necessitates amending the technical rules
to require actuaries to base projections on the actuarial value
of assets as used for plan funding, and temporarily expanding
the IRS-mandated restriction on the extent to which the
smoothed actuarial value of assets can deviate from market
values.
The challenges facing defined benefit plans in the current economic
downturn have progressed beyond a retirement policy issue--this is now
a jobs and economic recovery issue. In order for the economy to make a
sustainable recovery, American companies must be supported and given
tools to make a sustained recovery. Without such tools, employers will
be forced to make difficult decisions between providing benefits,
maintaining and creating jobs, and business investment.
The Chamber looks forward to working with Congress on this and
other initiatives that will help shore up the retirement security of
American workers, and bring about the speediest possible economic
recovery and stabilization.
Statement of William C. Daroff
On behalf of United Jewish Communities, I applaud the efforts of
the Committee on Ways and Means (Committee) to address the economic
downturn, in general, and the impact on state and local government
budget shortfalls, home foreclosures, and long-term unemployment, in
particular. As the economy edges into recession, the economic crisis
has clearly emerged as the top issue for Congress to address. The
Jewish community and the broader nonprofit sector are tremendously
impacted by the economic climate as the need for social services
expands exponentially and philanthropic and state-government funding
streams are reduced. United Jewish Communities (UJC) is the umbrella
organization for 157 Jewish Federations and 400 independent communities
across North America. Our network of federations, hospitals, aging and
assisted living facilities, group homes, family service agencies and
vocational training programs provide a full continuum of care for our
nation's most vulnerable citizens. We encourage you to consider the
following recommendations as the Committee formulates responses to the
state and local government budget shortfalls, home foreclosures, and
long-term unemployment. We submit this statement to the record for the
Committee hearing held on October 29, 2008 on Economic Recovery, Job
Creation and Investment in America.
Boosting the Federal Medical Assistance Percentage Rate for Medicaid
As a nationwide Jewish organization committed to protecting the
most vulnerable in our communities, we urge you to consider a temporary
increase in the Federal Medical Assistance Percentage (``FMAP''), the
funding stream that supports the Medicaid program. This would benefit
each state immediately and is the best kind of fiscal relief to help
avert painful state budget cuts and tax increases. As an engine to
encourage economic recovery, Congress last temporarily increased FMAP
in 2003-04. It pumped needed funds into the economy over a 15 month
period and played a vital role in helping to move us out of recession.
Yet, the measure could have been even more effective had it been
implemented sooner, when that economic downturn began. Earned Income
Tax Credit: Increase Refundable Dollars and Awareness The Earned Income
Tax Credit (EITC) for low-income working individuals and families is a
proven tax policy tool that is especially important in times of
economic turmoil. Since its introduction in 1975, the EITC has been
essential in preventing low-income working families from slipping into
poverty. It reduces the tax burden on low-income workers, supplements
their wages, and assists in the welfare-to-work transition. As state
and local governments struggle during this financial crisis, expansion
in the scope of the Federal EITC will boost the economy at the local
level. Surveys of low-income taxpayers show that most EITC recipients
spend the funds, often the largest payment they receive all year long,
to meet short-term needs such as purchasing clothes for children or
catching up on rent or utility bills. We urge you to expand eligibility
and the size of the EITC. Additional funding is needed to educate
potential beneficiaries of their eligibility for the credit.
Strengthening the Nation's Non-profit Sector through Charitable
Incentives
In addition to restoring and growing funds for various human
service programs, we urge you to enhance charitable tax incentives. In
addition to their primary role of providing critical services,
charities comprise one of the fastest growing sectors of the economy,
representing one of the nation's largest employers as well as large
purchasers and consumers of goods and services. Expenditures in this
arena will help grow the economy out of the recession. Examples of such
charitable giving tax incentives can include: expansion of the current
law IRA charitable rollover to include unlimited gifts to qualified
charities, including donor advised funds; increasing or eliminating the
adjusted gross income limitation on gifts to qualified charities;
extending the carryover period for charitable deductions; increasing
the volunteer auto expense reimbursement amount; providing an above-
the-line deduction for charitable gifts for individuals who do not
itemize, and considering a simplification or elimination of the excise
taxes on private foundations.
Defined Benefit Obligations
We urge the Committee to consider providing relief to nonprofit
organizations that sponsor defined benefit pension plans through an
extension of the transition period to implement the funding obligations
enacted as part of the Pension Protection Act of 2006 (PPA). Such
organizations should be permitted flexibility in choosing funding
election methods as well as allowing for smoothing of unexpected losses
in sponsored defined benefit plans. This relief is essential for
nonprofits that have experienced significant losses in plan balances as
a result of market downturns. Unless such an extension is provided,
nonprofit organizations will be forced to shift substantial financial
resources away from vital community services to meet the new PPA
funding requirements.We are grateful for your consideration of these
recommendations. We feel that they are vital in shoring up America's
social safety net and helping states, localities as well as businesses
and nonprofit organizations recover from economic catastrophe. We
deeply appreciate the desire for Congressional action on these pressing
matters and are glad to answer any questions that the Committee might
have about our suggestions.
Statement of Wisconsin Board of Supervisors
We thank you for this opportunity to address the Committee on
behalf of the citizens of Milwaukee County. Like many people across our
nation, Milwaukeeans are experiencing financial hardship during this
time of national economic instability. Investing in child support is
similar to increasing the Federal contribution to Medicaid, boosting
food stamp benefits and extending unemployment insurance. Therefore,
such an investment should be a key component of legislation aimed at
supporting families who face a tough economy. An inclusion of child
support in the second economic stimulus package would demonstrate that
Washington's interest in preserving this country's financial system is
not limited to the concerns of wealthy investors who work on Wall
Street but extends to families who live on Main Street. The time to
reverse the cuts to child support made by the Deficit Reduction Act
(DRA) of 2004 is now.
You can be assured that dollars invested in child support are well
utilized in Milwaukee County. The Milwaukee County Department of Child
Support operates effectively and efficiently, collecting approximately
$6 of support for every dollar invested. The return of these support
collections to families and children is an effective tool for
increasing family spending power and raising the economic well being of
households. Child support helps families become and remain self-
sufficient while reducing dependency on other Government-funded benefit
programs. These factors are especially important in Milwaukee where the
U.S. Census Bureau estimates one in three children live in poverty.
According to the Congressional Budget Office, the DRA cuts to child
support cost an estimated $1 billion in child support payments for each
year that the cuts remain in effect. Declining child support
collections in Milwaukee County--$1.8 million between 2004 and 2007--
are the direct result of DRA. This reduction in collections is a direct
loss of real dollars to Milwaukee County families. During this economic
downturn, American families who rely on child support cannot afford
these types of losses in household income. Putting families on sound
economic ground should be prioritized because they are the backbone of
this nation's economy. These are the people who will invest their
dollars in our local communities, further supporting an economic turn-
around for all.
Restoring the DRA cuts would help stabilize the Federal, state and
county financial partnership that was envisioned when Congress created
the national child support program. Since the implementation of the
Federal DRA cuts, the Milwaukee County Child Support Office has lost 68
staff. Milwaukee County property taxpayers at the local level simply
cannot fill the hole created by the DRA. On behalf of those we
represent and serve, we urge you to make reinvestment in child support
part of an economic stimulus package.
Thank you for this opportunity to submit this statement for the
record.
Statement of Wisconsin Child Support Enforcement Association
The Wisconsin Child Support Enforcement Association, on behalf of
all 71 Wisconsin county child support agencies, urges you to restore
the Federal funding cuts that were made to the Child Support
Enforcement Program under the 2004 Deficit Reduction Act (DRA).
Putting together an economic stimulus package which includes the
restoration of pre-DRA funding levels for the nation's Child Support
Program is critical, especially now, when America's children and
families have been financially devastated by the country's recent
economic downturn. The impact of the current economic crisis has not
only been felt by corporations and banks on Wall Street, but even more
so by parents and children on Main Street in trying to ``just get by''
as they navigate their family financial struggles each and every day.
According to the Congressional Budget Office, the DRA cuts to
Federal child support funding result in an estimated decrease in child
support collection of $1 billion annually for every year the cuts
remain in effect. The affect of this on the strength, opportunity, and
well-being of our nation's children and families is devastating.
It is important to note that the Child Support Enforcement Program
is charged with establishing legal fatherhood for children outside of
marriage (22,000 new paternity cases for non-marital children in 2007
in Wisconsin alone), as well as establishing and enforcing all child
support obligations (affecting over 400,000 children in Wisconsin in
2007). The program also establishes and enforces the requirement that
parents obtain private health insurance for their children, thereby
reducing reliance on Medicaid, while the collection of child support by
the program reduces reliance on other Federal benefit programs in
addition to Medicaid, specifically Food Stamps, TANF, SSI and Housing.
According to the Urban Institute, for every dollar of child support
that is distributed to families for TANF cases, there is a forty-cent
cost avoidance which benefits the Federal benefit assistance programs.
Nationally, 25 percent of our nation's children are dependent on
child support payments, which, when received, make up 30 percent of an
average poverty-level family's total household income. Investing in
child support enforcement, according to the current Administration, has
returns of $4.73 to families for every dollar invested in the program.
In Wisconsin, approximately $6.00 in child support is collected for
every dollar spent on its child support program.
It has been made clear in the past year that Congressional leaders
have indicated a strong interest in protecting the nation's Child
Support Enforcement Program, as is evidenced by the strong bipartisan
support this year for H.R. 1386, The Child Support Protection Act.
Going forward with a second economic stimulus package as soon as
possible gives Congress the opportunity to demonstrate to America's
families that concerns about the future financial well-being of their
children in this time of great economic uncertainty matter.
As President of the Wisconsin Child Support Enforcement
Association, and on behalf of the 71 county child support agencies who
run Wisconsin's Child Support Enforcement Program, I urge you to make
reinvestment in child support a part of the next economic stimulus
package. There is no question that it is those American families who
have the ability to maintain economic stability within their households
(in part through the assistance of child support), who make up the
backbone of our economy. They are the people who invest their money in
businesses in their local communities, which is the first step in
helping this country out of its current economic crisis.
Thank you for this opportunity to submit this statement for the
record, and thank you for your leadership on this important issue.