[Congressional Record Volume 143, Number 27 (Wednesday, March 5, 1997)]
[Extensions of Remarks]
[Page E376]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     PAYOFFS FOR LAYOFFS CORPORATE WELFARE ELIMINATION ACT OF 1997

                                 ______
                                 

                       HON. CHRISTOPHER H. SMITH

                             of new jersey

                    in the house of representatives

                        Wednesday, March 5, 1997

  Mr. SMITH of New Jersey. Mr. Speaker, today I am introducing 
bipartisan legislation in conjunction with my colleague, Mr. Sanders of 
Vermont, to end a wasteful corporate welfare policy which uses taxpayer 
money to subsidize defense contractor mergers. This legislation--the 
Payoffs for Layoffs Corporate Welfare Elimination Act of 1997--will put 
a stop to the practice of artifically stimulating layoffs with taxpayer 
funds.
  As some of you know, under the guise of an obscure Clinton 
administration policy change made in July 1993-at the specific request 
of four CEO's representing America's top defense contractors--DOD began 
to allow defense contractors to begin charging the taxpayers for the 
merger-related costs of laying off workers and shutting down plants. 
The premise behind this policy is as dubious now as it was back then: 
that unless Uncle Sam dishes out big corporate subsidies, defense 
contractors would rather remain uncompetitive and risk going out of 
business than use their own money to pay for mergers and restructuring.
  Already, 11 defense contractors have put in 17 requests totaling 
$817.3 million, and the meter is running. Lockheed Martin alone could 
eventually claim $1.2 billion in merger subsidies, according to 
statements by their CEO, Norman Augustine. When the Loral, McDonnel 
Douglas, Rockwell International, Texas Instruments, and Hughes merger 
subsidy requests come in, this total will skyrocket into the billions.
  DOD claims that by paying more money on contracts now, DOD will 
realize savings due to lower overhead at some unspecified time in the 
future. This justification is really nothing more than an updated and 
more sophisticated version of the old cartoon character adage of ``I'll 
gladly pay you on Tuesday for a hamburger today.''
  The fact of the matter is that claims of savings are greatly 
exaggerated. Indeed, the very concept of savings assumes the contractor 
will put off or delay restructuring unless they are given subsidies. In 
December 1996, an investigation by CBS's 60 Minutes correctly pointed 
out that, ``Even without the subsidy, defense companies are required by 
law to pass savings back to the Government when they reduce their 
overhead.''
  My legislation does not hinder or prevent mergers from happening. It 
simply states that mergers should happen on their own and without DOD 
prompting and use of our tax dollars. I concur with the Honorable Don 
Yockey, who was Under Secretary of Defense for Acquisition and 
Technology during the Bush administration, when he stated ``the defense 
department would be better served if they simply did not discourage 
acquisition, but stayed at arms length in the encouragement of the 
business financial process. If the deal does not make sound stand alone 
business sense the company should not proceed. To rely on Government-
subsidized support is the worst of reasons to merge.''

  While we must always be concerned when government subsidies warps 
business decisions, equally disturbing is the fact that the so-called 
savings to be realized from restructuring have thus far been mostly 
illusory. Not a single weapon system can be truly identified as having 
a lower cost due primarily to corporate restructuring. The fact of the 
matter is that DOD's very own report on restructuring stated: ``it is 
not feasible to isolate completely the effect of restructuring from 
other complex determinants of the difference between projected and 
actual costs over a long period of time.'' In plain English, DOD 
essentially admits that savings cannot be attributed to restructuring.
  What we really have here is a policy with unknowable assumptions and 
unverifiable effects. GAO found that in just one case, contractor 
estimates of savings fell 85 percent short of initial claims. And that 
is just the estimates--there is no way of knowing if there will ever be 
real savings. GAO also has stated on more than one occasion that 
contractors have been projecting future increases--not decreases--in 
overhead rates.
  While savings cannot be attributed directly to these subsidies, 
additional layoffs have unquestionably resulted from the policy. In the 
first merger analyzed by GAO, it found that ``the contractor's proposed 
savings were based entirely on work force reductions.''
  Mr. Speaker, I ask all of my colleagues--on all sides of the aisle--
to join with me to put a stop to this payoffs for layoffs policy. Not 
only is this policy not really saving any money, it actually increases 
the deficit because DOD is spending hundreds of millions of our tax 
dollars chasing after savings to which it is entitled to receive 
anyway. This type of corporate welfare is unconscionable and Members 
with defense contractors in their districts should be especially wary 
of it. In my district alone, over 3,200 jobs will be lost because of 
this policy. If you have a plant in your district, you should not have 
to worry about your own tax dollars being used to encourage it to shut 
down.

                          ____________________