[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]


 
   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2012

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS
                              FIRST SESSION
                                ________
       SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT 
                             APPROPRIATIONS
                     JO ANN EMERSON, Missouri, Chair
 RODNEY ALEXANDER, Louisiana        JOSE E. SERRANO, New York
 JO BONNER, Alabama                 BARBARA LEE, California
 MARIO DIAZ-BALART, Florida         PETER J. VISCLOSKY, Indiana
 TOM GRAVES, Georgia                ED PASTOR, Arizona          
 KEVIN YODER, Kansas                
 STEVE WOMACK, Arkansas             

 NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full 
Committee, and Mr. Dicks, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
        John Martens, Winnie Chang, Kelly Shea, and Ariana Sarar,
                           Subcommittee Staff

                                ________

                                 PART 5
                                                                   Page
 U.S. Postal Service Inspector General............................    1
 U.S. Election Assistance Commission..............................   47
 Small Business Administration....................................   83
 Consumer Product Safety Commission...............................  141
 Office of Personnel Management...................................  267

                                   S

                                ________

         Printed for the use of the Committee on Appropriations
                                 Part 5

   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2012


   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2012

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS
                              FIRST SESSION

                                ________

       SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT 
                             APPROPRIATIONS
                     JO ANN EMERSON, Missouri, Chair
 RODNEY ALEXANDER, Louisiana        JOSE E. SERRANO, New York
 JO BONNER, Alabama                 BARBARA LEE, California
 MARIO DIAZ-BALART, Florida         PETER J. VISCLOSKY, Indiana
 TOM GRAVES, Georgia                ED PASTOR, Arizona          
 KEVIN YODER, Kansas                
 STEVE WOMACK, Arkansas             

 NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full 
Committee, and Mr. Dicks, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
        John Martens, Winnie Chang, Kelly Shea, and Ariana Sarar,
                           Subcommittee Staff

                                ________

                                 PART 5
                                                                   Page
 U.S. Postal Service Inspector General............................    1
 U.S. Election Assistance Commission..............................   47
 Small Business Administration....................................   83
 Consumer Product Safety Commission...............................  141
 Office of Personnel Management...................................  267

                                   S

                                ________

                     U.S. GOVERNMENT PRINTING OFFICE
 66-791                     WASHINGTON : 2011

                                  COMMITTEE ON APPROPRIATIONS

                    HAROLD ROGERS, Kentucky, Chairman

 C. W. BILL YOUNG, Florida \1\      NORMAN D. DICKS, Washington
 JERRY LEWIS, California \1\        MARCY KAPTUR, Ohio
 FRANK R. WOLF, Virginia            PETER J. VISCLOSKY, Indiana
 JACK KINGSTON, Georgia             NITA M. LOWEY, New York
 RODNEY P. FRELINGHUYSEN, New JerseyJOSE E. SERRANO, New York
 TOM LATHAM, Iowa                   ROSA L. DeLAURO, Connecticut
 ROBERT B. ADERHOLT, Alabama        JAMES P. MORAN, Virginia
 JO ANN EMERSON, Missouri           JOHN W. OLVER, Massachusetts
 KAY GRANGER, Texas                 ED PASTOR, Arizona
 MICHAEL K. SIMPSON, Idaho          DAVID E. PRICE, North Carolina
 JOHN ABNEY CULBERSON, Texas        MAURICE D. HINCHEY, New York
 ANDER CRENSHAW, Florida            LUCILLE ROYBAL-ALLARD, California
 DENNY REHBERG, Montana             SAM FARR, California
 JOHN R. CARTER, Texas              JESSE L. JACKSON, Jr., Illinois
 RODNEY ALEXANDER, Louisiana        CHAKA FATTAH, Pennsylvania
 KEN CALVERT, California            STEVEN R. ROTHMAN, New Jersey
 JO BONNER, Alabama                 SANFORD D. BISHOP, Jr., Georgia
 STEVEN C. LaTOURETTE, Ohio         BARBARA LEE, California
 TOM COLE, Oklahoma                 ADAM B. SCHIFF, California
 JEFF FLAKE, Arizona                MICHAEL M. HONDA, California
 MARIO DIAZ-BALART, Florida         BETTY McCOLLUM, Minnesota         
 CHARLES W. DENT, Pennsylvania      
 STEVE AUSTRIA, Ohio                
 CYNTHIA M. LUMMIS, Wyoming         
 TOM GRAVES, Georgia                
 KEVIN YODER, Kansas                
 STEVE WOMACK, Arkansas             
 ALAN NUNNELEE, Mississippi         
   
 ----------
 1}}Chairman Emeritus    
                                    
               William B. Inglee, Clerk and Staff Director

                                  (ii)


   FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2012

                              ----------                              

                                         Friday, February 11, 2011.

                 U.S. POSTAL SERVICE INSPECTOR GENERAL 

                                WITNESS

DAVID C. WILLIAMS, INSPECTOR GENERAL
    Mrs. Emerson. We will come to order. And I want to thank 
everybody for being here. Good morning.
    Good morning, Inspector General Williams. Thank you so much 
for being here today. We are happy to have you.
    And I want to welcome my colleagues, our ranking member, 
Joe Serrano, from the Bronx, New York.
    And you haven't been here to hear our repartee about the 
Yankees and the Cardinals. We will refrain from that. We did a 
little bit yesterday. And, actually, I have a Kansas City 
Royals fan down here, but I do have another Cardinals fan, so 
that is pretty nice.
    Mr. Serrano. The Cardinals are still in the league?
    Mrs. Emerson. That is a good one, Joe. We are going to have 
to have running bets on Pujols, all right?
    And Mr. Diaz-Balart.
    So, anyway, thank you so much for being here. And you have 
a tough job, a really tough job. And I know that a lot of my 
colleagues are not familiar with the way that the Postal 
Service works and don't know that it is the largest civilian 
Federal agency, with 599,000 career employees and operating a 
total of about 37,000 facilities nationwide.
    The Postal Service has annual spending expenses of 
approximately $75 billion and, in fiscal year 2010, had an $8.5 
billion deficit.
    With few exceptions, the Postal Service operations are 
self-funded and not in our jurisdiction on the Appropriations 
Committee. We only provide $75 million for mail for the blind 
and people with disabilities and for overseas voting. An 
additional $29 million is provided in our bill for 
reimbursement of insufficient appropriations to the Postal 
Service for fiscal years 1991 through 1993.
    While the committee has limited jurisdiction over the 
Postal Service, it does provide $244 million for the Office of 
the Inspector General, of which $98 million is for audits to 
improve USPS operations and $147 million is for investigations 
into waste, fraud, and abuse.
    With one of the largest inspector general budgets in the 
Federal Government, we do want to understand how you all are 
using your resources. Additionally, with the Postal Service 
facing long-term financial challenges, we also want to know how 
you all are using the resources we give you to improve Postal 
Service operations and identify inefficiencies.
    I look forward to your testimony.
    And, with that, I would like to recognize the 
subcommittee's ranking member, Mr. Serrano, for any opening 
statements you wish to make, Joe.
    Mr. Serrano. Thank you so much.
    I would also like to welcome you, Inspector General David 
C. Williams, to this hearing of the Financial Services and 
General Government Subcommittee. I am looking forward to 
hearing your testimony and having the opportunity to ask 
questions about your ongoing investigations.
    The Postal Service plays, as we all know, a very important 
role in the lives of all of us who are dependent on timely mail 
delivery. I also understand that, because of declining mail 
volume, the Postal Service is now facing a significant 
budgetary shortfall.
    In 2010, the postal OIG published a report addressing 
questions of whether there were possible overpayments made by 
the Postal Service to the Civil Service Retirement System 
pension fund. I look forward to discussing the results of this 
study and other issues with you at today's hearing.
    I also want to mention how pleased I was with the 2009 
report entitled, ``U.S. Postal Service Electrification of 
Delivery Vehicles,'' which concluded that the use of electric 
vehicles would be operationally feasible, but requires a way to 
address the significant front-end cost issue. I will discuss 
this issue with you further during our question period.
    So we thank you for the testimony you are about to give us. 
We thank you for your service. We know that the Postal Service 
is one agency we all want to be supportive of; we just, in all 
honesty, don't know how to deal with this major problem. But 
something will have to be done unless we just wrap it up, and I 
don't see that happening. So it continues to be one of the most 
dramatic challenges that we have around here.
    So, once again, thank you for being before us today.
    Mrs. Emerson. Thank you, Joe.
    I also want to recognize Ms. Barbara Lee from Oakland, 
California.
    Now I will recognize you, Inspector General Williams. If 
you wouldn't mind keeping your statement to 5 minutes so that 
we have as much time as possible for questions and answers. 
Thank you.
    Mr. Williams. Thank you, Madam Chairman, Mr. Serrano, and 
members of the subcommittee.
    The Postal Service's situation is serious. Its leadership 
anticipates running out of money in September. Mail volume has 
dropped by 20 percent since 2006. And the monopoly no longer 
finances universal mail service for the Nation.
    The situation is the product of an oversized postal 
networks, crippling payments for benefit funds, the lingering 
recession, and the disruption of the digital age. Lastly, the 
Postal Service's mission to bind the Nation together through a 
common communication infrastructure is evolving faster than the 
Postal Service can adapt.
    Burdensome and flawed benefit payments have contributed to 
almost 90 percent of the $20 billion loss in the past 4 years. 
This has raised the cost of the infrastructure, postage rates, 
and forced the Postal Service to incur debt. My office has 
produced a series of reports highlighting the exaggerated 
estimates, enormous overcharges, and excessive prefunding 
levels that plague the retiree pension and health-care systems.
    To continue contributing to funds that now appear to exceed 
the 100-percent funding levels is even more egregious when 
compared against benchmarks in the public and private sector 
and OPM's levels. I agree with Senator Susan Collins's call in 
September 2010 for OPM to change, under the current law, its 
calculation of Postal Service CSRS pension fund payments.
    In the near term, the Postal Service and Congress should 
consider halting further payments to benefit funds until the 
surplus is used, funds restructured, and mistakes corrected. 
The Postal Service can use this time to learn how to live below 
or within the Consumer Price Index, shed its debt, and find its 
role in the digital age.
    The Postal Accountability and Enhancement Act incentivizes 
the Postal Service to adopt a leaner, volume-driven 
infrastructure to assure readiness for the 21st century. This 
will require optimization of the network of post offices and 
plants; conversion to evaluated letter carrier routes to allow 
effective management; flexible work rules to match the ebb and 
flow of mail; a comprehensive delivery point strategy that 
maximizes curbside delivery and cluster boxes; simplification 
of mail acceptance and pricing; and evaluating the need for 74 
districts, 7 areas, and 2 law enforcement agencies.
    I mentioned earlier the disruption of the digital age as 
contributing to the Postal Service's instability. The digital 
age and globalization have put America on the cusp of a new 
age. Technological advances have given America low-cost instant 
communications, sophisticated data organization, search 
engines, hyperlinks, impressive mobility, and more.
    However, the twin forces of the digital age and 
globalization grew at an unbridled pace. And as they leave 
their infancy, we see insecure platforms for financial 
transactions, a lengthening trail of American digital refugees, 
lack of confidentiality for communication content, predatory 
practices in the conversion of digital cash to currency, 
patterns of invasive digital profiling by infrastructure 
operators, emerging issues associated with Net neutrality, and 
a shocking loss of privacy.
    These practices and others are unwelcome by many Americans. 
The Nation has not fully explored the respective roles of the 
private sector and governmental entities in addressing these 
issues.
    Additionally, substantial elements of the Nation's 
communications infrastructure have passed from governmental to 
corporate hands. This transition has important positive 
aspects, but such sweeping change suggests the need for 
thoughtful examination to ensure that segments of society are 
not excluded and America's leading edge continues to advance.
    Postal products and technological solutions are imperfect, 
but joining the two together might address some of the 
shortcomings of each and provide a set of solutions and serve 
as a bridge to the 21st century.
    I have outlined the need for substantial change to increase 
the readiness and recognize the Postal Service's role in 
positioning America in the communications revolution. The 
engine for this transformation is innovation, and the Postal 
Service needs to strengthen its systems for innovation. 
Innovators collaborate with customers, take risks, make 
mistakes; stop failures quickly and replicate successes. The 
Postal Service's success depends on embracing this environment.
    Federal financial raids on the Postal Service have to be 
halted; and the Postal Service should be taken back off-budget 
as originally designed, and the benefit funds restructured. We 
will need strong collaborative efforts to enable the Postal 
Service to serve Americans in the 21st century.
    Thank you, Madam Chairman.
    [The information follows:]

    [GRAPHIC] [TIFF OMITTED] T6791A.001
    
    [GRAPHIC] [TIFF OMITTED] T6791A.002
    
    [GRAPHIC] [TIFF OMITTED] T6791A.003
    
    [GRAPHIC] [TIFF OMITTED] T6791A.004
    
    [GRAPHIC] [TIFF OMITTED] T6791A.005
    
    [GRAPHIC] [TIFF OMITTED] T6791A.006
    
    Mrs. Emerson. Thanks so much, Mr. Williams.
    There are lots of questions to ask and lots of different 
areas to cover, but let me start with an easy one, perhaps an 
easy one, at the beginning.
    As you are well aware, we are doing our very, very best to 
find ways to reduce Federal spending. And we have to, in our 
Financial Services and General Government Subcommittee, at 
least try to get our numbers back to 2008 fiscal year levels.
    Your Office of Inspector General is the largest civilian IG 
office and has the largest budget, at $244 million. So, have 
you all actually scrubbed your budget to identify savings and 
efficiencies that we will see in the next round, in the 2012 
budget proposal?
    Mr. Williams. We have in the past, and I promise you that 
we will in the future. And if I may, I will give you a couple 
of highlights.
    Cuts to our office have not begun recently. It is something 
we have taken seriously from when I stepped on the property. We 
have never had a budget that matched inflation; it has always 
been lower than inflation.
    In 2006, we took over enormous new jurisdiction from the 
Inspection Service. Seven hundred people were supposed to 
travel with that. We left 387 on the table for savings to the 
Postal Service and tried it with a much smaller number, and it 
has succeeded so far. We have been able to pick up the slack on 
that.
    In 2008, we cut $5 million; in 2009, $10 million. And then 
last year, we cut 60 more positions, and that had $8 million 
associated with it.
    Probably the thing that is coming up next, and I alluded to 
in the testimony, was whether or not the two law enforcement 
agencies should come together. That would eclipse all of the 
savings that have occurred in the past.
    Mrs. Emerson. Why don't you describe for my colleagues, 
some of whom are new to this subcommittee, precisely what those 
two law enforcement agencies do.
    Mr. Williams. The postal IG is targeted toward internal 
kinds of problems at the Postal Service. Our largest areas of 
investigation, for instance, that takes the bulk of the 
resources, as you pointed out in your opening statement. 
Embezzlement and financial fraud and health-care fraud, both on 
the part of claimants but also on the part of providers, which 
is big business at the Postal Service. Mail theft, 
unfortunately, is something where we need to have a nationwide 
presence to combat.
    And contract fraud has been--we have delivered some of the 
largest cases in the Federal Government in the area of contract 
fraud because of the huge portfolio that the Postal Service 
has. We do about $13 billion of new business every year, and 
the ongoing portfolio is closer to $50 billion.
    The Inspection Service looks outward, and they look more at 
the victimization of people by fraudsters that are using the 
mail in order to complete the fraud. And they also look at mail 
theft not done by postal employees or postal contractors but by 
criminal groups in the neighborhoods.
    So they are more focused outward, we are more focused upon 
the Postal Service.
    Mrs. Emerson. So, do you think it is possible to merge 
these and perhaps do more with less?
    Mr. Williams. What I see in terms of--the early experiment, 
the one where we lost all those hundreds of people and still 
maintained a level of service, gives me hope. We are trying to 
migrate more toward automation and data-mining and the kinds of 
things that make the investigations shorter and richer. So I am 
hopeful that there is still more out there for that.
    I think that having two law enforcement agencies in a 
department whose mission is not law enforcement is, in my mind, 
a little unusual. I was also the inspector general at the 
Treasury Tax Administration. And there, the law enforcement 
agency, the Inspection Service there, became the IG. So that, I 
have to say, is in my mind, that it is a possibility for 
achieving economies and efficiencies.
    We do have two sets of offices and of the managers and of 
mission support functions that could be made more lean. And we 
could focus a bit more resources on postal-related matters. 
Some of the mail frauds tend to stray a bit from the mission of 
the Postal Service. We could curtail those.
    Mrs. Emerson. Okay. I appreciate that. And this is a 
portfolio that most people wouldn't anticipate that comes 
underneath you. So that is why I wanted you to explain it. And 
I really do appreciate it.
    So then, as part of your mission, how are you using your 
resources, to identify waste and fraud and abuse in the Postal 
Service? And you were very general about the types of crimes 
and fraud that you all are encountering, but give us a few more 
examples of that.
    So, two separate questions.
    Mr. Williams. Thanks.
    One large area for the auditors is the preparation of the 
financial statement. We work with Ernst & Young to do that. We 
provide most of the fieldwork, and then they examine that and 
come up with an opinion. So we end up doing the lion's share of 
the hours that are expended, which is a good deal for them, the 
government. We are far less expensive.
    It is an unusual financial statement, too. For most 
departments, it is just the execution of the budget, but we are 
watching the money come in as well as go out. So it is a large 
effort.
    We have aligned the rest of the audit resources to each of 
the major enterprises of the Postal Service, whether it is the 
delivery of the mission and the plants and post offices and 
delivery, or mission support, such as engineering the new 
automated tools that are coming in.
    So we have those aligned--we have fairly small audit teams 
aligned to each of those that are normally headed by a postal 
vice president. And that has been very useful. They undergo the 
learning curve. And they have it when they walk into the audit; 
they can begin quickly.
    On the investigative side, we have to have a nationwide 
presence. You mentioned the 37,000 locations. So the auditors 
can be aligned to the issues, but the investigators have to be 
geographically aligned to where the crimes are occurring, the 
space in which the crimes are occurring.
    In the contract area, which has been very large, we have 
done a number of investigations that have focused on--a 
particularly vulnerable area is a multitude of transportation 
contracts with small firms. There has been a lot of dishonesty 
that we have discerned.
    Mrs. Emerson. These are third-party contractors instead of 
Postal Service employees who deliver mail from point to point 
to point?
    Mr. Williams. Yes, ma'am. They move the mail across the 
country, and then the postal workers largely take over once it 
arrives for local distribution.
    Mrs. Emerson. And that would either be--well, I guess it 
could be by rail, by plane, by truck?
    Mr. Williams. Increasingly, it has been migrating more and 
more to truck. And I think there are some concerns on the 
homeland-security side with regard to air cargo, including 
mail. So there has been a fairly substantial migration to 
trucks.
    Also, trains tend not to go to where we have the mail 
distribution places. So trucking is a very attractive 
alternative.
    Mrs. Emerson. Don't you share resources with Federal 
Express, though, in a lot of the delivery? I mean, as a matter 
of fact, in my district, I have a person who owns, a regional 
air carrier, I guess you would call it, who works for FedEx, 
but they actually carry USPS mail.
    Mr. Williams. Much of what remains in the air, we have 
worked with FedEx and others to transport that. They are in the 
air cargo business as opposed to passenger, which is much less 
of a concern for the area of terrorism.
    Mrs. Emerson. Okay. Thanks.
    Mr. Serrano.
    Mr. Serrano. Thank you.
    Can you take a moment to explain to us in some detail how 
you reached the conclusion that there was $75 billion of 
overpayment by the Postal Service to the Civil Service 
Retirement System pension fund and your thoughts on how this 
can best be resolved?
    And, secondly, this is clearly a complicated issue with 
huge budgetary impacts on both sides. In the current economic 
environment, what is your advice for getting this matter 
resolved?
    Mr. Williams. Thank you, sir.
    We began studying the funds early on after my arrival, and 
we began to see things that didn't make sense. One of them was 
the moment in which the Postal Service received its own health 
funds and own pension funds.
    They were shifted over in 1970 and 1971. At that point, the 
Office of Personnel Management said that, ``In the future, you 
ought to collect these fees. We will pay for everything in the 
past; you pay for everything in the future.''
    What we discovered had happened is that, in 1971, when that 
began, the exact same contribution began to be made. But OPM 
decided that they would pay--your final pension is a product of 
the number of years you work and your final salary. They 
decided that they were going to cut off that salary at the 1970 
levels instead of the retirement levels.
    Now, they were collecting fees in order to pay at the final 
salary, so there was a huge windfall from them when they 
stopped. We began looking at that and realized, for example, if 
someone worked 15 years for the Postal Service and 15 years for 
the Federal Government, the Postal Service would pay 70 percent 
of the retirement and the Federal Government only 30 percent. 
Obviously, that ought to have been 50-50 given the provisions 
of the plan.
    So we looked at that and issued that report. And we worked 
with actuarial firms for that expertise.
    The Postal Regulatory Commission came in and looked at it a 
second time, working closely with the committees on the Hill. 
They came up with a very similar conclusion, that that ought 
not to have occurred. OPM collected a full contribution and 
only paid a partial benefit. That, over those years, resulted 
in a $75 billion overpayment.
    I think it is going to be difficult to know how best to 
return those funds where they ought to have been. It is 
commingled Postal money and people's private money. But what I 
would recommend is that the money be used--until the surplus is 
gone--and there is a large surplus--they be used to make our 
annual payments until they are gone. That would result in 
relief to the Postal Service----
    Mr. Serrano. And the annual payments are how much?
    Mr. Williams. The annual payments, all together, are over 
$10 billion. So that would pay that entire amount for some 
years.
    That $75 billion is the largest of the segments, but there 
are other segments of overpayments that have occurred. And 
they----
    Mr. Serrano. By the Postal Service or by other agencies?
    Mr. Williams. By the Postal Service. For instance, our FERS 
is overpaid by $6.8 billion. And we really need to stop doing 
that. It is causing the infrastructure that is intended for 
businesses and people to be clogged up with extra expenses.
    Mr. Serrano. Mr. Williams, to your knowledge--and I know 
that you are here to answer questions about the Postal Service, 
but, to your knowledge, have other agencies overpaid, other 
departments in the Federal Government?
    Mr. Williams. We took a look in the FERS area, which is the 
one I mentioned, the new retirement system that we have 
overpaid in, and it appears as though they collected exactly 
the right amount of money. And we have been unable to solve the 
mystery of how it is that we overpaid and others paid about the 
right amount.
    Mr. Serrano. And yet, if we were to, say, arrange the fair 
thing, which is return that $75 billion, or use it at this rate 
to pay dues, if you will, the premiums for the next 10 years, 
it would probably then break the system, because other people 
are living on that, I mean, so to speak.
    Mr. Williams. Both systems were intended to ride 
separately, primarily because, at the moment that they did it, 
the administration was fearful that the Postal Service would be 
using Federal employees' money.
    Mr. Serrano. Right.
    Mr. Williams. It turns out that that is not the case. 
Actually, the reverse is more the danger today.
    They are not supposed to be commingled. They are both 
supposed to stand alone and be collecting and expending 
responsible amounts. The Federal side, something is going on 
there, and I think the IG over there is studying it now. But it 
ought not to be commingled with this other fund. It was set up 
so that it not be commingled.
    Mr. Serrano. Right.
    I have one more question, Madam Chair, in this round.
    Without significant intervention, the Postal Service will 
hit its statutory borrowing ceiling of $15 billion and will not 
be able to borrow or pay this year's contributions to the 
Retiree Health Benefit Fund.
    What is the impact this September 30th of this impending 
insolvency? I mean, we keep talking about doomsday, but what 
will doomsday really look like? Do they have to close shop?
    Mr. Williams. We are anxious to see what that looks like 
ourselves. No one has ever experienced it before.
    But come September, when we make those payments to funds 
that appear to be overfunded, we won't just be at zero, we will 
be in the hole by $2.7 billion. And all of the money will have 
been borrowed. So it becomes very serious at that point.
    I think discussions have occurred and probably need to 
occur with regard to whether to make those payments or not. If 
they are not made, it will allow time to resolve the issue. If 
they are made, it gets very serious.
    I am sure that the Postal Service will try to pay its 
people for as long as possible, but payments to vendors--and, 
predictably, if you look at other companies, payments to 
vendors begin to get stretched out and all sorts of measures 
begin to occur once that level of catastrophe occurs.
    Mr. Serrano. Thank you.
    Mr. Williams. Yes, sir.
    Mrs. Emerson. I am sure we are going to have lots more 
questions about this, Mr. Williams.
    I am going to call on Mr. Womack to start the next round.
    Mr. Womack. Thank you, Madam Chairwoman.
    And thank you, Mr. Inspector General, not only for your 
service to the Postal Service, but the litany of other high-
ranking, high-achieving positions that you have held, including 
service to our country through the United States Army. So thank 
you very much for your service to our country.
    Mr. Williams. Thank you.
    Mr. Womack. And I may have some other questions later, but 
there are a number of things that rush through my mind when we 
are talking about the fiscal condition that you articulate. And 
I suppose that, at that 30,000-foot level, I think of the 
impact of this new technological age on, say, the use of 
landline telephone service and how it is diminishing over time 
with cell phone usage. And I look at the impact of the media, 
the new technology on a lot of other issues. And, certainly, I 
believe that this technological impact is showing up in your 
business, as well.
    Maybe this question is more appropriate for Mr. Donahoe or 
another person in the administrative chain of command, but what 
are we doing to get ahead of change so that--it is almost like 
we are fighting old age. You can fight it and you can fight it 
and you can fight it, but at end of the day it is going to 
happen.
    So what are we doing to get out ahead of change so that we 
can reverse the trend that not only plagues the U.S. Postal 
Service but also plagues every other agency in the United 
States Government?
    Mr. Williams. That is probably the area that I care most 
about and I am most excited about.
    There has been a hesitancy, and it has been a good bias on 
the part of the government, not to interfere with the 
technological advance, the march of advance through things. And 
it has been tremendously disruptive but also tremendously 
promising and exciting.
    I can't answer for all those other enterprises. I know a 
lot of industries have been devastated and changed and evolved. 
With regard to the Postal Service, though, as I said, I think 
there are--we need to understand this. And we need to become 
part of that. It is not the enemy. The future is not our enemy. 
But it is misunderstood. And it has been disruptive to date.
    I think there are a lot of things we can do to develop a 
symbiotic relationship between digital technology and physical 
networks and infrastructure of the Postal Service and of 
others. We need to explore that, though. And we have been 
standing back for fear of inflicting harm on--and that is a 
good bias to have. But, at this point, somebody needs to begin 
to study, what is the role of the Federal Government in looking 
out for Americans? We can sort of figure out where it is headed 
now, and we need to do something about it.
    At the Postal Service, we haven't been very good with 
innovation. Our customers have some great ideas, and people 
that are in the digital business have some great ideas. We need 
to sit with them, and we need to make space for innovation. It 
has been very difficult for someone with an idea to come to the 
Postal Service. They have been rejected. And if they can 
somehow get in the system, it has been lost. We need to make 
space for innovation.
    And we need to imagine how best--I can give you a couple of 
examples--how best to work with the digital age to make--this 
really isn't about whether the Postal Service survives. It only 
matters what America needs. And I think they have some needs in 
the digital age. I mentioned a few of the problems. We can 
address some of those at the Postal Service, if we will engage 
with them.
    Debt collection would be an easy one. Debt collection is 
very time-sensitive. If you don't collect it in the first 100 
days, you may not collect that debt. Bills are being sent out 
digitally. It would be a good strategy if someone would 
understand that the best combination, the most effective, is to 
send out a bill digitally, and if there was a delay in the 
payment, to send it out by letter. Because we know that is 
much, much more effective than digital billing, in terms of 
causing debt to be paid.
    Hybrid mail, where you send it digitally to the point of 
delivery rather than transport it, with all of the problems 
associated with that, and have it printed and delivered locally 
would save so much and be so good for the United States.
    This is not quite that, but right now we have--we made a 
decision a long time ago that every train would not have its 
own railroad tracks in the United States. There would be a set 
of railroad tracks, and it would do so much good. We probably 
should consider last-mile delivery as a decision like that, 
where all of the deliveries go on a single truck. We shouldn't 
be taking huge trucks into every neighborhood of the United 
States every day. It is dangerous, it is wasteful, and it 
serves no end.
    So there is a lot that can be done. There is nothing more 
exciting than what is coming at us. But we haven't been ready 
for it, and we need to suddenly become ready for it. Our entire 
organization is set up for physical mail. We need to make some 
space for the arrival of the digital age. It is late, but it 
isn't serious if we will do it.
    Mr. Womack. My other question is related to the people 
nature of your business. Obviously, with--I think the number is 
590,000, almost 600,000 employees, it is an extremely expensive 
enterprise, from a people perspective.
    And this question may, indeed, show my ignorance on the 
subject, and if that is the case, then so be it. But my 
experience has been, when an organization that has a lot of 
people, particularly those that are represented in collective 
bargaining agreements, begins to hemorrhage, that there are 
renegotiations or discussions about benefits.
    And I have always held the position that, boy, it is best 
to have a job, as opposed to trying to maintain some level of 
benefit that you are used to having, and to run the risk on 
losing that job as a result of some kind of default or fiscal 
peril.
    Are we renegotiating some of our benefit programs, and are 
we appealing to the people in your organization to help us 
achieve some of the solutions that go right to the heart of our 
fiscal gap, if you will?
    Mr. Williams. Currently and next year, the labor contracts 
are being negotiated. It would be a very unusual role for me to 
enter into that picture, and I have not done so. But I know 
that there are some exciting ideas being brought to the table 
by the unions and by management.
    With regard to making the infrastructure smaller, that has 
been a huge part of the recent past. We have 112,000 fewer 
employees than we did a couple of years ago. Eleven billion 
dollars has been cut out of the budget.
    And I would say much more of that--we are poised to engage 
in a lot more of that, where we make sure that the plants are 
carefully aligned to volume and the post offices are carefully 
aligned to demand within the post offices. We know that if you 
do that, we are too large. And I know that there is aggressive 
planning under way to right-size that, to make that a lighter, 
leaner infrastructure.
    And I know that that is probably going to be the most 
dramatic, visible sign of Postal Service action on that front. 
But I know the labor leaders. One of the gentlemen is here 
today. And I know that they care a lot about this, and they are 
committed to giving the Postal Service and the American public 
the very best they can.
    Mr. Womack. Well, later this month, I will attend a hearing 
in Fort Smith, Arkansas, regarding the consolidation of mail-
sorting operations to another area. And it becomes a major turf 
battle. And that concerns me, that we should applaud an 
organization that looks for efficient ways of doing the same 
amount of work with perhaps fewer people so long as you do not 
disrupt the timeliness of delivery or some of the guarantees. 
And I know the Postal Service has certain guarantees for 
overnight delivery, this sort of thing.
    So I truly appreciate and respect those. But I do worry 
about the turf battles that we seem to want to fight every time 
we try to consolidate and become a more efficient organization, 
which I believe gives government the bad name.
    Mr. Williams. Thanks.
    That has been difficult. And that is a very human instinct. 
This isn't about good people and bad people. I think that those 
interests need to be expressed and put on the table. But we do 
need to go forward, and we haven't always done that, with the 
action that is best for the American people.
    I know that people locally feel very strongly, but you are 
absolutely right, that, to some degree, we have to be resistant 
to anything other than serving the Americans. And that is going 
to call for some tough decisions with regard to consolidations 
and creating the proper structure and the right-sized 
structure.
    Mr. Womack. Thank you for your response.
    And, Madam Chairwoman, I may have additional questions, but 
I yield back. Thank you.
    Mrs. Emerson. Thanks, Mr. Womack.
    Ms. Lee.
    Ms. Lee. Thank you very much, Madam Chair.
    Good morning.
    Mr. Williams. Good morning.
    Ms. Lee. First, let me just say, my grandfather was the 
first African American letter carrier in El Paso, Texas. This, 
of course--I saw pictures of him--this was before my time, I 
mean, when he was carrying mail by horseback. And he was----
    Mrs. Emerson. The Pony Express days.
    Ms. Lee. Pony Express, yeah. And he spoke fluent Spanish.
    And I remember--of course, when I was born, he was retired. 
But I remember his retirement checks coming. And I remember how 
happy we were, I think it was the first of the month, once a 
month--I don't know how often they come now--because that 
retirement check helped take care of our family. And so, I 
shudder to think of what would happen or what could happen if 
the health and pension benefits somehow get stuck in this mess, 
the budget mess.
    And so I hope that at the top of your priorities, the top 
of all of our priorities is to make sure that pensions are 
preserved, health benefits are preserved, and that people get 
their due when they retire.
    Having said that, let me say a couple of things. One is, 
tough decisions are going to have to be made, but I certainly 
hope we don't talk about cutting back hours and cutting back 
staff. Given the economic crisis and the job crisis we have, we 
need to keep that really, I think, off of the table.
    You know, and as we move into--and I know we are behind in 
terms of the digital age, but--and I think about grocery stores 
now. As we move into this new age of technology, you know, they 
have now the computerized checkouts.
    Mr. Williams. Right.
    Ms. Lee. Well, I refuse to do that, because I know that is 
a job or two or three that is gone. And so, as we talk about 
computerizing and coming up into the 21st century, I think we 
have to make sure there is that balance and that we don't get 
to the point where we are wiping out all of our postal workers 
and employees because we have so embraced technology that 
people don't matter anymore.
    And so, I know that is a delicate balance, and I know we 
have to get to where we need to get in terms of technology. But 
I hope there are other ways to do that than to shortchange, you 
know, our postal workers and our letter carriers and our 
employees.
    I wanted to ask you about--well, first of all, stamps keep 
going up, the cost of stamps. I mean, I still go to the post 
office and I buy stamps, because I want to make sure I support 
the Postal Service. But I think the public wonders and I am 
wondering every time I am in the post office, how in the world 
are we----
    Mrs. Emerson. Would the gentlewoman yield?
    You should buy Forever Stamps. Then they stay forever at 44 
cents.
    Ms. Lee. But I am trying to support the Postal Service, 
though, so a few more pennies I am willing to pay.
    But I think the public is going to get to that point, where 
they are going to say, we keep paying more and more and more 
for stamps, and we keep hearing all of these stories about the 
budget deficit and the budget crisis at the Postal Service. So, 
somehow you all are going to have to figure out how to let the 
public know what is really going on as the price of stamps 
continues to rise.
    And so let me ask you about how you see preserving, though, 
as we move forward, postal services for the most vulnerable 
populations. There is still a huge digital divide in our 
country. And we can't forget about these people, because these 
people who don't have computers, many senior citizens, you 
know, many low-income individuals, many people in communities 
of color, they just haven't had the resources yet--schools 
haven't been able to catch up.
    Mr. Williams. Right.
    Ms. Lee. So how does the Postal Service intend to preserve 
the valuable services for communities based on what we now are 
witnessing in terms of the digital divide?
    And then my second question is, in terms of minority 
vendors and minority contractors, how are you doing? Do you 
have a plan? I know Congressman Fattah had requested a 
diversity plan, in terms of the advertising contracts as it 
relates to minority subcontracting opportunities. I know you do 
a lot of that. And I would like to get some information on how 
you are doing in terms of contracting with companies--African 
American, Latino, and Asian Pacific American companies.
    Mr. Williams. I am sorry, I just had a senior moment, I 
think. Can you give me the first question again?
    Ms. Lee. Regarding the digital divide.
    Mr. Williams. Thanks.
    Ms. Lee. How are you going to preserve services for the 
most vulnerable populations, who are still stuck with the 
problems around the digital divide?
    Mr. Williams. Thanks.
    I think the Postal Service might be best situated. Today, I 
do worry about people in small towns and rural areas and also 
in large cities, in neighborhoods that are underserved by banks 
and by digital kinds of services. I think the Postal Service 
might be the best hope for making--well, I am sorry, I worry 
about them today. Tomorrow I worry about a much larger group of 
people. We are not sure where this is all headed.
    But the Postal Service's primary mission of binding the 
Nation together and remaining inclusive and making sure nobody 
is left behind is going to become very, very important. It has 
always been important, but I think it is going to be crucially 
important.
    Increasingly, I think people in service jobs and at the 
lower end of the income spectrum are going to be paid with 
value-stored cards. There is not capacity, particularly in 
those areas, rural and urban areas, for turning those into 
cash. I would love to see the Postal Service expand its current 
money-order enterprise in order to make banking available to 
people that have no banking.
    I also think that it is important that we remain----
    Ms. Lee. As long as we don't charge 20 or 30 percent like 
payday loan scam artists do.
    Mr. Williams. In my statement, I alluded to predatory 
practices that are seen now. I think those are going to 
seriously expand if something is not being done. If there was 
an alternative and we were that alternative, that would serve--
efficient market forces would cause that kind of predatory 
practice to disappear.
    With regard to multichannel communications, I think, as the 
digital age begins to shut down and darken the possibility of 
receiving your bills in the mail and so forth, it becomes 
important for the Postal Service to be there to make sure that 
people have choice, and also, particularly where their choices 
are limited, that we are there for them.
    And so I think we are about--I hope we have always been 
important, but I think we are about to serve a very important 
role with that lengthening trail of digital refugees. It is 
just in its infancy. We don't know where it is going. And I 
love the leading edge, but I care about the people that are 
left behind. And that could be something that we are important 
in helping.
    Ms. Lee. And minority contracting?
    Mr. Williams. Minority contracting, I know that the Postal 
Service is not subject to either small business or minority 
contracting. I know that voluntarily they have turned to that, 
they have adopted some of the practices that the departments 
have with regard to attention on that.
    I know that they have a fairly good record, certainly with 
regard to the other departments, with regard to our hiring and 
promotion practices. We focus mostly on that. The----
    Ms. Lee. But you spend a lot of money in advertising.
    Mr. Williams. Yes, there is. There is a tremendous amount. 
And it hasn't always been a competitive process. So there is 
progress that ought to be done there.
    If we may, so that we understand better, we would like to 
come and meet with your staff, and we will engage in a body of 
work that focuses on your question. I have to admit that it 
hasn't been an area where I have gained a lot of knowledge. It 
is also possible someone in my office knows more about it than 
I do, and we will send you a note. But I have a feeling that 
what we really ought to do is a body of work for you. And, if 
we may, we will contact your staff.
    Ms. Lee. Okay. I would love to work with you on that. And 
thank you very much. Good to meet you.
    Mr. Williams. Yes, ma'am. Good to meet you, too.
    Mrs. Emerson. Thanks.
    Mr. Yoder.
    Mr. Yoder. Thank you, Madam Chairman. I appreciate the 
opportunity to have a chance to have this conversation with the 
inspector general.
    I do want to note, Madam Chair, that I was just sitting 
here for a second reminding myself of 1985 and the World 
Series. If you will recall, the Kansas City Royals and the St. 
Louis Cardinals played a seven-game series. And I don't quite 
remember the outcome----
    Mrs. Emerson. I was going to say, how old were you?
    Mr. Yoder. I don't quite remember the outcome, but I 
wondered if the chair could remind the committee what the 
result was.
    Mrs. Emerson. I know. I do have a husband who is from 
Kansas City, so I hear it all the time. Yes, the Cardinals 
lost, and barely lost, but that is beside the point.
    Mr. Yoder. Thanks for reminding us of that, Madam Chair.
    Mr. Serrano. That is one way of making money, if you do a 
stamp for the Kansas City Royals.
    Mr. Yoder. There you go. We will do it.
    Sir, I appreciate your comments and your testimony today. 
And I have been listening to the dialogue from the members of 
the committee. And I take particular note of the debt that the 
Postal Service is under. And it appears, in 2010, there is a 
deficit of $8.5 billion.
    I guess I would like a little bit more information on how 
this deficit--how it works, what the process is, what the 
accumulation is, is there an overall debt that is accumulated 
over time, what the procedure is for having that paid back, and 
who is ultimately liable for that debt----
    Mr. Williams. Yes, sir.
    Mr. Yoder [continuing]. As we go forward.
    Mr. Williams. In a word, the entire debt was accumulated 
because of the mischarges made against the Postal Service to 
its benefit funds. I believe 90 percent of the $20 billion came 
directly from having to pay those funds, which were not owed.
    Here is how the debt accumulated. It began in earnest in 
2008, where we went $2.8 billion; in 2009, $3.7 billion under; 
2010 was the worst, $8.5 billion. And we are looking at a 
shortfall of $6.4 billion this year. Our payments into that 
fund are $10 billion, so I think you can see how I got there.
    It is important to try to maintain some sort of a 
liquidity, as well. The Postal Service's aim is to try to have 
30-day liquidity, which is $7 billion. The leading experts--and 
J.P. Morgan did a great study on this--is about 50 days. So it 
is quite modest. We haven't had that for a while, and it is 
going to get very serious.
    We have a lending limit of $15 billion. We are going to hit 
that. We are over $13 billion now, and during the year we are 
going to hit the max. We can legally borrow no more money.
    If somehow you closed your eyes and opened them on a Postal 
Service that was gone, we would easily be able to pay that 
back. In fully depreciated property, we have $20 billion. So 
the money is not at risk, but it is very, very serious with 
regard to continuing the operation as a going concern.
    Mr. Yoder. Well, how does it get paid back going forward? 
We are not going to liquidate all the property of the Postal 
Service.
    Mr. Williams. No, no.
    Mr. Yoder. So, clearly, it is secured by those assets. But 
how do those last few years actually get paid back? Are you 
looking for congressional legislation that would fix the 
overpayment of benefits? Is that what we need to do here?
    Mr. Williams. There are a number of pieces of legislation, 
some from your committee, that are aiming at correcting this.
    The Postal Service needs to be saved from the Federal 
Government. And I can't imagine anybody except you that is 
going to do that. We are being victimized. We have to get out 
from under it. It has now caused the price of stamps to go up, 
it has caused the system to break down. We can't borrow any 
more money. And it is all about that.
    Mr. Yoder. Well, and that is interesting, because we had 
some dialogue here about the innovation and the efficiencies 
that need to be gained. And it sounds like, regardless of the 
$8.5 billion deficit, there are going to be moments in the 
future where, regardless of the pension situation, that the 
Postal Service is going to have to change how it operates. Is 
that correct?
    Mr. Williams. Yes, I strongly believe that. I talked about 
some of the measures that need to occur in my testimony. 
Optimization, right-sizing the organization for the amount of 
mail coming through and the number of people coming into our 
Post Offices are important also.
    Mr. Yoder. But is there a projection, unrelated to if the 
pension overpayment was fixed, are there projected deficits 
moving forward?
    Mr. Williams. The new Postmaster General is working on a 
plan now that will allow the cuts to zero out the losses that 
are occurring. It can't occur tomorrow, though. I think his 
efforts are directed at a further horizon. It is very timely, 
it is very strong action. The early actions he has taken are 
very decisive. So that is all going to help.
    But, really, what we need is for that infrastructure to be 
as lean as possible. Regardless of whether we are making money 
or losing money, we need to get that down as lean as possible 
for the sake of the businesses and the citizens.
    Mr. Yoder. I guess that is what I am trying to understand. 
We have the pension deficit, or the deficit that is created by 
the pension overpayment. But if that matter were to be fixed, 
what are the projected deficits that require the post office to 
innovate?
    Because my assumption is, if their books are balanced, that 
there is not going to be a necessity that would create the need 
or the desire to change how business is done. So is there a 
projected deficit after this retirement concern was fixed?
    Mr. Williams. If the retirement issue was fixed, there 
would be no deficit. As a matter of fact, for some time there 
would be additional funds available to address the debt. And 
then, beyond that, I think you need to combine it with some 
other actions, just because we want to be the best that we 
could possibly be. But correcting the benefit fund overcharges 
and raids would remove the problem in the near term and allow 
us to pay back the debt.
    We do need to optimize. We need the right number of post 
offices and plants. We need a delivery point strategy in the 
United States where, instead of all these historic accidents 
with regard to how your mail is delivered, if there was a 
strategy for either delivering mail to the curb or in collected 
housing areas to a cluster, that would be several billion 
dollars. There are all kinds of levers we could pull, and are 
in the process of beginning to pull, that would make this much 
better.
    But we also need that last digital piece. We need to come 
into the 21st century.
    Mr. Yoder. Well, as the Postal Service looks to reduce 
expenditures, you know, there have been closures in our 
community of postal offices. The chairwoman noted the 37,000 
facilities nationwide and the 590,000 employees. What do you 
see as the optimal amount of facilities and the amount of 
employees?
    And is that 590,000 and are those 37,000 facilities, where 
do those rank in terms of--you know, how has this gone over 
time? Are we at a high point, or have we eliminated facilities 
over time and that is a lower point?
    And the same thing with the postal employees. Is 590,000 a 
high point, or have we been higher than that? And what does the 
future hold for the amount of Federal employees we need to 
disseminate the mail service in this country?
    Mr. Williams. It was much higher than that. There was a 
time in which I believe I am right in saying there were 800,000 
employees. So it has come down. I would say, by the time we 
arrive at the proper number, it will come down further, almost 
certainly.
    With regard to the reduction of the plants for sorting, 
there has been a fairly vigorous removal of the small 
facilities that surround our large sorting facilities, which 
are called P&DCs. There hasn't been much progress in closing 
P&DCs, but I would say that that is coming. We have done many 
studies of the throughput of the mail. We know how many that is 
going to require. And I would say that there is plenty of room 
for further reduction of those plants, while assuring that the 
service to the public remains the same or better.
    With regard to the post offices, we think probably about a 
third of those need to be validated with regard to whether they 
ought to continue or not. Generally, in the smaller areas, it 
appears that we have too many in certain places. They are 
stacked a mile away from one another. In the cities, there 
appears to be about the right number, but they need a few more 
windows.
    So we need to make some adjustments, but, at the end of the 
day, it is going to be smaller. It ought to be. If you look at 
other people in the business--drug stores, grocery stores--it 
is very instructive, and it is a much more compact 
infrastructure.
    Mr. Yoder. And lastly--and I appreciate you, sort of, 
helping us understand this--there has been some concern or 
there has been discussion about 6-day delivery. People ask me 
about this issue a lot, or it comes up from time to time, I 
guess.
    Is that being actively discussed in the Postal Service, 
moving to a 5-day delivery? What is the prognosis on that? And 
what would be your recommendation?
    Mr. Williams. They are looking at it right now at the 
Postal Service, but we stood back from looking at it because it 
has gone to the Postal Regulatory Commission for examination. 
The kind of examination that we would normally do is by 
legislation given to the Postal Regulatory Commission.
    They are very close to issuing their report on the issue of 
5 days, whether to allow it or recommend against it.
    Mr. Yoder. And do we know what their report is going to be?
    Mr. Williams. We do not.
    Mr. Yoder. And who ultimately makes that decision? Is that 
a decision that Congress has oversight over, or is that a 
decision that the Postal Service makes?
    Mr. Williams. I am going to have to refresh my memory with 
regard to whether there is a final congressional approval 
required. But I know that the Postal Rate Commission--a lot of 
deferral is being made to the Postal Rate Commission's decision 
on this. And I would say that a lot of the action is going to 
surround that.
    After that decision--I have a great staff here--after that 
decision, it will require congressional action.
    Mr. Yoder. It will require congressional action to change 
from a 6-day to a 5-day delivery?
    Mr. Williams. And if I may, I will send you kind of a 
detailed note concerning that and exactly what would be 
required.
    Mr. Yoder. I would appreciate that. Thank you, sir.
    Thank you, Madam Chair.
    Mrs. Emerson. I might inform our colleague from Kansas 
that, traditionally, our bill contains a rider preventing the 
Postal Service from going to a 5-day from a 6-day. And your 
chairperson is in favor of keeping it 6-day for the moment.
    And I am going to interrupt, because I know it is Mr. 
Bonner's turn. But here is a problem. There are so many ways, 
in looking at the organizational chart of the Postal Service--
and I want to go over this with you--there is so much room for 
efficiency. Too many high salaries, too many layers of 
management, that does not impact your customers and should be 
addressed before any kind of reduction in service, particularly 
when you think about the fact that there is so much mail-order 
pharmacy, for example, that if there is a 3-day holiday and you 
all aren't delivering mail on the Monday for that holiday, and 
I am a senior citizen and I am waiting to get my 90-day supply 
of medicine, we got big trouble here because I can't get it if 
I am going to run out on that Monday.
    And so, how do you deal with those types of issues? And, 
unfortunately, there is no other way other than through the 
Postal Service.
    But, anyway, I want to ask you about those, and I will let 
Mr. Bonner go. Thanks.
    Mr. Bonner. Thank you, Madam Chair.
    Mr. Williams, I think we all associate with Mr. Womack's 
earlier comments, in reading your bio, not only for your 
distinguished service, Bronze Star in Vietnam, but I think, by 
my staff's unofficial count, some 10 different Federal agencies 
and departments that you have worked in, many in senior 
positions, as you are in today. Thank you. It was incredibly 
impressive.
    Mr. Williams. Thank you, sir. That is kind of you.
    Mr. Bonner. I am going to try to focus on three quick 
questions that I would just like your experience on.
    Having been at these different departments and agencies, 
and now in the senior position that you are in with the Postal 
Service, how do the problems and the challenges of the Postal 
Service differ from some of the other government agencies and 
departments that you have served in? And are these differences 
of kind or differences of degree, or are they both?
    Mr. Williams. There were two departments that are very like 
the Postal Service, in my mind: the Social Security and the 
Internal Revenue Service.
    They both have ranks of senior people that have been with 
them their entire careers. I think all of them could probably 
benefit from the introduction of new people into their ranks. 
Now, true, there is a very difficult learning curve also, 
particularly at the IRS and at the Postal Service, for 
newcomers. But the infusion of new ideas, I think, would be 
something that would help all three of those departments very 
much.
    There is a surrogate for that. You can begin active 
dialogue with the stakeholders and bring them in and get ideas 
from the entire world. It has never been easier. And the 
digital age is part of the reason. You can have blogs and 
forums; you can have people come in. You can have a very 
strong, clear way of inviting outsiders in to bring in new 
ideas and the best ideas.
    And I think that probably the Postal Service is in that 
category of depending too much on ``if it is not invented here, 
it can't be worth anything,'' and of throwing their arms open 
to other people in the digital business and among our own 
customers, in looking at new product lines. It would make 
things a lot better.
    We are not in the business of protecting and defending the 
existence of the Postal Service. We are in the business of 
taking care of Americans. And if we forget for even a second, 
we have missed the entire point of our existence.
    Mr. Bonner. Well, that is a great lead-in to my second 
question. How receptive has the Postal Service been to your and 
your staff's suggestions and recommendations over the years?
    Mr. Williams. They have been more receptive than any place 
I have ever been. Usually, there is sort of an arm's length; 
here I am sort of being dragged behind the rapidly moving 
vehicle.
    When we complete studies of the plants and we look at 
closures and consolidations on the part of Congress, the Postal 
Service takes it to the bottom line before we can put it in 
writing. And they are constantly demanding that we look at 
important issues. I have never been so close to the heartbeat 
of an organization.
    And I think it is probably because of the crisis. I don't 
think those other people were bad and these people are angelic 
or anything, but they do business here. They can't spend any 
money if they don't make that money. And so, there is a very 
different feel here with regard to its auditor. They want to 
cut costs; they want to look for new opportunities.
    And I have enjoyed it here, I obviously have. I have stayed 
for a while, and I never do that.
    Mr. Bonner. Well--and I don't mean to cast a blanket 
critique. That is not fair when people do that of Congress; it 
is not fair to do it of the Postal Service. I would love, 
though, for the tone upon which you have responded just to this 
panel's questions, the assurance you gave Ms. Lee about getting 
back in touch with her, and other Members, I would love to 
think that that customer service, that we exist but for the 
taxpayers of this country, were more readily noticeable.
    I will give you a quick example. And, again, this isn't 
fair. It certainly doesn't fall under your purview. But my wife 
and I were going to take our children on a trip overseas. I am 
from Mobile, Alabama, the greatest city in the world, other 
than the great cities that are also represented at this table.
    And so my wife took the passport applications to the Postal 
Service window at the downtown post office in Mobile. And after 
waiting in line for 45 minutes, there was only one other person 
in front of her. The clerk took a break, came back, and said, 
``Well, where is the father of these children?'' And she said, 
``Well, the father is not here today.'' And she got into about 
a 20-minute argument about the fact that I needed to physically 
be there to sign a piece of paper or to vouch that the children 
were there. Well, guess what? I was here. I wasn't there.
    So the answer that the postal clerk gave to my wife was, 
``You know what, ma'am, you just need to call the 
congressman.'' And she said, ``Well, actually, I sleep with 
him, so I will be happy to.'' I am not trying to embarrass 
anyone back in Mobile, I am not trying to embarrass my wife on 
Valentine's weekend.
    But the point is this. I spent a day with one of the other 
package delivery firms--I won't call their name. As unpopular 
as Congress is, they might not want us saying that we spent a 
day with them. But it was fascinating, unloading that cargo, 
those packages, off the plane at 5:00 in the morning, getting 
in that truck, putting on the uniform with shorts and brown 
socks----
    Mrs. Emerson. I did that, too. It was fun.
    Mr. Bonner [continuing]. And driving all over. But down to 
the point of knowing how many right turns they are going to 
make so that they can more efficiently manage their gas and 
make sure that their timing is right and that they get back in.
    I would love to think that, both from a customer service 
spirit and also an efficiency, when you have the kind of deep 
hole that the Postal Service is in financially, that there 
would be a new esprit de corps that would be coming from the 
top down and from the bottom up that would say, this is a 
really--as you noted in your testimony and in answers to the 
questions, the challenges of the digital age and coming into 
it, the Postal Service can either embrace it and lead on it and 
become a vibrant part of the fabric of this country for the 
next 100 years, or it can go the way of the dinosaurs down at 
the Smithsonian Institute. I think we all hope that it is the 
former, not the latter.
    But I really do salute you for the example that you have 
shown today. And I hope that others in this room and others 
around the country see that this is not an individual, but this 
is a reflection of an attitude that needs to be adopted at all 
levels of government, not just the Postal Service--certainly 
here in Congress, as well.
    I promise you one thing. If my staff told a constituent who 
called, ``Well, you need to call the Senator's office; we can't 
help you,'' then these 2-year terms would end much sooner for 
us than they do for--anyway, thank you very much.
    Mr. Williams. Yes, sir.
    If I might very quickly, that is a very disturbing story. 
The new Postmaster General has set out the customer 
experience--he set out as a goal to substantially improve the 
customer experience. And it is problematic in places.
    And there are many other instances where the opposite is 
the case. During Katrina, postal workers from their own funds 
fed and made sure water was supplied to elderly customers and 
things. It is all over the board.
    But he is committed to make that steadfast and much 
improved.
    The other thing is, we have too many post offices. As those 
come together, we want them to be more full-service. We don't 
want postmasters to go to lunch together and close the place 
down for 2 hours. So that is a goal, too.
    With regard to the trucks that--Pat Donahoe has just asked 
that we begin looking at smart trucks, ones that can be part of 
the digital age and can operate with unparalleled efficiency. 
Someday, we hope our competitors come and compare themselves to 
us in that area.
    Mrs. Emerson. Thank you all. You did do a great job, I must 
say, on the Christmas commercials with the flat-rate boxes, I 
must say.
    Mr. Williams. Thanks, I liked those, too.
    Mrs. Emerson. Hopefully the advertising agency did not 
charge too much, but it really was quite good.
    Let me ask you one question and then I want to get back to 
the whole management structure within the Postal Service. So, 
on the retirement fund issue, your office says that it is a $75 
billion problem. And the Postal Regulatory Commission says it 
is a $50 billion to $55 billion problem, and that is a fairly 
significant difference. Are you all basing those on different 
actuarial bases? Why is there such a discrepancy?
    Mr. Williams. The regulatory commission acknowledged that 
the way we computed it, they could see how we would get there. 
I think they were trying to adopt a middle ground and one of 
moderation. That is--I think that the Postal Service is trying 
to do that as well. And so a lot of the savings are revolving 
around the Postal Rate Commission's more moderate figure of the 
55.
    I do want to point out, though, that that is not the only 
problem that exists. FERS, as I mentioned, is overfunded by 
some $6 billion. And then the rate of inflation we believe that 
OPM has set is much more aggressive than the private sector and 
other government entities. The delta is 5 versus 7 percent, 
which is another $6 billion. There are a lot of corrections 
that need to be made.
    What I would most like to see is that the Postal Service 
make a proposal to Congress with regard to its pension and 
health funds, rather than have it imposed by OPM. When we 
benchmarked pensions, we discovered that the gold standard was 
80 percent, not 100 percent prefunding. And for health, it was 
30 percent, not 100 percent. And if you look at OPM's own 
prefunding, it is only 40 percent. It is far below the gold 
standard for pension and it is zero for health. I am always 
suspicious of someone saying I have a fabulous idea for you, 
but I don't want any part of it. That is basically what we are 
suffering under.
    Mrs. Emerson. I am going to play the devil's advocate and 
ask you this question. That is, I believe, that the Congress 
has passed legislation twice within the last decade--2003 and 
2008--to address obligations, health benefits funding and the 
like, but yet here we are back again. So what promises could be 
made that hypothetically if we were to--okay, arrive at some 
figure of overfunding and it was fixed, how can you assure us 
that is not going to happen again, since we have already dealt 
with this twice in the last 10 years?
    Mr. Williams. Actually, what we are seeing are a series of 
errors on the part of OPM that are quite serious and 
congressional action earlier addressed those errors. We hope 
they were errors. We hope they were not intentional. But we 
were seriously overcharged earlier. When I arrived, those had 
already occurred. But we saw that things still weren't right.
    I don't know if there is more there or there is not more 
there, but no one is asking for--no one is asking for relief or 
a bailout or a penny to be given to us. The Postal Service is 
trying to look for a competent way to run its benefit plans, 
which we care very much about, as does Congresswoman Lee. That 
has not been the case. I am wondering if it is time for OPM to 
step away from the plate and let someone come in here that is 
able to construct a model of a world-class pension and health 
care fund, because I know it would be much more reasonable than 
it is today.
    Mrs. Emerson. Do you believe that OPM actually has the 
authority to recalculate? Because OPM does not think they do. 
But you all believe that they can do this without legislative 
action?
    Mr. Williams. I do. I don't know if they ever said they 
didn't have the authority. They said they didn't want to; that 
there are lots of ways to do those things and they are doing it 
one way, and if someone wants them to do it differently, then 
they should be told. Not to try to do it on their own. They are 
awaiting instructions from legislation. I believe they do have 
the authority.
    Congress has now, based on this bad information that they 
had received, the Postal Accountability and Enhancement Act did 
structure payments, and that would require congressional action 
to stop those once we realize that an error has been made.
    With regard to correcting the error, I think all of us feel 
that OPM can--I believe OPM does, too. The difference is 
whether they will and should. They are telling us they would 
rather be told to do it rather than do it on their own.
    Mrs. Emerson. Okay. That is something we need to explore 
more fully with the authorizing committee.
    Back on the whole management structure, I was pleased to 
hear in your testimony that the Postal Service was going to 
reduce the number of regional offices from 74--I don't know how 
many they plan to have, but I still don't understand why we 
don't have one per State and one for each of the territories. I 
just want you to notice that I have begun to use ``the 
territories'' every time I mention the States for the last 2 
years.
    Mr. Serrano. And I appreciate that, really.
    Mrs. Emerson. You really do get used to it and that, I 
think, is a very important distinction that we all should make, 
Joe.
    Mr. Serrano. Yes. And let me say publicly that you were 
very supportive the last 4 years when it really started. We 
started pushing that in the last 4 years. We have all of these 
folks, and when I look at----
    Mr. Womack. I didn't know the Bronx was a territory.
    Mr. Serrano. And here I was going to praise you. I was 
going to say that no one more than those who have been in the 
military understand and respect the folks in the territories, 
because they served side by side with folks from the 
territories. So that is one thing, you know, that we always ask 
around here: How are you treating the territories? Because they 
seem to be an afterthought.
    But I am still praising you. The Bronx is a State all by 
itself.
    Mrs. Emerson. So anyway, the idea of having 74 offices to 
me is ridiculous. And somehow I think that there are much more 
efficient models. For example, we have two in Missouri. I have 
one in Kansas City and one in St. Louis, and even though my 
district is closer to St. Louis, Kansas City has jurisdiction 
over all but one of my counties. It is ridiculous, it is 
stupid, and it is inefficient.
    And just the management structure at the local level, it is 
crazy as far as too many different people trying to tell people 
what to do, instead of having just much more defined reporting 
assignments. I spent a lot of years in the private sector so I 
am sensitive to that sort of thing.
    And then at the D.C. headquarters, I am aware that a lot of 
the senior management folks who are out in the field have been 
brought back to management so that senior management at the 
D.C. headquarters will say, yes, we have reduced the number of 
people out in the field. And so it just seems to me--I wanted 
to ask, have you all actually looked at organizational 
structure?
    Mr. Williams. We did a study of the areas and districts. 
And also if you looked at this structure, it is going to remind 
you of the government. And it did go back to a time when we 
were part of the government, particularly with the area 
structures.
    We did a study and we said that the number of districts 
ought to be--the districts are the lower level, the areas are 
the higher level--that the number of districts needed to be 
looked at, and we recommend that we have sort of a modest and 
increasingly aggressive reduction in those numbers.
    With regard to the areas, those are a bit of a historic 
artifact, and we recommended that some thought be given to 
whether those could all be brought back to Washington and 
joined together for messaging. For one thing, it invites 
fiefdoms, and everybody does it in a different way, which is as 
expensive as it can be. And it is personality based, where 
based on somebody's code of ethics, they are treated 
differently than they ought to be.
    So the reason for them has been, of course, command and 
control. It is a huge organization. It is still 600,000. But we 
see that a lot of the messaging that goes down and that goes up 
could be automated, and we think that if the data, the 
performance data were automated, many of the physical things 
that occur, and the meetings that occur, and the time that it 
takes from postmasters and from plant managers would be reduced 
if it was an automated environment.
    Mrs. Emerson. Well, and certainly with the digital age, if 
you will, and the sophisticated machinery that you use for 
sorting and the like, certainly I believe those area offices 
are probably obsolete.
    Do you happen to know how many people work in the 
Government Affairs Department of the Postal Service 
headquarters here in Washington, D.C.?
    Mr. Williams. I am going to look to the staff and ask them. 
It is about 50 people.
    Mrs. Emerson. And how many--and what do those 50 people do?
    Mr. Williams. The job of the office is to manage 
correspondence and then visits to the----
    Mrs. Emerson. And how many pieces of correspondence does 
the Government Affairs Department average a year?
    Mr. Williams. I don't have that information.
    Mrs. Emerson. Can anybody tell me?
    Mr. Williams. We can't tell you today, but we will do--if 
we may, we will come and sit with you and look at that. We have 
not looked at it and we would be happy----
    Mrs. Emerson. I would appreciate it, given the fact, just 
to give you an example, I think we are pretty lean and mean in 
our offices and we average 1,500 e-mails or letters a week. And 
I have three people and a quarter to do that, to answer them 
within a turnaround time of, I don't know, 3 to 4 weeks, 
because sometimes we get backed up. And all of those people 
attend all of my committee meetings.
    I guess my point is 50 is outrageous, because I bet you you 
all don't have as much mail as I have in my office on a monthly 
base--on a yearly basis. I would bet that. So I would really 
appreciate you getting back to me on that. It is a little 
thing, but it is annoying, because to me your face is out 
there, out in the public in our communities. And I love my post 
offices, and I love most all of the people who work at them, 
and the people who deliver the mail, et cetera. But that is 
where you really need to be. Obviously, you have got--but I 
think you are real heavy here, and I would certainly like to 
see much more management efficiency here to start helping to 
reduce costs there. And go ahead.
    Mr. Williams. We will be happy to undertake and will meet 
with your staff right away to do that. To be fair, I should say 
in the early hours of the new postmaster general's time after 
coming on board, he reduced the number of direct reports that 
he had. He reduced the layering of Senior Vice Presidents 
overseeing Vice Presidents. He did away with that. And he also 
tried to, in addition to making the place more lean, he did try 
to align the place more to the mission and to the customers, to 
make it clear that that alignment was strong. So it has been 
started.
    Mrs. Emerson. That is good. And he is a very nice man and I 
know he has got a tough job to do. But there was a job I think 
advertised--you have a head of Government Affairs, and suddenly 
somebody was going to get hired above her at $250,000 a year.
    Mr. Williams. That is true. That is----
    Mrs. Emerson. She was perfectly good at what she did.
    Mr. Williams. That clearly is a piece of the solution to 
this.
    Mrs. Emerson. That is why a very, very detailed and close 
examination. And I know at one time PriceWaterhouse or somebody 
came in and tried to do something to make it more lean and 
mean, and I thought it was still excessively bulky. But that is 
from personal experience.
    I also recommend, and I know that Steve will be happy if I 
say that, if you look at the way that Wal-Mart does its 
distribution system and it moves things around this country. 
They do it in a very cost-effective way, but a lot of what they 
do is what you do. And so there are some lessons to be learned 
that to me would make good sense just for purposes of trying to 
save money.
    Because the easy things are, yeah, we will go to 6-day 
delivery. Okay. We will close all of these rural post offices 
that are the heart and soul of a community, when, quite 
frankly, if it cost $100,000 a year to run, you got people 
making 800,000 bucks a year at the Postal Service, and so let 
them take a pay cut and leave a post office open. I just don't 
think the decisions--you are picking easy--not you 
specifically, but easy things are being picked; but the hard 
decisions are it is way too top-heavy with management, just 
from what I have seen of your organizational charts.
    Mr. Womack. If the gentlelady would yield for just a 
minute. Good point, Ms. Emerson.
    A few years ago, while serving as a mayor of a city of 
about 50,000 people, we had a catastrophic failure on an 
automation platform system involving our courts. It was a 
serious issue. And rather than being tempted to throw a lot of 
money at the problem from my job as a mayor into a major IT 
fact-finding mission and potential solution, I turned, as the 
gentlewoman has just recommended, I turned to the private 
sector. And in this case it was J.B. Hunt Trucking, not because 
of the heavy computer assets involved in a logistical 
perspective, but I turned to the J.B. Hunt Corporation, to 
people in that entity, and asked them if that was their 
problem, how would they solve it. And I was able to fix a 
problem a lot faster because the private sector knows how to do 
this stuff in a much more efficient way than we in government 
ever hope to be able to do that.
    And that is why I think that she is on to something here. 
That when we are looking for solutions, are we indeed looking 
into the private sector to people who have these logistical 
frameworks already established that do some of the same things 
you do? And are we, shall we say, plagiarizing some of that 
effort?
    Mrs. Emerson. No need to reinvent the wheel. Stealing good 
ideas is smart business in my opinion. You know, not 
intellectual property, but rather if somebody has a good idea, 
it saves me from having to think about the idea.
    I want to ask you one more question. And--oh, I want to 
know if it is true. Is it true that the Postal Service actually 
has vehicles made specifically for it, as opposed to buying 
platforms from General Motors or Chrysler or Ford? Does it 
actually design and have trucks and/or other vehicles made for 
it, as opposed to--not anymore? Okay.
    Mr. Williams. The idea is to build the box on top of an----
    Mrs. Emerson. Of an existing platform?
    Mr. Williams. Ford or General Motors.
    Mrs. Emerson. When did they stop actually having them made? 
Do you all know?
    Mr. Williams. About 20--I arrived after that occurred. As 
long as I have been there they have used----
    Mrs. Emerson. They have actually used the existing 
platform. All right. That is good. Mr. Serrano.
    Mr. Williams. If I may, I would like to say that my 
office--and a lot of it has been at the request of Pat Donohoe, 
having engaged in benchmarking, and UPS and FedEx have both 
been great about joining in that. Target department stores have 
some fabulous inventory techniques along with Wal-Mart. There 
is a lot to be learned, and they have done great stuff and we 
are trying to understand it.
    Mrs. Emerson. That is good to know. Seriously, it really is 
easier, because they will give you advice for free and you 
don't have to pay an expensive consultant to do it.
    Mr. Williams. They have, and sometimes they are more real 
world than the consultants are.
    Mrs. Emerson. Consultants just want your money.
    Mr. Williams. Yes, I think you might be on to something 
there as well.
    Mrs. Emerson. Mr. Serrano.
    Mr. Serrano. The good news is that President Mubarak has 
stepped down. I don't know whether to believe that or not. He 
steps down more times than Jack Benny celebrated his 39th 
birthday.
    Mr. Womack. He is probably scuba diving in Sharm el-Sheikh.
    Mr. Serrano. Yes, probably. Every so often in these 
hearings, we say something which brings about another 
discussion. And so after hearing you and after hearing Mr. 
Womack comment on the private sector, I guess it is my duty to 
say, yes, I think we have to always consult with the private 
sector. I mean, be supportive of it so it grows. And we have to 
consult with academia and make sure that they are included.
    But I think what we have to be careful about, especially in 
the next couple of years as we get more and more folks who say 
that the private sector is the way is that while the private 
sector has played a major role in building the country that we 
have today, it wasn't the private sector that said that 
children should not work; it was government who said that there 
should be a child labor law.
    It won't be the private sector that will care at times too 
much about whether the rivers are clean or who is dumping into 
them. It was government that stepped in. It was not the private 
sector, for the most part, who said you shouldn't work more 
than 40 hours a week and you should have certain pay. It 
certainly wasn't the private sector who, on their own, 
volunteered to treat minorities and women better; it was 
government.
    So I think it is important, perhaps more than ever, to say 
the private sector and our universities have to play a role. 
But you know, there is something for government to do. And 
which invites me to say something I have been rehearsing 
recently, I want to try it on you. I am sick and tired of 
hearing TV reporters saying, Go up to a businessman and say if 
you ran your business the way the government runs theirs, what 
would you have? And then they would say, We would be bankrupt.
    Well, if they ran their business the way we run ours, they 
would have a business that has been around since 1776, that has 
been the envy of the world, that played a major role in 
stopping Hitler and the Nazis from taking over the world, that 
every so often checks on itself, looks back and corrects past 
injustices, and whose doors are still being knocked on a daily 
basis by people who want to come into this place.
    So government has problems. But you know, for a couple of 
hundred years now, we have created a pretty good place that a 
lot of people want to be a part of. In the process of making it 
better, let's not throw out government. Because if you let the 
other guys do it alone, it could be a mess.
    Mrs. Emerson. Will the gentleman yield?
    Mr. Serrano. Sure.
    Mrs. Emerson. Please note that I was not at all talking 
about changing the governmental function of the Postal Service. 
I was suggesting that they get free advice from a distribution 
system that actually works as to how to make themselves more 
efficient. So it was not replacing the government with the 
private sector.
    Mr. Serrano. I understand that. And I understand Steve 
Womack's statement, which I take very seriously, that he had 
the ability and the vision to say it doesn't have to be 
government; let me go see how they do it. And he accomplished 
it. I just know that there is a sense in this country right 
now, by a small group but a very vocal group, that we don't 
need a government.
    Mrs. Emerson. Well, I disagree. I agree that there is a 
group that are----
    Mr. Serrano. There are people that are asking a President 
to step down because they want a government that looks like 
ours. Trust me.
    Mrs. Emerson. Joe, I don't disagree with your statement. 
You did a nice job on that statement. I liked that. You 
practiced it well.
    Mr. Serrano. I did. I have a Spanish version of it, too.
    Mrs. Emerson. Let's see, we are willing to listen to that 
too.
    Mr. Serrano. Before I ask my last round of questions here, 
in defense of the Postal Service, my understanding is as to Mr. 
Bonner's statement, my understanding is that the Postal Service 
basically carries out the instructions given out by the State 
Department on how to handle it. That is my understanding. They 
set the rules for how you get a passport, and then the Postal 
Service just does what they are told. That is my understanding.
    Anyway let's get to one of my favorite issues. This report 
that came out about electric trucks. I know again it is a small 
thing, small in the sense that it may take a while to go to 
that point of having a full fleet. And not everybody in this 
country is sold yet on the idea of moving in that direction. 
Lastly, that they are not $10,000 trucks. They are quite 
expensive.
    So what can you tell us about that report? And what can you 
tell us about the possibility and the feasibility of the Postal 
Service moving in that direction?
    Mr. Williams. We were very--actually, you asked us to do 
that. We were very excited at the results though. I am not sure 
we would have thought of it on our own, which is not good. We 
should have thought of it. Today--the technology is getting 
better all the time, but today an electric truck that could 
carry our load could go 40 miles very, very reliably. That 
covers all but 3 percent of our routes. Only 3 percent would 
begin to test the outer limits of that.
    So it would seem that we would be a very good candidate for 
that, in addition to, of course, there not being fuel 
consumption and there being exhaust in all the neighborhoods of 
the United States. It seemed to be a very forward-looking, 
great initiative to undertake.
    The Nation is also about to go, as you told us and we 
verified, to taking the electric grid and reducing it--or 
expanding it, rather, to allow vehicles to be plugged into it, 
the batteries of vehicles to be plugged into it. There is a 
requirement that electric utilities maintain a certain margin 
of excess in order to assure that we will all receive 
electricity when we need it.
    With vehicle-to-grid, V-to-G, it allows, rather than us to 
manufacture more of that by burning coal or oil or nuclear 
solution, it allows them to rely on the dormant batteries of 
vehicles. We are really well positioned for that because we 
don't drive our vehicles at night. That could be a huge fleet 
of vehicles that would take care of a national issue and allow 
for a national economy. It would also jump-start a new 
technology and create new jobs and it would allow those--the 
price of those vehicles to come down, as all technologies do 
when they are finally embraced.
    We were tremendously excited about what you did and what we 
found.
    Mr. Serrano. Thank you. And just for the record, to remind 
the chairwoman that this was something that we asked for in the 
committee, and this report came back. And I understand that 
part of the problem is you have 146,000 delivery vehicles which 
average 10 miles per gallon; am I right?
    Mr. Williams. That is correct.
    Mr. Serrano. Is that a huge problem? And we always talk 
about our dependency on foreign oil and we seem to do little. 
Although I see more happening, certainly in the last 5 to 10 
years. Where is this at? You did your report. Is there any 
desire on the part of the Postal Service to move in that 
direction?
    Mr. Williams. It is also a fleet at the end of its life. So 
to introduce this, whether it is in our trucks now or whether 
we would do new vehicles--I ought to have added that at the 
end--I think there was concern on the part of postal 
management, but I never had a clear statement of how they 
received this. But there was some concern that the technology 
was new and they wanted to select a vendor that they were 
confident would be around, because the vehicles last a very 
long time. I think that was the things that concerned them. And 
I think there was also interest in this.
    I think with each year that passes, as you said, sometimes 
progress is slow. But the arc of the progress seems to suggest 
that this is a very promising direction and route that you have 
embarked the Postal Service on. We have a new postmaster 
general. I will be glad to express to him--remind him of what 
we have done, and express your desire and interest in the area.
    Mr. Serrano. I have, Madam Chair, just one more question 
and then we can submit some for the record. Under the heading 
of innovation, is there anything you think or that has been 
suggested that the Postal Service could be doing to sort of 
help themselves acquire more revenue? I am not suggesting that 
they sell T-shirts in the lobbies of the Postal Service. But 
you wonder if e-mail--and we are all guilty of it--if e-mail 
has taken away from the Postal Service--I am not trying to be 
funny, but should the Postal Service get into the business of 
being another AOL where it provides e-mail service to the 
public? I know that sounds crazy, but you know--no, nothing 
that I say sounds crazy.
    Mr. Williams. No, it does not.
    Mr. Serrano. What could they be doing? Is there, you know, 
are there five people sitting in a room somewhere at the Postal 
Service trying to figure out where we could go?
    Mr. Williams. At this point I would say all the near-term 
efforts are the ones that I outlined. And I think there is an 
openness to this idea, but we need there to be an excitement 
about it and we need to run to it.
    I think some of the time was lost dreading it and fighting, 
and some in the past were chagrined over its arrival. There are 
some wonderful opportunities. There could be a symbiotic 
relationship between the various communication vehicles, 
whether they are physical or digital, that could be combined, 
that would place American businesses and American people in a 
much stronger position than they have ever been.
    And there are all of those difficulties I said that need to 
be addressed with regard to the digital age, too. The Postal 
Service could be part of that solution. We need to aggressively 
engage with the other players in the digital area and our own 
customers, and also the people who are not our customers but 
they ought to be. And we begin to need a very vigorous dialogue 
with regard to that. And we need a very disciplined process 
with regard to inviting innovation, triaging the ideas and 
designing them, and then implementation.
    I have seen some really great ideas that we stumbled on on 
implementation of them in the field. But there are wonderful 
ideas for products out there. I think people would love to see 
an integration of their digital mail and their physical mail on 
the same list, for instance. Sort of a reverse hybrid. Hybrid 
mail is clean, fast, and it is the future. I would love to see 
us be a part of that.
    I think we need to guard against giving middlemen money for 
nothing. It isn't just hard to the Postal Service. It is 
picking winners and losers. And that is not something that is a 
very American idea for an infrastructure. There is a ton to do. 
We need to create processes for that. We need to clear out some 
space to meet the future and to embrace it.
    Mr. Serrano. One quick question. Do we make money, does the 
Postal Service make money on those commemorative stamps every 
time we honor someone? And please understand that I am not 
knocking it. I attended the Frank Sinatra stamp ceremony in New 
York and it was wonderful and what a great ceremony that was. 
And there were people from all over the city, stamp collectors 
and fans. Does it make money? I know that a lot of these things 
just kind of tap a little bit into the problem.
    Mr. Williams. I think the idea behind the commemorative 
stamp--there have hardly been any. Of course, the breast cancer 
stamp was certainly the most dynamic and important of those 
initiatives. The Postal Service makes the usual amount of 
money, and the charity receives anything above and beyond the 
Postal Service's normal income. So it is split.
    Mr. Serrano. It is split?
    Mr. Williams. It is, sir. Yes.
    Mr. Serrano. Okay. All right. Just in closing, let me thank 
the chairwoman for reiterating our position. And it was our 
position before, and I am glad it is still going to be our 
position this year that sometimes it is easy when you look at 
the Postal Service to take the easy shot. And the easy shot is 
5-day delivery, without thinking of what that does for service 
and, in all honesty, what it does for jobs, even part-time 
jobs. And this is not the time to be cutting jobs anywhere.
    So I think the message that she is sending is the message 
that I try to send. Let's focus on the hard decisions and not 
go after the easy one, which is 5-day delivery. I thank you for 
that. And I thank you for your testimony and your service, and 
that concludes my questions.
    Mrs. Emerson. Thank you. Mr. Womack?
    Mr. Womack. I have nothing further, Madam Chair.
    Mrs. Emerson. Are you certain?
    Mr. Williams, thank you. I do want to ask you one more 
question and that has to do with closing and consolidating post 
offices. I know as part of the Postal Service's action plan, 
they want to close or consolidate I think about 2,000 retail 
facilities. You alluded to that in your opening statement.
    I understand that the Postal Regulatory Commission is 
actually investigating whether the Postal Service has been 
improperly using reasons such as lease expirations to suspend 
service. And obviously this impacts us, and it would be more in 
Mr. Womack's and my districts rather than Joe's, just because 
we have very rural populations. So have you all examined this 
issue as well?
    And then my follow-up question would be, do you think the 
Postal Service is taking responsible steps in its efforts to 
restructure those operations?
    Mr. Williams. Actually, early on--I am unfamiliar with the 
PRC's work in the area. It is actually early on. There haven't 
been many that, of course, closed that I am aware of. But we 
are obviously right at the edge of an aggressive initiative in 
the area of the 2,000. And there are also about 400 that are in 
process, so it is actually a bit larger than that. I am unaware 
of those, but I talk and interact with the PRC all the time. I 
would be glad to find out what concerns they have. And I will 
also keep an eye out for it with regard to that.
    The process around this is new. They recently developed a 
way that is far more expedited than in the past. We are about 
to review on that and the moment we are done with it, we 
forward it--if we find something disturbing----
    Mrs. Emerson. I would be appreciative. I am sure all of us 
would.
    Mr. Williams. It is a new process. We will be glad to watch 
that and report back to you.
    Mrs. Emerson. ``New'' meaning it just started or ``new'' 
meaning it is a different type of process than what you have 
done?
    Mr. Williams. It is going to be an aggressive effort. I am 
certainly not against that effort. As I indicated, I think 
probably the network is too large. But 2,000 is more than we 
have ever done. And there is also a new process with regard to 
expediting and putting it in a more automated environment. That 
is the one that we have embarked on studying, now that it is 
complete.
    Mrs. Emerson. Any information that you can get to us as 
soon as possible would be great.
    Mr. Williams. We will.
    Mrs. Emerson. Especially any in conversations with the PRC 
as well.
    Mr. Williams. I will meet with them before they are out of 
the room.
    Mrs. Emerson. Terrific. Thank you so very much for being 
here today and for your patience. You did a great job answering 
questions and we will look forward to working with you in the 
future.
    Mr. Williams. I do as well. And thank you so much for 
having me.

[GRAPHIC] [TIFF OMITTED] T6791A.007

[GRAPHIC] [TIFF OMITTED] T6791A.008

[GRAPHIC] [TIFF OMITTED] T6791A.009

[GRAPHIC] [TIFF OMITTED] T6791A.010

[GRAPHIC] [TIFF OMITTED] T6791A.011

[GRAPHIC] [TIFF OMITTED] T6791A.012

[GRAPHIC] [TIFF OMITTED] T6791A.013

[GRAPHIC] [TIFF OMITTED] T6791A.014

[GRAPHIC] [TIFF OMITTED] T6791A.015

                                          Wednesday, March 2, 2011.

                  U.S. ELECTION ASSISTANCE COMMISSION

                                WITNESS

CURTIS W. CRIDER, INSPECTOR GENERAL, U.S. ELECTION ASSISTANCE 
    COMMISSION
    Mrs. Emerson. Thank you so much for being here, Inspector 
General Crider. We look forward to hearing your testimony. As 
you may know, this committee is committed to reducing 
nonsecurity discretionary spending to fiscal year 2008 levels, 
and so we have asked several Inspectors General to meet with us 
so that you all can help us identify savings where we can, in 
fact, achieve it.
    Your oversight is valuable, not only to ensure that 
taxpayer dollars are used in the most cost-effective manner 
possible, but also to determine whether the Commission is 
contributing to the integrity of our Federal elections. While 
the Election Assistance Commission has taken on a number of 
roles, it was specifically established to help States meet new 
voting standards and the overall enhancement of election 
administration called for under the Help America Vote Act.
    In order for our democracy to thrive, people must be able 
to place complete confidence in the integrity of our Federal 
voting system. In general, I am interested in hearing your 
perspective on the Commission's operating expenses, the 
necessity of having so many high-level administrative staff, as 
well as the Commission's overall management practices. While it 
appears that the Commission has matured since it was first set 
up, my observation of some of its decisions and activities 
suggests that the EAC still has a lot of work to do.
    In addition, I continue to find it interesting that so many 
of the States that received grant funding under HAVA have yet 
to spend significant amounts of the funding provided to them in 
spite of the fact that it has been available for a number of 
years. I would like to hear your views on the Commission's 
management of those funds.
    I look forward to your testimony and to gaining a better 
understanding of your efforts to hold the Election Assistance 
Commission accountable.
    I would now like to recognize my good friend, Ranking 
Member Jose Serrano.
    Mr. Serrano. Thank you so much.
    I would also like to welcome Inspector General Crider to 
this hearing today. The Inspector General's Office has the 
important job of reducing waste, fraud, and abuse not just at 
the Election Assistance Commission but also among the States 
and territories that have received and used Help America Vote 
Act funds.
    As you know the Help America Vote Act was passed in the 
wake of the 2000 elections. The goal of the act was to help 
States to upgrade their voting equipment and election 
administration, to help develop an ongoing series of testing 
standards and best practices in these areas, and to create a 
clearinghouse of information for States to use. I am looking 
forward to hearing more about how well the EAC has done this 
job and what they can do to improve their efforts. In addition, 
I am interested in learning more about how States have used 
their Help America Vote Act funds to improve their voting 
systems and election administration.
    From your testimony, I understand that you are concerned 
about the amount of money the Election Assistance Commission 
spends on management activities. While I think this should be 
an area of concern, I would like to point out that many of 
these activities, in particular, the public meetings and 
advisory board activities, are mandated by law. These are 
activities that improve the EAC's transparency and 
accountability to the States it provides assistance to and to 
the public as a whole. As we move forward with the fiscal year 
2012 budget request and as we continue to work on the 
continuing resolution for 2011, I would hope that we remember 
that.
    I always like to say that the Election Assistance 
Commission is a small agency with a big job: to help ensure 
that our elections are open, accessible, and secure. The IG's 
Office plays an important role in ensuring that the EAC 
performs its work to the best of its ability. I look forward to 
your testimony.
    Thank you.
    Mrs. Emerson. Thank you, Joe.
    Mrs. Emerson. Mr. Crider, we will now recognize you for 
your opening statement. If you would be so kind as to try to 
keep it to 5 minutes, that will give us more time to ask 
questions. Thank you.
    Mr. Crider. Good morning, Chairwoman Emerson, Ranking 
Member Serrano, and members of the subcommittee. Thank you for 
inviting me to come today to talk to you about the U.S. 
Election Assistance Commission and our operations in the Office 
of Inspector General.
    My office is an independent office in the EAC. Our role is 
to review EAC programs and operations with an eye toward 
helping the agency be more efficient and more effective. We 
also audit the funds distributed by the EAC to ensure the money 
is spent for the right purposes and in keeping with Federal 
rules.
    A large portion of our resources have been dedicated to 
auditing the Help America Vote Act grants that have been given 
to the States. The EAC has distributed $3.3 billion in funding 
to the States for election equipment and procedures. To date, 
we have completed 31 audits of 28 States covering $1.3 billion. 
We examined State expenditures to determine if they were made 
for appropriate purposes, were properly charged to HAVA grants, 
and were supported by appropriate and sufficient records.
    Our audits have shown that, by and large, States use HAVA 
funds for appropriate purposes and that they have the needed 
documentation to support those charges. We have identified 
$31.3 million in questioned costs and additional program income 
in our 31 audits.
    The EAC has also distributed $50.9 million in discretionary 
grants in the six smaller programs. We have only audited a few 
of these smaller grants. However, those audits have raised some 
concerns about these funds and the manner in which they were 
used.
    In 2009, we received a congressional request to audit two 
small grants under the Help America Vote College Program. We 
began what we believed would be a very simple, straightforward 
audit of $33,000. What we found was that the grantee did not 
have records to support his charges to the grant. We questioned 
all of the costs charged to the grant, and the grantee is in 
the process of repaying those funds now.
    The second major focus of our work was on EAC operations. 
We oversee the annual audit of the EAC's financial statements 
and fiscal compliance reviews which is done by outside 
contractors. In addition, we have issued seven reports covering 
six reviews and one investigation of EAC operations.
    Our reports have revealed the good and the bad about EAC 
operations. Not all of our reports are negative. We conducted 
reviews of the EAC's Internet usage and the use of appropriate 
funds for settlement. We determined the EAC had proper controls 
to prevent access to adult content, gambling, and shopping 
sites. That is what our report says. We also found that the EAC 
followed the laws in using its funds to settle a prohibited 
personnel practices claim.
    Our reports have also identified areas where EAC can 
improve its operations. For example, in 2008, we issued a major 
report on the assessment of EAC's financial and program 
operations. We found that the EAC did not have internal 
controls or policies and procedures in place to guide its 
programs and operations. We made 29 recommendations related to 
needed policies and procedures. The EAC has implemented the 
vast majority of these recommendations and adopted policies and 
procedures in most of its programs.
    We also found a situation where EAC did not violate law or 
regulation, but where better choices could have been made in 
the use of Federal funds. One such example was our review of 
the EAC purchase of T-shirts. While this was only a $7,000 
purchase, the EAC bought 5 shirts for each of its employees as 
an employee incentive award, and they still had about 200 
shirts in inventory. While this purchase was not illegal, it 
was just not a good use of taxpayers' funds.
    Our investigation in the EAC's operating environment also 
showed no violation of Federal antidiscrimination laws or 
whistleblower laws but did reveal employees fear retaliation 
for making complaints or identifying wrongdoing. It also showed 
that employees believe that it was an ``us versus them'' 
atmosphere at the EAC.
    In the failure of the EAC's employee service in 2007, 2008, 
and 2009, they showed that an information divide exists between 
management and staff. The 2010 survey results are now in, and 
the EAC is in the process of evaluating those. Those results 
should be available the middle of March, and we are hoping that 
there is significant improvement in the results of the survey.
    The EAC's fiscal year 2012 budget request seeks $13.7 
million, with $3.25 million being transferred to the National 
Institute of Standards and Technology. The EAC proposes the 
operating budget of $10.45 million. This is a 27.7 percent 
reduction from its operating budget in 2010. The OIG takes its 
fair share of that cut. Our portion of the EAC budget will be 
$1.56 million. While this is a sizeable reduction from our 
previous budgets, we will continue to conduct audits and 
investigations, albeit just a few less than we have done in 
previous years.
    We know that members of this committee have previously 
raised concerns about EAC's overhead and management costs. This 
budget would appear to verify those concerns. More than 51 
percent of the EAC's fiscal year 2012 budget is dedicated to 
overhead and management charges. The EAC should take a hard 
look at its management and overhead costs to determine if 
savings could be achieved to bring management costs more in 
line with program costs.
    The EAC has committed to doing this analysis. In their 
transmittal with the budget justification that was provided to 
Congress, they have indicated they are willing to do a study 
and make the necessary changes to bring the costs in line. We 
think this committee should hold the EAC accountable to its 
word, make sure this analysis is conducted and whatever changes 
that need to be made are made by the EAC.
    Our role is to make recommendations that improve the EAC 
and to protect the taxpayers' investment in our Nation's 
election process. We will continue to work with the EAC and 
this committee to make the EAC's programs and operations 
economical, effective, and efficient.
    It is my pleasure to be here today, and I will be more than 
happy to answer any questions you have.
    Mrs. Emerson. Thank you so much, Mr. Crider.
    [The information follows:]

    [GRAPHIC] [TIFF OMITTED] T6791A.016
    
    [GRAPHIC] [TIFF OMITTED] T6791A.017
    
    [GRAPHIC] [TIFF OMITTED] T6791A.018
    
    [GRAPHIC] [TIFF OMITTED] T6791A.019
    
    [GRAPHIC] [TIFF OMITTED] T6791A.020
    
    [GRAPHIC] [TIFF OMITTED] T6791A.021
    
    [GRAPHIC] [TIFF OMITTED] T6791A.022
    
    [GRAPHIC] [TIFF OMITTED] T6791A.023
    
    [GRAPHIC] [TIFF OMITTED] T6791A.024
    
    [GRAPHIC] [TIFF OMITTED] T6791A.025
    
    [GRAPHIC] [TIFF OMITTED] T6791A.026
    
    [GRAPHIC] [TIFF OMITTED] T6791A.027
    
    Mrs. Emerson. As you are well aware, our country's debt is 
about $14 trillion, and we in Congress are soon going to have 
to face the hard decision of whether or not to raise the debt 
limit. Our committee has a responsibility to address the 
unsustainable debt by reducing spending, and certainly I intend 
to do my best to make sure that the reductions we make in our 
budget are reasonable and sustainable. We are looking for any 
cost savings we possibly can find.
    While I am pleased to note that the EAC requested $4 
million less for fiscal year 2012, which is a 24 percent 
reduction--and it would be good if all agencies could reduce 
their request by that much--I wonder if you believe that they 
could reduce costs by operating more efficiently; and, if so, 
what specific areas of their operations would you highlight?
    Mr. Crider. The management administrative costs in 
particular are something that need to be looked at. It is that 
they have a very large management staff at EAC, and that is an 
area where I think that some savings could be generated. As I 
stated earlier, the EAC is committed to doing that type of an 
analysis, but I would think this committee should hold them 
accountable for that, to make sure that it does in fact get 
done.
    There are opportunities to contract certain activities out 
to other Federal agencies such as human resources, accounting; 
procurement to other Federal agencies, such as the Bureau of 
Public Debt. Now, there will need to be resources on the EAC 
side to manage those functions or to make sure those functions 
are performed properly. But there are agencies that do this for 
other Federal agencies; like I said, the Bureau of Public Debt. 
That might be an area where we could take a look at in terms of 
okay, what do we need to do in-house and what can we let 
somebody else do for us?
    When we have a contract in the IG's Office that needs to be 
let, we use the National Business Center to do our contracting 
because I don't have a contracting officer. We used the EAC to 
do one contract for us, but for all intents and purposes, we 
contract that function out to another Federal agency.
    When we need an investigation done--I don't have an 
investigator on staff, and for a small agency like EAC, that 
may not be practical--I contract with another Federal agency to 
perform those services for us. So there may be areas like that 
that they could take a look at in terms how we can conserve 
some funds there.
    Mrs. Emerson. I appreciate that. The Bowles-Simpson 
Commission Report--I don't know whether you have read the whole 
thing or not--recommended significant reductions in government 
travel, printing, and other administrative costs. I believe the 
EAC should be able to achieve reductions or savings in those 
areas.
    There have been some reports that the EAC has sent numerous 
representatives to conferences around the country, where simply 
a few staffers or perhaps one might have sufficed. Do you 
believe that the EAC could further reduce its costs in areas 
recommended by Bowles-Simpson?
    Mr. Crider. It is my understanding the EAC is taking a very 
hard look at that. In terms of the printing costs, there was a 
proposal put forward in terms of not printing the State plans 
in the Federal Register, which would save a fairly significant 
amount of money in terms of the EAC. And it is my understanding 
from talking to staff at the EAC, that they are taking a very 
hard look at the number of people that are going on this travel 
and trying to see whether they can reduce it. But I do think 
those are areas that need to be looked at. Like we don't 
travel. We do everything by conference call that we possibly 
can in order to cut our travel costs, and I think that is 
something the EAC should be looking at also, and I believe that 
they are looking at that.
    Mrs. Emerson. I appreciate that, and I also appreciate the 
fact that you are finding significant savings within your own 
office by using other parts of the government who have 
expertise in those areas.
    It is my understanding that the EAC actually determines how 
much funding your office should request in the annual budget 
process, and I find that troubling given the fact that you are 
an independent office, given your oversight of the Commission. 
Do you find that that arrangement limits your ability to seek 
the level of resources you all need to accomplish your mission?
    Mr. Crider. I put my budget in separately in terms--I 
submit a separate budget package to the EAC detailing how much 
money that we need. The cut that we are taking this year is at 
the direction of OMB. The cash drawer is empty, and we all have 
to conserve money. We all have to understand that there is not 
near as much money as we would like to have necessary for 
operations.
    We are not a line item in the budget. The budget is then 
allocated back by the EAC, back to my office. We have not had 
any major problems in the past in terms of getting those funds 
back, but it is an area that could--it is just a matter of time 
before I irritate the agency again because that is just the 
nature of my work. They could take that out and say, okay, we 
are not going to give you any finding, or we are going to cut 
your funding. And my only recourse at that point in time would 
be to go to OMB and then to appeal to our oversight committee 
saying, they are doing this to us. But if nobody stepped up and 
said, okay, you can't do this, then they could, in fact, do 
that.
    So we are concerned about it. We would like to be a line 
item in the budget to protect that funding, and I think that 
would give us--that would help our independence. It is just 
something we would like.
    Mrs. Emerson. Are there any other agencies whose IG budget 
is not a separate line item?
    Mr. Crider. Yes, there are a number of them, okay. We are 
small. We are considered a DFE, a Designated Federal Entity IG, 
and a number of us are very small. And like I said, we are not 
necessarily line items. We would like to be a line item.
    Mrs. Emerson. Okay. I appreciate that. Mr. Serrano.
    Mr. Serrano. Thank you.
    Before I ask you a couple of questions, something comes to 
mind that I just think we need to remember. You know, if we are 
thinking only about cutting budgets--and that is what we are 
doing now--this statement could be true for every agency that 
we face on any subcommittee, which is that we have to try to 
balance what we do with the services that are rendered by those 
agencies.
    One of the characteristics of human beings is that we tend 
to forget--and we are looking now at the EAC--it is a small 
agency that may have problems and that a lot of people are not 
ready to stand up and support during difficult budget times, 
and it may disappear in the future. The law may be one of those 
that also doesn't get fully implemented, unfortunately.
    We forget HAVA came about because in 2000 we had a very, 
very, very difficult election result; and when I say difficult, 
that count that went on and the uncertainty and the pain, and 
the gentleman's State went through a very difficult time, and 
it doesn't matter what side of the equation you are on, Bush or 
Gore. It was painful for our country, and HAVA came about 
because of that, to try to remedy that.
    And I think as we move forward we have to remember that. We 
shouldn't forget that that was the reason the EAC was created, 
to hope that in the future we never have a situation like the 
one we had. Because when you see folks all over the world 
clamoring for systems that look a lot like ours, then you have 
to make sure you keep reinforcing ours and give everyone a 
chance. It is not enough to say we have the greatest system on 
Earth of any kind. The question is, is everyone participating 
equally? Is everyone getting the opportunity to participate? 
And that is what HAVA is supposed to accomplish.
    Inspector General, the last page of your testimony sums up 
what I believe is one of the biggest challenges facing the EAC 
today. Only two of the four commissioner positions are filled. 
Without a full Commission, the EAC cannot vote or act to make 
policy and strategic changes. Understanding that these 
vacancies are not the most pressing issue before Congress right 
now, what can the EAC do to address your concerns right now? 
Without the other two commissioners, what is realistic?
    Mr. Crider. The agency can function, according to the 
General Counsel's Office. They can perform a lot of their 
duties and responsibilities. While they cannot set policy, they 
can undertake some of the other actions that might be warranted 
at this point. We agree we would like to see the commissioners 
appointed. I think that would be a very beneficial thing for 
EAC to stabilize the organization, get the new commissioners 
in, and let the agency move forward if it is to continue to 
exist.
    But we do agree with you, we would like to see the two 
commissioners appointed, but they can still do a lot of stuff. 
They can award grants. They can conduct oversight. They can 
continue with their testing and certification programs. Their 
research projects can continue. So the EAC can continue to 
function on an operational level.
    Mr. Serrano. And you don't feel that not having the 
commissioners fully in place may leave open challenges where 
people say, well, the Commission was not fully put together 
when it made that decision?
    Mr. Crider. I would--there is that possibility. Like I 
said, we would like to see the two commissioners appointed, 
because I think that would be best for the organization, and it 
would forestall anything like that. There was another small 
commission that had only 2 commissioners. They continued to 
operate, and the Supreme Court basically set aside a lot of the 
work that they had done because they did not have a quorum. And 
like I said, we obviously want to make sure that doesn't happen 
at the EAC.
    Mr. Serrano. Okay. We all want our tax dollars to be used 
efficiently and effectively. That is not an issue of 
disagreement, and we all want open, fair, and accessible 
elections. With that established, what are the most important 
steps that you believe the EAC should take to increase 
efficiency?
    Mr. Crider. We would like to see them not only to take a 
look at the administrative and management side to see, okay, 
can we streamline this, can we move some of the money back into 
the program side to help the programs perform their mission and 
objective? That is the issue in the human capital management at 
the EAC, or areas where we would like to see aggressive--things 
being addressed aggressively so that the EAC can move forward.
    The EAC is a very good organization. I think it has a 
mission to perform, but it needs to be managing itself 
efficiently and effectively.
    Mr. Serrano. Now, how does that balance with my comments in 
my opening statement that some of these decisions, if not all, 
are mandated by law?
    Mr. Crider. There are only a few positions mandated by law.
    Mr. Serrano. Okay. And the rest you think are just fat that 
could be removed in some cases?
    Mr. Crider. I don't want to use the term ``fat''. This is 
where they need to do their analysis to determine what 
resources level they need and what skill-sets they need. We are 
not necessarily talking here about numbers of bodies, we are 
talking about skill-sets. What skill-sets are needed by the 
agency and do we have those skill-sets, and can we then trim in 
terms of anything that we don't feel is a success at this 
point?
    I realize we are talking about human beings and their jobs, 
but in the tight budgetary times that we have, we have to be 
efficient and effective.
    Mr. Serrano. But your suggestion is, trim it and then use 
it for programmatic----
    Mr. Crider. If there are ways we can trim it, and can we 
move the funds now to the program side?
    Mr. Serrano. One last question for this round. The 
President's budget for the EAC for fiscal year 2012 is $13.7 
million, of which 3.25 million will be transferred to the 
National Institute of Standards and Technology. This leaves EAC 
with $10.5 million for fiscal year 2012, which is $4.2 million 
below the fiscal year 2010 level in terms of operating 
expenses. Isn't the reduction in budget for the EAC proof that 
this agency has, in fact, found efficiencies already? Are you 
advocating for further reductions in the budget?
    Mr. Crider. The budget reductions have not--are just now 
starting to occur, and the EAC has got to look at its 
operations in terms of how much money we are going to have and 
how we are then going to get the work done. And this is where 
we think they need to look at the administrative side, because 
they are still operating at $17.9 million in terms of the 
continuing resolution. So this is going to be a very drastic 
reduction in 2012, and we think that they need to start 
planning for that now, looking at their administrative side and 
determining what resources they do need.
    Mr. Serrano. Thank you.
    Mrs. Emerson. Mr. Diaz-Balart.
    Mr. Diaz-Balart. Thank you very much, Madam Chairwoman. How 
are you, sir? Thanks for being here.
    Do you know approximately how many States that have HAVA 
grants, how many of them are yet to be audited?
    Mr. Crider. There are 55 jurisdictions, and we have 
completed audits of 28 States.
    Mr. Diaz-Balart. Any idea what the timetable is of the 
completion of those that have not been completed?
    Mr. Crider. There is still a fairly significant amount of 
money out in the States that has not been spent; in excess of 
$800 million. So a lot will depend upon, in terms of how fast 
the States spend those funds. I mean, they control how fast 
they spend it. So a lot will depend on how fast they spend it.
    We are able to do--this year, we have 10 audits underway 
right now and covering another $800 million in costs, which 
will bring our total audit up to about $2 billion, and that 
will leave about 1.3, $1.4 billion still out there to be 
audited at that point.
    Mr. Diaz-Balart. Eight hundred million dollars that still 
has not been spent. That is quite a substantial amount of 
money. Do we know why is it----
    Mr. Crider. I don't know the answer to that, sir. The EAC 
may have a better understanding of that. When we go out, we 
just look at how much they have spent.
    Mr. Diaz-Balart. Great. It is my understanding that your 
office did an audit of two EAC project vote grants----
    Mr. Crider. Yes, we did.
    Mr. Diaz-Balart [continuing]. Which funds subsequently went 
to ACORN?
    Mr. Crider. Yes, sir.
    Mr. Diaz-Balart. And it is also my understanding they 
provided no records of where the money went. Is that correct? 
Is my understanding correct?
    Mr. Crider. Yes. Yes, it is.
    Mr. Diaz-Balart. Any ideas of how to prevent similar 
situations like that one from happening in the future?
    Mr. Crider. Well, audit is one. By going out and doing 
audits is how we find this stuff, so I think audits are very 
important. But I also think oversight--is that when we looked 
at the records at the EAC, is that we found they should have 
had some additional records that they did not have, and I think 
that would have helped them. But you know, when you go out and 
grantees do what they do, and usually you find out after the 
fact in terms of whether or not the records are adequate or 
not. Like I said, that is where audit comes into play.
    Mr. Diaz-Balart. Absolutely. That is why it is crucial you 
are there to do your job. Is that an unusual situation, where 
no records are found to follow the money?
    Mr. Crider. Unusual. Like I said, we thought we would be in 
and out in a couple of weeks. It is not that much money 
involved. So we were a little bit dismayed when we found that 
they had no records. I hope I don't find we are in that 
situation again. Now, we run into problems with States 
periodically where their records are inadequate, but usually we 
work through the issue with the State. But in this particular 
case, like I said, there were just no records.
    Mr. Diaz-Balart. Who is responsible so that that doesn't 
happen? You know, are the States the ones who are responsible 
for that? Who is supposed to be tracking that at the time? 
Obviously you go back and you do audits afterwards, but at the 
time, who is responsible? And the reason for my question is: Is 
there any accountability for those who are responsible; or is 
there a clear, you know, chain of responsibility in a case like 
that?
    Mr. Crider. The grantees are required to maintain their 
records. So that is where that responsibility lies. As the 
grantor, the agency has limited ability at times to go--because 
that is what audit is all about.
    Mr. Diaz-Balart. True. I think I know the answer to the 
next one, but I have to ask it. In the fiscal year 2012 budget 
request for your office, I believe it shows 50 percent of your 
proposed funding will go to management expenses compared to 
10.9 for research and 12.5 for testing and certification. You 
know, in a vacuum, one would say, wow, that is a lot of money 
for management. I think you have kind of addressed that, but I 
think it is important that we hear it from you as to why those 
numbers look like that, because obviously if you looked at it 
in a vacuum, it wouldn't look that good.
    Mr. Crider. There is no doubt we are concerned about the 
amount of overhead at the EAC, and as Ranking Minority Member 
Serrano indicated, it is a small agency and there are certain 
functions the EAC has to perform. They need to look at ways to 
be more efficient and more effective, and that is what we are 
asking them to do. Like I said, as a part of their budget 
package, they have indicated their willingness to do that. I 
talked to the person doing the analysis this morning. They are 
doing the analysis, and hopefully we will have some results 
here shortly in terms of what the analysis shows.
    But I think it is important for this committee to also 
monitor that to make sure, in fact, it does get done; and if 
reductions are identified, that those reductions, in fact, do 
occur.
    Mr. Diaz-Balart. Right. Because, again, in a vacuum, if you 
looked at an agency where it is 50 percent management and then, 
what, 12.5 and 11 for testing and certification and research, 
it gets to the point where you think, again, they are small--I 
understand that--but it gets to the point if they are that 
small and they are spending this little on research and 
testing, and then are they really even doing what they are 
charged to do? It may not be their fault because they don't 
have enough budget, but the fact may be the same that they are 
basically spending all their money, in essence, on management 
and not doing much else.
    Mr. Crider. And that is what our concern is, okay, and that 
is why we think it needs to be looked at.
    Mr. Diaz-Balart. Thank you, Madam Chairman.
    Mrs. Emerson. This is interesting because when we had the 
Commission members, or at least the Chair, before us last year, 
and we brought up the management issue, we were told that they 
needed all the management staff. Of course, now we know that 
other agencies, whether it is GSA or the Debt Commission or 
whomever, can perform those functions for the smaller agencies, 
and it is an interesting contrast.
    Mr. Crider. What happened was they were over here and then 
they got over here. The answer is somewhere in the spectrum 
here in terms of where they need to be, and I think they are 
starting to recognize that themselves and they are willing to 
look at it. And I think it is a very positive step on their 
part that they are willing to look at it. We just need to make 
sure they do it.
    Mrs. Emerson. I appreciate that. Ms. Lee.
    Ms. Lee. Thank you, Madam Chair. Good morning. Thank you 
for being here.
    Let me ask you how the EAC carries out its core mission of 
ensuring the voting systems are in place and are accessible for 
everyone; also, to count both quickly and accurately and to 
ensure that any contested elections can be resolved so that we 
don't face the uncertainty of the 2000 elections again.
    I don't believe, and correct me if I am wrong, that you 
asked detailed questions about the specific failure of 
electronic machines. And so if you don't do that, how do you 
measure the performance of voting systems that you certify if 
you don't ask States how the voting systems are performing or 
failing to perform in actual elections? I think all of us know 
the difficulties and some of the problems with voting machines 
in the past, and so we thought that probably the EAC would be 
able now to assess their performance and know what the States 
are doing as it relates to these machines.
    Mr. Crider. Congresswoman, I am going to have to punt back 
to the agency. The EAC is the best one to be able to answer 
that question for you. I am not in a position to provide that 
information. So I think you need to go to the EAC for that.
    We have put an audit in our work plan for 2011 to go out 
and try to do an operational review of the testing and 
certification program. We will have to contract that audit out 
because we do not have the wherewithal internally to do it. The 
IG's Office is only three people, and it is a fairly technical 
review. We have actually had some conversations with GAO about 
the review and actually tried to get GAO to do it because they 
have already done--they did two policy reviews of the EAC 
testing and certification program. We are not going to be able 
to do that audit in 2011. Due to budgetary situations, we can't 
award a contract. Like I say, we have to contract the review 
out. We won't get it done this year, but we do agree that the 
program should be looked at. So if you guys would like to 
request GAO do that, we would be more than happy to help GAO on 
that.
    Ms. Lee. So you think it should be looked at?
    Mr. Crider. It should be looked at, okay. The program is 
moving now into actually testing equipment, certifying 
equipment. Now is the time to do operational review and say, 
okay, is it working properly? In order for us to get the voting 
public confidence in this equipment, we have to make sure the 
certification program is working properly, and I think that 
will help people get some confidence in our voting process, and 
like I said, we just don't have the wherewithal to do it right 
now, but we do think it needs to be done.
    Ms. Lee. Well, have you requested that it be done or 
requested us to ask for it to be done?
    Mr. Crider. Well, this is our first opportunity to testify 
before this committee. So, like I said, you know, we have 
talked to GAO and they have indicated that they don't have--
they have got a lot of requests, too, and we did talk to House 
Admin last year about maybe trying to get them to get it done, 
but it hasn't been done yet. Like I said, it is something that 
needs to be done, and if you would like to get a letter from us 
indicating----
    Ms. Lee. I would like to do that because we have been 
asking for quite a while. There seem to be roadblocks and we 
would like to get a letter.
    Mr. Crider. Okay.
    Ms. Lee. And then I would definitely pursue how we can get 
that done.
    Mr. Crider. Okay. Thank you very much. We appreciate the 
help.
    Ms. Lee. Thank you again. Can I ask one more question? When 
you do these audits, do you do them--when you contract out with 
minority women-owned audit companies and accounting companies--
or how do you make sure that the audit functions are inclusive 
of diversity in the industry?
    Mr. Crider. The first contract we awarded for our grant 
audits was a straight competitive procurement, and we tried to 
make sure that the solicitation was sent to some minority 
firms. The firm that was selected to do the financial audit is 
a minority firm. We targeted small businesses, minority firms 
for that particular award, because it is perfect. And so like I 
say, we had it split.
    But we are very cognizant of those goals and we try to make 
sure that we do make sure that when we do have a solicitation 
it goes to all appropriate problems.
    Ms. Lee. Do you use the 8A program through SBA?
    Mr. Crider. No, we do not. We have not used it in the past. 
We use the GSA schedules, and like I said, we did target this 
one for a----
    Ms. Lee. Well, if you have a breakdown of the money that 
you use, the money that is spent on audit services and the 
breakdown of the contracts or the companies, I would like to 
see that.
    Mr. Crider. Sure. We can provide that to you.
    Ms. Lee. Thank you very much. Thank you, Madam Chair.
    [The information follows:]
    [GRAPHIC] [TIFF OMITTED] T6791A.028
    
    Mrs. Emerson. Mr. Womack.
    Mr. Womack. Thank you, Madam Chairwoman, and I apologize 
for my late arrival.
    You are a CPA?
    Mr. Crider. Yes, sir.
    Mr. Womack. So numbers mean something to you. When I look 
on the management side--and I know in response to Mr. Balart's 
question a minute ago, you talked about that--I want to drill 
down just a little bit further on it--$5.4 million to manage 
programs totaling $3.4 million; is that correct?
    Mr. Crider. Yes, sir.
    Mr. Womack. How do you justify that?
    Mr. Crider. That is something you need to talk to the EAC 
about, okay, in terms of what their justification for that is. 
We share your concerns.
    Mr. Womack. Now, I heard you use the ``hope'' word just a 
minute ago in response. I think it was to some audits or 
accountability. I was taught a long time ago in my military 
service that ``hope'' is not a method. And I think from hearing 
colleagues here talk about these very problems, that we are 
looking for solutions, real solutions, and more importantly 
than that, we are looking for some benchmarks and for some 
timelines, suspense dates, when certain things are going to be 
fixed or this can gets kicked down the road. And so I am 
hopeful, hopeful, that the words actually mean something and 
they are not just an appeasement to us at the committee level. 
So, your response.
    Mr. Crider. I agree with you. That is why I would think 
this committee's oversight in terms of making sure the EAC does 
what it needs to do is very, very important. One of the reasons 
is that--we got the recommendations implemented from our 
assessment report that we issued in 2008--was that 
Congresswoman Zoe Lofgren, when she was the chair of the 
Subcommittee on Elections as part of House Admin, required that 
the EAC report to her on a monthly basis in terms of where they 
were at in implementing those recommendations. That 
congressional oversight I think was extraordinarily valuable 
and critical in terms of getting those recommendations 
implemented. And I think that is a very valid approach for this 
subcommittee is to request that type of information from the 
EAC to make sure they do what they are supposed to do.
    Mr. Womack. What would happen if there is a bill pending 
that you reference in your testimony from Representative Harper 
about abolishment of the EAC. And I realize, you know, you 
can't speak to do that, but what would be the net effect in 
America if the EAC and its programs went away?
    Mr. Crider. I can't speak necessarily to the EAC side of 
the house in terms of their programs and operations. But I can 
speak to my operation in terms of what it would mean for us, or 
what it would mean, is that those funds would not be audited 
that are sitting out there unless the audit function was to 
move to another Federal entity, which is possible. That is 
doable, okay. It happens. So we would like to make sure that 
those type things and make sure that there is an opportunity 
for States to draw down their money. The States need to know 
where to file their financial reports. And the audit function, 
whether or not that should continue, whether or not it is moved 
to another Federal agency or stays in the EAC is somebody 
else's decision.
    But in terms of the implication on the rest of the Nation, 
they are talking about moving the testing and certification 
program to another Federal entity. I think the EAC would be in 
the best position to address your concerns, sir, in terms of 
what impact that would have.
    Mr. Womack. That is fair. Thank you for your testimony.
    Mrs. Emerson. I want to go back to the grants just a little 
bit, if you don't mind. While I understand the funding has left 
the Federal Government coffers and is being held by the States, 
is there any realistic way that you can see for us to return 
some of that money to the U.S. Treasury since the States aren't 
using it?
    Mr. Crider. No, ma'am. I don't think so. Chairwoman 
Emerson, GAO issued an opinion on this matter last year or the 
year before. These are considered formula grants, and that the 
money is obligated based on law, and that the States have a 
legal right to those funds at that particular point. So getting 
the money back does not seem to be a legal, viable option, in 
my view.
    Mrs. Emerson. Okay. So, in light of that, what is your 
assessment of the EAC's management of that funding?
    Mr. Crider. They really don't--they send the funds out. The 
funds go out up front. The States have to put up their match 
and they have to file their certifications, and then the States 
are able to draw down their funds. They then file annual 
financial reports to the agency in terms of what they spent the 
money on. The States then are allowed to--the States do come in 
and request periodic guidance and things of that nature, but we 
have never really looked at their management and administration 
of those funds. Like I said, we have been focusing on the 
States at this point.
    The EAC has just now developed policies and procedures for 
most of its operations as of September 2010. So we have 
somewhat held off on issuing the same report over and over 
again until they got their structure in place. And we couldn't 
see making the same recommendation multiple times: You need 
policies and procedures.
    Mrs. Emerson. Okay. So to what degree have you examined the 
manner in which the States are spending this funding? Have you 
uncovered any instances where the funding has been spent in a 
manner inconsistent with the intent under HAVA?
    Mr. Crider. We have questioned $31 million in costs that we 
have audited, which is not a huge percentage of the amount of 
money we audited.
    Now, we have had a situation down in New Mexico where the 
Attorney General's Office of the State of New Mexico is 
actually prosecuting four individuals related to a contract 
that was awarded by the State for educational training and 
advertisements of the public media campaign, and the Attorney 
General's Office is prosecuting, like I said, four individuals, 
and two of the individuals have been indicted for Federal 
income tax evasion charges.
    So, I mean, we do have situations, like I said, and we have 
had two inquiries from the FBI on two grants in two localities. 
With the FBI, they get information from you and they don't 
always tell you what they do. But like I said, we have a couple 
cases where things have happened.
    Mrs. Emerson. Have you actually found fraud in looking at 
the grants yourself, or has the FBI found out separately. How 
has that worked?
    Mr. Crider. The New Mexico situation came out of one of our 
audits, okay. We had been requested by the new Secretary of 
State to come down several years ago and take a look at that 
program. And based on the results of the audit is that the 
State then picked it up from where we finished and followed the 
money all the way through. We went to the contractor. They took 
the money from the contractor after that point, and that is 
where it seems to be most of the activity occurred according to 
the indictment. That could have come out of one of our audits.
    We have actually been very impressed with the States. I 
mean, they want to do the job right. They want to make sure the 
money is spent properly. They want to make sure they have 
adequate documentation. So, I mean, we are very impressed with 
the States. They have a very--they are very dedicated to the 
program. Like I say, they want to make sure they do it right, 
and we have had I think a fairly good working relationship with 
most of the States.
    Now, one of the things they do do is sort of an 
interesting--is that when we publish a report, they all read 
that report and say, okay, do we have this problem? So a lot of 
times when we go out there, they have already fixed things that 
they had done that might have been questioned, and we welcome 
that. We think that is a wonderful mechanism in terms of trying 
to make sure the program is run properly.
    We also publish a semiannual newsletter where we try to put 
out results so people are aware of what is going on. So, you 
know, if they have a problem in their program, they can fix it.
    Mrs. Emerson. That is good. Let me shift gears for just a 
minute to some contracting issues.
    Chairman Lungren of the House Administration Committee and 
I have both raised concerns in the past with regard to the 
Commission's contracting practices and, specifically, we raised 
some questions concerning the EAC's practice of awarding 
contracts noncompetitively or in instances where they received 
only one bid. Additionally, we questioned the degree to which 
EAC contracted out positions that contain inherently 
governmental roles. Have you looked into their contracting 
practices; and if so, what recommendations have you issued in 
response?
    Mr. Crider. We have had that particular view in our work 
plan for 2 years running now, but because of resource 
limitations, we have not been able to get to it. But we do 
think it is a review that needs to be done, but we just haven't 
had an opportunity to get to it. We looked at, well, should we 
contract the review out in order to get it done? That is 
something we are looking at this year in terms of possibly 
contracting it out, but due to budgetary situations we have not 
been able to get there yet.
    Mrs. Emerson. I guess that begs the bigger question, then: 
do you think it is more cost effective for EAC to hire 
contractors for many of the missions it is responsible for, 
including you?
    Mr. Crider. You have to look at each situation specifically 
in terms of what is being done and what is inherently 
governmental and what the results--what their accomplishments 
are. There is no blanket answer to that one because there are 
certain things that are inherently governmental that you can't 
contract out.
    Mrs. Emerson. All right. I appreciate that. Mr. Serrano.
    Mr. Serrano. Thank you so much. You know, we talk about 
budget cuts and budget cuts, but I see from the proposed budget 
that you are asked to take an 11.7 decrease, your own office, 
from fiscal year 2010 to 2012. How will this affect you? What 
are you planning to do? Will you reduce the number of 
contractors that you use?
    Mr. Crider. Yes, that is exactly it. We won't do a couple 
of audits, possibly. That is how we will do it. We will absorb 
it through our contracting.
    Mr. Serrano. You still feel confident that you can do the 
job, accomplish your mission?
    Mr. Crider. Well, we contract our grant audits out, and 
that is where we will take the cut. We just won't do a couple 
grant audits. Will it extend the audit cycle? Yes, it will, but 
I have to live within the parameters of the budget that we are 
given because, like I said, the money is tight.
    Mr. Serrano. Now, in your testimony, you point to the fact 
that the EAC has made strides in several areas. They showed 
improvement in financial management processes and in compliance 
with the Federal Information Security Management Act. Can you 
tell us about these improvements?
    Mr. Crider. Yes, sir. Whenever we did the first financial 
in 2008, the EAC received a disclaimer which is not unusual for 
a first-year audit, but they were not able to produce the 
records that the auditors needed to conduct their audit. There 
were a lot of internal control issues identified. There were a 
lot of problems in terms of their financial reports. They 
actually had to hire somebody, a contractor, to come in and 
help them figure out how much money they had left to spend. So 
there were a lot of issues involved.
    They have subsequently gotten an unqualified opinion. They 
received an unqualified opinion on their financial statements 
last year, which is extremely good. So they made a tremendous 
amount of steps and improvements in that area, and I do want to 
give them compliments for that. They went from being in total 
disarray to having an auditable financial system.
    In terms of the FISMA, they actually had no FISMA--they had 
no IT security program at all when I first got there, and we 
were issuing reports on an annual basis: You have no IT 
security program. They now have an IT security program. They 
are starting to address the PII data in terms of security. So 
they have made a lot of steps in that area, also. Like I say, 
they should be very pleased and very proud of what they have 
accomplished.
    Mr. Serrano. Let me ask you a quick question. Our 
chairwoman was asking you whether those dollars that went to 
the States and are not being used, can they be returned, and 
you said no.
    Mr. Crider. Right.
    Mr. Serrano. I don't know if you answered this part or if 
she asked. Why would the States not be using the money or what 
is the problem locally?
    Mr. Crider. I don't know the answer----
    Mr. Serrano. And you are hearing this from a person who 
represents a State that we almost had to drag into submission 
at one point. Probably will not go well back home that I said 
that. But you know, folks, there is money here, can we get it 
going, you know; and I think we were the last ones to use the 
scanning machine and so on, which I thought was kind of cool 
because you could see the whole ballot.
    You know, I don't know how it is in your State, but in New 
York, you are placed on the ballot based on the size of your 
district. So if you represent the whole borough of the Bronx at 
a local level, you will appear on top of a Member of Congress 
because that is a smaller district. So on election day when you 
look at our numbers and you see lower numbers than the other 
parts of the country, some of the reasons are I have one of the 
youngest districts in the Nation, I have a lot of, as you know, 
a lot of immigrants, poor folks at times, but it is line number 
24 to find Serrano. I mean, it is very----
    Mrs. Emerson. So, small physically. Is that what they are 
talking about?
    Mr. Serrano. Yes. So, for instance, we have a position 
called Bronx borough president--I am not mocking that. It is 
like county executive, except it really isn't. So that person 
represents the whole county of the Bronx. If we got on the 
ballot the same year, that person would be higher than the 
Member of Congress. Yet the Senator goes on top. So you see 
Schumer and Gillibrand, and then you have to go through a 
thousand judges and everybody else to get to your local 
Congressman. You know, very painful and very difficult for your 
ego, you know. Don't you know I am a Federal official, 
Federales, you know?
    I don't know, I don't know what the question was, but if 
you can answer it.
    Mr. Crider. Well, Ranking Member Serrano, I think you have 
a valid question, but I don't have an answer for you in terms 
of why the States are not spending their money. Maybe the EAC 
would be able to give you some perspective on that, but I don't 
know. But it is a good question, and I wish I had an answer for 
you.
    Mr. Serrano. Thank you. Incidentally, nothing--a great 
sense of pride in the Balart family who would understand this, 
but my son is a State senator. So, in addition, try in a 
primary Jose Serrano for Congress and then you have underneath 
Jose M. Serrano for State senate. You have a heart attack until 
they count the votes.
    Mrs. Emerson. You ought to try running twice in the same 
election like I did the first time in two different parties. 
That was even more interesting.
    Mr. Serrano. Thank you.
    Mrs. Emerson. Mario.
    Mr. Diaz-Balart. I am fine.
    Ms. Lee. Well, I do have to follow up on this whole issue 
of unexpended funds in the States. I am just looking at my 
State, for example. What is it, $181 million California has 
not----
    Mr. Crider. Right.
    Ms. Lee. What precludes States with budget deficits from 
using this money? And I know there are Federal strings attached 
that have to do with, you know, HAVA; but what precludes them 
from back-filling, using this to backfill budget deficits?
    And then, secondly, if they are not using the money, why 
don't we give them a waiver to use it for other efforts? If 
they don't use it for--if everything has been completed as it 
relates to HAVA, then what is the problem?
    Mr. Crider. Well, what prevents them from using the money 
for other purposes is me.
    Ms. Lee. Is what?
    Mr. Crider. Is me. When I go out and do the audits, that is 
what we look for: Are you using the money for its designated 
purposes; are you using it for HAVA purposes, and of course 
with the law? That is what we do, and so that is where the 
benefit of audit comes into play.
    Now, there are always activities related to some 
improvement of Federal elections in terms of there are always 
things that probably can be done. Now, if the Congress wanted 
to give them waivers to allow them to use the money for other 
purposes, that would would be up to the Congress. That is a 
legislative thing but that is a congressional initiative.
    Ms. Lee. But if they are not using it for HAVA, are they 
given suggestions on--maybe they haven't completed the work. Is 
that a possibility why these funds haven't been expended? Are 
they holding it for the next election, or what could be some of 
the reasons? I know you haven't had--goodness, if we cut your 
budget, how are you ever going to find out?
    Mr. Crider. Like I said, that is something you try to 
direct to the EAC and see if they have any knowledge as to why 
these States are not expending their funds, but they are 
facing, as you pointed out, tough budgetary times, too, and 
some of this equipment at some point in time will have to be 
replaced. This is electronic equipment, and we are seeing some 
States are now having to replace some of the equipment.
    I think Florida did it, and they were allowed to use the 
Federal funds for that. So, I mean, there will be a point in 
time where this equipment has to be replaced. It is electronic. 
So there are future expenditures that may be required.
    Ms. Lee. So they could be holding them for future kinds of 
efforts?
    Mr. Crider. The money is in an interest-bearing account, 
and the interest can be used by the State for program purposes. 
Now, that is a unique aspect of the HAVA law is that most 
States, when we have Federal funds in an interest-bearing 
account, the interest goes back to the Federal Government. HAVA 
was unique. It allowed the States to use those funds.
    Ms. Lee. Only for program purposes relating to HAVA, 
though.
    Mr. Crider. Yes.
    Ms. Lee. That is good. So the States that haven't expended 
their funds, we don't need to assume they are using it for 
other purposes.
    Mr. Crider. Right.
    Ms. Lee. Also that they don't need it; they probably do 
need it for future expenditures.
    Mr. Crider. Like I say, maybe the EAC will have a better 
perspective on that than I do. Okay, I am sorry I am not really 
able to address that for you.
    Ms. Lee. Well, is there a way we can find out?
    Mrs. Emerson. We can have a meeting with the EAC 
commissioners if you would like. We could do a hearing, but we 
might get more out of a meeting.
    Ms. Lee. I think that would be a good idea.
    Mrs. Emerson. Okay. I am happy to do that.
    Let me ask you, Mr. Crider, you have investigated a number 
of questionable management practices within the EAC. Would you 
do me a favor and elaborate on some of the issues and the 
recommendations that you have offered to address them?
    Mr. Crider. When you go back and read our assessment report 
in 2008, like I say, it contained 29 recommendations about 
policies and procedures and changes and strengthening internal 
controls. And that was a very significant report.
    In the financial audit in 2008, we issued a number of 
recommendations there in terms of how to tighten the financial 
management system, how to improve the internal controls over 
the financial management.
    The investigative report, we did not make any 
recommendations in the investigative report that was done by 
the Department of the Interior for us on the hostile work 
environment, because that was something that I think I should 
be held responsible for. We should have made recommendations in 
that report, and I did not. There are a number of issues in 
that report I think the EAC needed to address in terms of how 
its employees felt about managers, the employee appraisal 
system, things of that nature, that we should have made 
recommendations to them that we did not.
    We just did a little review on an incident that happened at 
the Christmas party. We made recommendations in that report for 
additional EEO training for all of its employees, make sure 
supervisors were aware of their responsibilities regarding EEO, 
and if they see something that happens, how they needed to 
address it.
    Mrs. Emerson. Have you seen any cultural or management 
changes in the past several months that have been made there at 
the EAC?
    Mr. Crider. They have a new general counsel on staff, and I 
think that he brings a perspective to the organization that 
will be very beneficial to the organization. He is the one that 
is doing the analysis of the administrative workload at the 
EAC, and I think that he recognizes that certain things need to 
be done at the EAC in terms of EEO training and EEO processes. 
And I am very hopeful that his leadership will be very 
beneficial to the EAC in helping them move forward in some of 
these areas.
    Mrs. Emerson. Will you be able to report back to us in 
about 3 months and let us know how that is going?
    Mr. Crider. We will do that, yes, ma'am.
    Mrs. Emerson. All right. I would appreciate that very much. 
Mr. Serrano.
    Mr. Serrano. See, here is the concern that I have. Again, I 
think the EAC is an easy target for people who want to cut 
budgets, and when I say ``people,'' everybody wants to cut 
budgets, some people want to cut more than others. And at what 
point do we know if the States are set up to conduct elections 
with less or perhaps none of the concerns that we had in 2000 
that brought us to create the EAC to begin with?
    Mr. Serrano. As I said before, these discussions go across 
the government. You know, I just came from a hearing of the 
Interior Subcommittee with the EPA. And you know, the 
discussion by one side, or 1\1/2\ sides of both aisles, will be 
when you cut, you know, how much do you cut EPA's ability to 
look after our water and our air and so on? What is the future 
going to be?
    So, what is within your mechanism, within your setup, to 
tell Congress, you or someone else in the future, you know, 
States are doing what you wanted them to do or what you hoped 
would be accomplished by these grants and by this kind of 
oversight and this involvement? Because, you know, we--and 
again, this is just a statement for the record; everyone in 
this room can make the same statement.
    We speak about the budget. We speak about the system. We 
speak about the future of the country. But at the center of all 
of that is this great ability we have to go to the polls in 
November and pick the people who will lead us at the local 
level or at the Federal level. So, to me, this agency is small 
but extremely important. Is there a setup, an ability to tell 
the Congress, to tell the American people we have reached a 
point where things are going well at the local level?
    Mr. Crider. It is a changing target. A lot of these 
officials at the local level are elected. Most secretaries of 
state are elected. So there is turnover there. There is change. 
So I am not sure how you will ever get to that point where you 
are saying, yeah, everything is going to work perfectly, 
because it probably won't. Elections are a very complicated, 
very difficult process. There are going to be problems 
periodically. And whether or not those problems rise to the 
level of a national crisis, I don't know the answer to that. I 
don't have a good answer for you, Ranking Member Serrano. I 
don't.
    Part of it is a political decision on the part of the 
United States Congress: Do they feel like we have gone far 
enough or not gone far enough or whatever they think needs to 
be done? I don't have a good answer for you.
    Mr. Serrano. Just for the record, the reason I asked you, 
because I don't have an answer at all. So don't feel bad.
    Madam Chair, I have a couple more questions that I would 
like to submit for the record.
    Mrs. Emerson. Absolutely.
    Mrs. Emerson. Mr. Diaz-Balart, do you have any questions?
    Mr. Diaz-Balart. No, Madam Chairman. I am looking forward, 
though, to getting some answers on the other issue of the 
unspent funds.
    Mrs. Emerson. I think it is a great idea for us to have a 
meeting with the Commission members.
    Mr. Crider, just to follow up with what Joe asked you, are 
you in a position to tell us whether or not the EAC actually 
provides States with useful information on voting technology 
and on administration?
    Mr. Crider. Not at this point. We have not looked at those 
particular programmatic areas. And like I said, we would like 
to take a look at the testing and certification program because 
I think that is the linchpin program of EAC. That is their 
flagship.
    Mrs. Emerson. Well, I certainly think this does warrant us 
to have a meeting.
    You touched on this in your testimony and this is my last 
question, and I have a couple to submit for the record as well. 
We didn't pursue it, but you said the secretaries of state and 
State election officials are, they are calling for the 
dissolution of the EAC, and it confounds me. Do you have some 
thoughts on this?
    Mr. Crider. We have talked about it. We don't have an 
answer as to why they want to have EAC abolished. You know, it 
would be nice to know if there was an inherent problem or an 
issue that we need to address internally at the EAC or whether 
or not it is just a political decision or what it is. I don't 
have an answer for you. EAC may have a better feel for that 
than I do.
    Mrs. Emerson. All right. Well, certainly we have given the 
Commission these funds, and perhaps it is just ``you have given 
us the money and now let us do our job'' attitude. Who knows? 
But it certainly is something that we need to pursue. It is 
just puzzling to me, if nothing else.
    With that, we will submit the rest of our questions for the 
record.
    Mrs. Emerson. And we thank you so very much for being here 
today.
    [The information follows:] 

    [GRAPHIC] [TIFF OMITTED] T6791A.029
    
     [GRAPHIC] [TIFF OMITTED] T6791A.030
    
                                            Tuesday, March 8, 2011.

                     SMALL BUSINESS ADMINISTRATION

                                WITNESS

KAREN G. MILLS, ADMINISTRATOR, SMALL BUSINESS ADMINISTRATION
    Mrs. Emerson. The subcommittee will come to order. Good 
afternoon to my colleagues, especially good afternoon to you, 
Administrator Mills, and welcome to our subcommittee. We 
appreciate your being here and greatly appreciate all the work 
you do on behalf of our small businesses around the country. We 
all know because of our districts--whether Joe's or Rodney's or 
mine--that small businesses are critical to improving the 
health of our economy. And with unemployment a wee bit better 
but still almost at 9 percent, job creation is the most 
important goal that we have.
    America's small businesses account for half of the 
country's Gross Domestic Product, and we are responsible for 
creating 65 percent of net new jobs between 1993 and 2009. And 
I believe very strongly that the Federal government must find 
innovative ways to assist small business development and 
expansion. And I think you all are doing a good job.
    And because of the critical role you play in assisting 
small businesses through capital--giving them opportunities to 
compete for government contracts and for all the work that you 
do with regard to technical assistance, I know that without 
SBA, an awful lot of businesses in my district would probably 
not even be there, so we are grateful to you.
    The President's fiscal year 2012 budget request for the 
Small Business Administration totals $985 million, $161 
million, or an approximately 20 percent increase over fiscal 
year 2010. This includes a $132 million increase in the 7(a) 
lending subsidy, and a $90 million increase in administration 
for the disaster loans account. And I am worried about 
flooding. Heaven knows we are going to have some real 
challenges with regard to the whole disaster loan account.
    I do understand that carryover from prior year 
supplementals previously supported costs associated with 
administering the disaster loan account and that this funding 
has run out.
    I would like to see the administration find better ways to 
use the SBA to provide small business assistance instead of 
burdening entrepreneurs with additional tax and regulatory 
hurdles. And I am also concerned that in implementing massive 
new regulations on the health care and financial industry, the 
administration is overregulating our small businesses and 
slowing their ability to expand operations and create new jobs.
    With that being said, I am very interested and I know my 
colleagues are too in really listening to your ideas on how to 
stimulate job growth. I look forward to your testimony. I know 
you all are working tirelessly to help all American small 
businesses and we are grateful for your efforts.
    Let me recognize our ranking member, Mr. Serrano, for his 
remarks and then we will go to you. Joe.
    Mr. Serrano. Could you do me a favor? Could you bang that 
gavel once?
    No, no, no. Bang it. Elections have consequences for the 
chairwoman, and I want you to use that gavel with all your 
strength.
    Mrs. Emerson. I have been using it on the House floor quite 
a bit.
    Mr. Serrano. Yes, you have. If you have analyzed what I 
just said, in some weird way, it is a compliment.
    Mrs. Emerson. Well, I appreciate that. And it helps get rid 
of my frustrations, because I actually was thinking about who I 
was smashing.
    Mr. Serrano. Once I got the gavel I used it well.
    Mrs. Emerson. You did indeed, I agree.
    Mr. Serrano. If it comes back again, I will use it very 
hard.
    Mrs. Emerson. We will do our best to make sure that doesn't 
happen.
    Mr. Serrano. I am sure.
    Mrs. Emerson. As much as I love you.
    Mr. Serrano. You and a lot of other folks. Thank you and we 
welcome you, Ms. Mills, to this hearing today. Because of the 
crucial part that small businesses play in job creation in our 
continued economic recovery, the SBA has a very important role 
in promoting job growth. SBA facilitates small business 
development, training, technical assistance and company 
programs, government contracting programs and advocacy. The 
agency also helps businesses and homeowners affected by 
disasters through its disaster loan programs.
    The agency's budget request for fiscal year 2012 is $985 
million in new budget authority. And I look forward to 
discussing this request with you during our questions. I am 
disappointed, however, that once again, this budget request 
underfunds some small business assistance programs that 
specifically help low income populations.
    For example, Microloan Technical Assistance, a program that 
assists our smallest business owners, would be cut by $9.2 
million from fiscal year 2010.
    Zero funding was requested for the Program for Investment 
on Micro Entrepreneurs, or PRIME. This program provides grants 
to help with training and technical assistance for 
disadvantaged business owners, particularly those in very low 
income areas. Particularly during difficult economic times 
these are not the programs we should be targeting for cuts.
    I look forward to talking to you today about these programs 
and learning more about the progress you are making in some of 
your newer efforts. Again, we welcome you and we thank you for 
your service to this agency and to our country, thank you.
    Mrs. Emerson. Administrator Mills, please go ahead.
    Ms. Mills. Well, thank you very much, Chairwoman Emerson 
and Ranking Member Serrano and members of the committee. I am 
pleased to testify before you. Small businesses, as the 
chairwoman said, are the backbone of the economy, they create 
two out of every three jobs. And more than half of working 
Americans own or work for a small business. The SBA is a small 
agency, but we have a big mission. We put the maximum possible 
resources directly into the hands of small businesses, focusing 
on the 3 Cs, capital, counseling, contracting.
    Last year we helped over 50,000 small businesses get the 
capital to grow and hire. We helped put about $100 billion in 
Federal contracts in the hands of small businesses, and we 
counseled more than a million small businesses across your 
districts and throughout the country.
    We put these resources in their hands while providing 
taxpayers a big bang for their buck. For example after credit 
froze in 2008, the Recovery Act and the Small Business Jobs Act 
supported more than $42 billion in SBA loans at a subsidy cost 
of $1.2 billion. Many small businesses suffered greatly from 
the recession. Our job is to support them as they grow and 
create jobs, and this job is not done.
    The President's proposed fiscal year 2012 budget for the 
SBA of $985 million, will support up to $27 billion in loan 
guarantees, as well as many other tools and resources to help 
our small businesses across the country.
    At the same time, this budget reflects a commitment to 
tighten our belts, to streamline our processes, and to 
eliminate duplication. This includes some of your ideas. For 
example, we looked hard at our technical assistance programs, 
and as a result, we do propose eliminating the PRIME program 
that the ranking member referenced.
    With the work of our microlenders and some new efforts to 
recruit community-based lenders, we can continue to provide 
technical assistance just in a more cost effective way. In 
addition to the process reengineering, our disaster loan 
operations are now much more efficient. We can preserve our 
level of preparedness, with steady state core staff levels of 
850, instead of 1,000, along with our 2,000 reservists.
    The largest increase in our budget reflects the fact that 
we have reached the statutory limit of fees that we can assess. 
We request additional subsidy because losses, including those 
from loans approved when collateral such as real estate was 
inflated, have pushed up subsidy costs. We also request a 
legislative fix to return to near zero subsidy. We also request 
incremental increases for our new women's contracting program, 
and continued efforts to remove fraud, waste and abuse in 
contracting.
    Overall, our priorities are twofold. We placed a focus on 
SBA programs that put money and support directly into the hands 
of small business owners in the places where they live. And we 
will continue to invest in oversight, to preserve the integrity 
of these programs, and to protect the interests of taxpayers.
    I look forward to working with all of you, to continue to 
insure that small businesses are succeeding, because as you 
know, when they succeed, America succeeds.
    Thank you very much, I would be happy to take your 
questions.
    [The information follows:]

    [GRAPHIC] [TIFF OMITTED] T6791A.031
    
    [GRAPHIC] [TIFF OMITTED] T6791A.032
    
    [GRAPHIC] [TIFF OMITTED] T6791A.033
    
    [GRAPHIC] [TIFF OMITTED] T6791A.034
    
    [GRAPHIC] [TIFF OMITTED] T6791A.035
    
    [GRAPHIC] [TIFF OMITTED] T6791A.036
    
    [GRAPHIC] [TIFF OMITTED] T6791A.037
    
    Mrs. Emerson. Thank you, very, very, much. I will go ahead 
and start the questions, and welcome to Mr. Womack too.
    As you have heard, as you have seen, at least with the 
continuing resolution that was passed a couple of weeks ago, 
the House majority is committed to reducing non-security 
discretionary spending to fiscal year 2008 levels. And for this 
subcommittee, that represents a 17 percent reduction. Though I 
will readily admit I am not sure that a reduction to 2008 
levels is good for the SBA with employment at 8.9 percent, we 
are still asking agencies to tell us what it would look like to 
live at that 2008 level. So hypothetically, hopefully 
hypothetically, what is the impact of a 17 percent reduction to 
your agency's operations?
    Ms. Mills. Well, that would be a tremendous impact if we 
went back to 2008 levels. As you know, we are a small agency, 
and as I described, we have a big mission, and it is a most 
difficult time to this day because small businesses have not 
recovered completely from the recession.
    So it would have an enormous impact. For instance, we would 
run out of money in our loan program. Because of the subsidy 
issues that I described, we would not be able to make loans 
after the money ran out, and that would curtail what has been a 
very, very effective program to provide access and opportunity 
to small businesses as the capital markets froze.
    In addition, we would curtail the tremendous progress that 
we have been making, or reduce the level of the progress we 
have been making in curtailing fraud, waste and abuse. And 
finally, of great concern, is our preparedness would go back to 
Hurricane Katrina levels which is unacceptable for the level of 
preparedness that we need to support our small businesses and 
homeowners in times of distress and disaster.
    Mrs. Emerson. So----
    Ms. Mills. From the point of view of small business, it 
would be a real setback.
    Mrs. Emerson. And if you couldn't reduce the budget or we 
didn't feel that it was appropriate to reduce the budget by the 
17 percent to go back to 2008 levels, the cuts that you all 
have self directed, do you think that you have gotten to the 
bare bones at this point in time, in order to fulfill your 
mission? We talk about the subsidy levels and that is why you 
have asked for an increase, et cetera. I mean, because if we 
can actually come up with a figure that works, I mean, we can 
sell it on our sides of the aisle. Joe has the luxury of--isn't 
that the luxury of supporting increases from 2011 levels?
    Mr. Serrano. I have the responsibility of not destroying 
government.
    Mrs. Emerson. Well, in this case we are leveraging for the 
private sector so this is kind of one of those in between 
agencies as far as I am concerned. I think 17 percent impacts 
your mission, I will readily admit that. My other colleagues 
may not agree, I think it does.
    You know, I was at--on Friday, at a small business that is 
owned by a 23-year-old woman who started this clothing store in 
a place where there were no sort of fashions for the 25- to 40-
year olds. She had this dream, 21 years old, she saved a lot of 
money, then she was able to get some help through an SBA loan 
and cosigning. I think the grandparents may have cosigned.
    However, she is making a lot of money, she is 23 years old, 
and a half, I think. And were it not for that SBA loan--I mean, 
it is remarkable, and I can't imagine being and being willing 
to take the risk, especially because she kind of started in a 
down economy, but by God, she has got it figured out. So I am 
obviously a huge fan. Nonetheless, we really have to be 
realistic. I am not going to make you answer that question.
    But Bowles Simpson recommended lots of reductions for 
things like travel, and vehicles, and printing. Do you all 
think that you can make savings, at least in those types of 
categories? Does that impact your mission very much?
    Ms. Mills. Well, as you know we are a small agency and much 
of our activity happens on the ground helping small businesses 
one by one. You have described, I think, the great joy of this 
job, which is supporting entrepreneurs because it is the 
entrepreneurs and the small businesses that actually create the 
jobs.
    When we have looked through our budget, we have submitted a 
budget that has difficult cuts in it for us, that streamlines 
operations, that eliminates duplication and that really 
tightens our belts. And we are trying to do that while 
preserving the two priorities. The priority is to get the money 
into the hands of the small businesses, through our system out 
where it is helping them, either as a loan or counseling or a 
government contract or disaster assistance. When we do spend 
money, we want to make sure that it is to oversee taxpayers 
interest in terms of oversight and eliminating fraud, waste and 
abuse.
    Mrs. Emerson. When your staff travels to visit with small 
businesses around, people who are trying to either expand their 
business and perhaps need an SBA loan guaranteed, for example, 
or something to just make the bank feel a little bit more 
comfortable and others. I mean, I have to believe that your 
staff gets faced with the same questions that we get faced with 
with regard to regulations and more and more government, not 
necessarily regulations through the SBA, but rather other types 
of policies, whether it is greenhouse gas emissions, financial 
regulatory reform, health care. And how does your Office of 
Advocacy help them, or does it, because I think that is what 
their mission is to navigate through endless regulations. How 
exactly does it work?
    Ms. Mills. Well, we share a goal, I think, that is very 
much a bipartisan goal, which is to reduce the regulatory 
burdens on small businesses. And that is part of the agency's 
goals and activities across the board and through our ombudsman 
activity, and also part of the Office of Advocacy which is our 
independent operation that is highly focused on that.
    As you know, the President has issued a memorandum in 
January on regulatory flexibility, small business and job 
creation where he says that reinforcing the need for Federal 
agencies to consider ways to reduce, to reduce regulatory 
burdens on small business. And talks about requiring agencies 
to provide justifications when those flexibilities are not 
included in the proposed regulations.
    So across the administration, the President has led the 
charge that we have long been fully committed to, which is to 
reduce the unintended consequences of regulation on small 
business. We are active in a day-to-day manner, both through 
advocacy and our own internal ombudsman on that front.
    Mrs. Emerson. So how does that information get fed into 
like the Domestic Policy Council or people at the White House? 
Do you feed through OMB, for example? You have your SBA 
regional person for region 7, which I think is me. Anyway, that 
person is out among lots of different businesses, and they are 
talking and they are hearing, 75 percent of the people say this 
isn't going to work and this isn't going to work, or this 
really is going to make doing business far too expensive. So 
they feed that into you, somehow I am sure. But then how does 
that get fed into the White House decisionmakers? Is it through 
OMB? I mean, I am just curious more than anything.
    Ms. Mills. Yes, it is through the OIRA function of OMB, and 
we have a series of ongoing roundtables conducted by our 
ombudsman and our regional network where we invite small 
businesses and talk about these regulatory issues on an ongoing 
basis. And we have just announced, an eight-city tour, I 
believe it is, on regulatory issues and barriers to 
entrepreneurs and high-growth businesses. And we kicked off the 
first one of those in Durham last week on Thursday.
    Mrs. Emerson. Well, hopefully I think you all have the 
appropriate sensitivity to all of this. I hope that it is 
appreciated and/or understood by the folks at the top who are 
making decisions like at OMB. I mean, because even when we were 
in charge of the White House, we were driven crazy by OMB.
    Ms. Mills. There is a top-level commitment behind this.
    Mrs. Emerson. Okay. I appreciate that. Joe.
    Mr. Serrano. Thank you so much. And you are right the 
minority party gives you--the status gives you the ability to 
say let's do this and let's do that, and you have to come up 
with the final decisions. But it is a joint thing, joint 
decision.
    My concern is exactly as you said that there's a 
contradiction when you set out to cut, cut, cut, cut without 
analyzing. Maybe there isn't enough time to analyze as much as 
I want. Two things come to mind, when you say to the Small 
Business Administration, we are going to cut you 17 percent 
perhaps, if we do everything across the board, you devastate an 
agency which is then a contradiction to the majority party's 
and the minority party's claims that we want to help small 
business.
    If they are overregulating, that is one issue. But to cut 
them where they can't help people help set up a small business 
and create jobs, that is a contradiction. There is something 
else that is happening in this Congress and has been happening 
for the last 10, 12 years, which is a dangerous thing for me to 
say. I hope it doesn't affect anybody on this panel, but there 
seems to be a movement in the country of electing people, and 
you take great pride in electing Members of Congress who have 
never held public office before, that is a great thing. I think 
that is a terrible thing.
    I believe you were a mayor, right? We may not agree, Mr. 
Womack, on cuts exactly where they go. But when you tell me the 
Federal Government treats mayors this way or the Federal 
Government treats localities this way, I have to listen because 
you were there. I was in the State legislature for 16 years, 
you were a mayor. We understand each other before we got here. 
Some folks who got here, with all due respect to them, in the 
last couple of months, have never served before and that is why 
we are different, and we are going to cut everything. Well, you 
just can't cut everything, you have to think, stop for a 
second. We are not going to cut everything. There are some 
places that we are just never going to touch.
    I want to say something, I speak for myself, I don't speak 
for my party. I am a believer that if you get into a little 
debt because you are saving the people after Katrina and trying 
to put them back on their feet, so be it. If you have to get 
into a little debt to build the best school system in the world 
again, so be it. Do you have to get into debt looking for 
weapons of mass destruction that never existed? I am not sure. 
But certainly in supporting the troops, you get into debt, and 
so what? Some things you have to do.
    So the word ``debt'' sounds horrible, but not all debt is 
bad. After all, we have to behave like the American people who 
balance their checkbook every month. Not true. They all have a 
mortgage or they have a car payment that they are going to pay 
for a long time. They are borrowing too. I am not suggesting 
that we continue to get into debt the way we have been, but I 
am suggesting that we can't just cut, cut, cut. And we 
certainly can't contradict ourselves. If we are going to create 
jobs, then you have to be supportive, your agency has to be 
supportive.
    If it is about overregulating, I am open for discussion, 
but just cutting across the board and enjoying this statement 
that I never served in public office before, therefore I am the 
greatest. No, he is a better Congressman because he was a 
mayor, you know. And when you used to come here without public 
service before, you didn't brag about it, you just kind of kept 
that to yourself. Now it seems to be like a badge of honor. 
Well, I did 16 years of budgets in New York State and I think 
that helps me on this committee. That is my speech for the day. 
Now a question.
    What are you seeing in terms of lending to small 
businesses? Has the Recovery Act and the extensions of its 
funding been effective in unfreezing the credit market for 
small businesses? And what do you think has been more helpful, 
the fee reductions or the guarantee increases?
    Ms. Mills. Well, thank you to this Congress and to this 
committee for its support in the timeframe where really all 
credit had frozen, October 2008. We were able to step up, 
thanks to the Recovery Act and the multiple extensions that you 
granted with $42 billion in money that went into the hands of 
small business. The subsidy cost on that was $1.2 billion. So a 
pretty good, as I said earlier, bang for the taxpayer's buck.
    We were able to raise our guarantee to 90 percent and 
reduce or eliminate our fees. I spent a lot of time traveling 
all over the country and I asked that question many times, and 
I got both answers. To some, it was a 90-percent guarantee that 
allowed the bank to step up and take the risk because they only 
had to put up 10 percent of the capital and this was a business 
they wanted to fund. And other times it really was that people 
saw, well, there is an incentive here, and maybe I will invest 
in that next piece of equipment and hire that next person, and 
maybe this is enough incentive to get that economy rolling. So 
both were very, very critical.
    We had the largest quarter in SBA lending in the quarter 
ending in December. We did $11 billion in loans, and those were 
just critical in filling the capital gap. We now know that 
there is some recovery, but that there are still holes, there 
are still gaps that exist. One is in underserved areas, and the 
other is in smaller loans, and that is why we introduced our 
Small Loan Advantage program and our Community Advantage 
program, two things that operate within, without incremental 
funding, but they are targeted to fill the continued gaps, 
particularly in underserved markets where the access and 
opportunity is the last to return.
    Mr. Serrano. Now you said this was your largest quarter 
ever, or in the last year or so?
    Ms. Mills. Largest quarter ever.
    Mr. Serrano. Now we get unemployment numbers, we get 
economic recovery numbers, we get all those numbers. What do 
those numbers tell you if it was the best quarter that people 
feel free to set up a business to invest? What does it mean?
    Ms. Mills. We are seeing the rate of business formation and 
entrepreneurship go up. We know that some of the best 
businesses were actually started in recessions looking back. We 
see encouraging signs from our small businesses in that they 
are taking advantage of things like accelerated depreciation to 
buy that piece of equipment and hire someone, but they are not 
out of the woods yet. The economy is still fragile. Small 
businesses took a tremendous hit, and they still very much need 
to be supported with access to capital, which the capital 
markets are not fully functioning and not fully back beyond the 
SBA, the traditional capital banking markets.
    And they need the opportunities to provide access to 
government contracting, and they very much need our counseling 
and advice because that shows that there are greater success 
rates when you have a long-term counselor and you hire more 
people.
    Mr. Serrano. May I ask one more question?
    Mrs. Emerson. Sure.
    Mr. Serrano. You are requesting a $161 million increase 
over the fiscal year 2010 level for the SBA and of this amount, 
$131.6 million, to a 7(a) loan program to cover subsidies which 
has not been the case in the past. Now in the past, as you 
know, it was zeroed out and then we would kind of force you 
guys to take the money in a way. What does this funding cover 
and why is it needed now? What is the difference this time? And 
how much of the regular 7(a) appropriation for fiscal year 
2010, which was $80 million has been spent thus far?
    Ms. Mills. The request, the largest increases as I said in 
our budget, go to subsidy. And the reason is that we have fully 
used our fees and brought them to the fee caps. The subsidy 
rates are up because of losses that we are seeing from the 2005 
to 2008 cohorts. In that time period, as you know, small 
business owners used their real estate as collateral, and their 
house or their building had inflated values in that time 
period, 2005 to 2008.
    So as we look now, we see that those values are not there, 
and they are creating loss rates that have gone up as have 
rates for traditional lenders, our subsidy rates and our loss 
rates have gone up. Those subsidy rates calculations, when 
applied to the 2012 budget, require incremental funding that we 
cannot cover with our fees because we have maxed out to our 
statutory fee limits. We have asked for the ability to adjust 
fees and have flexibility in 2013, because we believe that if 
we can, we should move our loans to zero subsidy.
    Mr. Serrano. Thank you.
    Mrs. Emerson. Thank you, Joe. Mr. Alexander.
    Mr. Alexander. Thank you, Madam Chairman. Ms. Mills, it is 
good to see you. You mentioned something about preparedness 
program, and you mentioned something about Hurricane Katrina. 
Can you tell us what that means?
    Ms. Mills. I am sorry, I didn't quite hear the last part.
    Mr. Alexander. Preparedness program, you said something 
about it in relation to Hurricane Katrina, and you were hoping 
to do better than we were prepared during Hurricane Katrina.
    Ms. Mills. As you know, we have completely revamped our 
disaster loan program in the post-Katrina era to significantly 
elevate our state of readiness, and our commitment has been 
significant. In Hurricane Katrina era, we had 366 seats at our 
processing centers. And it took us 70 days to process loans.
    Right now, we have 1,750 seats, and it takes us 7 to 10 
days to process loans. We operate a new technology system that 
allows us to have 10,000 concurrent users on it versus 800 in 
the Katrina level. And we have 2,000 ready reservists, they are 
not on payroll, but they are on call. So actually, when we call 
them up, following a disaster, they will go from the ice storms 
in Maine, and then they will travel to the wildfires in 
California, and then the flooding in the Midwest, and then the 
tornados, and then the hurricane, and then they do it again. So 
our staffing levels fluctuate up and down depending on the 
need.
    Our commitment is to maintain that level of preparedness. 
And what we have done is look for cost savings. In this budget, 
we deliver to you $8 million of cost savings by taking our 
steady state of readiness down to 850 permanent staffing or 
steady state staffing versus 1,000. And we have done that by 
process engineering and streamlining our centers, not by 
reducing our level of readiness.
    Mr. Alexander. Okay. In your opening statement, you said 
over the past 2 years we have provided taxpayers with a big 
bang for their buck. The Transportation Department argues that 
for every dollar spent, we benefit by $3. Can you compare what 
you mean by big bangs for their bucks compared to the 
Transportation Department?
    Ms. Mills. In the one example I gave there, the subsidy 
costs of our SBA loans was $1.2 billion, and the amount of 
money that actually went into people's hands, because we 
provide guarantees, was $42 billion. But this is true across 
our various programs. We have partnered with the private sector 
and others in our Small Business Development Centers, in our 
SBIC programs, so that we really try to give a lot of activity 
off of a smaller budget number.
    Mr. Alexander. Okay, out there in the public when some of 
the banks that we hear about who are denying loans, there is an 
appeals process that one can go through. Do you all have a 
similar process? If a loan is denied, is there an appeals 
process?
    Ms. Mills. Yes, and we do review loans, multiple times. We 
have lots of ways that small businesses can get help. I will 
give you one statistic which is in our North Carolina center. 
We were able to take those who were denied loans, and we got 60 
percent of them funding by working with them in counseling and 
on their business plan and then bringing them back and 
introducing them to banks who, you know, were interested in 
making loans in their particular area.
    Mr. Alexander. Thank you, Madam Chairman.
    Mrs. Emerson. Are you finished for this round?
    Mr. Alexander. I am.
    Mrs. Emerson. Mr. Womack.
    Mr. Womack. Thank you, Madam Chairwoman. It is good to see 
you, Ms. Mills. I appreciate the work that your agency does and 
continues to do for small business and job creation. I just 
have a couple of questions, and then I have to step out; I have 
got to go to the floor here in just a minute.
    But one of the things that the gentleman from across the 
way, Mr. Serrano, has indicated that I am a former mayor and a 
former small business man. So I think my background is pretty 
unique in terms that I have seen it from virtually every side.
    I think I would look at it this way; one of the things that 
I have always been in favor of is the capacity to leverage 
public dollars, that too often we get caught up in the notion 
that we are going use someone else's money in total, and to try 
to accomplish some desired outcomes in small business or 
whatever the case is. I am huge on the leveraging piece of it.
    In other words, I like to see more than one person, i.e. 
Our Federal Government, have skin in the game when we are 
talking about making major investments in small business. I 
certainly agree the facts speak for themselves, that our way 
out of this economic mess is through the creation of jobs in 
the private sector.
    So what are you doing to encourage the leveraging of the 
support that comes through your agency in the public-private 
arena to ensure that the Federal Government's not absorbing all 
of its cost? Instead, that we have our stakeholders in the 
game? That is a big question, that is a broad subject area, so 
you can probably go a lot of different directions with it, but 
I am curious about your response.
    Ms. Mills. We share your objective of using public-private 
partnerships to get more leverage for the small businesses that 
are out there. And let me just give you a couple of examples. 
In our SBIC program, small business investment companies, they 
actually run at a zero subsidy level because we provide the 
debenture guarantees for other partners, and we are able to put 
billions of dollars out into small and growing businesses, all 
across the country and with zero subsidy cost.
    We also have a program we call SCORE, and there we use 
private sector individuals, 12,000 of them, who are volunteer 
small business people who have had the experience of growing 
their own business. And they counsel, for free, small 
businesses that we put into their network.
    A third quick example, we have just announced something 
called Startup America, which is going to be led in the public-
private partnership by Steve Case, a fabulous entrepreneur who 
started AOL. And a number of companies have joined this public-
private partnership to help in Entrepreneurial Mentor Corps and 
other activities which are going to grow our small high-growth 
businesses that are really one of the most important job 
creators for the country.
    Mr. Womack. How active is your agency, say, in some of the 
business-directed institutions on campuses of higher education? 
How do you interact with different schools of business?
    Ms. Mills. We have multiple interactions with different 
schools of businesses. I was just informed this morning that we 
have a joint partnership with one of the top, top-tier business 
schools who is helping us establish an entrepreneurial center 
in partnership with our small business development center. So 
we do everything from work with them in our emerging leaders, 
entrepreneurship education program to our local guidance and 
counseling and advice.
    Mr. Womack. It goes back to my question of leveraging, 
because I really think that all the major stakeholders--health 
care, education, higher education, government, business 
industry, I think, there are unlimited opportunities for us to 
work through a lot of those stakeholders in bringing formations 
of capital and expertise, counseling, et cetera, to the table. 
And I would like to see a lot more of that.
    The last thing I want to ask, and this is as close to 
editorializing as the gentleman a few minutes ago was doing and 
issuing some opinions. You have an impressive background in 
consulting and management and helping small business. What are 
you hearing right now about what I believe is one of the single 
biggest barriers to the growth of jobs, particularly in the 
private sector, the overreach of our government into areas that 
just cause the potential entrepreneur to throw his hands up and 
say, it is just not worth it, it is just not cost effective.
    It will cost me a lot more to do this than it is worth. 
What wonderful opportunities are we throwing away because we 
just live in such a terrible and inefficient, burdensome 
regulatory environment?
    Ms. Mills. Well, I thank you for the question and the kind 
comments. I did grow up in the world of small business, and we 
travel around the country and listen to small businesses all 
the time, talk about this issue of the unintended consequences 
of regulation. I will say I am very, very happy that across the 
administration in OMB and OIRA, and the President himself have 
made very strong statements in support of small business and 
making sure that they don't have unintended consequences from 
this excess regulation.
    We have been proactive. We have our day-to-day operations 
and our ombudsmen and our advocacy. But we have been even more 
proactive in recent months by initiating an effort to go around 
the country and listening to small businesses in the high-
growth entrepreneur area, talk about specific barriers that 
they have.
    And it might be regulatory barriers, it might be can they 
get paid on time. But whatever those barriers are, this forum, 
which is under the Startup America Initiative, is explicitly 
designed to listen and then take action on those kinds of 
barriers and concerns. The goal is to help entrepreneurs, put 
some wind at their back, and let them do what they do best, 
which is grow their companies and create jobs.
    Mr. Womack. I represent the third district of Arkansas, and 
once upon time back in the 1960s, there was a very small 
business, it started ironically enough, the first--and you know 
where I am going with this probably--the first store happened 
to be, Mr. Serrano, in Rogers, Arkansas. That is where the very 
first Wal-Mart store happened to be located. I can take you to 
the site just around the block from my city hall.
    Mr. Walton is not here to confirm or deny this opinion that 
I will give, but it is in my strong opinion that that small 
business, which later would become one of America's most famous 
companies and certainly one the largest in the world, may not 
have ever survived a regulatory environment quite like we have 
right now. And if small business people are ever going to be 
able to live that American dream, I don't know how they 
survive. A lot of the things that the unfunded mandates and the 
demands that we are placing on small businesses.
    And so with that said, my question for you would be when 
you make your travels and when you hear back from these 
organizations--these entrepreneurs--that your agency tries to 
help. And you hear, I am sure, of many horror stories about the 
problems associated with developing small business, up-start 
businesses undercapitalized in a regulatory environment like we 
are, do you have direct access to the President's ear? Do you--
I know you have quoted the President as saying he wants to 
solve this regulatory burden that we have right now--but do you 
have direct access? Do you have his ear on these important 
matters?
    Ms. Mills. Well, first, I have to say that I appreciate 
your comments about the small businesses born in Arkansas. And 
I actually have traveled there quite a bit. I have been in 
Arkadelphia recently with all the loggers, I have been in Bald 
Knob, I have been in Heber Springs, and I have been in Searay, 
and really appreciate that we have fabulous small businesses 
throughout the State.
    Mr. Womack. Well, if the gentlelady would yield, let me 
just say, since I mentioned Wal-Mart, let me just throw Tyson 
and J.B. Hunt Trucking, there are three major ones in my 
district, three big ones that I don't think would have survived 
the regulatory environment we are in today.
    Ms. Mills. But the answer to your question about the 
President is yes, I have had discussions about this with the 
President. I know he is committed. The memorandum that he 
issued on small business and regulation is a very strong 
statement to all agencies on exactly the issue that you 
described in support of making sure that they produce more 
flexibility for the smaller business who doesn't have the staff 
and the time and the money to really deal with those regulatory 
burdens. And while preserving the health and safety issues to 
make sure small businesses can also operate.
    Mr. Womack. Did the Health Care Patient Protection 
Affordable Care--I never get that right.
    Mrs. Emerson. Patient Protection and Affordable Care Act.
    Mr. Womack. Patient Protection, yes, thank you. Has that 
come up in your discussions with small business entrepreneurs?
    Ms. Mills. Yes, and I will say we have supported a very 
important amendment that I know is under discussion. We are 
very much in support of the repeal of the 1099 provision which 
does place an undue burden on small business.
    Mr. Womack. But stop there?
    Ms. Mills. The other aspects actually provide great benefit 
to small businesses particularly in the tax credits that are 
available as we speak. The 2010 tax credits are available to 
potentially 4 million of the 6 million small businesses. And as 
I travel, I am seeing small businesses coming to us now for 
information because they are getting dollars back in their 
pocket and there is nothing a small business likes better than 
dollars in their pocket.
    Mr. Womack. Thank you for your testimony. Madam Chairwoman, 
I yield back.
    Mrs. Emerson. Mr. Yoder.
    Mr. Yoder. Thank you, Madam Chair. I appreciate the 
opportunity to be here. And I, too, have to head to the floor 
shortly. So I will ask just a couple brief questions. I 
appreciate your service and appreciate your work here today. 
And I want to maybe follow up on the questions from my 
colleague from Arkansas.
    Everyone, including yourself, spent a lot of time talking 
to small business owners. Our focus, I think, my focus and many 
of my colleagues, is to try to figure out how we get innovators 
and entrepreneurs back home, creating jobs and expending and 
growing. I mean, that is the key. We know that no matter how 
many dollars and trillions of stimulus dollars are spent in 
Washington or how many rules and regulations or how many new 
bureaucrats we hire, it is not going to help that American 
somewhere that has a dream to start a small business if they 
can't get off the ground and get moving.
    So I hear a lot of same things probably my colleagues do. 
And I guess wanted to trail backward.
    Mr. Womack was going here, and related to a word I didn't 
see, at least in your report, you might kind of discuss your 
feelings on this, and that is related to uncertainty. Almost 
every meeting I have been in with the small business, they have 
brought up the uncertainty in Federal policy uncertainty in tax 
policy, uncertainty in rules and regulations, inability to 
borrow money. So many things that are related to, what I 
believe are poor government policies that the instability and 
uncertainty that many of them either can't expand, or feel they 
shouldn't expand because of the risks that are involved.
    And so I have been heading down the pathway, along with 
many others, trying to figure out how we create that stability 
and certainty for small business owners. And I note the 
discussion about regulations, and I note that your comments 
regarding the President's positions of trying to review some of 
those, but there is a mountain of rules and regulations heading 
to small business owners. I meet with community banks, and I 
meet with small business owners; they feel inundated.
    And I don't know if this is what you are hearing when you 
go out and talk to them, but the third district of Kansas they 
feel overwhelmed and inundated with so many new things coming 
their way. They are completely overwhelmed by what the health 
care bill may mean to their bottom line. I can't tell you the 
amount of small business owners I have talked to that have 
said, because of that bill, I am not going to hire anybody 
until I see what the impact is on our bottom line.
    So I see a real bottle neck coming, not from a statement 
the President might make that we should go review these rules 
and regulations, but from all the rules and regulations coming 
from the health care bill, all the rules and regulations coming 
from the Dodd-Frank Act, all the rules and regulations that are 
still coming from EPA and OSHA and so many different 
organizations, that I can't tell you the amount of times I 
talked to a small business that feels overwhelmed. And they 
don't say, well, if you could give a little bit more money to 
the SBA, we would be back at it. They say stop, change the 
rules of the game. Stop sending so many rules and regulations 
our way. Let us create jobs.
    And so I guess I really want to get at what the SBA is 
doing or how you are advocating, what is your position on that? 
Do you agree or do you think the rules and regulations are 
helpful to those innovators and entrepreneurs who are trying to 
get their businesses moving?
    Ms. Mills. Well, as you know, we do a tremendous amount of 
traveling around the country listening to small businesses as 
well in these roundtables. And explicitly in the roundtables 
that we have just announced, we are going to be asking 
entrepreneurs to come and talk about those specific regulations 
on which they have concerns. So when they talk about specific 
regulations, they mention 1099, which we have come out to ask 
for repeal. And when they talk about specific regulations, we 
have the ability with our ombudsman to go back to those issuing 
agencies and help work with those small business through them.
    Overall, when small businesses talk about uncertainty, 
which they don't do in a generalized sense, they are referring 
to the uncertainty they see in the economic environment. Small 
businesses do feel that the recession is not over. They do feel 
that they want now to fulfill that next order. They do come to 
us for counseling and advice on what is available to them. And 
one of the things I would hope that we might be able to do to 
help your small businesses is to bring them into our counseling 
operations.
    We have 900 small business development centers, we have 
12,000 SCORE volunteers, and they have access to bring a small 
business owner to those things that will benefit them, whether 
it is a tax credit. We have 17 tax credits that have been 
enacted for small business. Now it is tax time, we need to make 
sure that those small businesses know what is possible for 
them. And then, I just wanted to mention that those services 
are free.
    Mr. Yoder. I appreciate you highlighting that. How many 
small businesses are there in the United States, do you have an 
idea?
    Ms. Mills. Yes, just under 30 million small businesses in 
the United States, of which 6 million have employees.
    Mr. Yoder. And how many small businesses have received 
services from the SBA in the last year?
    Ms. Mills. We have many, many ways that we deliver 
services, but some of the highlights are that we had 50,000 
businesses that we gave capital to, and loan guarantees. There 
are about $100 billion of contracts that we put into their 
hands. I don't have the exact number of small businesses, and 
we counseled more than a million.
    Mr. Yoder. So 30 million small businesses, and you have 
counseled a million. How many do you think you could reasonably 
touch? So of all of our districts and all the small businesses 
that we have talked to who share with us maybe a little 
different perspective that you are sharing today, that the 
health care bill is making it difficult for them to feel like 
they should risk capital right now until they see how that all 
plays out.
    The impact of the Dodd-Frank bill and its regulation of the 
small community banks and their impact and their ability to 
borrow money, that those things from the EPA and other 
organizations or other entities in Washington that are 
unpredictable that don't go through the democratic process, 
that are coming through the executive branch, those things, how 
many small businesses can you sit down with to allay those 
concerns so that all those things that are coming their way, 
and all that uncertainty that they talk to me about, how many 
of those folks can the SBA effectively resolve so they don't 
have the uncertainty anymore? And what do we do about the other 
29 million?
    Ms. Mills. Well, we hope more and more of them will be able 
to. But I think if you want to help them with some of these 
issues, we can. And I would just put in a small plug for our 
redesigned Web site, sba.gov. And we have millions and millions 
of visitors to that Web site. We are helping everyday provide 
access and opportunity to things that small businesses need, 
and what we call the 3 Cs, capital, counseling, contracts, 
those we help in our disaster operations as well.
    Mr. Yoder. And then one small question and I have got to 
move here. But regarding trade, what do you do to help a small 
business owner in my district that might want to figure out if 
there are international partners they could trade with? 
Anything the SBA does or where would I direct a business that 
brings a question like that to me?
    Ms. Mills. I am sorry you have to go, because this could be 
a very long answer. We have an intensive program. One of the 
most important things we can do now is achieve the mission of 
the National Export Initiative, which is to double our exports 
over the next 5 years. Small businesses are 30 percent of 
exports, but they are the fastest growing element. And there 
are only 250,000 of those millions of small businesses that I 
described that actually export. And most of them, 60 percent of 
them, only export to 1 country.
    So we are working on two things: We are working on bringing 
more into the funnel, and this is where there are lots of rules 
and learning curves on exports. So we have a whole set of how 
can you become an exporter tools on our Web site and in our 
district offices.
    And if you bring them into us, have them registered at 
export.gov, and we will send them what the available online and 
in-person contact possibilities are, because it is our mission 
to help them find a way to connect them to all the resources 
that might be available because that is how we are going to 
create jobs here at home.
    Mr. Yoder. Great. Thank you, Madam Chair. I yield back.
    Mrs. Emerson. Thank you, Mr. Yoder. Mr. Diaz-Balart.
    Mr. Diaz-Balart. Thank you, Madam Chairwoman. Madam 
Administrator, it is good to see you. By the way, I think of 
some those small business that export probably a lot of them 
are in south Florida I would imagine. A big chunk of those have 
to be in south Florida, because I run into them all the time. 
And I also must tell you that I have been involved a couple of 
times when people from your outfit have been out there, and you 
have got some good people that do a good job explaining some of 
the programs.
    The questions that I have are a little bit more limited. 
And that is that a recent investigation by the GAO identified 
14 companies that received, I believe it was $324 million in 
set-aside contracts through the 8(a) program for small and 
disadvantaged businesses.
    The GAO director of Forensic Audit Investigative Services 
testified that officials of 13 of those firms, ``Misrepresented 
their eligibility for the program to finally acquire or 
maintain set-aside status and obtain Federal contracts awarded 
with limited or no competition.''
    Now, GAO's investigation showed that the SBA staff 
allegedly responsible for assessing annually the firm 
eligibility allegedly allowed three firms to remain in the 8(a) 
program and receive contracts despite evidence--and they say 
clear evidence--provided by the company officials during that 
review period that show that they were no longer qualified. 
Here are the questions, if that is the case, why were those 
three firms allowed to remain in the program, first question?
    Ms. Mills. So I am glad that you brought up this issue, 
because we have a very terrific program. Probably the largest 
program for small business across government, is our government 
contracting program. And our goal is to make the goal, which is 
over $100 billion into the hands of small business. But in 
order to do that, the program must have integrity. And 
therefore, we went after fraud, waste and abuse in these 
programs. This is an issue that the GAO report and other 
reports had brought up. I believe the report you were referring 
was issued approximately a year ago.
    We took this issue face on and we instituted a three-
pronged strategy for getting rid of fraud, waste and abuse in 
these programs, making sure they had integrity. The first part 
of it is effective certification, making sure that the program 
benefits are getting to the intended recipients. And this, I 
think, was one of the issues, flagged in that report. We have 
done a whole series of things across all programs, not just 
8(a), to tighten certifications and to ensure that we are 
screening those potential program entrants.
    The second is continued surveillance and monitoring, which 
is conducting increased exams. And the third is robust and 
timely enforcement.
    To your question on enforcement, we have now quite a 
substantial record on prompt and proactive enforcement. Every 
single case that has been in an IG report or a GAO report we 
can show you the follow-on activity and documentation.
    We will respect due process. There is a due process 
activity that happens for each of these small businesses. But 
we will go after the bad actors, and we have now a very strong 
track record in this front.
    Mr. Diaz-Balart. Good. Now, let me ask you, obviously you 
have got the bad actors who, you know, who did a fraudulent 
application. Now, the GAO, I guess claimed that some on staff 
knew that there were some bad actors potentially that didn't 
qualify. Is there any disciplinary action to those, the people 
inside your organization who may have--I am not saying, you 
know, obviously willingly, that missed seeing this? I mean, you 
know, because disciplinary actions have to not only be for 
those that apply, which is a problem, but if there were those 
who saw it and either missed it or whatever. I mean, what 
action can be taken or has been taken internally about those 
individuals?
    Ms. Mills. I am not aware of any staff issues to this 
regard. In each of those cases, in every GAO report, there were 
follow-on activities. In addition, there is a new suspension 
and debarment task force throughout our agency, which has made 
even more robust activities around the suspensions. We have had 
over 100 suspensions, debarments and activities throughout our 
programs, and this is a great acceleration. We are serious 
about this. All of the staff has come forward and put 
tremendous effort into the more intensified certification 
activities, the continued surveillance activities and 
monitoring and the enforcement.
    Mr. Diaz-Balart. And I understand that. And I appreciate 
that. And I think it is important. And I commend you for, 
obviously, your passion on that, which is important, because as 
you said, without that integrity, obviously we are in serious 
deep trouble.
    However, I just want to make sure that my point is clear, 
that obviously there is always two sides of this issue. There 
are two culprits. There is the one who applied and then there 
are those who may have not caught it when maybe they should 
have. And I am not saying that is the case. My understanding is 
that the GAO--and I may be wrong, talked about staff allowed 
three firms to remain in the program and received contract, 
despite, I guess, what they claim are clear evidence provided 
by company officials during the review that show they were not 
eligible. So I just want to make sure that it is--I commend you 
for your efforts, I do. And I just want to make sure though 
that one of the things that people get frustrated about, 
whether it is true or not by the way, is a lot of people claim 
or think, well, there are no consequences for those in 
government who may have either made the wrong choice or just 
didn't do an adequate job and that is really what I am going to 
as well, because you clearly answered one very well, but----
    Ms. Mills. Well, in this particular circumstance I would 
look to, also, the due process activity. And in terms of our 
personnel, our performance management standards have been 
augmented to be very clear about what is expected.
    Mr. Diaz-Balart. Good. And if you can keep us informed on 
just what those actions are and how you are doing that, because 
I understand that, I guess, are you asking for increased 
funding for 8(a) program? I believe you were, or you are. And 
again, as you were stating before, and I agree with that, we 
have got to make sure that that integrity is there, 
particularly if you are going to be asking for any more money.
    Ms. Mills. Yes, we are asking for 24 more positions, 
largely around, 18 of them, around fraud, waste and abuse and 
enforcement in our contracting area; 10 for the implementation 
of the women's business rule.
    Mr. Diaz-Balart. What is that? I am sorry, the last one?
    Ms. Mills. The women business rule.
    Mr. Diaz-Balart. Okay.
    Ms. Mills. Which we just brought forth on February 4.
    Mr. Diaz-Balart. Okay. And lastly, I guess there was a 
little bit of conversation about the health care bill a little 
while ago, about, I am not going to ask you to--I am not going 
to put you on the spot on this. But you must have heard from 
some small businesses that have some concerns, right, about the 
health care bill and how it affects them. I mean, because you 
mentioned that obviously if you hear about specific 
regulations, and commend you for your support of the 1099 
changes. But have you not heard any concerns about the health 
care bill, about particularly, for example, businesses because 
I get it all the time from a number of businesses.
    I am just wondering if we just live in totally different 
worlds. Particularly those that are maybe 46 employees, about 
what happens when they reach 50. And have you, do you not get a 
lot of concerns about--you explained the positive things. But 
do you not get concerns from small businesses about the effect 
of the health care bill on their bottom line or on their future 
availability to grow, particularly if they are not at 50?
    Ms. Mills. Here is what I hear from small businesses. The 
number one concern of small business is access to affordable 
health care. It has been that in the NFIB survey since 1986, 
number one concern. And small businesses want to provide health 
care. The first thing that I have heard from them is that they 
are benefiting from this tax credit. Probably there are 6 
million small businesses that have employees. We estimate that 
up to 4 million may potentially be eligible for this tax 
credit, which kicked in in the 2010 year.
    So that is the first thing that they want to know is, can I 
get some, you know, money back on my health care, or might this 
make it affordable, because small businesses want to provide 
health care. They just can't get a quote. And that is where the 
second piece comes in. The second piece they ask about are the 
exchanges. Right now when small businesses want to get a rate 
quote, they have to call two or three or four brokers before 
they can get even someone to bid on their business. Small 
businesses pay 18 percent more for health care, just because 
they are small and they have a smaller pool. And if somebody 
gets sick their rates go up. These exchanges will pool those 
risks and they know that. And the next thing they said is when 
are they coming? How do I get more access to an affordable 
quote?
    There is no mandate for small businesses who are over 50 to 
provide health care. There is no mandate in this. So they have 
not--when they look at the facts of what is in there and what 
their concerns would be, they have not expressed concerns about 
those because there is no mandate.
    Mr. Diaz-Balart. So you are not hearing a lot of concern. I 
just want to make sure that I get this right. You are not 
hearing--I am sure you are hearing a lot of concerns about a 
lot of different things. You are not hearing a lot of concerns 
about the health care bill.
    Ms. Mills. I am hearing--and this is from, you know, small 
businesses that we go out to talk to about other things, 
credit. One of them said, you know, when I was able to now 
provide health care for my employees, that was the day that I 
considered my business a success.
    Mr. Diaz-Balart. I appreciate that and thank you for being 
here. Again, I am just wondering, because I do also meet with 
small businesses, maybe not as many as you meet with, but there 
seems to be a lot of concern about, as one of my colleagues 
said, about the uncertainty, if nothing else about the health 
care. But I am just surprised because I hear it all the time, 
unsolicited. I recently had meetings with, about, I don't know, 
25 manufacturers, Madam Chairman, in my district, by the way, 
which I was even surprised existed that many in South Florida. 
And one of the issues that always comes up is concerns about 
that bill.
    So I am just interested that I guess you haven't heard 
that. But that is interesting. Maybe it is just that they are 
talking to you and they are talking to me and they will say 
different things. But I clearly hear it a lot. Thank you so 
much for being here. Thank you, Madam Chairman.
    Mrs. Emerson. Of course, Mr. Diaz-Balart, she is the lender 
and they don't want to tell them too much, I mean, I am 
convinced of that because I hear it all the time too. It is 
just absolutely nonstop, nonstop.
    Let me ask you a question. How does the SBA define a small 
business? Because we are always having all these arguments 
about what is a small business. And so, define a small business 
for me, number of employees.
    Ms. Mills. In the numbers that I quote when I say there are 
you know, so many small businesses, the general break-off is 
500 employees or more. And that is done in the Office of 
Advocacy data. We actually have different definitions for every 
industry category because a manufacturer who has 100 people may 
be small, but an accounting firm that has 100 people might be 
big.
    Mrs. Emerson. And so, but it is generally employee-driven, 
number of employees driven as opposed to profit margin or 
anything like that?
    Ms. Mills. There are actually a number of complicated 
pieces to it. It can be also some things to do with revenues 
and net worth as well.
    Mrs. Emerson. It just occurs to me that since we are always 
fighting among ourselves, whether it is the House, the Senate, 
the executive branch, whomever, or even the private sector, and 
I used to work in small businesses myself and larger business, 
so I have kind of been all the way around. There was never a 
definite example. The number, you could pick any number to suit 
your purposes. And to me, that is kind of duplicitous.
    I wish we could just arrive at a number, you know, whether 
it is more specific as you go down through categories or not. 
But that way, it is not always gotcha. But that is just a pet 
peeve of mine. Just a second on the business loans because we 
talked about why are the subsidy costs increasing, should fees 
be increased, et cetera. Tell me, what is the process that you 
use to monitor risk to make sure that your loans are going to 
creditworthy businesses?
    Ms. Mills. Well, we have a complicated and robust, you 
know, credit process driven largely through our private sector 
partners, the banks. And banks use their credit processes, and 
then we provide credit guarantee over them. But the first 
screen is the banks credit process. There are a number of 
factors that occur in that underwriting, and it is different by 
loan product. But I do know that we pay quite a bit of 
attention to loans and that the loans at issue, as I described 
earlier, are really coming from the 2005, 2006, 2007, even 2008 
cohort where the market was very hot and banks were making lots 
and lots of loans. And now we see that our credit scores on our 
new loans since 2009 are actually higher. They are actually 
higher.
    Mrs. Emerson. Interesting. I am just really curious about 
that. But then again, the whole drop in real estate prices just 
had a huge impact on everything. All right. Now that I am very, 
very concerned about floods, and I live, my whole eastern 
border is the Mississippi River, so everything that flows from 
North Dakota, Minnesota on down goes right by our area. And I 
know that you have asked for $167 million for administrative 
costs, which is $90 million more than 2010. But you haven't 
requested a subsidy appropriation for fiscal year 2012. So I 
know that the administrative increase looks very large, but 
this is because--if I understand correctly, it is because the 
fiscal year 2010 appropriation was partially offset by carry-
over funds appropriated for prior disasters.
    And now there is no more carryover. We are done. So for 
fiscal year 2011, most of your disaster administration funds, 
or expenses rather, were funded through reprogramming of $126 
million in disaster subsidy. So, what assumptions do you all 
use to arrive at the requested level of disaster loan 
administrative expenses? I mean, how do you determine what 
those are going to be?
    Ms. Mills. In 2012, our request reflects an $8 million 
savings in disaster loan administration, and this is the result 
of the re-engineering in our disaster loan centers that I 
described. So instead of operating at a steady state level, 
remember, our disasters staffing actually goes up and down, up 
and down. But on average, the steady state funding that we have 
been using is 1,000 people. And we are able to provide, by 
2012, the same at this time of readiness with a steady state 
staffing of 850 people. And that is, you know, some efforts 
that we have done to streamline and re-engineer and improve our 
processing operation, that is a continuous process that we feel 
is our responsibility to pursue aggressively and to provide 
those savings in these tough fiscal times. We believe that we 
need to be at that level of readiness. We also have 2,000 ready 
reserve on top of that. So if something happens, we do have 
those staff that we can bring into the system. But the cost 
level that we are asking for is that. For subsidy level, we 
have no year money reserves that we are using.
    Mrs. Emerson. So what do the ready reserve people do on a 
day-to-day basis? Do they work in banks, or are they small 
business people, or who are these people?
    Ms. Mills. Well, they are all kinds of people actually. And 
I have met a number of them. I have been out in our disaster 
centers when we had the flooding in Nashville. I met a number 
of them. And when we went to the Gulf in the BP oil spill, a 
number of them came in. And they are from all walks of life, 
from all kinds of operations. And we have a system by which, 
you know, we ping them and say, are you ready, are you 
available. And they come back. So we try to keep a full 
complement available.
    Mrs. Emerson. That is interesting, and very nice to have 
those people who want to help. So what happens if we have a 
large disaster, say, another Nashville or heaven forbid, a 
Katrina-like episode? Do you have enough subsidy carryover to 
support the program level that you need to be able to respond 
to such a thing?
    Ms. Mills. We have built a substantial capability in the 
post Katrina era, in our physical activity. So as I said 
before, we went from 366 seats in the processing center. We 
have the people. We need someplace to put them. Now we can seat 
1,750. We couldn't put them all on the computer system. We 
could only get 800 concurrent users. Now we can put 10,000 
concurrent users in so we could even staff up more 
aggressively. And we maintain our ready reserve.
    We have made an electronic loan application now so that 30 
percent of our loans actually come in electronically. We were 
able, last year, to operate in over 40 regions concurrently 
because we stay for a bit of time so as we're finishing up, you 
know, the flooding, we are deploying down in the Gulf. And we 
can stay for up to 9 months. So we can service numbers of 
locations concurrently and/or a large location.
    The other thing that we have done to prepare for a very, 
very serious disaster, besides simulating it, is we have 
engaged our full-time district staff members who do not operate 
on the disaster operations to be linked on the ground in cases 
such as Nashville or BP oil spill or any other large-scale 
disaster so that we have not only our disaster operating 
people, but we have our core SBA district office people coming 
to the assistance and lending their support, our SBDCs, our 
SCORE people, everybody is on the ground.
    Mrs. Emerson. So from the money standpoint, how much in 
disaster subsidy do you have in reserve?
    Ms. Mills. We can get you an answer to that. But we have a 
number of years of disaster subsidy in reserve.
    Mrs. Emerson. So presumably then, if, let's just say, you 
can get us the numbers and it amounts to 5 years or so, then 
could we possibly look to disaster loan subsidy funds to pay 
for the 2012 disaster administrative expenses if necessary?
    Ms. Mills. Well, the issue there is the level of 
preparedness and the level of risk that we want to take on. Our 
commitment has been to be prepared for intensive disasters, and 
that was the commitment we made after Hurricane Katrina. Nobody 
really knows what the future will bring in terms of hurricanes 
and earthquakes and other issues. And we have seen around the 
world that they do come. So we have a level of preparedness now 
that we think we can handle it, and we want to make sure when 
we go into the field, that we also have the loan subsidy so 
that we can execute the loans.
    Mrs. Emerson. I would thank you and appreciate and thank 
you in advance for getting us those numbers if you could. One 
quick question, then I will turn it over to Mr. Serrano. Our 
current continuing resolution is set to expire, I guess, week 
after this. What day is today, the 8th? Okay. So 10 days. I 
don't think a shut down will occur, in spite of the hype.
    I mean, hopefully we will be able to work out our 
differences and keep the government running. But do you all 
have a plan for operating during any kind of government 
shutdown? And if so, then, can you tell us just generally 
speaking what kind of activities and which personnel would be 
considered essential?
    Ms. Mills. Well, everyone is working very hard, I know, on 
averting a shutdown. The President has said, and we agree, that 
a shutdown would hurt the economy and would hurt small 
businesses. Since 1980, every agency has been required to have 
a plan that would go into effect in case of a shutdown. We are 
on an ongoing basis updating that plan. We are committed, I 
know across the bipartisan effort, to work on making sure there 
is funding for 2011. The activities that would or would not be 
shut down are actually governed by law. There are rules around 
it. There is one thing I can tell you, which is that our 
disaster operation will not be shut down. That is considered an 
essential operation and it would not be part of an 
appropriation.
    Mrs. Emerson. I appreciate that. I don't know that it is 
presumptuous for me to ask, but would it be possible to get a 
copy of your plan?
    Ms. Mills. Well, we are updating the plans on an ongoing 
basis, and at this moment, I know that things are so fluid 
that, you know, we are sort of in the continuous update mode.
    Mrs. Emerson. So would it be possible to get last week's 
plan?
    Ms. Mills. Well, we know----
    Mrs. Emerson. Just to give us a sense. I mean, it is not to 
give to the press. It is really for our own, for our own sense. 
All right. We can have further discussion on this. I will pass 
it to Mr. Serrano.
    Mr. Serrano. Thank you. Boy, you really want that plan, 
don't you?
    Mrs. Emerson. Yeah. I do.
    Mr. Serrano. So do I. Wouldn't it be nice if a government 
shutdown meant a real government shutdown like the war ended, 
like the troops would have to come home immediately.
    Mrs. Emerson. But you would be stuck here in Washington.
    Mr. Serrano. No. No. I could go for that. I could be 
supportive of a shutdown if all the troops just had to pack up 
and leave, the war is over. But something tells me that would 
continue. We would find money.
    Let me ask you a question. The fiscal year 2012 budget 
calls for a reduction in the small business development 
centers, $10 million, and proposes to eliminate the prime 
technical assistance program. For micro loans, the budget 
proposes a cut citing the funding received in the recovery act. 
Can you explain your rationale for cutting technical assistance 
to small businesses, both through micro loans, the prime 
program and the small business development centers, and how do 
you intend to serve small disadvantaged businesses without 
these resources?
    Ms. Mills. Well, as you know----
    Mr. Serrano. I mean, I must tell you that, anticipating 
what I think you knew, the cuts that would be proposed, why any 
agency is on their own cutting is beyond me. I know that sounds 
irresponsible, but if you knew what was coming, why would you 
propose any cuts?
    Ms. Mills. Well, as a part of being part of this fiscally 
responsible process, we all are tightening our belts. We are 
all streamlining our operations. And that really makes us make 
some really difficult choices, as you just pointed out. We have 
a program, as you described, prime, which gives technical 
assistance in communities that are involved with our micro 
loans. What we have done is try to look at places where we can 
streamline without losing the value of that technical 
assistance. So we have initiated a very strong overall activity 
around underserved markets. In it, we have made some changes to 
our loan programs and opened our 7(a) program to our micro 
lenders and CDFIs, (Community Development Financial 
Institutions that meet certain qualifications that will be 
responsible to our program). They provide technical assistance 
for those loans at their own cost.
    What they want from us really is the availability of the 
loan subsidy, the loan guarantees. So we are looking at ways we 
can do what we do best, open more access and opportunity to the 
loan guarantees, and encourage our partners to provide the 
technical assistance which they do best. That set of 
activities, I think, will give a robust set of help to the 
small business because technical assistance is a critical part. 
And we are looking forward to working with our partners to 
boost their capability to give loans and then also to give that 
technical assistance from their capability.
    The SBDCs you asked about are also very important partners 
to us. I just wanted to point out one piece, which is that half 
of the reduction in the SBDC funding does not relate to their 
base level. We have been able to reduce prior special purpose 
counseling grants, which takes account of about just over half 
of the proposed reduction.
    Mr. Serrano. Well, let me just, for the record, tell you 
that you mentioned the CDFIs. That is part of this 
subcommittee, and they are being devastated too, so you may not 
have the partner you think. But the part that confuses me, even 
after your explanation, is in answer to one of the early 
questions, you said that if there were a couple of shortcomings 
in the Agency, it was the inability to do more in low income 
communities.
    So why would you voluntarily cut those programs that affect 
those communities? I know that I mix my questioning with an 
attempt at humor at times. I really think that Members of 
Congress sound too serious. We should be serious, but we don't 
have to sound serious all the time. But I am very serious when 
I tell you that all agencies should be aware that the plan here 
is to cut to the bone. So yes, it is important to be fiscally 
responsible, but don't give up the house before half the house 
is taken away from you.
    Ms. Mills. If I might clarify, I think what I was referring 
to is that the gaps in the market are in the area of 
underserved communities. The market has not come back to 
provide access and opportunity to those underserved 
communities. At the SBA we have actually intensified our 
efforts around the underserved market. We just actually 
announced a council that is going to be led by Cathy Hughes, a 
fabulous entrepreneur who founded Radio One. And we are 
working, across all of our programs to increase access and 
opportunity in the underserved markets because that is a really 
important role that we play and that the markets don't. So as 
we go forward, we have developed this program called community 
advantage. And this is going to bring the CDFIs into our 
activity as lenders in our traditional 7(a) product. This is 
something that they have been eager to do and asking for for 
quite a bit of time, and I think will help us get what we want, 
which is more points of access in these underserved communities 
with lenders who understand those small businesses.
    I don't need to tell you that these are the people who hire 
in these communities. Across the board, our government 
contracting programs, our 8(a), our Hub Zone and other 
programs, our counseling operations also are going to be part 
of this underserved council and underserved effort that we 
have. Because the role of government, I think, is to provide 
access and opportunity. We at the SBA are three to five times 
more likely to make a loan to a minority-owned business or a 
woman-owned business than a conventional lender. So this is the 
place where we see our participation to be critical.
    Mr. Serrano. As an extension of that, how are we doing at 
meeting the contracting targets for women-owned businesses?
    Ms. Mills. Well, as I say to everybody, the goal is to make 
the goal. And we had a very good experience in the Recovery Act 
where we were able to exceed not only our 23 percent goal, we 
were over 30, but we made every single sub goal. In the past, 
we have not made our women's contracting goal and we have 
fallen short. And every percentage point you fall short in 
government contract is $4 billion that is not in the hands of 
that constituency. We have been able to implement, this year, 
the women's contracting rule. This was a rule that was passed 
in the year 2000, but was never implemented until we came on 
board and made it a priority.
    And finally, through the efforts, fabulous efforts, of a 
whole set of committed people across the agency and outside and 
across government, that rule went live on February 4. There 
are, I can get you the number. It is more than 1,000 small 
businesses that have uploaded their data, certification data 
into our certification data bank, and we are hopeful and 
determined to make sure that this new tool allows us to make 
the goal.
    Mr. Serrano. Let me ask you something about these regional 
clusters. I know you received 173 applications and you funded 
10. Can you tell us a little about the winning proposals and 
how you see this program evolving in the years ahead, 
especially this year?
    Ms. Mills. Well, as you said, this was a very highly 
competitive process. We had very high demand, huge demand from 
the small business community. And we were able to fund some 
really extraordinary initiatives. The closest example to where 
you are is the Connecticut Hydrogen Fuel Cell Coalition, which 
includes New York, Connecticut, Massachusetts, Maine and 
others. In the Gulf Coast, for instance, a geospatial solutions 
innovation cluster. I was just in Northwest Ohio, in Cleveland, 
where Nortech won, which does flexible electronics. That is 
electronics that you can put on a piece of flexible material, 
so it has circuits, but it bends and you can put it anywhere, 
on a helmet, on anything.
    We have a Carolina nuclear cluster. We have an agricultural 
cluster in California for agricultural innovation. We have a 
defense cluster. What these clusters do is they allow small 
businesses, who don't have the power individually, to access 
the resources that big business do. When they cluster together 
they can access university research, community college 
curriculum and that gives small businesses in these high growth 
sectors the ability to transform the region. They are what I 
call the link, to leverage and align money on a regional basis 
that create new economies, and therefore transform those 
economies, create jobs at a pretty good bang for the taxpayer 
buck.
    Mr. Serrano. I have one last question and then I will 
submit a couple for the record. How has the emerging leaders 
program been implemented so far? And again, sounding like a big 
spender, with $3 million requested, what is it that you do that 
would have an impact?
    Ms. Mills. Well, this program has an extraordinary impact. 
This is specialized training for entrepreneurs, largely in the 
inner city and underserved communities. We have expanded it to 
the Native American community with great success. And just a 
couple of statistics. We track and measure the metrics very 
heavily on this. Half of the participating businesses, after 
they went through this program, had an increase in revenues. 
They secured nearly $10 million in financing. They also secured 
nearly 500 Federal state and local contracts, which were over 
$100 million. And 60 percent of them have hired new workers.
    So we know that this program creates the intended effect, 
which is to help entrepreneurs learn how to grow their 
businesses. And that we have an expanded list of cities where 
we are able to bring this program; it is proven, we have 
actually been running it for quite a bit of time. And we know 
that in each of these communities we can really build a new 
core of successful entrepreneurs.
    Mr. Serrano. Thank you. And actually, I stand corrected 
here. Myself. There is only one question I am submitting for 
the record.
    Mrs. Emerson. Perfect. So how would I become an emerging 
leader if I had a small business? How would I become part of 
that program? Just because it is fascinating to me so I would 
like to know how.
    Ms. Mills. Yes. I believe it is a competitive process. We 
run a curriculum-based program, so you come into a class with a 
cohort and that cohort is designed to work so there is thought 
placed on the different kinds of businesses to have together in 
that cohort. And the trainings are pretty intensive. I will say 
that we have had some good success also expanding this in the 
Native American community where there has been significant 
unemployment and we are doing it in Albuquerque. We are doing 
it in Phoenix, we are doing it in Portland, Oregon, in 
California and Seattle and Oklahoma and Ohio and St. Louis 
actually.
    Mrs. Emerson. So if you are a small business person, or you 
own a small business, then you would actually make application.
    Ms. Mills. You would make application in one of the cities. 
We put out a call for applications.
    Mrs. Emerson. I see. Okay. So would that be advertised in 
the newspaper or does it go to local Chambers of Commerce? How 
do you put out a call? I mean, I am just curious since I don't 
have a small business myself.
    Ms. Mills. I will find out for you, but I would imagine it 
is all of those, yes.
    Mrs. Emerson. I would love to know because I certainly know 
a few people who could take advantage of that. But that is why 
I want you to come to the district so we can tell people about 
these good programs that you have.
    So I recently read a rather scary report, and I am sure 
that Joe, if you read it too, you would think it was pretty 
scary, that the GAO did duplicative government programs. As a 
matter of fact, I was anticipating being, at least having 
several people yell at me about those sorts of things over the 
weekend, which surprisingly they didn't. So I was pleased about 
that on the one hand. But I did know that in economic 
development, in the economic development category, there are 
about 80 different programs at four agencies being 
investigated, with y'all included, I guess, to assess the 
potential overlap and to the extent to which agencies 
collaborate to achieve a common goal. And so since you 
mentioned in your testimony about your efforts to streamline 
processes and eliminate duplication, tell us how you actually 
coordinate the SBA's efforts with other economic development 
agencies to make sure that, number one, everybody knows the 
opportunities available from the SBA and perhaps other areas or 
other programs in the government to do economic development. 
And then, after you tell us that, tell me how do you actually 
ensure that Federal agencies aren't duplicating one another?
    Ms. Mills. As you know, we operate on the ground. And I 
will say, I think we have done a really extensive job at 
collaborating across agencies. The President said, no silos, 
and we have worked, particularly at the SBA, across numerous 
agencies to make sure that we are linked, leveraged and aligned 
and not duplicating effort. Let me just give you two examples, 
and I could actually give you many. But one is the Veterans 
Administration.
    Early on, we did a collaboration with the Veterans 
Administration to make sure that every veteran service 
operation was also telling the veterans about our loan 
programs. We have special veterans loan programs and counseling 
operations and we wanted to make sure that they knew about the 
access to our programs. And we, on the other hand, became more 
educated as to what was available to veterans through 
traditional, avenues or at least how to integrate them back, 
and we have worked to make sure our Web sites are linked, that 
we have cross links. If you come on our Web site as a veteran 
you can get back to other VA programs. A second place that we 
have actually formalized an MOU, as well, is with Tom Vilsack 
and the Department of Agriculture.
    We operate in rural areas and we operate in very close 
collaboration at our district office levels with the USDA 
operations, so that we can find out which loan program is right 
for a particular borrower. And we are always referring back and 
forth between our programs and their programs to make sure that 
we guide the small business to that which is right for them. We 
collaborate extensively across multiple agencies on exports. We 
coordinate with the Export Import bank. We have joint programs 
with them. We coordinate with Commerce on a daily basis, on all 
of these activities. And we coordinate as well in an 
interagency effort in clusters.
    And as I said, I could go on. We are fortunate to represent 
small businesses and to be, I think, a powerful force now in 
making sure that those small businesses find their way to the 
resources that they need.
    Mrs. Emerson. So you had a very successful professional 
career in small businesses and sort of bringing innovation and 
the like. So taking off your SBA hat just for a second, and 
thinking about it from the perspective of an entrepreneur or 
someone who is helping entrepreneurs, what recommendation do 
you have to us as Members of Congress, how do we sort of figure 
out what is duplicative and what is not, and how do we best 
streamline it? I mean, obviously, y'all should be doing that at 
SBA, or SBA, you are not working there anymore, just 
temporarily here, while we're talking about this, so SBA, you 
know, has the expertise to do small business, anything with 
regard to small business. And you know, I don't know what other 
agency, if there are any, who do it. But I do know there are 
about, at least eight agencies that do renewable energy, 
including the USDA, I might add. How do we take this program 
and leverage off each other and streamline it, as opposed to 
having eight different sets of rules and regulations and 
therefore, we get nothing done.
    So what do you recommend, how can you help us do our job 
better, having been in the arena yourself?
    Ms. Mills. Well, as you know, there are lots of different 
kinds of small businesses. And they have different kinds of 
needs. So Main Street small businesses, they need capital, 
contracting, counseling, but it is a different kind of capital 
perhaps than a high impact small business. So I think the first 
thing that we have thought about, I think quite effectively 
now, across the Federal Government is what are the needs for 
the high-growth, high-impact small business. And that is 
Startup America, the interagency effort around both removing 
barriers and providing the tools that a small business needs.
    So I think the best place to see strong examples of 
effective elimination of duplication and even more than that, 
coordination of all the assets that are available, are in some 
of these interagency efforts, and in some of the electronic 
information one stops that we have been able to do. If you look 
on SBA.gov and business.gov, you will see that we leverage 
other agencies' activities in order to make sure that the small 
business gets an opportunity to navigate to what is right for 
them. And we can continue, we plan to continue to do that to 
make those pathways even more easy to find for small 
businesses.
    Mrs. Emerson. Are there other agencies that horn in on any 
of the work that you are doing?
    Ms. Mills. Well, we invite them in.
    Mrs. Emerson. That is different. That is not what I asked. 
I said, are their agencies who somehow try to get in and do 
your, do what do you? Because if there is, that is what we need 
to know because obviously, y'all have the expertise and perhaps 
other agencies, well, rural development may well actually be 
one that would horn in, or as you were saying, you should work 
actually more collaboratively I would think.
    Ms. Mills. We do not find extensive duplication in the 
respect that we operate on the ground and we tend to be the 
agency that lives on the ground, helping small businesses one 
by one by one by one. And I think we are able to bring a 
tremendous set of assets in the interagency activity, and our 
role is generally that we do a lot of the groundwork. We do the 
heavy lift in direct contact with the small business day by 
day, one by one. And I really have to just take the moment to 
commend our staff that does that on the ground. They have a 
real love of small business and that is how we help them.
    Mrs. Emerson. And I would attest to that, working, you 
know, my staff works extensively with your folks on the ground. 
But hopefully the other agencies with whom you collaborate will 
jump as fast as you do so that if there is a whole package and 
you are only doing part of it, they are doing their piece 
simultaneous to yours. And that would be my frustration.
    Actually having worked in an administration many, many 
years ago, that was my frustration. It was because there was a 
lot of interagency work that had to be done and we did our part 
and the others didn't. I am not asking you to make a comment. 
But that is a very frustrating reality sometimes of unwieldy 
government. I have got a bunch of questions that I want to 
actually, and I also have one from Mr. Walden of Oregon who has 
asked me to submit a question for him, which I am happy to do. 
There are things that I want to, questions about 504 loan 
refinancing, particularly since you all are not actually asking 
for any subsidy costs, but is there something that we ought to 
know about in case something happens?
    Might there be a cost associated with those 504 loan 
refinancings? These are the types of questions that we are 
going to submit. And if we could get an answer back. Some of 
these are pretty critical. If we could get an answer back 
within 10 days I would be very grateful. We will rank them 
many. And Joe, you want an answer back quickly too?
    Mr. Serrano. Yes, to my one solitary question. I do have a 
question for you. Do you think the Senate is a duplication of 
the House? Because that would solve a lot of our problems.
    Mrs. Emerson. Well, on the one hand it could solve some 
problems. On the other hand, sometimes the Senate is able to 
act--well, they frustrate me a great deal because it takes so 
long to do things. Sometimes they can, perhaps, bring a little 
balance.
    Mr. Serrano. Madam Chair. I am joking. I expect them to 
save us from H.R. 1.
    Mrs. Emerson. I guess that is what I was trying to say in a 
more diplomatic way, given the fact that this is all on record.
    Mr. Serrano. Listen we have been doing stand up here at 
times and it is all on TV too.
    Mrs. Emerson. All right. We won't keep you any longer. 
Thank you. Thanks so very much for all you do.
    Mr. Serrano. Thank you for your service.
    Mrs. Emerson. Thank you for all you do and all that your 
staff does. You all really are the front lines and we need to 
keep you in the business of doing just that.
    Mr. Serrano. And you know my mantra, don't forget the 
territories.
    [The information follows:] 

    [GRAPHIC] [TIFF OMITTED] T6791A.038
    
     [GRAPHIC] [TIFF OMITTED] T6791A.039
    
     [GRAPHIC] [TIFF OMITTED] T6791A.040
    
     [GRAPHIC] [TIFF OMITTED] T6791A.041
    
     [GRAPHIC] [TIFF OMITTED] T6791A.042
    
     [GRAPHIC] [TIFF OMITTED] T6791A.043
    
     [GRAPHIC] [TIFF OMITTED] T6791A.044
    
     [GRAPHIC] [TIFF OMITTED] T6791A.045
    
     [GRAPHIC] [TIFF OMITTED] T6791A.046
    
     [GRAPHIC] [TIFF OMITTED] T6791A.047
    
     [GRAPHIC] [TIFF OMITTED] T6791A.048
    
     [GRAPHIC] [TIFF OMITTED] T6791A.049
    
     [GRAPHIC] [TIFF OMITTED] T6791A.050
    
     [GRAPHIC] [TIFF OMITTED] T6791A.051
    
     [GRAPHIC] [TIFF OMITTED] T6791A.052
    
     [GRAPHIC] [TIFF OMITTED] T6791A.053
    
     [GRAPHIC] [TIFF OMITTED] T6791A.054
    
     [GRAPHIC] [TIFF OMITTED] T6791A.055
    
     [GRAPHIC] [TIFF OMITTED] T6791A.056
    
     [GRAPHIC] [TIFF OMITTED] T6791A.057
    
     [GRAPHIC] [TIFF OMITTED] T6791A.058
    
                                          Thursday, March 31, 2011.

                   CONSUMER PRODUCT SAFETY COMMISSION

                               WITNESSES

INEZ MOORE TENENBAUM, CHAIRMAN, CONSUMER PRODUCT SAFETY COMMISSION
ANNE NORTHUP, COMMISSIONER, CONSUMER PRODUCT SAFETY COMMISSION
    Mrs. Emerson. This hearing will come to order. I want to 
wish everybody happy opening day of baseball. Go Cards. Joe.
    Mr. Serrano. It is opening day because the Yankees are 
playing.
    Mrs. Emerson. And who are the Yankees playing today?
    Mr. Serrano. The Yankees are playing the Tigers. And we are 
going for number 28. That is arrogance, is it not? If I was not 
a Yankee fan I would be upset that they can buy every player in 
the world.
    Ms. Emerson. So now we are trying to find out if I have a 
Cardinals cap here, and we are going to decorate the dais, do 
you have one in your office, Steve? Not yet.
    Mr. Womack. All my Cardinals caps are soiled with sweat and 
grease.
    Mr. Serrano. You realize the Tea Party is outside listening 
to all of this, right?
    Mrs. Emerson. All right, anyway, I guess we will get 
serious. I am hoping that the Yankees and the Cardinals win 
today, in fairness. And I want to welcome our witnesses, 
Chairman Tenenbaum and Commissioner Northup. Thanks for being 
here and testifying on the Consumer Product Safety Commission's 
fiscal 2012 budget request. You all at the CPSC have the 
daunting task of overseeing tens of thousands of consumer 
products. These products are used by all of us daily. It is 
important that the CPSC lives up to its mission of protecting 
consumers from unsafe products while at the same time not 
promulgating rules that are unnecessarily onerous for American 
businesses and manufacturers.
    Of particular interest to me is the Commission's effective 
and efficient use of its resources. As you know very well, the 
current spending levels are unsustainable. There has been much 
interest, and there has been concern expressed to me by many 
people, about your product complaint database, so I am 
interested in hearing both of our witnesses' thoughts on that, 
and particularly because I tried using it myself yesterday, 
just to see how easy it was to work. But then I realized I did 
not have a complaint, and I could not submit things that were 
not true. I have concerns with its tangible impact on dangerous 
products, and perhaps some of the unintended consequences. I do 
want to get into that because I did go on it and saw how it 
worked, and I looked through and saw some of the complaints 
that had been made, most of which seemed quite legitimate to 
me.
    But on the other hand I do want to explore further problems 
that could arise. It just worries me about over-regulating 
business in a very fragile economy. Certainly we do not want 
higher prices for consumers, but nor do we want American 
businesses to close or not even try to grow due to regulations 
that make it too hard for them to comply. In addition, I do 
have concerns about the amount of taxpayer money that is going 
into this database. Hopefully we will discuss this, because as 
you remember, during the debate on HR-1, there was an 
overwhelming vote to not fund the consumer complaint database. 
I suspect that this is not going to be the last we hear about 
it from colleagues, and perhaps we can work together on trying 
to figure out how to best make people feel comfortable about 
it, or changes that need to be made. I want to thank you all so 
very much, and look forward to your testimony. I want to 
recognize my very good friend and Yankees patron, Mr. Serrano.
    Mr. Serrano. I wish I was a Yankees patron. I cannot even 
afford the tickets now.
    Ms. Emerson. How much are the tickets?
    Mr. Serrano. Top ticket to Yankees Stadium is $1,250.
    Mrs. Emerson. To go to a game? Who would spend that kind of 
money?
    Mr. Serrano. It was built with Wall Street in mind, but 
that is another story. That was before the crash. Do not get me 
going. Thank you, Madam Chair, I too would like to welcome Inez 
Tenenbaum, the Chairwoman of the Consumer Product Safety 
Commission, and Commissioner Anne Northup, a colleague is 
always a colleague, to this hearing of the Financial Services 
and General Government Subcommittee. This agency has a vital 
role to play in all of our lives, as it is responsible for 
making sure that the products we use every day are safe. For 
fiscal year 2012, the budget request for the Consumer Product 
Safety Commission is $122 million. Your agency has important 
and ongoing responsibilities in making sure that hazardous 
products are recalled, imported products are safe, and that our 
children are protected from dangerous toys and other baby 
products.
    I am particularly interested in learning more about your 
ongoing efforts to implement the Consumer Product Safety 
Improvement Act of 2008. I am also pleased that you have 
launched your new Consumer Products Safety Information 
Database, which will give consumers an important tool as they 
use or purchase new products. Finally, I look forward to 
discussing your efforts to address safety issues with respect 
to imported products. We must make sure that we continue to 
provide for a strong Consumer Products Safety Commission, and I 
am hopeful that today's hearing will give us an opportunity to 
learn more about your ongoing programs and the progress that 
you are making in some of your newer initiatives.
    Again, we welcome you. And we have a delicate balance, 
here. And that is that it is obvious that there will be some 
serious cuts across the board in this year's budget, and in 
future budgets. That is the mood in many places, and that is 
certainly the mood in the House. Our challenge is to make sure 
that as we apply these cuts, especially in this agency, that 
they are done in a way where we do not hurt the effort that we 
should be making on behalf of the American people. Our 
Chairwoman said we have to be careful that we do not over-
regulate. I agree with that. But my statement is we have to be 
careful that we do not under-protect the American consumer. And 
there is the balance. Do not over-regulate, do not under-
protect. If we can strike that balance, the American people 
will be well-served. Thank you.
    Mrs. Emerson. Thanks, Mr. Serrano. Chairman Tenenbaum, we 
will recognize you for your opening statement. If you would not 
mind keeping it to five minutes, it gives us more time for 
questions. Thanks.
    Ms. Tenenbaum. Good morning, Chairwoman Emerson, Ranking 
Member Serrano, and members of the committee. I am pleased to 
be here today to update the subcommittee on the positive 
changes we have made at the agency. Since my last appearance 
before the subcommittee a year ago, I have focused on three key 
objectives. First, I have worked diligently to implement the 
Consumer Product Safety Improvement Act, the CPSIA, and used 
that Act's new authorities in a manner that is both highly 
protective of consumers, and fair to industry stakeholders. On 
March 11, we officially launched our new publicly available 
Consumer Product Safety Information Database. The database, now 
available at saferproducts.gov, will empower consumers with 
information, allowing them to quickly determine which products 
they already own, or are considering purchasing, are associated 
with safety hazards or recalls. Second, I have focused on 
changing the CPSC's internal processes, so that the agency is 
more proactive and more capable of addressing safety challenges 
presented by thousands of types of consumer products imported 
from around the world.
    In the last year, the Commission has unanimously adopted a 
five-year strategic plan that establishes a plan to move CPSC 
closer to becoming the global leader in consumer products 
safety. We have established a new office of education, global 
outreach, and small business ombudsman that has already begun 
to provide outreach to small businesses and crafters. And we 
have embarked on a substantial upgrade of our information-
technology system, which has formed the backbone of our 
database, and our new cpsc.gov homepage. Third, I have focused 
on proactive prevention of consumer harms, identifying emerging 
hazards and keeping those products out of the stream of 
commerce. We have taken a number of steps to increase our 
surveillance of potentially harmful consumer goods by signing 
several information-sharing agreements with customs and border 
protection, and increasing our physical presence at the ports-
of-entry. The Commission's Safe Sleep team has also made great 
strides to rid the marketplace of dangerous cribs, usher in a 
new generation of safer cribs, and educate parents about the 
importance of maintaining a safe sleep environment for infants 
and toddlers. A key component of this was the mandatory crib 
safety standards, which was unanimously adopted by the 
Commission. In addition, the Commission's staff has already 
worked very hard to address new hazards, such as the potential 
use of toxic metals in children's products, and the 
Commission's continuing efforts to provide information and 
outreach to homeowners impacted by problem-drywall.
    Overall, I am extremely proud of the Commission's talented 
staff, and the work they do every day to create a safer 
consumer product marketplace for all Americans. Our proposed 
fiscal year 2012 budget reflects these priorities, and will 
give the Commission the staffing and resources it needs to 
respond to new hazards and keep consumers safe. In fiscal year 
1980, the commission had about 100 full-time employees, and an 
inflation-adjusted budget of over 150 million. By 2007, the 
commission had fallen to 385 full-time employees and was barely 
able to fulfill its core mission. Full-time staff now stands at 
approximately 550 employees. As noted earlier, these resources 
allow us to staff several ports-of-entry, and leverage 
cooperation and information sharing with CBP to keep dangerous 
products out of the country, staff our new lab facility, 
scheduled to open in May, and test potentially dangerous 
products, and allow us to respond more rapidly to emerging 
hazards like toxic metals and problem-drywall. I am highly 
cognizant of the desire for fiscal restraint that has been 
expressed by the administration, the Congress, and the American 
people. Yet I believe that CPSC is, dollar-for-dollar, a great 
investment to the taxpaying public. There are, however, several 
areas of critical need that the Commission must address in 
fiscal year 2012 to maintain our forward progress. Accordingly, 
the fiscal year 2012 CPSC budget requests $122 million; a 
slight increase from the $118.2 million funding level the 
Commission is currently operating under the continuing 
resolution, and the $118.6 million request for fiscal year 
2011.
    If enacted, this level would allow the agency to hire an 
additional 34 full-time employees to fill areas of critical 
need, such as rapid review of incident reports, and increased 
defect investigations. These resources will allow us to 
continue our rebuilding efforts, improve outreach to consumers, 
and most importantly, prevent injuries and save lives. Madam 
Chairman, Ranking Member Serrano, Mr. Womack, thank you for 
inviting me today to provide testimony before the Subcommittee, 
and for your support of the CPSC. And I would like to share 
with you a reflection of the statement, a chart that reflects 
the CPSC resource history from 1974 to 2012.
    [The information follows:]

    [GRAPHIC] [TIFF OMITTED] T6791B.001
    
    As you can see, in the 80s, we were almost to 1,000 
employees, and adjusting our budget to inflation, we had about 
150 million. And as the cuts were made in the Clinton 
Administration and the Reagan Administration, we went down, and 
this right here is when the year of the recall occurred, when 
Congress directed us to hire 500 people by October 1, 2010. 
That was in the CPSIA. And that is when we started climbing, 
when we got that direction from Congress in the CPSIA. It said, 
The Commission shall increase the number of full-time 
professionals employed by the Commission to at least 500 by 
October 1, 2010, subject to the availability of appropriations. 
So, thank you, Thank you for letting us use the charts.
    [The information follows:]

    [GRAPHIC] [TIFF OMITTED] T6791B.002
    
    [GRAPHIC] [TIFF OMITTED] T6791B.003
    
    [GRAPHIC] [TIFF OMITTED] T6791B.004
    
    [GRAPHIC] [TIFF OMITTED] T6791B.005
    
    [GRAPHIC] [TIFF OMITTED] T6791B.006
    
    [GRAPHIC] [TIFF OMITTED] T6791B.007
    
    [GRAPHIC] [TIFF OMITTED] T6791B.008
    
    [GRAPHIC] [TIFF OMITTED] T6791B.009
    
    [GRAPHIC] [TIFF OMITTED] T6791B.010
    
    [GRAPHIC] [TIFF OMITTED] T6791B.011
    
    [GRAPHIC] [TIFF OMITTED] T6791B.012
    
    [GRAPHIC] [TIFF OMITTED] T6791B.013
    
    Mrs. Emerson. Thank you so much, Chairman Tenenbaum. I 
would now like to recognize Commissioner Northup. Try to keep 
it please to five minutes.
    Ms. Northup. Yes, thank you. Is it on? Yes. I am delighted 
to be here. Congratulations, Madam Chair, for your position as 
Chairman of this committee, and Mr. Serrano, I am delighted to 
see you again as you said, Once a colleague, always a 
colleague. This is an opportunity to come before you and share 
some of the perspectives that I have since being a Commissioner 
at the Consumer Products Safety Commission since August of 
2009. I appreciate the challenge of this committee to fund 
essential services, and the trade-offs that occur even in the 
best of years there were trade-offs that always had be made. 
And it is with that in mind that I come before you today. As 
our Chair said, we have grown from 80 million to 118 million 
since 2008. We have gone from 385 employees to 549. And if we 
complete our hiring for this year, our targets, and we get the 
increase that we are requesting, we will be at 600 by the end 
of the 2012 fiscal year.
    With that in mind, I wish I could tell you that all of this 
money that has been spent has been a good investment. 
Certainly, our Chair has done a wonderful job at reaching out 
and looking for better ways, and new ways, to accomplish what 
the CPSC is required to do. However, the overwhelming amount of 
time, energy, and money, is being spent on implementing the 
CPSIA. And while the CPSIA had important, new, good safety 
requirements that it put in place, some of what we spend our 
time on, and much of what businesses have been required to do, 
have absolutely nothing to do with risk. There was never an 
assessment made that what we were preventing was risky to 
children in the first place, nor is a lot of the requirements 
in order to comply with the law based on risk.
    However, we get weekly, sometimes daily, information from 
associations, from individual businesses, from people all 
across this country that tell us about the fact that they have 
closed their business, or they have left the child products 
area of their business. The number of small businesses that we 
put out of business has to be in the 100s. It was estimated by 
our agency back in 2009 that the cost to businesses is in the 
billions of dollars. And when you hear these stories 
individually, people that come and talk about businesses that 
they have grown, where they have hired people, the ideas they 
had, and they are simply unable to comply with this law, and so 
they are leaving, many of them, trying to sell to a larger 
company because they just simply cannot absorb the cost and the 
overhead that it has added. It has really been very sad.
    I hope we will have a chance to talk about some of the 
challenges that they have, but I can tell you on the market 
that besides the loss of jobs, the loss of businesses, 
particularly in this country, because small businesses are the 
ones that have the biggest problems, the biggest companies that 
make toys do not make any of them here in this country. They 
make them in China. They make such a large number that they are 
at least more able to spread the cost of complying with this 
law over many more products. But it is also the cost in the 
marketplace, the number of toys and products that are no longer 
being sold in this country. We used to have the most vibrant 
market. Now there are Websites to which you can go, where they 
say, Not sold in the United States. Whole companies, a Swedish 
company, a German company that are no longer selling any of 
their toys in our market; ones that were very popular with 
parents. There are also people that sell to small markets, to 
our schools, small number of products that say they simply 
cannot abide by all the responsibilities of this Act. If it 
were related to risk, of course, I would strongly endorse these 
regulations. But in many cases, risk is not even something that 
we are allowed to consider.
    I am here to ask you to do two things as the Appropriations 
Committee where I think you can make a big difference. The 
first is simply do not let third party testing and 
certification go into effect. To the Chairman's credit, she 
endorsed delaying the implementation of that until December. 
But businesses tell us that that is a staggering cost to them. 
Not only the cost to do third-party testing, but also to 
certify and to track every single component of every single 
good and the certification number, and label every single 
product, so that that cohort of information is available is a 
staggering price. And it is unnecessary.
    The Chairman, in my opinion, has been so creative in 
establishing much better border procedures that ways to 
intercept violative products, ways to test in a more efficient 
way. We have companies it is not the same world as 2007. The 
companies that were violative have all come in and told us 
about the new production oversight companies that have 
responded to us, have all talked about their ISO labs that are 
inside their production facilities all over the world today. 
And so, they themselves because of the cost of the penalties 
that increase, the chance of a class-action lawsuit, Mattel 
settled the class-action lawsuit because of their toys for $14 
million, and so the need to avoid those sort of costs, the 
ability to intercept violative products here, we do not need 
the old-style command and control formula that was in that bill 
that is going to stagger the products that fall into under this 
regime.
    And finally, I know we will talk about this more, I beg you 
to stop the funding of our database. It is a database right 
now. There are 12 of our top people in our agency. Everybody 
from the General Counsel, her top assistant, the person in 
charge of compliance, their top people meet every day Tuesday, 
Wednesday, and Thursday at 8 a.m. in the morning to incident by 
incident go over every single one of these, and it is those 
multi-group teams that you will be funding in the additional 
request that is just counterproductive, both in terms of 
fairness to our businesses, fairness to the public, and giving 
accurate information to the public, which is the only reason 
Congress stated for the database. So those two things defunding 
would, I think, not only create a better agency but also be a 
better expenditure for money. Thank you.
    [The information follows:]

    [GRAPHIC] [TIFF OMITTED] T6791B.014
    
    [GRAPHIC] [TIFF OMITTED] T6791B.015
    
    [GRAPHIC] [TIFF OMITTED] T6791B.016
    
    [GRAPHIC] [TIFF OMITTED] T6791B.017
    
    [GRAPHIC] [TIFF OMITTED] T6791B.018
    
    [GRAPHIC] [TIFF OMITTED] T6791B.019
    
    [GRAPHIC] [TIFF OMITTED] T6791B.020
    
    [GRAPHIC] [TIFF OMITTED] T6791B.021
    
    [GRAPHIC] [TIFF OMITTED] T6791B.022
    
    [GRAPHIC] [TIFF OMITTED] T6791B.023
    
    [GRAPHIC] [TIFF OMITTED] T6791B.024
    
    [GRAPHIC] [TIFF OMITTED] T6791B.025
    
    [GRAPHIC] [TIFF OMITTED] T6791B.026
    
    [GRAPHIC] [TIFF OMITTED] T6791B.027
    
    [GRAPHIC] [TIFF OMITTED] T6791B.028
    
    [GRAPHIC] [TIFF OMITTED] T6791B.029
    
    [GRAPHIC] [TIFF OMITTED] T6791B.030
    
    [GRAPHIC] [TIFF OMITTED] T6791B.031
    
    [GRAPHIC] [TIFF OMITTED] T6791B.032
    
    [GRAPHIC] [TIFF OMITTED] T6791B.033
    
    [GRAPHIC] [TIFF OMITTED] T6791B.034
    
    [GRAPHIC] [TIFF OMITTED] T6791B.035
    
    [GRAPHIC] [TIFF OMITTED] T6791B.036
    
    [GRAPHIC] [TIFF OMITTED] T6791B.037
    
    Mrs. Emerson. Thank you so much, Commissioner Northup. I 
want to welcome Mr. Diaz-Balart, the Vice-Chair of our 
committee today. Chairman Tenenbaum, can you do me a favor and 
have somebody pull that chart up again that you just showed us 
before.
    [The information follows:]
    [GRAPHIC] [TIFF OMITTED] T6791B.038
    
    Ms. Tenenbaum. These are full-time equivalents.
    Mrs. Emerson. Okay. Do you have budget numbers?
    Ms. Tenenbaum. It was 150, but that is what the equivalent 
was. I can give you that budget number. We had 978 FTEs. And 
then, in 2007, when we had the year of the recall which 
prompted the CPSIA, we had 393 workers. And that is why, in the 
CPSIA, the language was put in that we had to hire 500 by 
October 1, 2010.
    Mrs. Emerson. Right. Here is what is interesting to me, and 
now that I think about it, how is it that we ever arrived at 
having you all having to hire 500 people? How would we have 
known how many people have had to hire? Do you recall?
    Ms. Tenenbaum. I was not here during that.
    Mrs. Emerson. I know you were not.
    Ms. Tenenbaum. I think that they looked at the agency, and 
the second part of that law said, Ports of entry, overseas 
inspections, as part of the 500 full-time employees required by 
Paragraph one, the commission shall hire personnel to be 
assigned to duty stations at United States ports of entry, or 
to inspect overseas manufacturing facilities. They envision 
that we go to China, subject to the availability of 
appropriations. And one of the things that is so interesting, 
and it affirms what Commissioner Northup just said, is here are 
our imports.
    [The information follows:]

    [GRAPHIC] [TIFF OMITTED] T6791B.039
    
    As you can see, the red line represents China and Hong 
Kong. So it starts off in 2000 at roughly just under 100 
million. And now before the recession it peaks in 2000.
    But look at that, 80 percent of all the toys that are 
imported in the United States come out of China, just like she 
said, and 42 percent of all consumer products come out of 
China. Our second largest importer has flat lined, that is 
Mexico. Canada is the green, and then you have Japan and Korea. 
We both made visits to China, and we are I am glad to tell you 
that we opened up our first overseas office in China, and 
Ambassador Huntsman allowed us to be in the building right next 
to his residence. In fact, every time I go to China, he has 
always met with me personally at the residence, because it is 
so important for him to keep up with our issues. And if you 
want me to show you these other charts, I can. They have to do 
with FTE's.
    Mrs. Emerson. All right. Tell me what the impact would be, 
because I know you all have had to plan for it, or at least 
noodle ideas around, about what a return to Fiscal 2008 finance 
levels would mean for the CPSC?
    Ms. Tenenbaum. I have that right here. If we go back to 
2008, which would put us back at 80 million, and it would be a 
32 percent reduction, we would have to furlough staff for 92 
days, or four out of the last six months of the year, 
effectively shutting down the agency. We would have only 
available 340 FTEs versus the 576 that was planned for 2011. A 
strict hiring freeze would prevent filling critical vacancies. 
We would also have to not do our nanotechnology project. We 
would be stopped from implementing the CPSIA in terms of the 
durable nursery equipment rules that we are supposed to write. 
We would have to close the Beijing office, and we would have to 
stop our hotline where consumers can call and tell us about 
their experiences. The Virginia Graham Baker Pool and Spa 
Safety Act, which is about swimming and drowning prevention, 
would be cut. And we would have to slow down our modernization 
of our technology overhaul at our agency.
    Mrs. Emerson. Okay, thanks. Mrs. Northup. How would you 
address those two questions? First, the FTE question, and, 
secondly, going back to 2008 budget levels?
    Ms. Northup. First of all, Madam Chair, I have to ask for a 
clarification. I thought that the law said we were to go to 500 
by 2013, not by 2010.
    Ms. Tenenbaum. It was 2010.
    Ms. Northup. Was it 2010? If somebody could just clarify 
that.
    Ms. Tenenbaum. It was 2010.
    Ms. Northup. In any event, we are of course approaching 600 
employees, and I would just say that I think you see what 
happens when you have a very complex bill, and you have to 
implement it, and it has a lot of regulations. The regulations 
are horrendous. Any business, just about any small business, 
when we talk about the ombudsman, the ombudsman is primarily 
dealing with micro-businesses, with crafters with people that 
are one-person businesses. If you are a small business, you are 
going to have to hire a lawyer to make sure you comply with all 
the new regulations that we have written.
    I would just point out that, when we were at the low point, 
that is when the recalls happened, and that in a sense you 
could make the argument the system worked. They caught the toys 
coming in, the agency was able to do a sweep of all toys, and 
while it is true that there were somewhere, I think in the area 
of 78 toys that were recalled, it means that there were 
thousands upon thousands that complied with all the paint 
specifications. And so we were able to do that, and to 
implement a system. We assessed very serious penalties for 
those companies that broke the law, Mattel was the leading one. 
They paid about a $1 million, $1.5 million I think, maybe $1.8 
million but they also settled the class-action lawsuit for $14 
million. And there is no evidence that any child was hurt by 
those products. Obviously, lead in paint is dangerous, unlike 
lead in handlebars, I might point out, of a bike, or a peddle 
or the other things where the law went way beyond what was 
risky. But the law worked, and we did catch those toys, and 
they were removed from the market. And the companies were 
penalized and that is what set into motion these companies 
establishing far more oversight over their plants in other 
countries, putting in in-plant labs. So, you could make the 
argument that the CPS, being out of compliance in 2007 with 380 
employees, that the system did work.
    Ms. Tenenbaum. I have a correction to make. Commissioner 
Northup was right, it was 2013.
    Mrs. Emerson. The 500?
    Ms. Tenenbaum. Yes, my notes say 2010, but it is 2013.
    Ms. Northup. Okay, thank you, so we are already 100 over 
that. We are going to be 100 over that if you fully fund us, 
and we are still a year out from 2013. So the bureaucracy that 
is growing, it is staggering.
    Mrs. Emerson. Okay, I am going to turn it over to you Mr. 
Serrano, we have lots of questions and I have to let my 
colleagues have their shot too, thanks.
    Mr. Serrano. So far, Chairman Tenenbaum on the 
implementation of the Consumer Product Safety Improvement Act, 
we are talking about numbers. How are you working to educate 
manufacturers about their new responsibilities under the law, 
and also with regard to the improvement act, since the 
commission has delayed until 2011, its enforcement of testing 
and certification requirements for many children's products, 
how can consumers be assured that the law is being followed and 
that children's products are safe? What are you telling the 
business community about this, and what are you doing about the 
children's products?
    Ms. Tenenbaum. Okay, thank you Mr. Serrano. We have held 
workshops for the business community as early as 2008, before I 
came to the commission. The staff pulled together all 
stakeholders to teach them about the CPSIA and what the 
requirements are. We also have made a new Office of Education, 
Global Outreach, and Small Business Ombudsmen. For almost 20 
years we have had a small business ombudsman at the CPSC, but 
it was only part time. And Commissioner Nord and I talked, and 
she argued that we really need to go fulltime again to a small 
business ombudsman. We have had a wonderful time young attorney 
who is working with small businesses, taking the Plain English 
Act and writing summaries of our regulations of frequently 
asked questions for the business community. We frequently go to 
trade shows, we work with the major manufacturers to tour-
businesses.
    I think that what we really need to celebrate is the number 
of American manufacturers that have extremely high-quality 
quality assurance programs, that they are state of the art. 
That they are keeping risk away from people. That they have 
been testing using third party testing for ten years. Many of 
the people, once they have gone into China, determine that 
since it was a global market, it was a supply chain they could 
not keep control of, they needed to test, even before they left 
China, the raw materials that went into the product before it 
was sent to the United States. And once it gets to the United 
States, the manufacturers retest.
    I have been to manufacturers who tell me what they do to 
make their product safe, and it is extraordinary. So, many of 
the larger manufacturers have been complying with third party 
testing and testing for chemicals and lead. Recently, I went to 
the toy fair in China and met with the top five Chinese 
companies that manufacture probably most of the toys made in 
the world. And they have worked with their industry to develop 
a chemical database, so that every chemical that you use in a 
toy is listed in that database. And you can keep up with every 
chemical that is in that toy, so that if you have a recall, the 
batch and the lot number, and you can pull that toy even before 
it is sent.
    In terms of what we have done, we have implemented the 
Consumer Product Safety Improvement Act. Although we stayed 
enforcement for some of the products until December of this 
year, we did not stay compliance. So you still had to comply 
with the lead limits, the small parts, the phthalates, and 
F963. We did not stay compliance. And that is why so many 
people have already complied, because you have to comply with 
the lead paint limits, 90 parts per million, total lead 
content, 300 parts per million, limits on phthalates, small 
parts, and ASTM, which is the major toy standard. We only 
stayed testing and certification.
    Mr. Serrano. Right.
    Ms. Tenenbaum. And most people already do that already.
    Mr. Serrano. Right. Yes?
    Ms. Northup. Third party testing and certification is just 
a giant step different from what is currently being done. When 
we proposed the rule, we have hundreds of pages of comments 
coming in from small and large businesses alike, telling us 
that when we actually go, when they actually have to comply 
with the paperwork requirements of that, when they have to 
comply. Third party testing, some businesses use it, many 
businesses have brought in ISO labs inside their companies. 
That is my point. They are very eager to make sure that they 
comply with all of our regulations.
    But the command and control requirements of the law in the 
CPSIA, and the tracking of that information, and the way it is 
being implemented at the CPSC is a gigantic step in a different 
direction than what they are asking for. And if it were true 
that they were all doing it, you would not get, universally, 
and it is universal, from small and large businesses, saying 
this is going to be horrific. It is going to be costly and 
impossible in many cases.
    Let me also say that I am glad we have a Small Business 
Ombudsman. Unfortunately, this office is going now from one 
to--now we are requesting two more, which was a reason I did 
not support it. Small businesses are not asking us for more 
information. They are asking for changes in the law. They are 
telling us it is killing them. And they are saying, it is not 
more information they are asking for, yes, crafters are, but 
small businesses that have 10, and 15, and 20, and 30 
employees? They are hiring their own lawyers en mass. And even 
people like Mattel told us that they had to hire a huge cohort 
of new lawyers, internally and externally, because what they 
had was simply not enough for them to comply with the law. They 
said in a public statement that was printed, they did not know 
how a small business could comply with this law.
    Mr. Serrano. Well, when you two speak to us here today, we 
see what the problem is. And I am in, it must be because it is 
opening day, I am in a, baseball opening day.
    Ms. Northup. You are in a good mood.
    Mr. Serrano. I am in a, let us find common ground and the 
middle ground here. Now, you walk into, and I hate to mention 
names. You walk into Toys R Us, staying on the issue of 
children. Sure, it is a business. And they want to make money. 
But I do not think they are irresponsible people, the people 
who own Toys R Us. They know what impact they have on children. 
So there has to be testing. There has to be some government 
oversight of those products coming into the country.
    But at the same time, since I am in this great mood today, 
there should not be something that strangulates the economy and 
the business community. So what is it, to both of you, that the 
business community is willing to comply with? And what is it 
that bothers them? Because if you tell me, I mean, let us be 
honest. You served with us. You know that there are some 
colleagues of ours who want no oversight of anything, no 
regulation; they are all good people, and they will take care 
of the American people. That is not how it works.
    Ms. Northup. No.
    Mr. Serrano. Right?
    Ms. Northup. And you see that every day when you are at the 
Commission.
    Mr. Serrano. Exactly. So what is it that is squeezing them 
too much, and what are they willing to do on their own? Because 
one of our big complaints, besides, China owns all our economy, 
or whatever, all our debt, is, all these products come from 
China. And we cannot just accept them as they are. So just 
briefly, can you tell me, where is the middle ground here?
    Ms. Tenenbaum. Well, last year, we sent a report to 
Congress saying that we needed four things changed in the 
Consumer Product Safety Improvement Act. First of all, we 
needed greater flexibility in granting exclusions for the lead 
limits. For the lead limit, CPSC only allows three exemptions: 
one if it is an inaccessible part, two, if it is certain 
electronic parts, and the third thing is, by use and abuse of 
the product, any lead is not absorbed into the human body. So 
we wanted greater flexibility, because we had ATVs and bicycles 
where the child is not going to mouth the handlebars, and we 
wanted to be able to give them an exception.
    The second thing is we wanted an exclusion for children's 
books. In August, the lead limits go to 100 parts per million. 
And we also said, Do not make this retroactive like CPSC did 
for the 600 parts per million. Only make it prospective, so 
people will not have to get rid of their inventory. And we also 
wanted relief for small manufacturers and crafters. In fact, we 
are working on a rule called Periodic Testing. We are looking 
at carving out an exception, that, if you make 10,000 units or 
less, you do not have to periodically test. You have to 
initially test, but you do not have to periodically test.
    We also came up with a component part rule. So if you made 
children's dresses, you did not have to test the whole dress, 
you could just buy buttons that were already tested, from the 
button maker, and you were compliant. We made rules that say, 
if you had cotton, untreated wood, if you were a handcrafter 
and made things out of untreated wood, you never had to test. 
So those are the things we have done to be creative, to exempt 
people from testing and certification.
    The common ground is that we need flexibility. But to do 
away with third party testing really goes against what I have 
seen in the marketplace. And I think that it is to whom you 
speak. I went to see a major children's clothing manufacturer, 
and they told me, just two weeks ago, that when they started 
manufacturing in China 10 years ago, they started doing third 
party testing because they wanted to make sure they met the 
flammability standard and that the fabric did not contain toxic 
metals.
    Mr. Serrano. Madam Chair, I do not want to go over my time, 
but I would like the commissioner to comment because she did 
say, she did.
    Mrs. Emerson. Yes.
    Mr. Serrano. I was pleased to hear that you say you see it 
every day at the Commission. So you are not one of those who 
says get rid of the Commission.
    Ms. Northup. Let me just say that every day we get the 
overnight incident reports. And there are children that have 
died, there are cases. We see products that catch fire; we see 
products that are harmful. There is no question that there is a 
very important responsibility at this agency. However, what has 
been a tidal wave of focus of this agency has sort of swamped 
everything, is the implementation of the CPSIA. I have to tell 
you, Mr. Serrano, had I been here, and I was not in 2008, I 
feel sure I would have voted for that bill.
    And because in reading it, it seems as though it is 
logical. But of the three exceptions to the lead limit, the 
question of inaccessible electronic components, the third one 
is absorbability. The majority of the commissioners have 
determined that this is in conflict. But they have interpreted 
that to not apply to one single thing: not a button, not a 
snap, not a zipper, not a handlebars, not any part of a toy, 
not the screw in your crib. None of those things can have 300 
parts per million of lead. Now, you could absorb lead in paint. 
We know what you can absorb lead in. We know if you can swallow 
a charm that has lead in it, that your body will absorb it.
    But we also know that if you lick the handlebars all day or 
the screw in your crib, that has slightly more than that but 
has more strength, it has machineability. I mean, lead also 
contributes certain things that you are not going to--there are 
just going to be an unregisterable amount in a child's blood 
lead level.
    Europe has had lead levels for years. They are based on the 
absorbability. They call it bioavailability, whether or not 
that lead can be extracted out and into a child's body. We 
should make that absorbability mean something. And then 
finally, the testing, I would just say that I do not believe 
that I have heard from one plant that said, I am sure I have 
not, that said, Oh, yes. We think third party testing, outside 
of our plant, the way it is written in this law, is going to be 
good.
    Do they use third-party labs? Of course they do, because 
they care about it. But they do it for their own check and 
recheck, not so that they then have to change the label every 
time they have the red paint runs out one day. Now, you have a 
new set of red paint. It has a new certification level. Now, 
the final certificate has to change the number on that. Now, 
the label has to be batch #107 instead of 106. An hour later, 
the yellow paint runs out. You have to stop the presses. You 
have to change every single thing all the way through. The next 
minute, the snaps run out and you have a new batch of snaps. 
You have a new lot number, so you have a new certificate 
number. All of that has to be reflected in the label.
    This is chaotic and Ashley Furniture came in and told us 
they had spent $14 million on third-party testing and setting 
up a system by which they could track all the layers on a piece 
of furniture and everything. Not one single component of this 
furniture violated the lead limit. They were in compliance. 
They still did not know how, once we applied this, once we put 
in testing, third-party testing, and that they were going to be 
able to comply. So you got no benefit in safety and 13 or $14 
million and cost.
    Mr. Serrano. Thank you. Thank you, Madame Chair, for 
allowing me to go over my time but it has been quite a while 
since I have heard this kind of very direct testimony.
    Mrs. Emerson. Oh, and it is excellent.
    Mr. Serrano. So informative. Thank you.
    Mrs. Emerson. And it is very helpful, very helpful for us. 
Mr. Womack.
    Mr. Womack. Wow. Where do I begin? I was a mayor for 12 
years and I spent a great deal of my time fighting my own 
bureaucracy. And it has been my experience that when you hire a 
lot more people, those people start trying to justify their 
existence. And so, my first question is, when the law was 
passed, that pegged 500 as the number of people, where did we 
get that number? How did we, all of the sudden, decide 500 
employees was the magic number?
    Ms. Tenenbaum. Well, I will show you two things that 
probably prompted Congress to do that.
    [The information follows:]

    [GRAPHIC] [TIFF OMITTED] T6791B.040
    
    The blue line are the full time equivalents. As you can 
see, in 2004 we were a little over 500. And then, in 2005, we 
were at 500, and then we dipped. And this right in here was the 
year of the recall. If you look here at the number of recalls, 
they spiked. They spiked a little around 2007.
    So what Congress, in looking at this data, determined, is 
that with the less people you have doing port surveillance, 
working in China to make sure manufacturers understand our 
regulations, the more recalls you are going to have. Recalling 
costs money for manufacturers.
    Mr. Womack. Do you have a chart that shows the competency 
level of those employees?
    Ms. Tenenbaum. We hire people who are competent. And we 
hire really good people.
    Mr. Womack. I will give you that. I am sure you do on 
paper. The point I am making is, can we just simply conclude, 
based on a numerical chart, that the spike in recalls was 
directly related to the fact that we had a fewer number of 
people.
    Ms. Tenenbaum. Yes, we only had 393 people and we did not 
have enough people. We had five people at the ports. Now we 
have 19 people at the ports. We are working with Customs, and 
have 19 people at 15 ports. We work with Customs and Border 
Patrol. We were the first agency to sign a memorandum of 
agreement with them and, we get all the pre-arrival manifest 
data. We go through all of that data, and we target now 
shipments before they are even unloaded. Products like 
fireworks and electrical products, we pull them so they do not 
get on the store shelves.
    Mr. Womack. Well, Madame Chairman, everywhere I go in my 
district and look, I have got a major retailer that is in my 
backyard. A small five-and-dime named Walmart. And they sell a 
lot of toys.
    Everywhere I go in my district, I hear people telling me 
about pushing jobs overseas, moving jobs overseas. Is it 
possible that maybe part of our problems is that we continue, 
the reason we have so many imports of toys, is our tax policy 
and our government bureaucracy is so big, so reaching, so much 
into the private sector that there might be some other 
quantifiable data that might yield a different conclusion about 
pegging the number at 500. I am just using that as a thought 
process because it always bothers me when somebody says, Golly! 
We are in trouble. We need more people.
    Ms. Tenenbaum. I have been in plants in China. And people 
in China make $1.50 an hour. They live in dormitories and they 
may or may not get food in those dormitories, and they also do 
not have air-conditioning in some of the dormitories. So, if 
you look at textiles, my state, South Carolina, was a major 
textile state. And now, textiles and toys have moved. And the 
chart I showed you, 80 percent of all the toys coming into the 
United States come from China. Forty-two percent of all the 
consumer products come from China. And they make $1.50 an hour.
    Here is another thing that Congress looked at when they 
passed the CPSIA. Here are the number of investigations. And 
you can see, in 2003, we were over 50,000 investigations. And 
we had dropped to below 30,000 by 2009. Here were the number of 
projected incidents, and this is before we even implemented the 
database--the public database that people have been talking 
about.
    So, we are able to only investigate about 10 percent of all 
the claims of injury that consumers send us. Ten percent. And 
one reason that we are asking for 24 more people this year is 
because we have so much data and so many reports from emergency 
rooms, coroner reports, the newspaper, and we have our public 
database, that we cannot even investigate because we do not 
have the people. This is where the majority of the new people 
were going, is to investigation. And our new employees have 
gone into our laboratory as well as in Compliance and 
Enforcement.
    Mr. Womack. I would like for Ms. Northup to comment.
    Ms. Northup. Well, I think your question is, Can we do more 
with less? And I think I would like to say, first of all, that 
I have been exceedingly impressed by the people that work at 
the CPSC. They work hard. They are talented and they are well-
trained. They know what they are doing. But they have been 
given a responsibility to implement a law, and all these rules 
and regulations are very involved. They are very complicated.
    But I would tell you this, all of the new ways of screening 
things coming in work with the Border Patrol Customs and Border 
Patrol. That is a new way of doing more with less. And so that 
is why I have asked, please, do away with the requirement of 
third-party testing and tracking and certification, because 
both within businesses and the huge investment they have made 
and our investments at the port, this is an emerging world 
where new technologies are available that were not available or 
were not used previously, and we could do a lot more with less.
    And finally, I would just like to say that the rules that 
we have implemented, the ones that affect businesses the most 
have been written and there has been division between the 
majority and the minority. Where we could have made it apply to 
fewer items, we made it apply to more items. Where we could 
have allowed fewer tests, we have interpreted it in the most 
severe manner. And now, yes, much of the regulations and 
investigations is going to be investigating whether or not 
people complied with the certifications, whether they complied 
with the third-party testing, as opposed to whether or not the 
item is compliant.
    And finally, just the very fact that every single lab that 
uses a third-party test, we have to certify the lab. We have to 
take in that information. These businesses know what third-
party labs they can trust, but you create a bureaucracy that 
stretches back. It is not just any third-party lab, it is a 
third-party lab that is ISO certified? No, it also has to be 
certified by us. And so, even though that seems like it is not 
a lot of time, everything is incremental. When every single 
child's product, every component of it has to be third-party 
tested in a lab that we have certified, you are talking about 
an enormous process of just doing that.
    Mr. Womack. That raises costs. And I just want to make this 
comment for the record, that my question about competency was 
not related or not in any means directed at the quality of your 
staff. I realize you have a quality staff. What I am simply 
asking is, are there other measurable criteria that could point 
to other factors that may contribute to the incidents, or the 
investigations, or the complaints. And that is merely the line 
of direct thinking I had at that stage.
    Finally, let me just ask this. Are we sure that we are 
doing everything we can to mitigate the impact on small 
business? As my colleague from the Bronx said just a moment 
ago, we do not want to under regulate, but we really do not 
want to over regulate. And I would like to know where that line 
is in an ideological sense, as to when this organization is 
going too far, trying to do much, and exponentially raising the 
price of goods in an attempt to try to remove all risk from the 
public.
    Ms. Tenenbaum. Well, thank you, Mr. Womack. And one thing I 
want to clarify is we will only have one small business 
ombudsman. I created this office of Education, Global Outreach, 
and Small Business Ombudsman, and we put three offices in there 
together. We put the International office, the Inter-
governmental office, and the Small Business Ombudsman. And so, 
the two new positions in that would be to hire an Executive 
Director for that office. But let me go back to what we have 
done for small businesses. We want the full-time Small Business 
Ombudsman because we are working so that people do not have to 
hire a lawyer. We are doing seminars, we are going to trade 
shows. Our Small Business Ombudsman gives his card out to 
people at seminars, and they call him personally. He answers 
questions for them. But we also have done other things. When we 
were debating tracking labels, we decided that one size did not 
fit all, that the small businesses did not have to have the 
same compliance as the large companies. We developed component 
part testing guidance and that is so that the small business, 
we were hopeful, could buy component parts already tested and 
would not have to re-test their products.
    The third thing we did was determinations, that if you were 
a small business and you were making children's clothing or 
handmade toys, that there were certain materials that never had 
to be tested, like untreated wood, textiles, and gem stones. So 
those are the kinds of things we look at. We also have the 
Regulatory Flex Act. We look at how it is going to impact small 
businesses before we come up with a rule. And so, Reg Flex Act 
is something we look at and point out the impact. But we are 
very mindful of small businesses. But, under the Consumer 
Product Safety Improvement Act, everyone had to test third-
party testing, regardless of the size. That is why we were 
hopeful that component parts would be developed so that people 
could buy those, could go in a hobby store, or buy them from 
the manufacturer already tested, and they would not have to re-
test.
    We also hope that this year, that the House and the Senate 
will give us more flexibility so we can allow companies, if we 
do not think there is a likelihood of mouthing the product, or 
swallowing the product, that we can give them flexibility and 
they will not have to test.
    Mr. Womack. I yield back.
    Mrs. Emerson. It seems to me that you are the perfect 
agency to make sure that the President's call for cost-benefit 
analyses of regulations actually comes to be, because obviously 
some things are so onorous. There is no way that you can say 
they are not. It appears that if we do not understand the 
impact at the end of the day in a very fragile economy, we may 
be cutting our nose off to spite our faces, in which case there 
is no businesses to have to regulate anyway. I do want to come 
back and talk about cost-benefit analysis of regulations. So 
far, I have not seen any federal agency in this government who 
is capable of doing that.
    Mr. Serrano. Would you yield for a second?
    Mrs. Emerson. Yes.
    Mr. Serrano. I am sorry. I usually do not interrupt. In 
listening to our new colleague, Mr. Womack, I think the balance 
here is that we are appropriators. We are not authorizers, 
although on many occasions we behave as authorizers.
    Mrs. Emerson. And we have.
    Mr. Serrano. We appropriate. And we have to. We keep them 
in check. This is a law that is in place already. The question 
is, Do we fund it and to what extent do we fund it? And that is 
the balance, because if we get back to 2007, and you see 
people, kids actually being hurt because maybe for insufficient 
funding, or funded to a point where they function. And that is 
not how they authorized it. They passed that law. It is on us. 
That is the delicate balance that we have to reach. So we do 
not over regulate, but as I said, do not under protect. And 
that is the challenge.
    Mr. Womack. Which I think feeds it directly into Madame 
Chairwoman's request, that a cost-benefit analysis probably 
fits this agency as well as any in government.
    Mr. Serrano. Absolutely.
    Mrs. Emerson. And thank you all. So with that, it is time 
for Mr. Diaz-Balart.
    Mr. Serrano. Of the Florida Marlins.
    Mr. Diaz-Balart. Who did beat the Yankees, if I recall, a 
few years ago in the World Series? My memory is not very good, 
but did not that happen recently?
    Mr. Serrano. I think that was your moment of glory.
    Mr. Diaz-Balart. Madam Chairman, you see how he cannot 
admit it. It just hurts him to admit it. It hurts him.
    Mr. Serrano. All right, it hurts me. It hurts me.
    Mr. Diaz-Balart. Thank you, Madam Chairwoman. It is good to 
see you the both of you. You know, if I may, I have some 
questions on Chinese drywall. But Mr. Womack really peaked my 
curiosity. So if that is all right, I would like to submit the 
ones on Chinese drywall in writing later on, because I do want 
to go back to what our colleague was asking.
    One of the things that we have to be careful in government 
not to do is get stuck with that kind of weird logic of, Since 
cheese is round and the moon is round, so therefore the moon 
must be made of cheese. And I think sometimes, when you look at 
these charts, it is not always the case, but sometimes we get 
stuck in that syndrome about, Oh well, if we had a spike and we 
only had 300 people. So if we have 500 people, we would not 
have a spike. Is it just because of the products that all of a 
sudden are manufactured differently, because of technology, 
because of whatever. And again we just need to be very careful 
about that. If I may, kind of, follow up on my colleague's line 
of questioning. By the way, before I do that, when was the 
hotline created?
    Ms. Tenenbaum. We have had the hotline for years. It is the 
publicly searchable database that was mandated that we created 
under the CPSIA in 2008. So we just launched it in March.
    Mr. Diaz-Balart. Madame Chairwoman, when you mention about 
the things that you would have to get rid of or cut if we went 
back to 2008, you mentioned the hotline. But it was there 
before. It was there in 2008. So why, all of a sudden, if you 
could do it in 2008, and it was there before 2008, when we had 
less money, more money; I am not quite sure.
    Ms. Tenenbaum. Because what we are trying to do is increase 
the number of investigations and increase our rate of 
compliance in investigations that we are able to do. When we 
are asked to make cuts, we look at what are some items that are 
discrete that we can cut. And so that was one of the things 
that would have to be cut. The fact that we had more money also 
allowed us to spend the $5 million that we have done on the 
drywall investigation, which is the most expensive inquiry and 
investigation we have ever done in the history of the 
Commission.
    Mr. Diaz-Balart. Okay. Let me go back to what Mr. Womack 
started talking about. We have heard a lot about some of the 
issues that may be onerous to business owners. Specifically 
what are the things that you are doing that are actually 
helping business be more competitive? Because, obviously, with 
technology and everything else, there have got to be areas 
where you look at ways to be less onerous, less expensive to 
business, and you can go to them and say, Hey, look, right now 
you are required to do A, B, and C. Let me show you a way that 
you can do that and you can reach the same level of safety 
without having to go through the expenses. Are there specific 
recommendations like that, that you all are going to the 
private sector on and saying, Here is where we can help you 
streamline, that you do not have to do certain things that you 
were doing before because technology has changed. What are some 
of the specifics that you are doing in order to help business 
be more competitive?
    When I looked at that chart of the number of Chinese toys, 
and again, now I am going back to the same analysis that really 
kind of frightened me, was the fact that there was at one time 
in our history when we manufactured a lot of those toys. There 
were a lot of reasons why; clearly labor costs is one of them. 
But if labor cost was the only issue, we would not be doing 
anything in this country because labor costs are a lot less 
expensive in a lot of places, and yet we are still competitive 
in a number of different areas; obviously, toy manufacturing is 
not one of them, unfortunately.
    But what are the areas, specifically, that you all are 
looking at to be more competitive where you can cut cost for 
business? Some specific areas like that that you are bringing 
forward?
    Ms. Tenenbaum. Well, education is a service that we can 
provide, and businesses tell me that helps them tremendously. 
If we educate them on what our requirements are, then they do 
not make mistakes. They can build safety into the product. And 
that is why when I came here I wanted to create the Office of 
Education Global Outreach and Small Business Ombudsman and put 
three offices together so that we could have a targeted, 
standardized approach. We could work with colleges and 
universities, trade associations, other government agencies, so 
that we can help people understand what the requirements are, 
thereby saving them money so they do not have their products 
recalled. Recalls are not the best way; it hurts industry; it 
hurts their brand. We want to get ahead of that.
    Another thing is counterfeiting. We get complaints on 
counterfeiting. The largest problem on counterfeiting in China 
that we find is electrical products. And so the good people 
want us to catch the counterfeiters. And we are constantly 
working with AQSIQ, letting them know when we find 
counterfeiters.
    Another thing we have is called the 15J Rule, which means 
if it is a standard that the industry is complying with, and it 
is visible to the eye, we can then stop products that are not 
compliant, so that the good people and the compliant people get 
to sell their products. We have done this on drawstrings, hair 
dryers--the bob on the end of the hair dryer that is the 
circuit breaker--if we see one coming in the country that does 
not have that, we stop that at the port. So one way that we 
help industry is by helping the compliant have their share of 
the market and remove the people who do not comply.
    And the other day, Diane Sawyer did a piece where she went 
into a home and took out all the furniture that was made in 
China and replaced it with furniture made in the United States. 
And the cost of the furniture was essentially the same. I am 
going down next week for two days in North Carolina to go to 
the furniture market. A lot of furniture is still an industry 
that the United States has a large market share in. Next year 
we need to go and create an upholstered fabric standard; the 
industry has asked us for it. We worked on the standard for 16 
years.
    We also work with standards-making bodies, such as the UL, 
which are the electrical products bodies, as well as ANSI, and 
ASTM. We work with them when we see a product that is not 
working. And with the staff working with industry on these 
committees, we come up with a standard that improves the 
product and reduces everyone else's risk. And those are 
voluntary standards.
    Mr. Diaz-Balart. Let me see if I can give the Commissioner 
a shot at that, too.
    Ms. Northup. Well, first of all, let me just say that there 
is nobody that wants recalls less than every business. And that 
is why they are more efficient and better at putting in 
prevention ways: ways to test their own things, internally; 
ways to make sure that they are in compliance. For us trying, 
without manufacturing experience, being in the plant, and 
knowing what is going on, it is impossible that we could ever 
provide the sort of expertise that businesses are able to hire 
and provide for their own businesses.
    In the rule-making, first of all, the rule itself, the law 
itself, said that absorbability would be one of the exclusions. 
If you could not absorb lead. If that had actually meant 
something, and I presume when you passed it in Congress you 
meant for it to mean something, much of our problems would not 
exist today. But the majority of the commissioners decided that 
if you rub the handlebars and a fraction of a fraction of a 
fraction of a molecule comes off, of that, and one percent of 
it is lead, the fact you could put your hand in your mouth, 
that meant that nothing could comply with the absorbability 
standard. Even though in the world, and in Europe, it is an 
absorbability standard, if you suck on the handlebars and you 
cannot get the lead out, it is not what they call bio-
available, they exempt all of those things.
    So when the Chair talks about, we exempted materials like 
cotton, it is the smallest, it is a list of about eight things 
and they are mostly materials.
    Mr. Diaz-Balart. Is there an issue in Europe with lead?
    Ms. Northup. No. And more importantly, let's look at our 
own. We have CDC, NIH, EPA, that all talk about lead issues. 
First of all, one percent of the children tested in this 
country reach what we call the tipping point of lead. They are 
about one and a half years old. They are crawling around on the 
floor; they are picking up dust that has lead in it; it is 
either from chipping paint, or it is tracked in from outside 
because lead was in gasoline, it was in the dirt; it gets 
tracked in, it gets on the floor.
    We do not have to research that; they tell us where 
children are impacted by lead, and how they get impacted by it. 
And none of them say, Take away your child's toys; take away 
their bicycle. None of them say, Change the screws in the 
cribs. And yes, there are some groups: the American Academy of 
Pediatric wants us to make it 60 parts per million. But when 
you look at their website, about what they recommend for 
children that start to have an increase in blood lead level, 
and maybe are approaching the tipping point, they do not say 
one word about it being in their toys, in the furniture. And 
why would they? Think about it. We are requiring, much to my 
dismay, and something I think the law would have allowed us to 
do differently, we are going to say that a lamp in a child's 
room that has a child's, say a fairy for a little girl's room, 
every single component of that is going to have to be third 
party tested: the brass; none of that is going to comply, 
because it all has lead in it.
    But that child is going to walk around the rest of the 
house and turn on the lights. And no one would say, Do not let 
your child touch a lamp. There is a ludicrousness in this. And 
a lack of reasonableness that we could have not required it in 
carpets. We have a requirement on flammability and testing of 
rugs and carpets. But we decided that we still had to apply 
this third party testing requirement to rugs in a child's room. 
If they have a child's rug, say a star in the middle of it, 
that would be bought at Pottery Barn, you can go to Pottery 
Barn and buy the exact same thing with solid color with a 
yellow outline, and do not have to third party test it. If it 
has a star in the middle of it, then you have to third party 
test it. And so, do you think there will be that right? And 
what is the difference? And in the meantime, the child is going 
to crawl out of the bedroom, into the living room, into the 
mother's bedroom, none of which is tested. It does not make 
common sense to me. In places where I think we could have 
written the rule so we could have exempted out products where 
we already have protocols and they are in general use; we did 
not.
    Mr. Diaz-Balart. Yes, well, that does not pass this.
    Ms. Tenenbaum. First of all, when Congress was considering 
the CPSIA, they heard testimony from scientists, from 
physicians, who told them there is no safe level of lead. That 
is why Congress put it in the statute that you could not let a 
product be used, or that we could not get an exemption if any 
lead could be absorbed. So it was not the majority that came up 
with this ruling, it was the plain language of the statute.
    Mr. Diaz-Balart. Are you going to come back with 
recommendations to change the statute, then?
    Ms. Tenenbaum. We did last year.
    Ms. Northup. But not that.
    Ms. Tenenbaum. And we also wanted more flexibility in 
letting out certain products where we knew the exposure was 
very low. But in August we will go down to one hundred parts 
per million. Canada already set its lead limit for content in 
children's articles to 90. So Canada is already below us. We 
are seeing remarkable progress where industry is getting the 
lead out. You see lead coming out of zippers for children's 
clothing, for buttons, for toys, out of vinyl, you see it out 
of rhinestones and bling. The market is getting the lead out of 
children's products. And we do not want an amendment to this 
that will take us back so we have to test every article, 
because the CPSC does not have the capability.
    You are talking about more staff, Mr. Womack? If we had to 
test everything for solubility, when solubility depends on the 
child. A child that is deficient in calcium will absorb more 
lead. Lead is a powerful neurotoxin. There is no safe level. It 
reduces the brain functions and it interferes with the brain 
functions and the IQ of children. It is well-documented. So it 
is something that Congress did hear plenty of testimony about, 
when they said, we want the lead out of children's products.
    Mr. Diaz-Balart. Let me just, in the interest of time, 
thank you, Madame Chairman, you are being very generous. Allow 
me to say that this is, frankly, one of the most informative 
hearings that I have been in, in my years here because we are 
actually beginning to talk about the issues.
    There always seems to be, and the legislation is part of 
that, an increase in regulation. Could you tell me what 
decreases in regulations you are either doing or you are 
proposing, again, because of changes in technology, because the 
need is not there, because the cost is too much, or the cost is 
too much for the gain? Are there any areas where you are 
looking at decreasing regulation, decreasing activism or 
activity, in the private sector?
    [The information follows:]

    [GRAPHIC] [TIFF OMITTED] T6791B.041
    
    [GRAPHIC] [TIFF OMITTED] T6791B.042
    
    Ms. Tenenbaum. I want to go back and talk to our laboratory 
and our scientists to give you a complete answer. We regularly 
meet with standards-making bodies. In fact, the law is plain 
that we cannot write a mandatory rule unless the voluntary rule 
is shown to be inadequate to protect the consumer. So the great 
majority of our rules are voluntary standards. The UL writes 
standards for electrical products, for example, and most of the 
rules that the industry uses to make products are voluntary. We 
only make a rule if it is not adequate. So we will get back to 
you.
    Going back to the President's executive order. The order 
asked all agencies to look at significant rules. Significant is 
defined as having a certain financial, I want to say, $100 
million; is that correct? $100 million?
    Mr. Diaz-Balart. I think it is $100 million.
    Ms. Tenenbaum. So it has to have the impact of a $100 
million. The only rule that we have implemented that rises to 
that level, since I have been the Chair, has been our new crib 
rule. And we worked together to give the industry time to 
manufacture those, and also public accommodations to purchase 
those. But I will send you a list of those. But I just want to 
clarify, the rule-making, mostly, are voluntary rules that 
industry uses.
    Ms. Northup. If I could just correct, Canada left many of 
their things at 600 parts per million lead. It was the things 
that were swallowable that they lowered to 90 parts per 
million. And, again, I think that anything that is risky, we 
can ban. We have that authority.
    Ms. Tenenbaum. Well, and the AAP really wanted 40 parts per 
million, not 60; so the American Academy of Pediatrics wanted 
us to set our limits not at 100, but at 40. And the compromise 
was 100 when they passed the CPSIA.
    Mrs. Emerson. Thank you all.
    Mr. Serrano.
    Mr. Serrano. Thank you. Before I start, I will preface my 
comment. You spoke, Madame Chair, about the cost benefit 
analysis. And I think it is fine, in some cases, when we talk 
about paperwork or regulations. But cost benefit analysis can 
never be acceptable in terms of a child's life or safety. And I 
think that is where we have to be careful. When we study how 
much we are spending, it can never be at the risk of having a 
child, or any person, but certainly children, who were the most 
affected in 2007, so that is important.
    Which brings me to the question of the new product testing 
lab that is slated to open very soon, compared to the CPSC's 
current laboratory. How will the new one enhance the work, and 
how will consumers ultimately benefit?
    Ms. Tenenbaum. Thank you, Mr. Serrano. Our lab opens in 
May, and we would like for all of you to visit the lab with 
your staff, if you so choose. The lab is going from 37,000 
square feet to 63,000 square feet, and we can now perform, in 
the lab, many more tests than we were able to perform. We have 
a new testing laboratory for fireworks, for example; we have 
our own chemical laboratory, toy testing laboratory, and it 
will be a huge improvement over the laboratory that we have 
been operating in for so many years. So we appreciate the 
funding that Congress has provided to us. It is a $19 million 
project. We purchased a used building that was already built 
for a lab, and remodeled it to fit our needs, and we hope that 
you will come out and see it. It is in Rockville, Maryland.
    Mr. Serrano. Thank you. And that will launch when? In May, 
you said?
    Ms. Tenenbaum. May of this year. And we would love for you 
all to come out.
    Mrs. Emerson. That would be a good field trip, I think we 
should do that.
    Ms. Tenenbaum. Yes, please do.
    Mr. Serrano. We can bring some Republicans' items, some 
Democrats' items, have them tested.
    Ms. Tenenbaum. You are right.
    Mrs. Emerson. Great idea.
    Mr. Serrano. We could bring the Federal Budget, test and 
see how much harm the cuts will cost.
    Ms. Tenenbaum. Very clever.
    Mr. Serrano. I could not help that. Every so often, you see 
a perfect example of the differences around here. It seems 
there are a significant number of Members of Congress who would 
like to get rid of the searchable database. But the public 
likes it. What do we need to know about how it is working? What 
is, in your opinion, the strength? What is, in your opinion, 
the weakness? Only to be fair, I think there are no weaknesses. 
But if someone wants to say there is a weakness, we certainly 
will hear that. But it seems to me that the ability for someone 
to get on a website and know that there are items they should 
be looking out for, cannot hurt anyone. We put all our 
legislation up on the Internet and people comment on it; and 
some love it, and some hate it; and some love us, and some hate 
us; and that is fine; that is public information.
    First of all, who is complaining about the database, other 
than Members of Congress? And what is the strength? And to be 
fair, if you want to comment on its weaknesses.
    Ms. Tenenbaum. Well, we had a spirited debate when we were 
debating the rule on the public database. But I want you to 
know, even though we televise our debates and we have open and 
transparent meetings, 86 percent of all of our decisions are 
unanimous.
    Mr. Serrano. Eighty-six percent?
    Ms. Tenenbaum. Eighty-six percent. But this is one where we 
had different views, and we argue our views passionately; and I 
think that is a good way to be. And once it is over, a lot of 
times we go to lunch, and we remain cordial to each other and 
friendly. But that was a very tough decision. And it was a 
spirited debate.
    Let me give you a little background on the database. First 
of all, the CPSC has had a website where people report data to 
us for a number of years. In fact, we receive over 17,000 a 
year. However, that Website is not searchable by the public, 
nor do we have a portal so that manufacturers can go on and 
side-by-side and give us their comment on what someone said 
about their product. In fact, we are the only federal agency 
that has a manufacturers' portal. NHTSA does not have one, and 
the other agencies like Agriculture, who may have a website, do 
not allow manufacturers or people to comment side-by-side.
    But let me give you some numbers, too. The database is a 
part of a risk-assessment system that Congress mandated that we 
create under the CPSIA. We have spent $23 million so far to 
create the risk-management system, and $3 million for the 
database. All the money that has been given to us has been 
spent because we launched the database in March.
    We receive each year 458,664 reports from consumers. The 
majority of these come from emergency-room data. We purchase 
emergency-room data on injuries people sustained from products. 
That is 397,000 out of the emergency room. Like I said, the 
website yields about 17,000. We collect mortality data. We get 
8,000 death certificates, 550 medical examiners reports or 
coroner's reports. We look at the newspaper every day. 
Commissioner Northup spoke about the daily reports; we find out 
through the newspaper who has drowned or who died because of a 
product, and that is 6,554 reports.
    We also get a little over 163,000 reports on the hotline, 
but only 5,531 are actually reports of harm from a product. A 
lot of people just call and ask us questions. Retailers such as 
Wal-Mart, Target, Sears, Home Depot, Amazon: we get about 
23,000 reports from them, because we have got a retailers' 
reporting program. If they have a problem, they call us and let 
us know immediately.
    We also have a substantial product-entry hazard under 
Section 15 of our statute. If the manufacturer knows, or the 
importer knows, that their product has a defect, they have to 
call us. So we get thousands of reports, about 20,000 reports 
from them each year. So anyway, to make a long story short, you 
add all those up together, we get about a half a million 
reports every year on consumer products.
    Now let's go to the publicly searchable database. Remember, 
I said we get about 17,000 each year from our website anyway, 
but it is not searchable and it does not have the 
manufacturers' portal. Since we started in March 11, we have 
436 reports of harm in the database. Of those, we have notified 
306 manufacturers. Of those, we only had 17 reports that the 
report was materially inaccurate, and most of the time, 13 of 
the 17, the manufacturer has said, We are not the manufacturer. 
We are the private labeler. And we keep a database on labels, 
so we are working very hard to track down who is the actual 
manufacturer.
    And one thing that Commissioner Northup said was every 
three days a week our attorneys and everyone sit down to go 
over this data. The reason they scrub it so hard is they are 
making decisions now that will be our policy in terms of will 
we allow it on the database or will we not? We have 2,368 
manufacturers who have registered: 2,368. Now, 2,115 have been 
processed so that we have notified them.
    Mrs. Emerson. Let me interrupt you just for a second. All 
right, let's just say I am John Q. Smith, and I have a 
complaint to make because my baby's zipper on their jacket 
caused a rash on the baby's neck; and so that might be 
something that I would think that the zipper could have caused. 
And so I can go on the database and I can fill all of that in. 
I went on there; I know exactly what you can put in, and all 
the things that you require because you only have red stars on 
certain things that are definitely required.
    Anyway, it seemed to me, unless I just felt horribly guilty 
about sending a fake report in because I could not do that just 
because there was that little signature thing at the end, but 
there are people who could do that. If I made my complaint, 
does that immediately get popped onto the database? Because 
obviously, you could only search the recalls on the database, 
as of yesterday. I guess tomorrow is the launch date for all of 
the consumer types of reports. So if I put in that complaint 
about the zipper causing the rash on my baby's neck, would that 
automatically show up, or does it get sifted through by you all 
first?
    Ms. Tenenbaum. First of all, we would look at that and make 
sure you filled out all the data points.
    Mrs. Emerson. But it would have kicked it back to me if I 
had not filled it out, right?
    Ms. Tenenbaum. Right, and we would not put it on the 
database if you did not give complete information, and if you 
did not check that you verified that the information is 
accurate and to the best of your knowledge.
    And then have five days after you put that in there to send 
that to the manufacturer. And the manufacturer could say, First 
of all, it is materially inaccurate because we are not the 
manufacturer, and here is who has manufactured it. It might be 
a private labeler, but anyway that is confusing it. You could 
say that you are not the manufacturer, and then we would not 
post the report if you were not the manufacturer. We would find 
out who was, and notify the manufacturer. But we would send it 
to the manufacturer, and the manufacturer said, You know, the 
zipper does not touch a child's neck if you wear it 
appropriately, and why do you have the zipper around the 
child's neck anyway?
    Mrs. Emerson. Well if it comes up and it is one of those 
types.
    Ms. Tenenbaum. Okay, all right; you are right. Then they 
would say, We will take a look at it and see, or they could 
say, We tested it before we put it on the market. We tested it 
on 2,000 children, and no one had a rash. Maybe your child has 
a sensitivity.
    Mrs. Emerson. But my point is, or my question really is, if 
I make that complaint and I just made it up to cause harm to a 
competitor, would that get posted on the website?
    Ms. Tenenbaum. Well, if it is a competitor, then it would 
not be a true.
    Mrs. Emerson. In other words, is it possible that false 
data could be put on the website?
    Ms. Tenenbaum. If we find out that it is false data, we 
will turn it over to the Justice Department.
    Mrs. Emerson. Well I understand that. Is it possible that 
false data could be put on? Because I went through the whole 
thing; I could have made up anything on there last night and at 
least sent it, but that is what worries me. After I pushed the 
Send button, does it pop up on the database?
    Ms. Tenenbaum. No, we have to send it to the manufacturer 
first.
    Mrs. Emerson. Right, but it is possible, though?
    Mr. Serrano. But the manufacturer would have a right, prior 
to posting it to say, This is not true.
    Ms. Tenenbaum. Right, they would.
    Mr. Serrano. You know, we go through that. We have a 
meeting and people get up and say, You did this and you did 
that, and we say No we did not.
    Ms. Tenenbaum. And anyway, if we find out that it is false, 
it is against a federal statute to give false information to an 
government agency.
    Mrs. Emerson. Well of course I know that, but there are 
some people who do not care.
    Ms. Northup. Well first of all, of course the manufacturer 
can say, We tested it, it did not happen. They would not say 
that they tested it on 2,000 people. I mean, you think they 
tested a sweatshirt on 2,000 people? So they would probably say 
it complies with all the norms, and that comment could go up if 
it wanted. But the point is, yes, it would go up on the 
database.
    The problem with the database is a number of things. First 
of all, you do not have to have firsthand information about an 
incident in order to put information in. Now let me just say, 
as a mother of six children, I can tell you that many, many 
products over the course of my children's lives got altered. 
You know, somebody bumped into one of the kids bikes, and Oh, 
it bent it when we were trying to fix it, the screw broke, so 
we got another screw. I mean, you put things back together. So 
let's say the bike broke and my child broke their arm. I go to 
the hospital and the hospital reports it, and it goes in and it 
says the child broke their arm. I mean, I know that the bike 
was altered. I would be willing to tell the manufacturer that 
the bike was altered. But the incident on the database is not 
going to show that.
    Mr. Serrano. But are we not, in a way, Commissioner, being 
picky, perhaps? I mean, there is always that danger. There is a 
contradiction going around this country now. We have got to 
return government back to the people. We have got to give 
information to the people. The people, the people, the people. 
I am all on board with that. But yet in this particular case 
where the people have an opportunity to say something is wrong 
and then you have an opportunity to see if indeed that is 
correct, and yes you run the risk that some information is 
incorrect, I would think that this should fall right in line 
with this new belief, or this renewed belief to give more power 
to the people. I mean, here the people can go online and say, I 
was affected by this. Will you check it out?
    Ms. Northup. Well, Mr. Serrano, let me just say that as a 
matter of fact, I use that information all the time.
    Mr. Serrano. And one last point. Since it is one of those 
few agencies that allow the manufacturer to say, Not true, 
which I think is pretty fair, well, what is really the problem?
    Ms. Northup. Well, the problem, first of all, is that it 
does not require enough information that comes in. Right now, 
American people have all of that at their fingertips. If you go 
on Amazon.com and you say you want to order a Graco highchair, 
you will get a choice of over a hundred products. They will be 
from $55 to $148. And you can also check that you want to see 
what consumers say about it, and they will tell you whether it 
was hard to put together, whether they sent the wrong item, 
whether they thought it was overpriced, and yes, much of it is 
safety information. So there is already in the market, without 
us spending this enormous amount of money, and we can talk 
about the amount of money later, there is all that information 
available to the American people. What is important about what 
comes into the Consumer Product Safety Commission is that we 
are expected to take action about products, and so it is 
important that we have accurate information.
    Now, if you go on, let's say I buy that highchair, and then 
Amazon.com sends me an e-mail and says, Why do you not comment 
about this highchair? And if I click on that link, it takes me 
right back to the highchair I bought, so we know exactly what 
the product is. What comes into us, you say who the 
manufacturer is, Graco. You say it is a highchair. You do not 
have to say which one of the 120 items it is. Maybe you have 
not even thought about that, and you say the leg broke. Well, 
how does Graco know which one? Is it the $55 highchair, or is 
it the $148 highchair? How do we know which one it is?
    The person putting in the incident has to give their name 
and address. That is fine. But we already have third-party 
groups putting in data. What if it is Consumer Reports? What if 
it is a trial lawyer trying to make a class-action suit? This 
is what is terrifying the manufacturing community, the fact 
that without enough information, how do they comment on it if 
they do not even know which highchair? And if it comes in 
through a third-party organization that does not know who the 
consumer is, they got the report, then we cannot even verify it 
ourselves if we want to do safety information. So the first 
problem with this is is that it does not require enough 
information.
    Let's say a highchair broke at my Thanksgiving dinner. Is 
it the highchair I lugged up from the basement that is 30 years 
old? Or is it the one I bought last year when my first 
grandchild was born? Or is it the antique I have sitting next 
to the fireplace? None of that has to be given.
    Mr. Serrano. I understand. At the beginning, if I recall 
correctly, you said, Do not fund the database. Right? Now you 
are saying, Make the database better. I mean, I am not putting 
words in your mouth.
    Ms. Northup. Well, let me just say, I would say do not fund 
it until you can make it better. But having been on 
appropriations and knowing that you cannot legislate on 
appropriations, that is one of the problems. There are other 
problems with it too, but I think you can improve it. I 
actually wrote a rule that I thought would have made the 
database something really good for consumers, and really good 
for us.
    Ms. Tenenbaum. And we used a lot of the points made in it.
    Ms. Northup. Not the big ones.
    Ms. Tenenbaum. Well, here is another thing too. We do not 
require the model as a required field, as you saw yesterday. 
But we do have it as a field that we want people to provide.
    Mr. Serrano. Why did you not require the model?
    Ms. Tenenbaum. The product might have burned up, it might 
have been destroyed. But 90 percent of the people are putting 
the model in, so we do have a lot of information on the model. 
It could have been a cause of a fire in a home. I turned on my 
microwave the other day and flames shot out. Had I turned it on 
and walked outside, it could have caught the kitchen on fire.
    Mr. Serrano. This happened to you, you are saying?
    Ms. Tenenbaum. Yes, it did.
    Mr. Serrano. Sue. No, I am only kidding.
    Ms. Tenenbaum. No, I threw it away because I said, This 
thing is old, and I did not report it. So I just took it to the 
recycle place and did not let anybody use it.
    Mr. Serrano. Right, I understand. I was only kidding.
    Mrs. Emerson. My husband did it by putting silver foil or 
aluminum foil in the thing, and blew up a brand new, never used 
microwave. And it was time to get a new one.
    Ms. Northup. He did not want to cook, did he? Clever.
    Mr. Serrano. On behalf of men all over America.
    So what are you hearing from manufacturers that are close 
with that? Because I know that there is a concern, but let me 
preface my comments by saying that I think this is one of the 
better items that we have in the federal government, the 
ability of the public, the consumers, to come and state their 
case, and the idea of having the manufacturer's side-by-side 
comment. Can it be fixed, can it be made better, can it be more 
efficient? Absolutely. But I am worried about your initial 
statement, Do not fund it. I like your later statement, Do not 
fund it until you make it better. I do not like the Do not fund 
it at any level, but this is a good thing and if it can be made 
better, of course. But this is one power we have given to the 
people that we should not take away.
    Ms. Tenenbaum. Well, what I am hearing from manufacturers 
is that manufacturers are signing up for the business portal, 
2,368, and they are taking this very seriously. Another thing 
is we had a workshop for manufacturers and all of our 
stakeholders before we even wrote the rule on the database, and 
that was extremely helpful. After the databases rule, we had a 
separate workshop for the manufacturers. We want manufacturers 
to feel confident that we are going to do everything to find 
the actual manufacturer, and that we are going to work with 
them to ensure that only truthful information is on the 
database. And as Commissioner Northup said, we are meeting 
every Monday morning for a few hours because the decisions we 
make now set precedent.
    But if I could say about the entire IT modernization, that 
has been so important, because we had five different silos of 
data at the Consumer Product Safety Commission. The CPSIA 
required us to modernize our whole IT system so that all of the 
data can be tracked through the agency so that we can have case 
management, so everyone, whether you are in the legal 
department or in the laboratory or are in compliance, can look 
at the same cases at the same time. This will revolutionize and 
allow us to intervene early on emerging hazards. And so I 
wanted to please give that information, because our people have 
worked so hard to modernize our IT system.
    Mr. Serrano. Thank you.
    Ms. Northup. If I may, please do not interpret our meetings 
with manufacturers as saying that there is not universal angst 
over this. And I agree with you, information is powerful, but I 
would also tell you that if identifying, for example, let's say 
the Graco highchair. If that is given information to consumers 
to go buy a different kind of highchair that may be less safe, 
because maybe Graco swamps the market, there are five billion 
of those out there. If accurate information is helpful, 
inaccurate information is not only unhelpful, it could be 
dangerous, and the idea that requiring the model number, and 
also the approximate date it was purchased so that is it 
something still on the market or is it something that was made 
30 years ago? These were amendments that were offered by those 
of us, is ways to make this a more useful database, and they 
were turned down by the majority. So there is great 
disagreement about this.
    And finally, if today, we get a comment from a manufacturer 
saying, We do not see how this could happen, this does not seem 
like a leg could have broken off the highchair, whatever they 
say, in other words, a question about materially inaccurate. 
How much chance of one of the incidents going up tomorrow? They 
have no transparency and no confidence that we will be able to 
resolve that material inaccuracy before tomorrow. And what this 
rule said is if we have not resolved the material inaccuracy, 
it goes up. So if I am GE, and somebody puts in something and 
we cannot resolve the material inaccuracy, it goes up. That is 
wrong. That is wrong.
    Mr. Serrano. All right, well my time has come up. Let me 
just make one comment. And we are not here knocking the 
business community, but I am still waiting for that day when 
the business community says, Why do you not regulate us on 
this? Why do you not supervise? Why do you not check into us? I 
suspect if tomorrow we said, Government will not issue one rule 
for the next year. You guys regulate yourselves on every 
subject, a year will pass, and probably not one rule will come 
out of the business community saying, We should not do this. 
And so we did not get to be the great country we are by just 
allowing everybody to do as they please. We set in place some 
things to protect people, and to protect workers, and to 
protect the consumer, and to protect the business community, 
and so on and so forth. Thank you.
    Mr. Diaz-Balart. Thank you, Mr. Serrano. Mr. Womack.
    Mr. Womack. Are fewer recalls good or bad?
    Ms. Tenenbaum. Well, for industry, fewer recalls are good, 
because it means that their brand is not called into question. 
And that is what we want to get ahead of. We want to make sure 
that we can work with industry to be proactive so that they 
understand what the requirements are, and they can build safety 
into the product so that they will have fewer recalls. For all 
products in fiscal year 2008, we had 564 recalls. In 2010 
fiscal year, we had 428. For toys, 2008 was 172, and fiscal 
year 2010 was 44. So recalls are, we say, are declining. And 
most of our recalls are voluntary, the company calls us and 
says, We have a problem and we want to work with you to recall 
the product. Which we do. There is a fast-track. So, we work 
with industry when they have a problem to go ahead and get the 
product off the market. But we would like to see fewer recalls 
because it costs companies a lot of money.
    Mr. Womack. Well, in previous administrations, like during 
a Republican administration, fewer recalls might be looked at, 
and probably were looked at, as a sign that we were not doing 
our jobs. And yet, we are going to ask for more people so we 
can push for fewer recalls. So which is it?
    Ms. Tenenbaum. Well, what it is, is that we have put the 
new people, a large number of the staff, in import 
surveillance. And we are working with CBP so that we look at 
that pre-arrival manifest data, and we can target products 
before they are unloaded. But now we have an office in Beijing, 
and with our Office of Education, Global Outreach, and Small 
Business Ombudsman, we will be able to form partnerships and 
train more people in China, in Vietnam, and in other areas. 
When I went to Vietnam, the government of Vietnam was so 
appreciative of us visiting. I think if we could have stayed 
longer, they would have extended our visa, because they wanted 
to ask all kinds of questions, because they had government-
operated labs. And if I could have had our staff stay there to 
make sure that their laboratories were running the tests that 
we were requiring that they ran, they would have appreciated 
it. So we are looking for ways to educate governments as well 
as educate businesses. Every time we go to China and meet with 
the Chinese, we put on a seminar. We did one on training on 
ATVs, and what the requirements are for ATVs. We had 150 people 
attend that seminar. American manufacturers who manufacture 
their products in China welcome the idea that we will work with 
them to educate manufacturers and their workers. So, where I am 
headed, is in prevention. I want to help manufacturers. I want 
to help them have fewer recalls.
    Mr. Womack. Ms. Northup.
    Ms. Northup. Well, measuring whether or not we are 
effective by the number of recalls is just spin. I mean, when 
we had a lot of recalls--like I said, it happened in 2007; it 
happened under the lowest budget, but it happened because when 
they thought there was a pattern, the agency sprung into 
action, and so did all the businesses spring into action. This 
is similar to what our Chair has done with regard to cribs, 
with regard to strollers. When we see that a stroller cuts off 
a finger, what she has done, and she has really initiated this 
as part of the proactive work she has done, she immediately 
requires that we look at strollers that have exactly the same 
hardware to make sure we are not going to have more fingers 
being amputated tomorrow. And they end up being recalled. And 
so yes, we would like to decrease the recalls, and companies 
want to decrease the recalls, too. They are putting in place 
their own safety, and prevention, and tracking, and so forth. 
But the agency, here, is good and, I believe, has gotten better 
at being proactive about looking at something that is a real 
critical issue and immediately stretching out beyond that.
    Mr. Womack. One of the concerns I have, as a new member of 
Congress and when I talked to people in advance of being 
elected, it was the concept of government underwriting risk. At 
some point in time, you just cannot eliminate all risk. It is 
just fundamental. It is part of life. You cannot write a code 
for every circumstance, and you cannot craft a law to prevent 
something bad from happening. And when you interject the human 
factor into our everyday lives, things happen. We had a case in 
northwest Arkansas this year involving a kid. It was a very 
unfortunate tragedy. A young man was crushed to death by a 
soccer goal that came over and hit him. It was very 
unfortunate; one of my constituents. But the answer on the 
state level was to change the law and require that all soccer 
goals are made by a certain licensed company doing certain 
things, when we all know that the issue was not the construct, 
it was the anchoring. And so, fortunately, Arkansas got it 
right and changed the law to require anchoring.
    But the point I am making is we just cannot eliminate all 
risk. The balance I am looking for, as a legislator, is: At 
what point do we get into diminishing returns in our desire to 
want to protect the public? Diminishing returns meaning that we 
are going so far into the regulatory process that we are 
killing jobs, ruining our economy, but boy, look at the things 
that we are doing to protect humankind from some things that 
are nothing more than just bad judgment and misapplication, a 
poor build out of the product, because they did not go by the 
complicated diagram that came with it--and I am the master at 
that--so I am philosophically saying that I want us to be very 
careful that we do not get into a situation where we are 
throwing the baby out with the bathwater. Now, for the record, 
I would like for your agency to provide the breakdown of 
additional personnel in your ramping up, and where those 
personnel are going to be assigned; to which office they are 
going to be assigned.
    How many of them will go to the Chairman's office? How many 
will go to the Office of the Executive Director? How many will 
be in Public Affairs? The point here is that I want to see if 
the ramping up of personnel is going direct to the operational 
functions of the organization, deployed out to the areas where 
they actually can make a difference, and not just serve to add 
a few more layers of administrative, bureaucratic red tape 
within the agency. That is one of my concerns.
    [The information follows;]

    [GRAPHIC] [TIFF OMITTED] T6791B.043
    
    And then, finally, I want to ask this question: Madam 
Chairman, do you actually go to the toy manufacturers? Mattel 
has been mentioned already, and it has been a while since I 
have bought a lot of toys, but go to the shelf at Toys R Us. Do 
you go to those manufacturers as part of your outreach and sit 
down with the CEOs and the General Counsel of these 
organizations, and actually ask, What can we do better with our 
agency as it concerns your capacity to deliver goods to your 
consumers? What can we do better? And I am not talking about 
the Ombudsman's program. I am just talking about: What have you 
done, as the Chairman, what has your Commission done to go out 
here and see how we can create jobs in this country, making 
these products for the benefit of the people that are 
consuming?
    Ms. Tenenbaum. Thank you for that question, Mr. Womack. And 
yes, I do sit down with CEOs. I recently went to China and met 
with the five CEOs of the largest Chinese toy manufacturers. 
And they are Chinese. I have met with them twice now since I 
have been Chair. And they were telling us, and told me 
personally, what their concerns were with certain rules. They 
were also very proud that they had created a chemical database 
so that they are going to track every chemical that goes into a 
child's toy, and they would have software that recorded that. I 
have been, personally, up to New York to visit with the CEO and 
the leaders of Hasbro. I have worked with Mattel. And in fact, 
Kitty Pilarz, who is in senior leadership at Hasbro, Chairs the 
Toy Standards Making Committee for ASTM. So we meet with them 
and have interaction with them regularly. When we put rules 
out, we provide for a period of comment, and we write down 
every question, and we provide an answer to every question we 
receive, and we have comments on rules. So we work closely with 
the industry to develop voluntary standards, as well as 
mandatory. And I do make it a part of my job as Chairman to 
meet with people.
    Mr. Womack. Same for apparel and strollers?
    Ms. Tenenbaum. Yes. Last year, when the American Apparel 
and Footwear Association had their meeting, they asked me to 
come over and speak. And they said, You are coming into the 
lion's den. And I said, That is fine. And I not only gave a 
speech, I answered questions. I have been to children's apparel 
companies in China as well as the United States, to their 
distribution centers. I have gone to China and watched the 
testing that companies do on strollers and that is what I said 
earlier. We ought to be telling the great stories of what our 
American companies do to ensure the quality and the safety of 
their products. It is extraordinary. When you see that a 
stroller gets on a treadmill and for days is run over and over 
again through that treadmill so that it is durable and before 
its release, it is remarkable what our companies are doing to 
ensure the safety of people and that is the good story we ought 
to tell.
    And they are working hard to get the lead out. We had a 
hearing the other day on what would be the impact on industry 
when we, in August, go to 100 parts per million. We have asked 
that Congress change the law so it is only prospectively 
applied. We had one of the largest third-party testing 
laboratories testify that they had already tested 90,000 units 
of products and have found that over 90 percent, in fact, I 
think it was 94 to 95 percent already are of less than 100 
parts per million.
    And so the industries have complied, they are moving 
forward. I am person whose glass is always half full. My 
husband and his family were in the steel business for a number 
of years, and I know that steel had to meet many requirements, 
and I never heard them complain about the requirements that 
steel had to have, the standards. But I am also positive when I 
see what American companies are doing to ensure the safety and 
remove the risk for customers.
    Mr. Womack. I just want to make sure when those 
conversations are taking place, it is not, I am from the 
government and I am the bad guy; or, I am perceived to be the 
bad guy, and there is a reason for that because we can be your 
worst enemy if you are not doing certain things. I want that to 
be a good open line of communication because I think that is 
the way back to get regulation out of the business of stopping 
this dilemma we have called lack of job creation. Mr. Chairman, 
I will give it back.
    Mr. Diaz-Balart. Thank you, Mr. Womack, and again, I 
apologize, but we are all kind of going back and forth to other 
hearings. I hope that some of these issues that I am going to 
bring up, maybe if they have already been addressed, just let 
me know. The IT modernization issue, when the private sector 
does IT modernization, they usually then are able to shrink the 
size of the personnel. How many less people are you going to 
need if you do go forward with the IT modernization?
    Ms. Tenenbaum. Well, the IT modernization goes back to the 
fact that we had all of this data coming in. I do not know if 
you were here when I talked about the amount of data; it is 
almost half a million from various sources. And we had them in 
separate systems so that when we wanted to look across all 
these systems, our people had to manually go through system 
after system. And when Congress asked us to modernize our IT 
system, it wanted the CPSC to have one system that you would 
put all those systems in a data warehouse, and so that you 
could see emerging hazards. Everyone in the agency could pull 
up the same system and would have the data in there. IT 
modernization will go on into governance, case management, 
finances; our whole system will be modernized.
    Mr. Diaz-Balart. So it will be more efficient?
    Ms. Tenenbaum. It will be more efficient.
    Mr. Diaz-Balart. Right, but if you are going to be more 
efficient, and you just mentioned about how right now people 
have to do it manually, that hopefully will not be the case.
    Ms. Tenenbaum. Well, we do not want to just investigate 10 
percent of all the claims we have. This is our investigation 
rate. These were projected even before the database, that these 
are the incidences that keep going up, the number of reports, 
and we are only able to investigate 10 percent. So we are 
asking for 24 new people this year to look at all this data 
that is coming in, to look at the incidents reports, and to do 
investigations. We are trying to keep people safer. This is a 
good return on our investment.
    If you look at our little agency, $118 million, 500 people, 
and we have 300 ports of entry, we have 19 people at those 
ports. We are trying to create as many partnerships as possible 
through our Education, Global Outreach, and Small Business 
Ombudsman. We are working with other agencies, but it is a huge 
investment, $118 million, this little tiny agency, and we have 
over 15,000 products. We have 80 percent of the toys coming 
from China, and you know that this is a global complex supply 
chain. It is a good investment; it is a good return.
    Mr. Diaz-Balart. I am not denying that, Madam Chairwoman, 
but again, just specifically about that issue. Usually when you 
get more efficient, you can then, since you are more efficient 
and you are investing in technology which costs money, you are 
able then be more efficient.
    Ms. Tenenbaum. Well, we were tiny to begin with. Just in 
2008, we had 393 people when we used to have almost 1,000.
    Mr. Diaz-Balart. So you are not going to then reduce that 
with IT technology?
    Ms. Tenenbaum. We are trying to be more effective in 
spotting dangers early. We are trying to be more effective in 
keeping consumers safe.
    Mr. Diaz-Balart. Okay, let me ask you this, though, now. 
Mr. Serrano mentioned something which I think is accurate. He 
mentioned that obviously if whoever, right? You could tell 
people you regulate yourself. Unless you have a reason to 
regulate yourself, whether it is for business reasons, 
whatever, you are not going to do it. The flip side of that is 
that usually if government were allowed to say, Hey, what 
regulations would you get rid of? unless they are forced to, 
they do not voluntarily usually. I think on both counts, we 
could probably agree that that is the case.
    Mr. Serrano. If I may, I do not know if you were here, but 
I think I may have coined a new phrase which is, Do not over-
regulate, but do not under-protect.
    Mr. Diaz-Balart. Sure. And I think that is the balance that 
we all try to reach, and there is disagreement on what that 
balance always is. But when, for example, CPSIA, the 
legislation that we have been talking about, when those 
regulations are taking place, is there an estimate as to, when 
you speak to the businesses that you are going to deal with 
either on the legislation or anything else, as to what those 
regulations are going to do as far as actual cost to the 
manufacturers, how much it is actually going to cost them 
dollars-wise, which then translates to jobs or not?
    Ms. Tenenbaum. Yes, well, prior to the CPSIA and before we 
implemented our proposed rule, we had to do a cost estimate. 
Now, under the CPSIA, Congress decided that we needed to 
promulgate rules on durable nursery equipment: toddler beds, 
bassinets, slings, baby bouncers, baby bath seats, baby 
walkers. And Congress said, Under these rules, you do not have 
to do a cost estimate. We are going to put CPSIA rule making 
under the Administrative Procedures Act because Congress had 
testimony that children were killed in defective cribs, play 
yards, and Congress wanted us to work with industry and first 
of all, look at the voluntary standard. And most of the rules 
for consumer products are voluntary. Very few are mandatory 
rules.
    So we work with industry on the voluntary standard and look 
to see if it is strong enough. And if it was not strong enough, 
we are to come back with our own rule. We have passed baby bath 
seats, baby walkers, full size and non-full size cribs. And 
Congress required us to have two new rules every six months 
proposed. Two rules every six months of proposed rules. We will 
vote on next week, bed rails, portable bed rails on youth beds. 
We just had a briefing yesterday on toddler beds. We will also 
do bassinets this year. So we are keeping up with the schedule, 
but we do not have to do cost estimates on those. But, for 
example, if we do upholstered furniture, which we have been 
working on 16 years, we will have to do a cost estimate.
    Mr. Diaz-Balart. Yes, Commissioner, do you want to comment?
    Ms. Northup. Yes, we do these rules, but I should say the 
Regulatory Flexibility Act, just the one on youth beds and 
rails, showed that there would be substantial harm to 
businesses and that it would cause some of the small 
businesses, primarily small businesses, to get out of business. 
But that does not stop us from issuing the regulation; we go 
ahead and do it anyway.
    Mr. Diaz-Balart. Right. So, okay, let me just see if I 
understood that.
    Ms. Northup. We are required, as the chair said, we are 
required to take two durable goods every six months and issue a 
rule. And so if we look at youth beds and rails, there really 
is not a lot of injury on these. The injury data is very, very 
low. But we are required to consider how maybe these could be 
made so that even and so we issued new rules. And there is 
substantial product difference that we are making, that we are 
going to require. And so, businesses that have been in this 
business for years, that are small, that are not going to be 
able to cover these sort of changes, they, and our regulatory 
flex analysis said there will be substantial problems for some 
of them, some will go out of business. But it does not stop us 
from issuing the regulation.
    Mr. Diaz-Balart. Let me put it this way. If it does not 
stop you, then.
    Ms. Northup. Just to require that we do it. I mean, I know, 
it is, I mean----
    Mr. Diaz-Balart. However, that is not part of the decision 
making.
    Ms. Northup. It is not part of the decision making.
    Mr. Diaz-Balart. In other words, it is the consequences of 
the decisions?
    Ms. Northup. We are required to do a regulatory analysis. 
Not only that, the law does not say. We still have to issue, 
what would we do? It is the law there that requires us to 
address every single child's durable product on a certain pace, 
and to consider how we can make it safer. And every one of them 
comes with a regulatory analysis. Some of them, the changes are 
because they are a product that is more likely to cause injury, 
or there is more. The companies themselves have evolved over 
the years. But in some cases, the product, there is a low 
incident rate, but we still are required to consider how the 
product might be revamped, so that it would be safer, and to 
issue those as mandatory standards. We are required to do that.
    Mr. Diaz-Balart. That is because of the new law?
    Ms. Northup. Yes.
    Mr. Diaz-Balart. And you do not have flexibility there?
    Ms. Northup. No.
    Mr. Diaz-Balart. That is amazing, by the way. That is truly 
amazing. Particularly in this day and age.
    Ms. Northup. Yesterday's regulatory flexibility analysis 
was one that certainly caught my eye because of the number of 
companies that they thought it would impact negatively. If you 
are in multiple products, you will be able to spread your cost 
over more products, and so there will not be a problem. But, it 
said that, for businesses that only make youth beds, or that 
are smaller businesses, that it would have a negative effect, 
and may put them out of business.
    Mr. Diaz-Balart. And the flipside, what would be the 
positive effect? Do we know what the positive effect would be, 
how many less deaths? How many less, do we know that?
    Ms. Northup. You could say how many deaths there were over 
the last 20 years. Over the last 20 years, do you know that?
    Ms. Tenenbaum. On the toddler beds, there were two.
    Ms. Northup. Over the last 20 years?
    Ms. Tenenbaum. I do not know if it was 20 years, but there 
were two because they got between the railing and the mattress 
and were suffocated. But the rule, the reg flex language in the 
toddler beds said that if you are a responsible manufacturer, 
and you are already following the voluntary standards, you 
would be impacted far less than the people who are 
manufacturing toddler beds, are not following the voluntary 
standard. It did not say that they would go out of business; it 
said it would have a substantial impact because then you will 
have to follow what was already the standard. But if you are a 
responsible manufacturer already following, you will have less 
impact. It did not say anyone would go out of business. It just 
said it would have a substantial impact.
    Mr. Diaz-Balart. But, if you are doing it, two is a 
tragedy, I mean, one is a tragedy.
    Ms. Northup. The problem with youth beds is that the 
majority of injuries occur because people, you are not supposed 
to use a youth bed for a child under the age of two, and it is 
primarily when people put a six-month-old or an eight-month-old 
in a youth bed, that they have an injury. But we are required 
to consider use and abuse. And so, if it is foreseeable that 
people are going to put eight-months-old in there, we have no 
flexibility on this with the law, in terms of whether we decide 
to issue a mandatory standard. That is what the law requires us 
to do. And it has to include use and abuse.
    Mr. Diaz-Balart. I think that is one of those things that 
does not quite pass the logic test. I mean, I do not know what 
the stats are. And again, one tragedy is a tragedy for that 
family, as a parent we all know that that is an incredible 
tragedy. But I do not know if we have stats about how many kids 
may die because they fall downstairs. I do not know if there 
is, I do not know what those are, but I guess you could put 
Nerf stairs so that they bounce. You could, I mean, obviously.
    Ms. Tenenbaum. Use a gate, you could use a gate.
    Mr. Diaz-Balart. Right. But I mean even then. And then are 
we going to require a gate that closes by itself with a motion 
detector. The bottom line is that we could always go to the 
extreme. And we would like that nobody ever dies and nobody 
ever gets injured, obviously. As a parent, that is what we 
would all like. But it seems to me that if you are dealing with 
two tragedies, and they are tragedies, some of those may be 
because there is misuse. And then, we can lose jobs for that, 
which is a huge tragedy. Because those are probably jobs that, 
those people might have children as well. It seems to me that 
that does not pass.
    Ms. Tenenbaum. Well, I do not know that anyone will lose 
their job.
    Mr. Diaz-Balart. Well we do not know if----
    Ms. Tenenbaum. Well, the top, on the durable nursery 
equipment, what we were seeing was a trend, in that the 
materials used were flimsy and the hardware was not as strong 
as it needed to be. Particularly cribs. We had over 30 deaths 
in drop-side cribs. And that is because the drop-side, if you 
looked at the wood, it was not the strong wood that was 
required for a crib. We did not require a racking test, which 
we are now, that we borrowed from Canada. And the hardware was 
plastic.
    Now, we had a baby bed in our family that everyone in the 
family passed around. But it was a stronger wood, and the 
hardware was made out of metal, so it slid up and down and did 
not come detached from the sides. So you are seeing a lot of 
products that are being made that are not as durable. And that 
is why, when Congress heard testimony about infants and 
children being killed, and hurt severely, they wanted the best 
product.
    Look at car seats. Look how strong car seats are now. Look 
at the strollers. When I visited the stroller factory, it was 
amazing to see all the tests that they put that stroller 
through so that a child is not harmed. And so it really is the 
safety of the child. It is based on the best science. It is 
based on the best engineering that we know. And we have worked 
with the Standards Committee. And I want to point out that 
there are probably 1,000 standards-making committees around the 
world. Think about that. And most of the standards for products 
that you use are voluntary.
    Mr. Diaz-Balart. I understand.
    Ms. Tenenbaum. It pales in comparison to mandatory rules. 
But Congress heard testimony and they said, We want you to work 
with the Standards Committee, look at what the standards are 
for toddler beds, and if you think they can be made stronger, 
make them stronger. And that is what we are doing for all 
durable nursery products.
    Mr. Diaz-Balart. But you could always make everything 
stronger.
    Ms. Tenenbaum. Well, this is based on the best science.
    Mr. Diaz-Balart. How many people die in automobile 
accidents?
    Ms. Tenenbaum. Well, look at the automobiles.
    Mr. Diaz-Balart. I know, but we can make them better.
    Ms. Tenenbaum. How much they have changed?
    Mr. Diaz-Balart. But we can make them better. And we can 
make them stronger. We can make it so that nobody dies by 
literally wrapping people in bubble wrap, and putting in a nerf 
car. I mean, we could.
    Ms. Tenenbaum. But we do not feel like we are doing that. 
We feel like we are really using the best science.
    Mr. Diaz-Balart. I understand that. I understand that. But 
there gets to a point where, then, the cost benefit analysis 
shows you that you are going overboard. And I, again, I am not 
talking about this specific case, I am just saying that there 
is a time when you go overboard, and where are we not reaching 
that case, particularly in the case where, again, two 
tragedies, horrible tragedies, when you are dealing with two 
tragedies, some of those may be misuse. And then you have the 
potential of hurting people's businesses who have kids, and 
that is a tragedy as well. Are we not potentially going 
overboard?
    Ms. Tenenbaum. We are very sensitive to that. But we also 
are sensitive that our mission is to keep children and families 
safe, and we believe that we need to be.
    Mr. Diaz-Balart. I understand that, but every day we are 
losing more and more jobs overseas.
    Ms. Tenenbaum. Well, I think that there are a number of 
factors.
    Mr. Diaz-Balart. There are.
    Ms. Northup. If I could just say, if I had been asked what 
sort of changes you might make in the rule, I might make 
mandatory standards for durable infant goods where there is a 
trend towards injury related to the product and how it is made. 
We were not given that, nor have we sent up that, as a 
recommendation, but the fact is that when we change something, 
when we tell somebody they have to re-engineer their product, 
and there has been a low incident rate on dangers to them, but 
never mind, we do not care, do it. And they either go out of 
business, or lose product, or cannot, or it is prohibitively 
expensive to re-engineer this. That is a question that Congress 
will have to consider. But it would be a recommendation that I 
would make.
    Mr. Diaz-Balart. And finally, and again, I will submit some 
questions on Chinese drywall.
    Ms. Tenenbaum. We have a lot to tell you on that. If you 
want us to meet with you personally, we certainly will. We will 
even come to your district and have a public hearing.
    Mr. Diaz-Balart. Thank you. Just lastly, do consumers have 
any responsibility to check products for quality and safety, or 
really is it kind of government control to do that? In other 
words, should government be in a position to make sure that 
everything is safe, and so that consumers never have to worry 
about checking to see if one product is stronger? Because they 
are all going to be as strong, or checking that one product. Is 
there any responsibility that we as consumers should have, or 
really is it that frankly should government be taking care of 
those issues so that consumers should never have to worry about 
those things?
    Ms. Tenenbaum. Well, philosophically I believe that 
everyone has the responsibility to use products responsibly. 
But I also feel like the government plays a key role in working 
with manufacturers in coming up with the best standard possible 
for products. I remember when I read The Jungle, which was 
about the meatpacking industry, years ago when I was in high 
school and how the meat was contaminated because we had not 
regulated the meatpacking industry appropriately. And I 
remember that book from years and years ago, and what an 
impression that made on me. My first job in state government in 
South Carolina was licensing childcare facilities and going in 
to old buildings that could barely pass fire safety standards, 
and worrying about children dying in those facilities. I have 
been a child advocate all my life, and my job is to protect 
children who cannot protect themselves.
    Every week, we see some product that is pretty incredible 
and we all say, Good gracious, why would anybody think that the 
use of that would be safe? We looked at one yesterday, and it 
is almost unanimously, Oh, that is so unsafe. So we have to 
balance that. You cannot over-regulate, but you also have to 
look at who your most vulnerable citizens are, and that is 
children and elderly people, and people who cannot take care of 
themselves.
    So I think it is good that we have a rule that says you 
have to have a voluntary standard first, and the industry has 
to govern itself. And if you find that that standard's not 
effective in keeping people safe, then you can write a 
mandatory rule. I think that is the way it should be. And the 
great majority of rules are voluntary rules that industry makes 
themselves. And like I said, there are probably 1,000 
standards-making bodies around the world, and they work very 
hard to make sure that the standards are the best that they 
know. It is our job if we have new scientific information to 
work with them to improve these standards. And that is 
basically my philosophy.
    Ms. Northup. First of all, we do not oversee products 
because they are flimsy. I mean, because a product is flimsy, 
because it breaks, we do not have any oversight of that. It is 
only if it has the potential to injure somebody that we have a 
responsibility for it. So, yes, somebody going in. But 
remember, there are plenty of families that are of modest 
income, and they go in and they look at a crib, and they are 
judging, What can I afford? And they have to presume that every 
crib there on the floor is going to be safe.
    I remember as a mom myself thinking that was not what I was 
thinking. I was thinking would it last, sort of thing. And so 
if it is unsafe, that is where we have a responsibility. It is 
this law that required us to make mandatory standards that what 
the chair just said is exactly right. We should have voluntary 
standards, and when we see that there is a danger, and the 
voluntary standards are not sufficient to protect children, 
then we should make a mandatory standard. The law did not allow 
us to do that.
    Mr. Diaz-Balart. Thank you. Mr. Serrano. I believe you Ms. 
Northop.
    Mr. Serrano. Just a closing statement because I need to 
leave, myself. The database does exactly what you mentioned. It 
puts responsibility on the consumer to put forth information, 
and then it allows the manufacturer to say yes or no and defend 
themselves. Secondly, what role does the consumer play and 
should government play a role? Well, our colleague, Henry 
Waxman, I remember, I am old enough to remember this, asked the 
tobacco company over and over and over at public hearings for a 
series, for a number of years, How harmful are you? And each 
one said, Oh, we are not harmful at all. It is fine. And we now 
know differently.
    And lastly, one of the attacks these days is on labor 
unions. Labor unions have too much power. Well, how did they 
gain some power? Because there is an HBO special running around 
now, sad special, about 146 women who died at the shirt factory 
in New York because there were no rules and no regulations 
whatsoever. And so yes, we do not want to over-regulate, but as 
I said, we need to protect. And there is the balance.
    But this knee-jerk reaction that we hear from some folks in 
this country, not necessarily Members of Congress, that 
everything is over-regulation, no. The commissioner is right. 
You go into the store to buy a crib, and the issue should not 
be because I cannot afford the more expensive crib, am I 
getting a bad crib unsafe for my child? That person should know 
that whether it is a $50 crib or a $500 crib it is safe for 
their child. And if their work is to make sure that happens, I 
do not think that is over-regulating. That is actually 
protecting the consumer. And I thank you for your testimony. It 
has been a wonderful hearing. But do not get up until the 
chairman.
    Mr. Diaz-Balart. Thank you, Mr. Serrano. You and I here do 
not have a philosophical disagreement. We may have a 
disagreement as to how much over-regulation there may be or 
not, but I think we have heard it from both of you today that 
there are some issues where we may have gone overboard, where 
they do not have flexibility.
    Mr. Serrano. Well, you are coming from a point that makes 
sense to me which is that you know that the big Yankees payroll 
was beaten by the Marlins team with a payroll of about $1.50, 
and so you say less is better. Well, maybe not.
    Mr. Diaz-Balart. Mr. Serrano, I still detect a little 
bitterness there on that one. I do. I just do. And I know you 
cannot help it, and it is okay. Let me just thank both of you. 
This has been, I think, one of the most really illuminating 
hearings that I have had the privilege of being with in a long 
time. You both have put issues on the table, you have done so 
straightforwardly and have taken our questions and answered our 
questions. I just cannot thank you enough. And we hopefully 
will continue this conversation, because both of you have just 
been wonderful today. Thank you so much.
    Ms. Tenenbaum. Thank you so much. 

    [GRAPHIC] [TIFF OMITTED] T6791B.044
    
     [GRAPHIC] [TIFF OMITTED] T6791B.045
    
     [GRAPHIC] [TIFF OMITTED] T6791B.046
    
     [GRAPHIC] [TIFF OMITTED] T6791B.047
    
     [GRAPHIC] [TIFF OMITTED] T6791B.048
    
     [GRAPHIC] [TIFF OMITTED] T6791B.049
    
     [GRAPHIC] [TIFF OMITTED] T6791B.050
    
     [GRAPHIC] [TIFF OMITTED] T6791B.051
    
     [GRAPHIC] [TIFF OMITTED] T6791B.052
    
     [GRAPHIC] [TIFF OMITTED] T6791B.053
    
     [GRAPHIC] [TIFF OMITTED] T6791B.054
    
     [GRAPHIC] [TIFF OMITTED] T6791B.055
    
     [GRAPHIC] [TIFF OMITTED] T6791B.056
    
     [GRAPHIC] [TIFF OMITTED] T6791B.057
    
     [GRAPHIC] [TIFF OMITTED] T6791B.058
    
     [GRAPHIC] [TIFF OMITTED] T6791B.059
    
     [GRAPHIC] [TIFF OMITTED] T6791B.060
    
     [GRAPHIC] [TIFF OMITTED] T6791B.061
    
     [GRAPHIC] [TIFF OMITTED] T6791B.062
    
     [GRAPHIC] [TIFF OMITTED] T6791B.063
    
     [GRAPHIC] [TIFF OMITTED] T6791B.064
    
     [GRAPHIC] [TIFF OMITTED] T6791B.065
    
     [GRAPHIC] [TIFF OMITTED] T6791B.066
    
     [GRAPHIC] [TIFF OMITTED] T6791B.067
    
     [GRAPHIC] [TIFF OMITTED] T6791B.068
    
     [GRAPHIC] [TIFF OMITTED] T6791B.069
    
     [GRAPHIC] [TIFF OMITTED] T6791B.070
    
     [GRAPHIC] [TIFF OMITTED] T6791B.071
    
     [GRAPHIC] [TIFF OMITTED] T6791B.072
    
     [GRAPHIC] [TIFF OMITTED] T6791B.073
    
     [GRAPHIC] [TIFF OMITTED] T6791B.074
    
     [GRAPHIC] [TIFF OMITTED] T6791B.075
    
     [GRAPHIC] [TIFF OMITTED] T6791B.076
    
     [GRAPHIC] [TIFF OMITTED] T6791B.077
    
     [GRAPHIC] [TIFF OMITTED] T6791B.078
    
     [GRAPHIC] [TIFF OMITTED] T6791B.079
    
     [GRAPHIC] [TIFF OMITTED] T6791B.080
    
     [GRAPHIC] [TIFF OMITTED] T6791B.081
    
     [GRAPHIC] [TIFF OMITTED] T6791B.082
    
     [GRAPHIC] [TIFF OMITTED] T6791B.083
    
                                             Friday, April 1, 2011.

                     OFFICE OF PERSONNEL MANAGEMENT

                                WITNESS

HON. JOHN BERRY, DIRECTOR, U.S. OFFICE OF PERSONNEL MANAGEMENT
    Mrs. Emerson. The subcommittee will come to order.
    Happy April Fool's Day.
    I want to welcome Director Berry from the Office of 
Personnel Management. I do appreciate your service. You have a 
tough job. And I know that while today usually is reserved for 
practical jokes and pranks, I think it is only opportune for us 
today to consider the serious challenges of OPM's mission to 
recruit, retain, and honor our world-class Federal workforce to 
serve the American people.
    OPM leads Federal agencies on personnel management issues 
for the country's 1.9 million Federal civilian employees. It 
designs, develops, and oversees compliance with workforce 
policies in areas of recruiting, selection, development and 
compensation. Also, OPM has the responsibility for managing 
tens of billions of dollars in retirement, health and life 
insurance trust funds for Federal employees.
    For fiscal year 2012, the President's budget requests 
annual operating expenses of $258 million for the Office of 
Personnel Management, including the Inspector General, to carry 
out OPM's mandated responsibilities. This is an $18 million, or 
7 percent, increase over fiscal year 2010.
    As you know, our current spending levels are unsustainable 
and our committee is committed to fiscal responsibility. And 
Director Berry, I want to try to work as closely as we can to 
fund your highest priorities without adding anything additional 
to the Federal debt.
    As the Federal Government transforms itself to address the 
country's most pressing needs, agencies must have the ability 
to recruit and retain talented and highly skilled employees. 
Over the next decade, the Federal Government is facing a huge 
retirement wave which will result in the loss of leadership and 
institutional knowledge across the government. So the Federal 
agencies really need your help to meet this challenge.
    You have significant responsibilities, Director Berry, and 
I look forward to working with you to accomplish your goals and 
make sure we have the best workforce to serve the American 
public.
    With that, I would like to recognize my friend, our 
subcommittee ranking member, Mr. Serrano, for any opening 
remarks he would like to make.
    Mr. Serrano. Thank you, Madam Chairman. And I did notice 
that Albert Pujols set a record----
    Mrs. Emerson. Zero for five.
    Mr. Serrano. Zero for five and three double plays in one 
opening day. That has never happened in the history of sports.
    Mrs. Emerson. So do you suppose that having a 10-year 
contract would have solved that?
    Mr. Serrano. Yes, he would have relaxed more and paid more 
taxes and maybe kept the shutdown from taking place.
    Mrs. Emerson. Well, there is that.
    Mr. Serrano. I would also like to welcome Mr. John Berry, 
who we have a lot of respect for.
    OPM has a very challenging and important mission overseeing 
the employment and benefits for millions of Federal workers and 
millions of Federal retirees. We may disagree up here about the 
appropriate size of government, but we all agree that it is 
critical to have a personnel system that has the flexibility 
and resources to hire and retain a high-quality workforce to 
staff an efficient Federal Government.
    In addition to the current workforce, you are responsible 
for retirees, a number that is expected to increase 
substantially in the coming years. Recently, there have been 
many failed efforts to modernize the retirement system. Despite 
repeated investment, we still have a system that is outdated 
and inaccurate, and therefore unable to accomplish its mission. 
I understand that you are planning a more incremental 
modernization of the retirement process, and I look forward to 
hearing about these efforts.
    Finally, although we appear to be making progress, there is 
still an unfortunate possibility of a government shutdown. OPM 
will have an important role in making sure that the necessary 
parts of the Federal Government continue to function. I look 
forward to hearing how you are preparing agencies for this 
eventuality and making sure that Federal workers know their 
role in the event of a shutdown. I look forward to addressing 
these issues during the time for questions, and I would like to 
welcome you again, Director Berry.
    Thank you.
    Mrs. Emerson. Thank you.
    Now I would like to recognize Director Berry. Please, if 
you would keep your remarks to 5 minutes, that way we can get 
some extra questions in. And let me also say that I believe we 
are going to have votes called somewhere between 10:45 and 
11:00. I am hopeful that we are going to just have a couple, 
and so we will perhaps have to recess just for a couple 
minutes. So thank you, and welcome.

                           Opening Statement

    Mr. Berry. Thank you, Madam Chair. It is an honor to be 
with you and Ranking Member Serrano. Thank you so much for 
having us today. It is great to be here and to discuss some of 
our priorities. I will try to keep it real short so we get to 
your questions right away.
    Government is increasingly a knowledge-based enterprise 
where our people are our most important asset. To have a 
government that delivers the best services to the taxpayers in 
the most efficient, cost-effective way possible, we can't avoid 
investing in our workforce.
    Over the past 2 years, as directed by President Obama, we 
have led a government-wide initiative to reform hiring by 
making the process quicker and easier so that good, qualified 
candidates can apply. Our goal: Bring the best and the 
brightest into the Federal civilian service by making 
government the model employer for the 21st century. And we are 
trying to lead by example within the Office of Personnel 
Management.
    In 2010, under President Obama's Veterans Employment 
Initiative, we hired 2,000 more veterans than in 2009, despite 
hiring fewer overall people across the government. I am very 
proud that at the Office of Personnel Management we hired the 
highest percentage of disabled vets in the government, more 
than DOD and VA.
    We met Congress' 2004 goal to speed up security clearance 
investigations, eliminating a backlog that we inherited that 
was over a year in length. Now over 90 percent of 
investigations are done within 40 days. When we inherited it, 
it was 179 days. So you can see the improvement on that. And 
the GAO removed us from the high-risk list this year. A lot of 
things go on, very little comes off; this one came off. And our 
movement of this towards the 40 days was one of the primary 
reasons it was able to.
    We are supporting agencies as they work to improve employee 
engagement and facilitate greater partnership between agencies 
and employee groups. We are increasing the strategic use of 
telework. Thank you all for passing and adopting the Telework 
Enforcement Act of 2010. We are on point in getting that 
implemented.
    Our budget request for 2012 will build on these 
accomplishments. As part of the President's budget, it is a 
responsible plan to ensure that we live within our means while 
still investing in key areas for our future.
    Our general funds request for basic operating expenses 
represents an overall decrease of almost $3 million from 2011 
from the CR level. For the administration of civil service 
retirement and insurance programs, we are requesting a slight 
increase of $19 million from the annualized 2011 limitation on 
transfers, and it is to deal with some of the numbers that you 
all have reflected and talked about.
    We are facing an increase in retirement claims. Even in the 
first third of this year, there is a 15 percent increase in 
retirements. The Postal Service has announced an additional 
group of retirements that they are going to pursue, and we also 
have retirements coming from the Base Closure Realignment Act, 
in addition to our normal rate of about 100,000 retirements a 
year. So you can see the demand that is going to put on our 
services.
    To save money and to counteract some of the increases we 
are asking for, OPM has made the difficult decision to 
terminate the Retirement Systems Modernization Program. 
However, we can better achieve automation by now getting back 
to basics. We are conducting a full review, bottom up, of our 
systemic process and looking at what pieces make sense to 
automate that are the most commonly used and the most easy to 
automate. It is going to be almost impossible to automate the 
entire process. It is just too complicated and too individual 
in basis. And so what we are looking at is automating the key 
pieces of it instead. By eliminating that as a formal program, 
we don't have to provide the oversight, et cetera, that we 
would have to, which will produce a $2 million administrative 
cost savings for us by eliminating that program officially.
    Also, we are eliminating the second phase of our financial 
systems, looking at the earned benefit trust fund, our CBIS 
Phase 2 approach. We have run into problems with CBIS Phase 1. 
We are working through those problems. We are working with the 
Comptroller General of the United States. We think we can work 
this out. Our problems aren't unique. Every agency that is 
using this system is having similar problems. We are probably 
having the fewest problems of anybody across government, so I 
think we have the best chance of making this work. But we 
certainly don't want to go any farther until we have worked the 
kinks out of Phase 1. So that will save $41 million from that 
project that would otherwise be spent.
    The Affordable Care Act directs OPM to approve and oversee 
the multi-state health plans that will be offered to Americans 
on state insurance exchanges, a major new responsibility. We 
stood up the preexisting condition plan in less than 45 days. 
Our overhead is .08 percent, and we now provide primary 
coverage for that in over 23 States of the Union.
    In addition, ACA opened the Federal Employees Health 
Benefits and Life Insurance Program to employees of tribes and 
tribal organizations. That is going to add another 1 million 
people to our workload. We have consolidated and reorganized 
our staff to better efficiently manage these responsibilities 
so that our request for increases is less than it would 
otherwise be.
    Our budget proposal also includes several other long-term 
saving initiatives: A wellness program that I believe is going 
to have a long-term impact, that we can demonstrate through our 
agency that if we take this government-wide, will produce 
millions and millions of dollars in savings; a health claims 
data warehouse that will allow us to achieve greater savings in 
FEHBP and for our retirements. And we can assure you that we 
will maintain tight oversight on patient privacy.
    Finally, we are seeking authority to streamline pharmacy 
benefit contracting within the FEHBP and to leverage enrollees' 
purchasing power to reduce cost. We estimate that we can save 
$69 million in the first year, and almost $2 billion in the 
ongoing years. Our 2012 budget helps ensure our ability to 
provide the best value to the American people by continuing to 
recruit, retain and honor our world-class workforce.
    Thank you, Madam Chair, and I am happy to answer any 
questions.
    [The statement of Mr. Berry follows:]

    [GRAPHIC] [TIFF OMITTED] T6791B.084
    
    [GRAPHIC] [TIFF OMITTED] T6791B.085
    
    [GRAPHIC] [TIFF OMITTED] T6791B.086
    
    [GRAPHIC] [TIFF OMITTED] T6791B.087
    
    Mrs. Emerson. Thank you very much, Director Berry. I 
appreciate very much your testimony.

                             BUDGET REQUEST

    Under the budget request, you list a few things that you 
needed extra people for--interspersing it with savings, I might 
add, so it was harder to add it all up at the same time. 
Anyway, tell me now, your budget request is for 7 percent more, 
or $18 million, than the 2010 request. So the initiatives that 
OPM plans to spend they have proposed increase on are?
    Mr. Berry. The increase is getting ready to handle the 
multi-state exchanges under the ACA. That is the bulk; $12 
million of the increase is for that to really staff up.
    Mrs. Emerson. And how many people is that, do you think?
    Mr. Berry. It is approximately 20. Am I correct on that? 
Twenty-six people.
    Also, the Employee Viewpoint Survey, which we have done 
every other year, is proposed in this budget to go to an annual 
survey, and then every other year to survey every employee in 
the Federal Government. We used to just survey a random sample. 
So that has an additional cost of $1 million.
    We have stood up a new Office of Diversity and Inclusion. 
That is a $1 million increase to allow us to continue forward 
progress there. And there is a request that is being made 
government-wide by the Office of Management and Budget that we 
would play a role in for improving our acquisition of $640,000. 
So those are the major increases in that.
    Mrs. Emerson. Okay. So if you went back to 2008 fiscal year 
levels, or let's say a 17 percent decrease, more or less, tell 
me how that would impact you all.
    Mr. Berry. I think we could make that work, Madam Chair, if 
you would work with us on flexibility on the trust fund side of 
the house. What we could work with you and your staff on 
developing is if we had to go back to the 2008 level, we can't 
avoid the additional burden, and I can't pretend that we can 
just eat the entire cost of getting ready for these multi-state 
exchanges. It is going to be a significant new responsibility 
for us. But I believe we could work with you on--as I said, we 
managed this with less than 1 percent of overhead cost. And I 
think that if you were to give us--we are not talking about a 
wild increase here. You are allowed under the law to go up to 2 
percent to authorize this. So with a slight increase of taking 
us to 1 percent, for example, would allow us potentially to go 
back to a 2008 level and still maintain getting ready for these 
important new responsibilities.

                          MULTI-STATE EXCHANGE

    Mrs. Emerson. Let me ask you something; when you have to 
stand up the multi-state exchange, does that require more 
people at the outset, but then once you have it going then 
those people could be either shifted elsewhere or they could be 
temporary employees? I mean, is that how it works once you have 
things on a roll?
    Mr. Berry. I think the 26 that we are asking for, Madam 
Chair, is I believe going to be sort of a stable baseline. It 
is one that we will build into over the course of--if you give 
us the authority. I don't see going much beyond that. In other 
words, I think that is a good, stable thing to be able to 
handle the millions of people that will have to come on in 
addition.
    Mrs. Emerson. So the FEHBP people wouldn't be able to 
perform a dual function?
    Mr. Berry. Right. First, let me say what the law requires. 
The law requires us to keep these absolutely separate. How I 
have done this though, so that we have the efficiency of being 
able to share, obviously, good information and training--
because you want both to inform the other--is we have one 
Office of Health and Insurance that has two deputies, one for 
FEHBP, one for the ACA. That way, their staffs, the statistical 
analysis, the data warehouse, the information that we can share 
back and forth, that will inform both, but the actual 
management and policy direction that is required under the law 
we can keep separate. So we will be able to do that.
    So clearly the FEHBP is going to continue to be the larger 
element of the staff. The numbers are larger and they will 
probably remain so. But there will be, we estimate, in the 
millions that will be an additional workload that we will have 
to manage through those exchanges that would be under the ACA 
section.
    Mrs. Emerson. I really do have to commend you for being 
able to keep your administrative costs to manage the FEHBP at 
.08. I mean, it is remarkable. And it certainly sets the bar 
for any--in the private sector, we know that they could then 
perhaps reduce their administrative costs as well.

                             FEDERAL HIRING

    Let me ask you one other question during this round because 
this is a pet peeve of mine. If, for example, I found a job at 
the Department of the Interior in which I was interested, I was 
qualified, tell me what the process is for me to apply for the 
job, who reviews my application, and how that all works, if you 
would.
    Mr. Berry. Each agency controls their own hiring. So, for 
example, we don't hire for the Federal Government, we create 
the policies within which they work.
    Mrs. Emerson. Right. So I want to talk about the policy 
piece just for a second.
    Mr. Berry. So in that case, for example, Interior, we try 
to share to gain efficiencies in certain portions of the 
process, for example, advertising the positions. So all the 
agencies have come together with us and we have created 
USAJobs. So there is sort of a central, automated entry place 
for you to enter your resumes. But those resumes, in that case, 
would go to the Interior Department. They would screen and 
assess those resumes to create a pool of well-qualified 
candidates and then would select--and apply veterans 
preference. That is what we have set the policies to do all of 
that. The agency in Interior would then interview people from 
that well-qualified pool and make their selection to try to 
match the best skills with the position that they are hiring.
    Mrs. Emerson. So are HR managers within each of those 
departments making those decisions, or are the people for whom 
the applicants would be working doing the screening?
    Mr. Berry. The ultimate decision is made--and what the 
President wants to see done in the Executive order on hiring 
reform, we want to make sure that responsibility is put with 
the hiring manager, the person who is actually going to have to 
be managing the job because they know what they need and can 
match the chemistry of that job with the right skills set. The 
HR people are supposed to make sure that the policies are being 
followed so that veterans' rights are being protected, disabled 
vets are being protected, et cetera, and creating a legitimate, 
well-qualified pool that has open access for competition. They 
are making sure that box is checked, but the actual hiring 
decision is being made by the hiring manager who is going to be 
supervising the work.
    Mrs. Emerson. But the hiring manager is only given a select 
number of people from the pool, even if all of them are equally 
qualified?
    Mr. Berry. Now here is where we would love to work with you 
on improving this. One of the things the President's Executive 
order--that we could do within the law and we are allowing--is, 
let's say you were applying for an accountant position and you 
didn't get the job for the accountant but you have gone through 
a very arduous process, you have competed, you are in the well-
qualified pool. Right now you would have to start all over 
again. To alleviate that, what we have done to try to make it 
easier is within that department, if they are hiring other 
accountants, you don't have to start over. They can interview 
and hire from the well-qualified pool of accountants anywhere 
in Interior.
    Now I asked the obvious question: If Transportation is 
hiring accountants, why can't they hire from that pool? The law 
prevents us from sharing between departments now. We would 
obviously support changing that to allow us to share those 
positions government-wide. Any company does this, we should do 
it too. Right now we have made it easier within departments; I 
would love to make it easier across the government.
    Mrs. Emerson. So what in the statute actually prevents it? 
What line? What does it say?
    Mr. Berry. We will get you the specifics, but it limits our 
authority to share those positions within the department, it 
says. And so we just essentially need to--we would have to 
change a word.
    [The information follows:]

                             Hiring Reform

    We do not think there is a sufficient way to broadly interpret 
current statute to provide an authority for agencies to share 
competitive certificates across agencies with other appointing 
authorities. The authority to appoint employees lies with an agency 
head or with his or her designee.
    During the earlier years of Civil Service, OPM (formerly the Civil 
Service Commission) was responsible for competitive examining within 
the Executive branch. Based on 5 U.S.C. 3317 and 3318, OPM certified 
individuals out to agencies for appointments within those agencies. 
That OPM authority has since been delegated to agencies through 5 
U.S.C. 1104. Agencies are responsible and accountable for the 
appointments they make within their agencies. These appointments must 
be made in accordance with the merit system principles, veterans' 
preference and the statutory provisions regarding the proper order of 
making appointments. Executive Branch agencies have signed agreements 
with OPM that authorize them to appoint individuals to positions within 
their agencies using the rules, regulations, and processes that OPM 
would have used absent a delegation.
    In September 2010, OPM transmitted to Congress a legislative 
proposal entitled the Federal Hiring Modernization Act of 2010, which, 
among other things, would have amended 5 U.S.C. 3317 to expressly 
permit agencies to share with each other the names and scores of 
candidates who have been assessed and found to be qualified. The other 
agencies could make selections from the same certificate for similar 
jobs for a period of 240 days, without having to post a new job 
announcement. This would reduce some of the time it takes agencies to 
fill jobs and would eliminate the need for applicants to submit 
multiple applications for the same types of jobs.

    Mrs. Emerson. Well, certainly for a position that is an 
accountant, an accountant is for the Interior Department or 
DOT, or whatever.
    Mr. Berry. I couldn't agree more. It would be a great 
commonsense advance. It would certainly reduce the frustration 
level of applicants because now they would have an opportunity 
to be considered across the government for those pools of jobs. 
So I think it would be a great step forward in terms of 
efficiency.
    Mrs. Emerson. Okay. I appreciate that. We may come back to 
that. Thanks.
    Mr. Serrano.
    Mr. Serrano. Thank you so much.

                         INFORMATION TECHNOLOGY

    Director Berry, you inherited several troubled IT systems 
when you came to OPM, including the Retirement Systems 
Modernization Program and the Consolidated Business Information 
System. In the fiscal year 2012 budget you propose to put both 
systems on hold to address and remediate issues with each 
system. We had a hearing 2 weeks ago about government IT, and 
OPM is now playing a bigger role in helping to get some of 
these systems back on track.
    Are you working with OMB to address the problems in these 
systems.
    Mr. Berry. Absolutely, Mr. Serrano. It is one of our 
highest priorities. We also work very closely with OMB and 
Vivek Kundra there, who is the chief CIO, if you will, for the 
government. And I believe we are one of his cutting-edge 
practitioners in how to do IT acquisition. We have learned from 
the private sector here. We have met with CEOs who have advised 
us, avoid any RFP that is longer than 9 months; get away from 
the multi-year buys; go short; go for instant deliverables that 
you can turn on and bring it on in phases, as opposed to trying 
to do everything at once. And I think that is very wise 
counsel. And so we have been working in that direction, sir.
    We are going to be overhauling USAJobs this fall. And we 
have been designing it in pieces, we have been testing it in 
pieces, and we will be turning it on in pieces. And the 
ultimate goal is to deliver success. I don't want to claim 
success before it happens, but we are on track, we are on 
schedule and on budget with that project. And so it is a good 
example of applying the new techniques to an IT acquisition. We 
are now taking that into retirement, into our accounting 
system, and the other IT acquisitions we will do, but that is 
sort of the approach we are taking, sir.
    Mr. Serrano. And what are your goals? Do you have a time by 
which you want things to run a certain way? And which way would 
you want them to go?
    Mr. Berry. Well, the first and the most important I think 
we can do is, one of the things we are again trying to lead by 
example on is setting a very tough performance standard for our 
employees and then asking them to step forward to meet it, and 
working closely with them in partnership to develop those goals 
so that there is good buy-in on the front, everybody 
understands what is being expected, but then people know they 
have to deliver.

                         RETIREMENT PROCESSING

    So, for example, on the retirement processing, it is a very 
complicated, arduous process that is largely pen and paper 
right now and is going to be for many years to come. We can 
automate pieces of it, and that is what we are looking to do. 
So for example, where a calculation needs to be made, we can 
automate that calculation. And we are trying to electronically 
get all the data now. The good news is we have made some 
progress. Every applicant is now fully electronic. So all new 
hires, we won't run into this problem. For existing hires, we 
have reached about 3 to 4 years back of getting people who are 
eligible to retire. Our goal is everyone eligible to retire 
within 5 years will have their file fully automated, because if 
it is fully automated, it again increases the speed with which 
people can review documents, adjudicate them, and make sure 
people are getting the right calculation.
    Mrs. Emerson. Is it a matter of speed or is a matter of 
losing information? Was it that people who were around 20 
years, 30 years, all of a sudden we didn't know they were 
around?
    Mr. Berry. RSM was killed just before I came into the job, 
the official acquisition, the contract that we had with a 
carrier. The best thing I would describe as why it died was 
they tried to take an off-the-shelf system and apply it to the 
Federal system, which doesn't have--each case is so unique. Let 
me just give you a hypothetical example. If you were a Federal 
employee and you worked at Commerce but you had military 
service and you were in the reserve and you served in 
Afghanistan, for the period of time that Congress will award a 
higher rate of pay for retirement, you get credit for those 
years that you were in a war zone in Afghanistan, in your case, 
but it doesn't necessarily apply to every action.
    Mr. Serrano. What do you mean to every action?
    Mr. Berry. For example, the treatment and formula that 
Congress has passed for Afghanistan is different from Iraq. And 
so our people adjudicating this have to go back and say, okay--
and the days are assigned. It gets really sort of into details 
that you would be amazed. So they have to go back and verify, 
were they in the war zone during those days, and if they are, 
then they get a higher credit and a higher calculation. Well, 
there was no way the off-the-shelf system could go back in and 
say, okay, how do I handle this situation and that situation? 
And so how those cases are done now is we pull all that 
evidence together and we have a legal specialist who 
adjudicates those files and certifies that, yes, this employee 
worked at this period of time, they are eligible for this level 
of benefit, and then they apply the formula that applies to 
that unique person. But it is literally different for every 
employee, which is the problem. This is one, where together, if 
we could come up with--I know it would be too much to ask to 
expect Congress not to award these unique benefits because I 
know that that political pressure is going to be there 
regardless of party, regardless of year. What I would love to 
do would be, wouldn't it be great if we could agree together 
on, let's agree on a basket of benefits and give you sort of a 
low, medium, high choice. You all could decide, okay, we want 
to award the high benefit to this one, or the low, but then we 
could get some sense of standardization. What happens is sort 
of with each event we end up with new rules, and that makes it 
really hard to administer. And so if maybe we could work 
together to sort of standardize this, we could have an easier 
life going forward.

                        MILITARY SERVICE CREDIT

    Mr. Serrano. Now there is a limit, right, X amount of 
years, of how much military time you can purchase, if you will?
    Mr. Berry. Yes. And I can get you that, sir, officially for 
the record.
    [The information follows:]

                        Military Service Credit

    In general, an individual cannot receive credit for any military 
service in his or her Civil Service Retirement System/Federal Employees 
Retirement System (CSRS/FERS) computation if they are receiving 
military retired pay (except if the retired pay is awarded on account 
of a service-connected disability or if the retirement is from a 
reserve component of the Armed Forces). However, the individual can 
elect to waive the military retired pay and make a deposit into the 
civil retirement system in order to have the military service added to 
his or her civilian service in computing the CSRS/FERS annuity. An 
individual may only make payments to capture service credit for 
military service after 1957, and deposit must be made prior to 
retirement.

    Mr. Serrano. Otherwise, Mr. Womack will purchase like 30 
years or something, right?
    Mr. Womack. Thirty years, 5 months and 19 days.
    Mr. Serrano. Which means that immediately he would be in 
the Federal Government much longer than I. I understand that.

                         RETIREMENT PROCESSING

    So just finishing up on this issue, I mean, I even know of 
some folks who have considered retirement but won't retire 
because their paperwork is not in order for them to retire, 
they would be missing out on many years. When can this be in 
order? Or are there some people that have been lost through the 
system and can never be recovered, or their information cannot 
be recovered?
    Mr. Berry. Well, we definitely don't want to lose anybody; 
I mean, that would be a failure of our fiduciary 
responsibility. We do encourage employees who are thinking 
about retirement, we try to work with employees and agencies 
long in advance of their actual retirement date--sometimes even 
a year ahead--to say let's make sure we have copies of all of 
your file. Work with your HR professional in your agency--see, 
the files aren't with us, they are with the agencies. And let's 
take your Interior example. If you are at Interior, you would 
work with the Interior people to make sure you have gotten all 
your paperwork right. If you had military service, you would go 
back to DOD and you would get that paperwork in order.
    When we have a full file, then we can adjudicate that file 
very quickly, where one of our problems, our biggest problems 
of delay is, we will receive a file from an agency and it will 
be missing the military piece or it will be missing--you had 
worked at FAA before you came to Interior and they won't have 
the FAA piece of paper. Well then we have to work to get that, 
and that obviously takes time as we try to get that.
    So we encourage retirees--it is much easier for them, they 
know their record, they know where they were--to go back and 
get that all pulled together for us. And then the speed with 
which their file can be adjudicated is much, much faster. So we 
try to educate both employees who are coming into retirement as 
well as the agency HR officials to get those records complete 
because then we can adjudicate quickly.
    Mr. Serrano. Okay. Well, thank you, Madam Chair. I 
certainly encourage you to continue to move on this, and 
certainly in the area of veterans benefits. We hear a lot about 
``support of our troops.'' Well, I am a big believer that the 
support is not only when they are in uniform, it is later on as 
a national thank you for their service.
    Mr. Berry. I couldn't agree more, sir. Our strategic plan, 
one of its four goals, is honoring service. And I believe every 
day, when we are processing retirements, we are reflecting how 
the American taxpayers are thanking people for their service, 
both in uniform and in the civil service, for honoring their 
country. And so it is up to us to make sure we give them 
respectful treatment and fast, efficient treatment as well.
    Mr. Serrano. Thank you.
    Mrs. Emerson. Thank you.
    Mr. Diaz-Balart.
    Mr. Diaz-Balart. Thank you, Madam Chair.
    Good to see you, sir. You have kind of touched on this, but 
I just want to make sure that I got it right. And you talked 
about some of the issues. So is it 46,000 Federal retirees who 
basically will receive only about 60 percent of their annuity 
payments through errors; is that correct?
    Mr. Berry. No. I didn't mean to imply that, sir.
    What we do, because we know it takes a while to get these 
files put together to make the correct adjudication, is if 
someone comes in, we pay what is called a partial payment. And 
now, because we know, because of the backlog, that we have a 
longer period of time to get these things adjudicated, we are 
paying 95 percent of what we estimate their payment would be. 
So I don't want to give the impression to any of the members of 
the committee that you are sitting there not getting paid in 
your retirement while we are waiting to adjudicate the file or 
waiting to get the paperwork from the FAA. You are getting your 
monthly check right from the beginning, and that is what we try 
to do, and up to what we estimate to be 95 percent of what you 
would get through the paperwork we have.
    The only people that are complicated in that are folks who 
have court orders. Let's say, for example, a divorce, where a 
judge has said 50 percent of your retirement needs to go to 
your former spouse. In that case, you might be expecting X 
payment. We have to honor the court order and reduce--we can't 
pay you 90 percent of your whole payment, we have to factor the 
court order in. And oftentimes that leads to tension, as you 
can imagine, resolving those cases. Many of them end up on your 
desks and we work those out with you. But I do want to explain 
that because it is an important distinction.
    Mr. Diaz-Balart. All right. Let me ask you then--so I got 
that; now how long does it usually take then to finalize the 
process so people can actually get their real number as opposed 
to the estimated 95 percent? In both cases, in the cases of the 
regular folks, and then how long does it usually take to 
adjudicate the cases where there are more complicated 
circumstances? And I am sure there can't be a one set answer 
for that, but roughly.
    Mr. Berry. We have 100,000 cases a year. Three to six 
months. Here it is. 100,000 cases a year. Right now we have a 
45,000 case backlog, which is what we are wrestling with. And 
it takes, the average case--here, let me see. It might be 
better, if it would be okay for the record, to get you the 
details on the specifics of the average case. And we can break 
down sort of the entire case so you will be able to see the 
numbers of each one.
    [The information follows:]

                         Retirement Processing

    Currently, the average case will be processed fully in 117 days. If 
the case involves a disability, court order, service credit or survivor 
benefit, the longest it will take to fully process the case is 141 
days.

    But we usually have sort of about a 10,000 to 20,000 case 
carryover; that is sort of an average backlog. The 45,000 one 
now is sort of a function of increased postal retirements, 
getting ready for the Defense Department retirements under base 
closure that are coming. And some of what we are seeing is an 
increased retirement rate. Just in the first third of the year 
we are seeing about a 15 percent increase in retirements. And 
so that is what is driving this.
    Mr. Diaz-Balart. Thank you, Madam Chair.
    Mrs. Emerson. Ms. Lee.

                               DIVERSITY

    Ms. Lee. Thank you very much. Good afternoon. Thank you for 
being here.
    Let me reference your testimony where you indicated that, 
as directed by the President, you are spearheading the 
government-wide initiative to reform and recruit and hire the 
best and the brightest workforce. Of course we all want to see, 
as you said, OPM to become a model employer.
    In the President's directive, in the memo, ``Improving the 
Federal Recruitment and Hiring Process,'' was diversity an 
issue? And in terms of diversity, if it was included as one of 
the best and the brightest and diverse workforce, how you are 
recruiting people of color into the workforce? Do you have a 
plan to do that? And if you have the information in terms of 
what the demographics look like or the characteristics of your 
workforce look like now, I would like to know what it looks 
like.
    Mr. Berry. We definitely have a plan; it is one of my 
highest priorities. My Deputy Director, Christine Griffin, we 
recruited away from the EEOC. She is a lawyer, an attorney, one 
of the highest ranking people with a disability in the Federal 
Government, along with Secretary Shinseki and others. She is a 
veteran of the United States and a phenomenal leader on this 
issue. She has been leading a working group across the 
government and agencies on this specifically. We have a working 
group on Hispanic employment, we have a working group on 
diversity throughout the government, and also people with 
disabilities.
    Ms. Lee. How about African American, Latino and Native 
American?
    Mr. Berry. African American is included, and all of the 
groups are a part of this focus.
    The good news is--and it is not great news, but it is good 
news, at least we are pointing in the right direction, let me 
give you some of the numbers. The numbers of minorities in the 
Federal workforce increased by 5 percent in 2010, or 
essentially 31,000 more employees. The Federal workforce is 
17.7 percent black, 8 percent Hispanic, 5.6 percent Asian 
Pacific Island, 1.8 percent American Indian, and 66 percent 
white. Minorities constituted 33.8 percent, if you will, of the 
workforce.
    Now we also are following and tracking senior pay in SES 
because I think it is important not just to look at overall 
hires. The number of minorities at senior pay levels increased 
9.4 percent between 2009 and 2010; it went from 3,700 to over 
4,000. Women represent 31.2 percent of senior-level positions. 
We can do better there. But again, we had an improvement. The 
proportion of women and minorities in GS Grades 13 through 15, 
the more senior-rank grades just before the SES, increased by 
7.9 percent, and the SES by the 9.4. So you can see some good 
early starts, but now how do we keep that going? And we are 
looking at this from sort of a three-pronged approach. One is, 
we have stood up--and we are asking your support to keep 
funding to allow us to continue going--an Office of Diversity 
and Inclusion at OPM. We believe it ought to be not just 
assigned to EEO or HR, we have to merge and marry and break 
down those silos so that people see diversity as an asset.
    I will give you a good example. I was talking with a FEMA 
Administrator in their planning for Katrina, and he said had we 
had a more diverse workforce, our plans, quite frankly, for 
Katrina would have been better. We had not thought through the 
impact of, in an emergency situation, sending all white 
officers into African American communities, knocking on the 
door saying you must leave your homes. We did not have the 
right mix of employees to think that through nor to implement 
it effectively in the event of an emergency. And so diversity 
is powerful not just in--it needs to pervade everything we do 
because it will produce better results at the end of the day.
    So we are looking at this from student hiring, and our 
Office of Diversity is working with our Office of Student 
Outreach and Recruitment through minority institutions. And we 
are also looking at this from the SES. We have stood up an SES 
office at OPM that had been disbanded. And the three of them 
are carefully coordinating and tracking similar data. So this 
is one we are going to look at from every angle, recruitment, 
retention, training, and advancement.
    So my commitment to you is we are not taking our eye off 
this ball just because we have had some good early progress in 
the first year. We are going to stay at this and hope it 
continues to get better.
    Ms. Lee. Thank you very much. I appreciate that response 
and what you are doing because I ask this question of all of 
the agency heads; and some of the answers are very vague, but 
it sounds like you know what you are doing.
    Mr. Berry. Trying very hard.
    Ms. Lee. And on track. Maybe you need to train some of 
these other agencies. Thank you very much.
    Mr. Berry. I did just speak this week to HR professionals 
and CHCOs and EEO. There was a convention up at the Wardman 
Park, and I was a keynote up there about doing that training, 
just what you talked about.
    Ms. Lee. Good, thank you.
    Mr. Serrano. I want you to be aware that you got praise 
about what you are doing from Ms. Lee and you got praise from 
the chairwoman about the budget. That is pretty rare around 
here.
    Mrs. Emerson. How did I praise on the budget?
    Mr. Serrano. He said he had 1.8 percent in one of the 
areas--
    Mrs. Emerson. No, how they administered the FEHBP. They did 
a fabulous job on administering that.
    Mr. Serrano. Take it as praise.
    Mrs. Emerson. Praise is praise.
    Mr. Womack.
    Mr. Womack. Thank you, Madam Chairwoman. I will try to do 
my part to contribute to the love affair going on here today.
    Mr. Berry, you have an impressive resume. I give you credit 
for your longtime service to our country.
    As I looked at your resume, or your bio, I noted that 
perhaps the most qualifying aspect of your background must have 
been when you were Director of the National Zoo because my 
experience as a Mayor for 12 years in dealing in the HR arena, 
that is precisely what that arena is, it looks a lot like a 
zoo. I want to congratulate you for the work that you have done 
to streamline your processes to make what appears to be your 
organization much more user friendly and for your work and 
having come from a military background and knowing the real 
difficulty in background investigations and its relevance to 
what we do here in Washington. You are to be commended for 
that.

                                WELLNESS

    The other thing that I noticed in your testimony was in 
regard to wellness programs, and I want to kind of drill down 
on that for just a moment because I am a huge believer that in 
this debate that we have--and have had now for quite a while--
about health care and health care reform, that we have said 
some things and we have done some things, but we haven't done 
enough to put some of that emphasis back on the people that 
work for us. And look, the private sector is doing this stuff 
and they are doing it with great results. And so I want to 
congratulate you for your wellness program, and I want to know 
a little bit more about it.
    Mr. Berry. Well, Mr. Womack, thank you, I couldn't agree 
more.
    Every CEO I mentioned, when you ask them, what do you think 
is the low-hanging fruit where we can save taxpayers money on 
this, and every one of them, first on the agenda is what you 
just described, wellness. They say it has produced bigger 
savings over the long run than they even anticipated. Now the 
hard part for an annual budgeting process is people want to see 
results in 1 year. And all of them will say you are not going 
to see it in year one, you won't see it in year two, but by 
four and five it starts to show up in a major way.
    We brought on, in our little campus--we sit next to 
Interior Department and the General Services Administration, so 
we thought, let's work together and we hired a wellness company 
that has come in. We offer everything from--we have a Weight 
Watchers class that is fully subscribed; we have weight 
training, we have exercise classes. All of the screenings are 
free.
    I do a monthly town hall meeting. And everything is 
religiously private and only the employee knows, so I don't get 
to see the data. But as a way to encourage the employees I have 
shared my data as saying you got to do this because it is free. 
And what I was so impressed with was the counselors. I wish my 
primary care doctor had spent as much time with me as this 
counselor did. They went through my results for 45 minutes. And 
I had been ignoring my triglycerides, I was 5 points above the 
goal. But the lady who was talking with me found out that my 
dad had had heart issues. And she said, because of your genetic 
predisposition, do you realize that those 5 points don't sound 
like much--my doctor had always just said, oh, it is five 
points--it is a 20 percent higher risk rate for a heart attack 
in your category; you have to lose 10 more pounds. So I had 
taken off 10 pounds already. I said, another 10? And I am going 
to do it, I am on my way.
    And the interesting thing is this dialogue, what is so 
exciting to me, Mr. Womack, is people in the elevator--it is so 
invigorating to have people who are saying to me, Mr. Berry, I 
lost 14 pounds. Now people are talking about their weight 
efforts and commenting what they are carrying on the elevator, 
oh, shouldn't be doing those wings, got to get to the salad bar 
more. That is the stuff that is going to produce the millions--
and if you can imagine, transferred out, billions of dollars in 
savings. This will have a huge impact in early cancer 
diagnosis, earlier treatments, healthier employees, and it is 
going to translate into direct savings for FEHBP, which is big 
dollars, over $11 billion a year. So you can imagine, if we can 
produce just 5 to 10 percent, we are talking hundreds of 
millions of dollars.
    So it is one I am passionate about. I appreciate your 
interest and focus and experience on this and look forward to 
your counsel as to how we can do better.
    Mr. Womack. Well, I won't use too much of my time to brag 
on the city where I came from, but we established a wellness 
center for our seniors because we recognized we had a growing 
senior population and we built a 55,000 square-foot facility 
with warm water therapy and light pools and those kinds of 
things.
    Mr. Berry. Great.
    Mr. Womack. We charged a very nominal fee just so we could 
know who is there and have a little information on them. The 
first year, Madam Chairwoman, we thought we would have 1,000 
members in this organization, and we had 1,500 members in the 
first week, and now over 14,000 members, and average daily use 
of between 1,000 and 1,500 people in this facility in a small 
town in northwest Arkansas.
    What you said a moment ago is correct about the savings on 
the health care side of the house, but here is the lost 
information, and this is what I want everybody to be mindful 
of, particularly as it concerns our Federal workforce. It is 
also a productivity issue.
    Mr. Berry. Absolutely.
    Mr. Womack. And so when we have a healthier person, they 
are not going to be on sick leave as much, they are not going 
to be hospitalized, and they are not going to have to be 
resorting to all these tests and everything, medical 
procedures, and what have you, that come with a bad lifestyle. 
So from a control of health care costs standpoint and also from 
a productivity standpoint, it has worked where I was and it 
will work here.
    Are you getting any pushback? In other words, are any of 
these programs mandatory, so to speak, or being forced on 
people? Are there any requirements? How are you going through 
that legal----
    Mr. Berry. Totally voluntary now, sir. And what we are 
finding very much tracks what we have heard from the private 
sector. It is interesting, when I met with the CEOs they said, 
well, there are two ways to do this, you can just make it 
totally voluntary or you can incentivize. They all encouraged 
us, there is enough data to show you you need to incentivize it 
because totally voluntary you are going to end up with about 20 
to 30 percent participation rate. Well, now we are a year into 
this, guess what our participation rate is, without any 
incentive, just totally voluntary? It is like 24 percent. So we 
are right between where they told us we would be.
    Where the private sector is making the big savings is their 
percentage rates run 80 to 90 percent participation in these 
programs. Well, how do they do it? They do it by incentivizing. 
So they will either lower a copayment, or you get a rebate or 
things like that. Each company will take an entirely different 
approach. I think the future of this--and it will be 
interesting to work, especially with your experience on this, 
and we would really welcome your ideas--how can we move from 
the 30 percent to the 80 percent? And I don't have a specific 
proposal for you other than to know we would have a lot more 
savings if we had 80 percent participation.
    None of them recommended to make it mandatory. They all 
said you can reach the 80, 90 percent level if you do the right 
incentive structure. So maybe if we could work together, we 
could figure out how to do that.
    Mr. Womack. I think it is a way forward, and I would 
certainly recommend that to the agencies. I do appreciate your 
testimony this morning and your leadership in the OPM.
    I yield back, Madam Chairwoman.
    Mrs. Emerson. Perhaps we should have a Biggest Loser 
contest or something.
    I am going to shift away from this discussion, given the 
fact that my doctor just told me to lose 10 pounds and I just 
can't seem to stay away from good food. But it is impressive 
what you are doing. And peer pressure is terrific, but 
certainly making it easy for someone to participate is even, I 
think, more important, and it is wonderful.
    As far as what Mr. Womack was doing with the senior center, 
I find that sometimes it takes a little bit to get some of our 
seniors doing it, but once they do, then everybody wants to do 
it.
    Mr. Berry. Well, and it is also making it easier. So like 
in our cafeteria, for example, I went down yesterday, it is so 
easy, they have a Weight Watchers option. And it is already 
calorie counted for you--salmon, vegetables--everything is 
proportioned and so you don't have to do any of the thinking. 
And so you say, okay, give me the Weight Watcher option. What 
we have done, our salad bar used to be a pretty lame salad bar, 
now we have one of the best salad bars in the city, and it is a 
really good one. People are going to it because it is more 
interesting. So sometimes just making it more easily available 
is part of the solution.
    Mrs. Emerson. And Weight Watchers is a good thing; we will 
talk to the Mayor of Capitol Hill about that. But in the 
meantime, if you can invite our subcommittee down for lunch, 
that might be a nice thing to do.

                          PAY FOR PERFORMANCE

    All right. I want to talk a little bit about Pay for 
Performance and step increases if we could. In 2009, only 737 
out of more than 1.2 million employees were denied a regularly 
scheduled step increase and accompanying raise because of poor 
performance. That equates to about a, what, .06 denial rate, or 
less than half of 1 percent, which, despite being low, is still 
the highest rate in recent years. So just a couple of questions 
with regard to that.
    In your opinion, under the current Federal pay system, are 
Federal pay and promotions correlated with performance? What 
does OPM do to monitor or give guidance to agencies on awarding 
performance pay increases? And do you think managers actually 
have the flexibility or the range of carrots and sticks to 
improve employee performance? And are there consequences at all 
for poor performance, not only for the employee, but for the 
manager?
    Mr. Berry. Let me begin by saying, we can do a lot better. 
I would not sit here and tell any of you that we have nailed 
performance management in the Federal Government. We have not. 
Our managers are too timid. We do not have regular--a good 
performance system would be managers regularly sitting down at 
least quarterly and having a very straightforward conversation 
with employees about what is being expected and is it 
happening? Right now it is done more on an annual basis, and it 
is given short shift, it is not given the attention it 
deserves. We are going to be working very hard this year to 
change that.
    We have created a working group of the Chief Human Capital 
Officers Council on how we can do a better job on having 
managers and employees pay more attention, and use the 
authority--you give us broad authority in performance 
management, both to incentivize and to discipline. And quite 
frankly, the Federal Government has not done a good job in 
exercising the authority you have given us. I am going to try 
this year--that is one of my highest priorities this year--to 
move the needle on that. I am doing it with my own employees by 
example, but we are also going to do it across the government. 
So this CHCO Council is working on that. We are having it 
chaired by two career senior executives so that it is not seen 
as a political gotcha game, so that it will be something that 
can be professionally applied. We are working with the 
Partnership Council, with the unions to get buy-in to this.
    Now more specifically to your question on the within 
grades. First, I agree we can do a much better job on 
performance, and we are going to try it, and I hope to have 
some really good results to bring back to you. This time next 
year I hope to be able to describe just what we are doing that 
is going to hold people more accountable. And quite frankly, if 
someone is not doing the job, we ought to fire them. I mean, we 
ought to give them a chance to correct--and obviously, if we 
are not giving them the right tools or training, then we ought 
to do that, but if after all of that they are still not doing 
the job, get rid of them. And we can get rid of them in the 
Federal Government; it is just that managers have not been 
doing that. And we are going to try to work to create a more 
rigorous system to apply that principle.

                         WITHIN GRADE INCREASES

    Within grades, now it is kind of interesting. Let's discuss 
within grades for a second. Every company, private or public, 
has an approach of sort of a career advancement trajectory. 
What within grades do is there are 10 steps that take you 18 
years to go through. And the principle that sort of both the 
private sector and the public sector use in terms of HR 
management is, you want to advance people to the midpoint of 
their range relatively quickly as a way to keep them because 
you are making a huge investment up front in training. And a 
lot of times what happens is if you train somebody, now another 
of your competitors will come in and steal them away, they save 
the money of not having to train them. So if you are not 
advancing people up front to sort of a midpoint of their 
career, then it is more slowly.
    And so how it works in the Federal Government, building on 
that model, is for the first third of your career you get a 
step increase, which is 3 percent of your pay annually. For the 
second third of your career you get it every other year. For 
the third, the last percentage of your career you get it every 
3 years. And what that does is it creates a natural trajectory 
if--and you only can be awarded this if you have acceptable 
performance. So you can see where we can--that is broadly 
defined. So through the performance management--and I think our 
unions are going to work with us on this--there has to be a 
natural trajectory.
    So if you come in as a GS-12, step 1, it takes 18 years to 
get to step 10 just through a normal trajectory of that 1-year, 
2-year, 3-year approach, and it is in 3 percent, a step equals 
3 percent. We can, I think, through performance management, 
better define what acceptable performance is to ensure that if 
you are not performing well, a big stick can be we can withhold 
your within grade.
    So we are going to be looking at that as part of this 
equation, but that gives you a little bit of an example.
    Within grades aren't designed to really be performance pay, 
per se. They are designed to create a career trajectory that 
retains the training that you are making in that person over an 
18-year period. So there are performance elements--bonuses, 
awards and things like that--that are purely performance-based, 
but the within grades weren't ever designed in the law to be a 
pure performance base. There is a performance element, but it 
is really to create a career trajectory.
    If that is a long answer, I apologize.

                         PERFORMANCE MANAGEMENT

    Mrs. Emerson. No, I understand. I mean, we all get caught 
up. Having worked many years in the private sector myself, in 
many cases I saw people who should have been fired be given 
promotions just to shovel them out of specific departments and 
the like. And I dare say I have seen that, having worked in my 
very first job for the Federal Government, but that was more 
years ago than I want to say.
    Another thing that is frustrating to me is the process by 
which one would sever the relationship because I know that 
there are people, for example, who are involved with the Bernie 
Madoff scandal of the Securities and Exchange Commission who 
have not yet been terminated because of adjudication and all 
sorts of things.
    I mean, we are not talking about some minor screw-up, they 
are talking about major lives that were ruined by people not 
being able to perform their jobs. And I don't understand why it 
takes so long for them to be terminated.
    Mr. Berry. As I say, we have the ability in the Federal 
Government right now to do something called a performance 
improvement plan. So if a manager has an employee like that, 
you can as the manager put 30, 60, 90 days and say this is what 
you are doing, this is what I want, you have X days to get 
there, you don't, you are fired. It can be that 
straightforward. And our managers don't exercise that.
    Mrs. Emerson. And they are not held accountable either; 
correct?
    Mr. Berry. It is a historic problem that we are going to 
wrestle with. But I believe that if we go after that it will 
have a huge productivity increase for the government, as Mr. 
Womack was mentioning. And it will serve the taxpayer better. 
And quite frankly, our labor unions and our employees will be 
grateful, because as a Federal manager I have removed people, 
and the people who have come back to thank me when I removed 
somebody have been their co-workers because they said thank God 
somebody actually had the backbone to deal with the situation. 
We have been carrying this deadwood. We have been doing their 
job for them. You weren't happy to come to work. Getting them 
out, I am happy to come to my job now.
    And it is for the credibility of our managers we have got 
to be serious about this, and our employees want it. It shows 
up in our employee surveys. One of the highest things that 
people feel is we do not discipline poor performers. And it is 
our workers are telling us that. They feel it is unfair, and 
they are right. And we need to fix it. So we are going to go 
after it full force.
    Mrs. Emerson. And that hurts morale.
    Mr. Serrano.

                                WELLNESS

    Mr. Serrano. Before I get to a couple of questions let me 
just say I was really very pleased to hear Mr. Womack speak of 
wellness. For a while in government it has been seen as a perk. 
If you have any exercise facility within a Federal place, that 
is a perk, even if people pay to join it.
    But if you have a person come in and tell you about weight 
or about heart disease or whatever, it is a perk. And yet we 
have learned from many countries throughout the world, even 
some we don't like very much, that if you put up front wellness 
as an issue, if you put up front preventive medicine as an 
issue, at the end of the day you don't have the situation we 
have in this country. I was so pleased to hear that.
    Mr. Womack. If the gentleman would yield on the subject, it 
says a lot about the employers. The employer demonstrates a 
concern for his or her employees' health. Because there is only 
one of those people, and if their health is in jeopardy, I 
think it is the employer's responsibility, the leader's 
responsibility to help that person look for success. So it is 
productivity. It is a sense of compassion for the well-being of 
the individual, and of course it is the cost of government. So 
it is all relative. And if you have been on our side of the 
table from the executive branch, you get that pretty quickly. 
The private sector get its completely.
    Mr. Serrano. But my praise with your comments was the fact 
that you don't hear that often enough, that you usually hear, 
that is a perk. Let these people go after work to their own 
place. Don't do it at the work site. Don't have any assistance. 
That is such a mistake.
    So I hope we hear more of this. And I think that there is 
something happening in Congress that could help with that area, 
is that more and more of the people coming to Congress for some 
reason in the last 10 years, I have noticed, are people who are 
physically active and exercise. And you will see it in a couple 
of weeks when we have our annual race for charity when more and 
more and more House teams get together and run and participate. 
So that is a good thing.

                     VETERANS EMPLOYMENT INITIATIVE

    Tell me about the Veterans Employment Initiative. You know, 
I have always felt there was a contradiction in this country in 
some areas, and that is you have people who are very gung-ho 
about our involvement in military actions, but are not 
supportive when the troops come home. And I have seen these 
bumper stickers that say ``support the troops'' and I wish you 
could add to that, yes, for the next 20 years, for the next 30 
years, for all the time it needs to help them. I am the kind of 
guy you see voting against the military action and then voting 
for whatever they need when they come home. Whatever they need 
when they come home. Of course, it is not the troops that I 
have a problem with, it is the people who decided to send them 
there or the action itself.
    So tell me about the initiative and tell me how closely you 
are working with the Veterans Administration.
    Mr. Berry. Well, Mr. Serrano, thank you for your leadership 
on so many veterans issues. You have been a stalwart over so 
many years. The President's Executive order I have to say is 
the thing if you were to ask me for my 2-year term what am I 
most proud of, it would be having recommended that Executive 
order to the President.
    My father served in the 1st Division in Guadalcanal, and my 
name I earned from my uncle who was killed in the Pacific, my 
dad's brother. And so this is a close personal issue for me and 
I look at it as a way to honor the memory of my father.
    The first thing I tackled was looking at veterans--the 
unemployment rate for returning vets right now from Iraq and 
Afghanistan is amongst the highest in the country. And knowing 
the difficult economic times they were coming back to and the 
competition they faced and we looked at it, and DOD and VA do a 
great job and so does OPM. Almost 30 percent of our new hires 
are vets. So we are in the highest category. But many civilian 
agencies I looked at weren't really carrying their weight. They 
were not doing a good job. Two to 5 percent of their hires were 
vets.
    So we went to the President and made him aware of this and 
he said we have got to get everybody to row in the same 
direction. And he created an Executive order and a council that 
is chaired by Secretary Shinseki and Secretary Solis, so we 
have both Labor and VA as the heads and then I am the COO of 
the council. And we have met four times. What they do is we get 
every agency together, it is very high level, and people are 
tracked on their performance. For the first year we were just 
getting it set up and we just told everybody to do better. The 
good news is that every agency but two did better.
    This year, not wanting to just count on that, we set up an 
accountability model to hold everybody in place. So if you were 
in the level of DOD, VA and OPM, above 25 percent in your 
hires, stay there. You are doing great, keep it up. If you are 
in the middle category, sort of 10 to 20 percent, do an 
additional 2 to 3 percent. If you are below 10 percent, that is 
kind of like the Weight Watchers thing, you have to lose some 
more weight, you have got to run faster, you have got to do 3 
to 5 percent. And so for the lower performers we are expecting 
them to hire more and to move up faster.
    And so every agency now has and knows exactly where they 
fall. I sit on the President's management council with Jeff 
Zients at OMB; all of the deputy secretaries come in addition 
to this council. Monthly. I share the data with every agency, 
here is where you are. You are either on track or off. It is 
regular, religious attention. And we are not going to take our 
eye off of this.
    The first year results, like I said, 2,000 more vets hired 
across the government. Even though we hired less Federal 
employees it was an impressive step to get this out of the box.
    The other thing, lastly, is that we are working with the 
VSOs, the veteran service organizations, the Legion, the VFW, 
the Student Vets are in sync with us and we are developing some 
innovative approaches. What we are looking at is jobs in the 
military that ought to be easily transferable to the civilian 
side.
    Med techs. We have a desperate need for nurses. We can't 
hire enough. What if we train med techs to become nurses and 
guarantee them a job in the Federal Government when they come 
back. Now we are moving beyond from just tracking the data to 
looking how can we take jobs that are easily transferable and 
give them the training to do it.
    Mr. Serrano. Well, again, I think that that is a great 
initiative and a great approach and you should be proud of that 
Executive order because it is a good one.
    Let me take you to a couple of places now where we would 
probably all like to go right now, to the American Territories.
    Mr. Berry. I volunteer, sir.
    Mrs. Emerson. Let's all go to Puerto Rico. Sounds awesome 
today.

                     RECRUITMENT IN THE TERRITORIES

    Mr. Serrano. So both in the area of hiring diversity, of 
hiring minorities, the Northern Mariana Islands, Guam, Samoa 
the Virgin Islands, Puerto Rico fit that category well. But 
also just in the area that I have always discussed with you and 
other agencies that they are members of our country. They live 
in Territories. They don't live in States, but they should be 
included.
    And I call your attention to the fact that sometimes it 
works. For example, NASA has quite successfully recruited from 
the University of Puerto Rico at Mayaguez, my hometown, for 
many years now. In fact proudly we say that whenever a rocket 
goes up there are a lot of folks from Mayaguez on the ground 
that made it possible. It works for them. It should continue to 
work for the rest of the agencies. What are we doing to 
recruit?
    Mr. Berry. Well, we are doing a lot but we have to stay 
with it. It is one of these things it is not going to be a one-
shot effort. I was very pleased and thank you for your support 
and helping us get the word out in Puerto Rico. The hiring 
event we did in last October there it was very well subscribed. 
And we did get a number of jobs, at least 36 that I know of, 
but it may end up being more now.
    But the more important thing was in doing that event we 
also trained people on how to apply for other Federal jobs so 
they had a good learning that will I believe will increase 
their probability of success in future job searches. We need to 
do that regularly. We did that jointly with NASA, DOD and VA. 
And we are going to continue to look at how we can continue to 
outreach effectively through those. I think there are very 
powerful ways to do.
    The other thing we have done specifically I think will help 
the Territories. We have included them on this specific focus 
area. The diversity data I was talking with Ms. Lee about. The 
Hispanic community is underrepresented relative to its numbers 
in the civilian labor force. It is probably the largest gap, if 
you will, of our diversity categories right now, 8 percent 
versus about 14 to 15 in the civilian side. And so we are at 8 
in the Feds. There might be a lot of reasons for that. So we 
have got to make sure that our access points are open and we 
are reaching out in the right places and including the 
Territories in this.
    We have created a Council on Federal Employment there that 
is chaired by my Chief of Staff, Liz Montoya and John 
Sepulveda, who is the H.R. Director at the VA, who understands 
this well, and they have an agency group of 65 people across 
the government that are developing student outreach, training, 
mentorship, on boarding, the whole 9 yards on this on how to do 
better by outreaching to Latinos and Latinas and people from 
the Territories. And I think this is going to bear fruit. There 
is a lot of great brain power going on this and some very 
creative, initiative approaches to this that are going to build 
much more than the annual hiring fair. It is going to be an 
ongoing more consistent, religious approach that will get this 
into practice.
    Mr. Serrano. Let me say this, even in that issue there is a 
disconnect. We send dollars to the colleges throughout this 
country and then we recruit. Well, we send dollars, not equal 
shares, to the Territories and then traditionally we don't 
recruit in those universities. So even if you just are talking 
about, you know--I cannot believe I'm saying this--what the 
taxpayer deserves, if you invest, then go recruit some place. 
But I thank you for your efforts.
    Mr. Berry. Mr. Serrano, if I could, one closing point, and 
it circles back to your first question. Our effort to hire vets 
is also going to help on each one of these categories. Every 
one of those categories in the diversity is well represented in 
the military. They know that through the voluntary workforce.
    We have already invested billions in training in these 
people. They are great leaders. They are great assets. I use 
the vet to be ``valued, experienced and trained.'' We would be 
darn fools not to take advantage of this and by doing it not 
only we will get great skilled people but we will also increase 
our diversity numbers.
    Mrs. Emerson. Thank you, Mr. Serrano.
    Mr. Diaz-Balart.
    Mr. Diaz-Balart. I don't know if I could read anything into 
when Mr. Serrano was talking about people being out of shape. 
He was looking in this direction.
    Mrs. Emerson. I am the only one out of shape up here.
    Mr. Diaz-Balart. Well, Madam Chairman, this is not all 
muscle, trust me. Years of working on that.
    Actually still talking a little about aerospace----
    Mr. Serrano. He is still a great baseball player.

                             NASA WORKFORCE

    Mr. Diaz-Balart [continuing]. There are obviously going to 
be a lot of retirements because of NASA and the space shuttle. 
I know that you have been looking at that and you have been 
very proactive. Can you talk about how it is going and what you 
are looking at, please?
    Mr. Berry. I am also very excited. I am finally going to 
get to see a shuttle launch. I am going to go down with 
Secretary LaHood and NASA Administrator Bolden next week to see 
the shuttle launch. Hopefully I should say, if the weather and 
everything cooperates.
    We are committed. Obviously there is going to be a major 
transition in this program and just like we did with Base 
Closure and Realignment and everything else, these are great 
employees. They have served their Nation, they are highly 
skilled, many of them engineers.
    Mr. Diaz-Balart. Literally rocket scientists.
    Mr. Berry. Literally. And we need to take full advantage of 
them. I am working with Administrator Bolden and Lori Garver, 
the Deputy. We have issued guidance and encouraged agencies and 
we are going to be working to hire these folks and to provide 
them opportunity and to give them every tool in our book that 
we can do to help them. And so my commitment to you is that we 
look forward to continuing to work on this and provide priority 
focus until we have them in good jobs. And to do everything we 
can to help. And so I am very open to suggestions or other 
ideas of how we can help in that kind of transition. Because 
like you say they are the best and the brightest and we need to 
keep them.
    Mr. Diaz-Balart. Thank you.
    Mrs. Emerson. Ms. Lee.

                           NURSING WORKFORCE

    Ms. Lee. Thank you very much. You mentioned, Mr. Berry, the 
need for nurses, the nurse shortage, yet nurses are telling me 
they can't find jobs. We had a hearing last year----
    Mr. Berry. Send them to me. I will hire them. Let me tell 
you, we are having such a hard time, Mrs. Lee, that I have 
issued--we only do this in categories that every one of our 
attempts to try to solicit hires have failed so badly and our 
need is so great that we do something called direct hire 
authority, that I have given that authority to any agency in 
the Federal Government, that if they can hire a nurse directly 
they don't have to compete the position. So as long as they are 
certified, they can do the job, they can be hired immediately.
    Ms. Lee. There are several organizations who represent 
nurses who have testified and indicated that they cannot find 
jobs for nurses in those who have just graduated from nursing 
school.
    Mr. Berry. It might require people to move obviously. In 
other words, in some areas they might not find it in the 
location they want, but we have got jobs for them. And they are 
well-paying jobs, they are in great places, they can work with 
our VA hospitals, our HHS hires. The nursing need is severe 
across the government.
    The other category in desperate trouble is veterinarians. 
We are not competitive in that field. So this is a tough area, 
and so like I say, that is another direct hire thing that I 
have given out: Find one, hire them.
    Ms. Lee. Okay, I am going to go back and have some more 
discussions on this. Appreciate that.

                     HIRING AND THE DIGITAL DIVIDE

    Let me just ask you in terms of in the process of 
streamlining and modernizing the processes at OPM, have you 
taken into account the whole issue of the digital divide and 
how when people--I know many of our communities still, people 
of color, seniors, don't have access to computers. How do you 
apply for a job if you don't have access to a computer or do 
you have a variety of ways that you can do it?
    Mr. Berry. There definitely are a variety of ways and we do 
try to work, you know, not only with sort of traditional 
methods, we work with a lot of the retirement groups who help 
us get word out and work with that. But also sort of our 
libraries and other folks who are great at making computers 
available so that people can come in and apply and get on to 
USAJobs and other things.
    But we also are trying to help in sort of a--good case in 
point is I opened at OPM this year an office aimed at veterans, 
veterans hiring, that had all the specialized disability 
equipment so that sometimes it is not only a question of the 
digital divide. Even if they have access to equipment, it does 
not accommodate a disability. And so working with DOD, we got 
all the specialized equipment. So now vets with disabilities 
can come in and use that equipment. We are making that 
available to any agency on a space available basis. So we try 
to help in every way we can to make it fully accessible, you 
know, to as many people as possible.
    Ms. Lee. It is not apply only through the web? I mean 
through the Internet?
    Mr. Berry. That is clearly the primary mechanism now, but 
it is not the only way. You can come in other ways.
    Ms. Lee. If I wanted to apply for a job and did not have a 
computer, no library nearby, which is the case in many 
communities----
    Mr. Berry. You can use paper.
    Ms. Lee. Do it the old-fashioned way still. As long as that 
option is there. So many private employers now won't even 
accept an application the old-fashioned way, and it is a 
barrier right there that excludes so many people. You still 
don't have for whatever reason access.
    Mr. Berry. My staff informs me that you can still do the 
old paper-pencil.
    Ms. Lee. Thank you.
    Mrs. Emerson. We have such a slog of votes that there is no 
way--slog? We will be over on the floor for 2 hours almost. We 
will certainly not make you wait for us. And the only other 
question I just wanted to ask you briefly was with regard to 
the your request to hire an environmental manager. Don't you 
have somebody who already does that now?
    Mr. Berry. I'm sorry?
    Mrs. Emerson. I think there is a request here, let me find 
it. $100,000 for an environmental manager who is going to be 
responsible for ensuring that OPM is in compliance with all 
major environmental laws and regulations. I am assuming you 
already have somebody who does that.
    Mr. Berry. This is part of the Greening the Government 
Initiative that we are looking to make sure we can step up in a 
full way so that on everything we do, whether it be paper 
purchasing, our fleet management, our energy use, I believe it 
is an investment that will produce, just like the Wellness 
Initiative, significant savings. Because, for example, just on 
electricity alone, that person should hopefully pay for their 
job three times over if they help us to design and take 
advantage of all of the new technologies and energy monitoring 
and management systems that are out there. They have gotten 
very sophisticated.
    And the reason that this is a specific request is this has 
become a specialty profession. It used to be okay, we are going 
to buy recycled paper. Now they need to have an engineering 
understanding to look at energy flow and water flow and other 
things, and that is where this is generated from. I believe it 
is a request that will produce the savings that will more than 
pay for itself in the years ahead.
    Mrs. Emerson. It is with skepticism that I will close the 
hearing on that note. It was a wonderful hearing and you did a 
great job and your team does as well. And I think it is not 
always easy to be a Federal employee because they get 
bludgeoned by so many and it is hard work, and I thank you very 
much for your contribution.
    Mr. Berry. Thank you, Madam Chair, I appreciate you and it 
is an honor to be with you today.
    [The information follows:]

    [GRAPHIC] [TIFF OMITTED] T6791B.088
    
    [GRAPHIC] [TIFF OMITTED] T6791B.089
    
    [GRAPHIC] [TIFF OMITTED] T6791B.090
    
    [GRAPHIC] [TIFF OMITTED] T6791B.091
    
    [GRAPHIC] [TIFF OMITTED] T6791B.092
    
    [GRAPHIC] [TIFF OMITTED] T6791B.093
    
    [GRAPHIC] [TIFF OMITTED] T6791P3.001
    
