Segment 2 Of 2     Previous Hearing Segment(1)

SPEAKERS       CONTENTS       INSERTS    Tables

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FY 1999 BUDGET

    Our program and activities for FY1999 implement the strategic goals we developed in response to the Government Performance and Results Act. Our eight goals are set forth in my written statement. I ask that both the strategic plan and our 1999 annual performance plan be included in the hearing record at the conclusion of my statement.

    The President's budget provides $46.5 million to carry out our plans. This is a very lean number. Our proposal to OMB for FY1999 contained funds for several critical investments to enhance our ability to address a larger number of deaths and injuries associated with consumer products. But unfortunately, the President's budget did not include our requests.

    Thus, the budget presented here defers several critical investments for acquiring more and better data, improving our economic forecasting models, implementing a new fire hazard reduction effort, improving consumer information outreach, and especially enhancing information technology support for our hazard reduction program.

    Instead, the 1999 request seeks more limited funds to maintain the ability of the agency to continue its present level of health and safety activities. Just to maintain the current level of product safety activity in 1999 requires an additional $1.3 million for expected salary and other cost increases necessary to do business. Without funding these costs, reductions would be necessary throughout all of the agency's programs, resulting in a retreat from today's product safety efforts.

    The $1.3 million will fund 1999 projected cost increases for salaries and benefits of $972,000, and General Services Administration estimates for space rent increases of $303,000. After funding mandatory and program costs, a mere $225,000 remains to invest in the agency staff—our most important asset.
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    In recent years, the agency has relied on the increased productivity of its staff to compensate for reductions in purchasing power. The FY1996 budget cut forced the agency to reduce training, travel, promotion opportunities, and employee recognition programs. Thus, a small investment of $225,000 would be used to improve the staff's productivity and enhance skill levels.

    These efforts will keep productivity high by improving the technical skills of the staff, rewarding staff contributions, and making the agency competitive in seeking and retaining its highly skilled employees.

CPSC PRODUCTIVITY

    Mr. Chairman, we urge the Subcommittee to appropriate the full amount requested in the President's budget.

    As you will recall, last year you asked us to demonstrate specific examples of our productivity in our testimony this year, and attached as an appendix are five examples of our efforts to improve our productivity. I believe we have been very successful in these efforts, and of course can discuss them with you.

    In previous efforts before the Subcommittee, I have stressed the importance that I place on cooperation with industry, market-oriented solutions to product safety issues, and voluntary compliance with our laws and regulations. And each year I try to build on the successes we've had in this area.
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    This year, in partnership with Procter & Gamble, we sponsored Pampers Parenting Institute, we have published a grandparents guide for family nurturing and safety.

    Mr. HOBSON. I need one of those.

    Ms. BROWN. Yes. [Laughter.]

    We all do. And we do have them for all members of the Subcommittee. It's distributed as a free document from the Consumer Information Center. This is a followup to our highly successful baby safety shower program, and I deeply appreciate the support of two members of this subcommittee, Mr. Hobson and Mr. Stokes, for their effort to make their colleagues aware of this project. It's another example of the public benefits that flow from government and industry working together.

    I've also mentioned the Chairman's Commendation Award to you, and this year I presented an award to the Wayne Dalton Corporation, the leading manufacturer of garage doors in Mount Hope, Ohio, for its production of a new, more safe garage door system.

    And I just want to, as I end, read to you a brief excerpt from the statement of Mr. Geoff Foreman. He is a Vice President of the company. He said, ''The CPSC has demonstrated they know very well how to constructively work with manufacturers to achieve common goals. In working on behalf of Wayne Dalton, and also as a member of the garage door industry at large, I have seen the CPSC's concern for the implications on the manufacturers while still driving for improved design and safer products.''
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    Mr. Chairman, through our efforts over the past four years, we have earned the respect of consumer product manufacturers, retailers, and consumers, and I hope and believe we have earned yours as well. With your continued support, we will reach our goals to protect and serve the public in an effective and efficient manner.

COMMENDING COMGRESSMAN STOKES

    And I just wanted to say one word about Congressman Stokes——

    [Laughter.]

    Ms. BROWN [continuing]. As I end, because this is my last appearance before your distinguished ranking minority member. We, at the Consumer Product Safety Commission, will miss him greatly, and I will miss him personally. His great brother, Carl Stokes, was a friend of my good friend, Carl Rowan, and Carl Rowan called the Congressman and said, ''I want you to meet somebody,'' and the Congressman has been a great personal friend.

    And, in fact, at my swearing in ceremony he introduced the Vice President. But most of all, he has been a friend of all Americans and especially in matters of consumer advocacy. And his retirement, having never lost an election, is a loss to the Congress as well.

    Thank you.

    [The information follows:]
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    "The Official Committee record contains additional material here."

    Mr. STOKES. Thank you very much.

    Ms. BROWN. I'd be glad to answer any questions you may have.

    Mr. HOBSON. Mr. Stokes.

    Mr. STOKES. Thank you, Mr. Chairman.

    And thank you, Chairman Brown, for your very kind and warm words. I deeply appreciate it, and I am still grateful to my good friend Carl Rowan for having introduced us on that occasion, and you have not let either he or me down in the manner in which you have carried out the responsibilities of your office.

    Ms. BROWN. Thank you, sir. That's high praise.

GRANDPARENT GUIDE

    Mr. STOKES. I certainly mean it.

    Let me ask you firstly, Mr. Hobson, as you heard him say a few moments ago, he and I have a very special interest in this grandparent guide.

    Ms. BROWN. As do I. I hope you'll see the picture of me and my grandchildren there. [Laughter.]
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    Mr. STOKES. We're certainly going to look forward to seeing it. But as you say, both Mr. Hobson and I did introduce this document to our colleagues in the House, and we're very proud of that fact.

    I guess another example of the success of this method that you're utilizing is the statement of the Gerber Products Company repeated before the authorization hearing last year when they said that CPSC is a model of what good government should be.

    Can you just elaborate for a moment for the committee on the process engaged in your grandparent guide and how this is becoming more and more indicative of the way that the Commission does business?

    Ms. BROWN. Well, you know that the Census Bureau estimates that 1.3 million children are entrusted to grandparents every day, and the same study says that another 2.4 million children live in households headed by a grandparent. So we see not only the visit to the grandparents at holidays, but you see that this has become very much a way of life for many families in the United States.

    The National Consumer Information Center brought Procter & Gamble and the CPSC together, and they both knew of the good work that we had done in other kinds of partnering efforts. And we felt that many grandparents who had gotten a little less conversant with their grandchildren and didn't know about new safety trends might want to do something on this.

    And they got Dr. T. Berry Brazleton, the famous pediatrician, who is the head of the Pampers Parenting Institute of Procter & Gamble, and we wrote this booklet together, giving grandparents information about what they need to know about safety and nurturing. And it was advertised free in Parade magazine for people to contact the Consumer Information Center where they can obtain it free of charge, and we hear it has been a very popular free item. And Procter & Gamble has underwritten this.
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    So we think that this is the way good government should work—a wonderful partnership with industry and the government in order to help consumers.

AGENCY REAUTHORIZAATION

    Mr. STOKES. Let me ask you this, Madam Chair. When was the last time that the authorizing committees acted to authorize the funding for your agency?

    Ms. BROWN. Gee, not in my lifetime here. Ah, 1990 somebody says brilliantly. [Laughter.]

    Mr. HOBSON. What a great staff, right? [Laughter.]

    Ms. BROWN. That's why I look so good.

    Mr. STOKES. She showed her value. [Laughter.]

    Mr. STOKES. Well, I did have a followup question, and that was if you could tell us what the current status is of the reauthorization legislation for this fiscal year.

    Ms. BROWN. Well, at this point, I don't know of anything at all.

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    But, Pamela, why don't you come up here, just in case we have other questions.

    At this point, there is nothing on either in the future about that.

    Mr. STOKES. Are we to assume, then, that the lack of authorizing legislation does not have any affect upon the operations of your agency?

    Ms. BROWN. At this point, we seem to be doing just fine, and it has not had any kind of affect.

    Mr. STOKES. That doesn't speak well for the rest of the Congress. [Laughter.]

    If every agency can——

    Ms. BROWN. Well, I could check beyond——

FOURTH HAMMER AWARD

    Mr. STOKES. Well, we appreciate that, and I think that's what we wanted from you. But we do have some concern about the other side of the House in terms of their legislative responsibilities.

    It's my understanding that the Consumer Product Safety Commission recently received its fourth Hammer Award?
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    Ms. BROWN. Yes.

    Mr. STOKES. Presented to agencies who demonstrate money-and time-saving strategies. Is that correct?

    Ms. BROWN. Yes. This is from the Vice President of Reinventing Government, and this Hammer was given to us for our fast track recall system. This is a way that we can recall products more quickly, in 20 days rather than the usual three to four months that it takes, by not making a preliminary product defect determination but working with the industry to do this in a speedy fashion.

    And the reason that this works so well is is that the faster that we work, the more lives we save, because when you're doing a recall you've got to get those products out of people's homes. And so this has worked very well, and it's a way to work efficiently and save money and time, and the Vice President recognized that with our fourth Hammer. Very, very good for a small agency.

    Mr. STOKES. You have received it four times, is that customary, usual for many agencies?

    Ms. BROWN. From what I understand, when they came out to present this, they said this was one of the top agencies—that we were—particularly for a small agency. We're hardly the Defense Department, and so this is very, very good work.

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REDUCTION OF DEATHS AND INJURIES

    Mr. STOKES. Very good. Madam Chair, since the Commission was established in 1973, this year will mark its 25th anniversary.

    Ms. BROWN. Yes.

    Mr. STOKES. And can you give us some idea of what has been the rate of reduction in deaths and serious injuries from consumer products during this time and to what extent you think the actions of the CPSC are responsible for those reductions?

    Ms. BROWN. Well, the death rate has been reduced over this period of time by over 30 percent, and the injury rate has been reduced over 20 percent. And I would like to claim that most of that or all of it is due to the CPSC, but I wouldn't be so foolish. It has been, of course, due to concerted efforts of many people. But I do think that the CPSC can claim some great amount of credit for that. I think it has been good work.

    On May 12th we are celebrating our 25th anniversary, and I do hope that everybody here will come to our celebration. We think it's much to celebrate, especially that kind of reduction of deaths and injuries.

STRATEGIC PLAN

    Mr. STOKES. Madam Chair, on page 3 of your statement, you address the results-oriented goals of the Commission's 10-year strategic plan.
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    Ms. BROWN. Yes.

    Mr. STOKES. And you provide the Committee some examples of some of the actions the Commission intends to take to meet——

    Ms. BROWN. Yes.

    Mr. STOKES. [continuing] The goals referenced in your statement, and how the CPSC will measure success against those goals.

    Ms. BROWN. Yes.

    Mr. STOKES. Can you——

    Ms. BROWN. Yes, certainly.

    Pamela, do you want to talk about the goals?

    Ms. GILBERT. Sure. And maybe Ron would want to come up and——

    Ms. BROWN. Just briefly.

    Ms. GILBERT [continuing]. Join me. Let me repeat the 10-year strategic goals that are included in our strategic plan. Our goals are to reduce head injuries to children by 10 percent, to prevent an increase in deaths from poisoning to children, to keep it at the very low rate it is at now, reduce the death rate from fires by 10 percent, reduce the death rate from carbon monoxide poisoning by 20 percent, and to reduce the death rate from electrocutions by 20 percent, all in 10 years.
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    It sounds very ambitious, I know, but we came up with these goals by looking at our track record, at the trends, what our past activities have been, and, most importantly, what our future activities are planned. And we are confident that we are going to be able to reach those 10-year goals.

    I would like to turn this over to Ron Medford to talk a little bit about some of our head injury and fire activities.

    Mr. MEDFORD. On the carbon monoxide poisoning reduction, we have just finished in the last couple of years working with manufacturers and Underwriters Laboratory to get into residences CO detectors that will work, and we continue to upgrade that standard.

    And we're hopeful that those are going to make a significant impact on the number of poisoning deaths, and also the number of poisonings victims that go to the emergency room every year. This along with other work that we're doing on furnaces and other products to reduce the potential for carbon monoxide hazards should lower the number of deaths.

    We've done a lot of work on gas-fired appliances to ensure that they don't emit CO, and if they do, they have automatic safety mechanisms to shut them off.

    One of the big challenges is in the fire area. I think you heard the Chairman say that there is still a tremendous number of fire deaths and injuries and property damage associated with fire. There are several major initiatives that we have planned in our future to deal with that problem.
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    And some of those—the upholstered furniture issue was raised earlier today as one of the initiatives that we have. We have another one on range and oven fires, which is one of the leading causes of injuries in the United States from gas and electric ranges. We have a research project going on in our own laboratory now for that.

    We have just initiated a study with the industry on open flames from mattress fires—again, it's similar to upholstered furniture—with candles, matches, and lighters with children, child play.

    The head injury impact—we think that now we have the bike helmet standard finished, and that standard, along with a lot of other programs that are going on around the nation to get people to increase the use of bike helmets, has a tremendous potential.

STATE BIKE HELMET LAWS

    Mr. HOBSON. Could I just ask a question about the helmets?

    Mr. MEDFORD. Yes, sir.

    Mr. HOBSON. Is there a federal law or a proposed law, or is there any state laws?

    Ms. BROWN. There are state laws and laws in local communities. I can't remember exactly, but I think it was 25 communities in 14 states, something like that, that have laws requiring bike helmets. The Federal Government doesn't make a law requiring that people wear their helmets, because it would be unenforceable. But local states and jurisdictions can do that.
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    Mr. HOBSON. How many states have helmet laws?

    Ms. BROWN. Was it 14? I think it was 14 states and 25 jurisdictions, but I could get that exactly for you.

    [The information follows:]

STATE AND LOCAL BICYCLE HELMET LAWS

    According to information compiled by SAFE KIDS, there are bicycle helmet laws in 15 states and 62 localities.

    Mr. HOBSON. Yes, I'd like to know that statistic, because I understand the requirement is becoming quite important——

    Ms. BROWN. Yes. States and in local communities—for instance, Montgomery County, Maryland, has——

    Ms. GALL. Fairfax County, too.

    Ms. BROWN. What?

    Ms. GALL. Fairfax County.

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    Ms. BROWN. So counties do that, too. Thank you.

    Mr. STOKES. Are you finished?

    Mr. MEDFORD. Yes, sir.

EMPLOYMENT OF WOMEN AND MINORITIES

    Mr. STOKES. Okay. Thank you.

    Mr. Chairman, before I yield back—one other area that each year, as you know, I question you about, and during the four years that you have chaired this committee we have had a great deal of discussion about this area. And I'd preface my comment with the fact that I take seriously the President's commitment to the fact that he wants his administration and agencies of government to look like America.

    And you and I have had some discussions about whether you're making any real progress in terms of employment of women and minorities at your agency. And when each agency comes in here and sits across from me, I get some reflection then, when I look at the table where you are, or I look behind you to see whether your agency looks like America or not.

    And maybe your actual figures look better than the accompanying scene, but you ought to be able to tell me what you're doing in terms of your agency employment, of equal employment.

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    Ms. BROWN. We take this seriously, as you do, Congressman. And I will give you some figures.

    Mr. HOBSON. Could we just suspend for a minute?

    [Recess.]

    Mr. HOBSON. I don't know where we were.

    Ms. BROWN. I do. I know just where we were. [Laughter.]

    Mr. HOBSON. Well, we just all missed a five-minute vote. But we said also that if Mr. Natcher was still here the staff would all be fired because he would have missed his record of——

    Ms. BROWN. Oh, my goodness. Well, while you were gone, I just sent for some of our minority employees to come down so you could see——

    [Laughter.]

    Ms. BROWN [continuing]. That we are doing much better than it looks. Let me just give you a little bit of information. Particularly since January 1997, we have made great strides in our most recent hires.

    Mr. STOKES. Okay.
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    Ms. BROWN. We have hired 57 new employees agency-wide since January 1997; 60 percent are female, 44 percent are minorities. We have hired 18 new employees in the upper grades; 66 percent are female, 44 percent are minorities. So particularly with the effort that we have made in the new hires, which is one way that we want to change the face of the agency to look more like the face of America, very often you can do it with new hires.

    Mr. STOKES. Sure.

    Ms. BROWN. We've done very well with that. Now, I can give you the other statistics of how we are doing overall, if you'd like me to.

    Mr. STOKES. Well——

    Ms. BROWN. Or I could submit it for the record.

    Mr. STOKES. In the interest of time, what I'd appreciate is if you would delineate that information for me in the record.

    Ms. BROWN. Yes, I will do that.

    Mr. STOKES. And break it down for me, so that we'll have a good understanding of it.

    Ms. BROWN. Right.
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MINORITY REPRESENTATION AT CPSC

    We have made great strides with our most recent hires. Since January 1997: Hired 57 new employees agency-wide. 60% are female; 44% are minorities. Hired 18 new employees in upper grades. 66% are female; 44% minorities.

    31% of CPSC's workforce are minorities; 30% is the government-wide average. (28% minorities prior to Chairman's arrival.)

    49% of CPSC's workforce are female; 42% is the government-wide average. (44% female prior to Chairman's arrival.)

    In the upper grades, GS–12 through GS–15: 20% of employees are minorities. (17% minorities prior to Chairman's arrival.) 43% of employees are female. (31% females prior to Chairman's arrival.)

    Mr. STOKES. But I do want to say that obviously, from what you're reciting here, you obviously have made great progress. And I'm cognizant of the fact that there is some problem related to trying to undo these types of situations when you come into an agency that has not looked at this very seriously. And often the method or means by which you have to do it is through the new hire—

    Ms. BROWN. That's right.

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    Mr. STOKES [continuing]. Process. So I'm mindful of that. I'm appreciative of the fact that you have always been responsive to my concerns in this respect, and you obviously are trying to remedy the problem.

    Ms. BROWN. And not just because of your concerns, but I think when you have an agency that looks more like and is more like the face of America, with a more diverse workforce, I think it's an agency that gets the work done with a greater understanding of the problems that exist out in the total community of the United States. So I think they'll work better.

    Mr. STOKES. I think you're absolutely right. Thank you very much, Chairman Brown.

    Thank you, Mr. Chairman. Nice to see you.

    Mr. LEWIS [presiding]. Was that a command performance? I was planning to say a word, but I——

    Mr. STOKES. I understand.

    Mr. LEWIS. I'm sorry that I missed your testimony, but I had it by my rocking chair last night. [Laughter.]

    Ms. BROWN. Did you commit it to memory? [Laughter.]

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    Mr. LEWIS. You wouldn't believe the number of questions my wife was asking about that. [Laughter.]

    Ms. BROWN. We're delighted to see you here.

    Mr. LEWIS. Yes. Nice to see you, Chairman Brown.

    I understand Mr. Hobson has some questions. Mr. Hobson.

    Mr. HOBSON. Thank you, Mr. Chairman.

    While I was in the chair, I was going to say one thing once he got back, and I wanted to say it while I was in the chair that I have enjoyed—working with Mr. Stokes over these years.

    We were on the Ethics Committee together, and we have been on this committee together. And there is not a person that I know of more dedicated to this institution and to his people than Mr. Stokes, and it has been my pleasure to have this few brief years with him. I wish it had been longer. Although, I like being in the majority, might be in the minority——

    [Laughter.]

    Mr. STOKES. Or being in the double minority. [Laughter.]

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    Thank you very much, Mr. Hobson.

    Mr. HOBSON. But Mr. Stokes has always been a gentleman, and I went to his fundraiser when I first arrived here in Washington, D.C. and he came to mine.

    Mr. STOKES. Sure did.

    Mr. HOBSON. Which doesn't always happen in State delegations.

    I also enjoy working with the Consumer Product Safety Commission. It's one agency that demonstrates the best in government. And that is, you have accomplished a lot of things without doing new statutes or new laws. I go back to the work that we did on replacing the drawstrings on children's clothes, which is where we first met.

    The Grandparent Guide is particularly good, because lots of things have changed since we all had our children. Times have changed, equipment has changed and people have changed. I think the educational approach is very good for people.

RECALL ROUNDUP

    A couple of my questions have already been asked, but I want to ask one about the recall roundup that relates to public awareness of the dangers of certain previously recalled defective products that may still be in garages and flea markets.

    Ms. BROWN. Right.
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    Mr. HOBSON. Can you tell the Subcommittee about this initiative, how successful has it been, and do you plan to continue it in 1998?

    Ms. BROWN. Yes. We do plan to have a repeat of this highly successful program from last year. And I have the report from last year's recall roundup, which I would like to place in the record, if I may.

    Mr. LEWIS. Okay.

    Ms. BROWN. Thank you.

    Mr. LEWIS. It will be included.

    Ms. BROWN. And it will be, this year, on April 16th. And we are able to notify consumers of defective products that have been previously recalled that they still may have in their attics or basements or that may be in thrift shops or flea markets. And this was a hugely successful program last year.

    [The information follows:]
    "The Official Committee record contains additional material here."

    We raised public awareness about such recalled products as playpens or bunk beds, lawn darts, hair dryers, halogen lamps, and our effort last year involved all 50 states and reached 37 million people. And this year, in Ohio there are some very active programs planned with the Ohio Department of Health, and the WIC Program, and the Central Ohio Safe Kids, and the Office of Aging, and the YMCA.
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    And I just wanted to tell Chairman Lewis, that in Southern California we are working with the Pediatric Trauma Unit of Loma Linda Hospital, which happens to be in his district. So——

    [Laughter.]

    Mr. LEWIS. That's smart. [Laughter.]

    Ms. BROWN. Will you tell him about that for me, Mr. Hobson?

    Mr. HOBSON. Yes, I'll tell him.

    Ms. BROWN. Thank you. [Laughter.]

    And also, Sheila Jackson Lee, who chairs the children's caucus, one of your colleagues, we blanket the country nationwide letting people know, both on national television and local television, and with all sorts of events in each state, just what they need to know about the recalled products.

    We will be doing this recall roundup in your district, Mr. chairman. We are working in Southern California with Connie Cunningham, Pediatric Trauma Coordinator at the Loma Linda Hospital, and they have planned for recall roundup some very important events. And if you are possibly in your district then, we would love you to participate.

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    Mr. LEWIS. Loma Linda Hospital happens to be right in the heart of my district.

    Ms. BROWN. I did happen to know that. [Laughter.]

    Mr. LEWIS. Figured that out.

RENT EXPENSE

    Mr. HOBSON. I have just two other questions. One is on your rent. One of the worst topics we got into the very first time we met was about rent. You were trying to merge two labs, and lots of other things. You moved people out of offices.

    I'm a little curious about the fact that your rent is going up by a 10 percent increase in 1999, and that's a trend that is reversed for you. I'd like you to explain that.

    Ms. BROWN. Well, unfortunately, this is just because GSA has increased our rent beyond our control. We are taking on nothing new. We are taking no more space.

    Mr. HOBSON. Did you get in a fight with him?

    Ms. BROWN. We have tried to be as good and gratifying as we can, but GSA just has gone ahead and done that. Particularly to our new labs that are consolidated, they have raised the rent on the consolidated labs.
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    Mr. HOBSON. What reason did they give you for raising the rent? Are these full-service leases where they're paying the utilities or have the taxes gone up?

    Ms. BROWN. Somebody can help me out with this?

    Ms. GILBERT. The increase in the rent is $303,000, but it's made up of a number of increments. And one of the biggest is that the GSA reassessed the value of the land where our lab is, and that is going to raise our rent $125,000. They just came in and did that.

    Mr. HOBSON. But is this the merged lab?

    Ms. BROWN. Yes.

    Ms. GILBERT. Yes. It's not because of that, because it's the same land. It is the land that they have reassessed.

    Ms. BROWN. They just——

    Ms. GILBERT. Because——

    Mr. HOBSON. The reason I'm spending so much time on this—after we had our discussion some years ago, the GSA guy came to see me, which is kind of fun. But there are ways to handle this. What I'd like to know, is there anybody that gets into it with GSA? Because this is not just with you, this is with a lot of other agencies. We're trying to keep these rents in line.
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    Ms. BROWN. And it surely would help us to keep them in line in our budget.

    Mr. HOBSON. I don't know why that assessment would happen. I could understand if somebody came in and did a tax reassessment, but GSA is not paying real estate taxes.

    Ms. GILBERT. No. What happened was they did a reevaluation of our site, and the first thing they told us was that we would have to leave. And we did, as you say, have it out with GSA over that, because that would have been a tremendous inconvenience and would have stopped our safety work while we were moving. We didn't think anything would have been cheaper, and we think it would have been further away from our headquarters, which is also a tremendous inefficiency.

    So we fought with them over that. When they decided that we could stay, they reassessed the value of the land, and that's what happened. So we were happy to hear that. At the same time, they helped us co-locate our health sciences lab with our engineering lab, and that was a tremendous benefit to us as well.

    But any help that you can lend with those rates, that would be tremendously helpful to us, because as you know it is a great, great hardship. It sounds like not a lot of money for some people, but for our agency it's an enormous amount of money.

    Mr. HOBSON. Well, it's a 10 percent increase in your overall rent, and I don't understand why, and I don't understand the authority. When I talked to GSA before, the fellow who ran the agency was very interested in keeping rents in line and was fighting internally about some issues. They had some internal staff situations that he was having trouble with.
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    So I'm going to reserve talking about rent costs now, but I want to talk about that because it is a specific situation that I think I'd like to look at and understand better.

    Ms. BROWN. Well, perhaps we could come and brief you. And if you wanted to meet with GSA with us as an advocate for us, that would be very, very good.

    Mr. HOBSON. Yes. I'd like to understand how they do this. I don't understand it. I'm an old real estate guy.

    Mr. LEWIS. That would be very helpful to the Committee, and if you would report back to us, we'd appreciate that.

YEAR 2000 COMPUTER PROBLEM

    Mr. HOBSON. My last question is on your computer—and this is one I ask everybody also—is on the computer software that you have. Do you have any 2000 problems that you are aware of, or have you anticipated them? Are you looking at them, or what are you doing?

    Ms. BROWN. We have anticipated them. I appointed Clarence Bishop to head up a committee well before all of the talk started about it, and we are right on target with our year 2000 compliance. There appear to be no problems either with our regulated industries or with what we are working on. We are ahead of the issue.
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    Mr. LEWIS. Where is Mr. Bishop?

    Ms. BROWN. Clarence, would you raise your hand?

    Mr. LEWIS. Clarence, would you stand up? I just want to make sure—I want to look right at you. I expect you to have this done, 2000——

    [Laughter.]

    Ms. BROWN. I did the same thing. [Laughter.]

    Mr. HOBSON. The reason we're asking these questions is we don't want any surprises in the year 2000, and we're asking this of every person. Every committee that comes before this committee I'm going to ask this question. And we're going to take names and——

    [Laughter.]

    Mr. HOBSON [continuing]. We're going to be hopefully around here in 2000, because if there's going to be a problem, we want to anticipate the problem, we want to work on the problem little by little. So we're asking every agency the same question.

    Ms. BROWN. Those are my words to the staff exactly, Mr. Hobson. But, of course, the buck stops here.
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    Mr. HOBSON. Those are things that are important.

    I also want to say thank you. I think you do a lot of good work across the country, and you get a good bang for the buck. That's important to this committee.

    And, I hope he's going to answer your question about——

    Mr. LEWIS. You can go ahead if you'd like.

    Mr. HOBSON. Well, the question I want to ask is, you got cut by OMB, and I think if there's something in there——

    Mr. LEWIS. We're going to ask that.

INCREASE IN AGENCY BUDGET

    Mr. HOBSON [continuing]. That is really critical to saving people's lives that we need to fund, this is one area that we ought to look hard at.

    Mr. LEWIS. We'll spend a little time on that in a few minutes.

    Ms. BROWN. Good. Whenever you're ready, I have——

    Mr. HOBSON. Thank you.
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    Mr. LEWIS. You're ready. I——

    [Laughter.]

    Mr. LEWIS. Mr. Frelinghuysen has been here for a while. Do you have questions?

    Mr. FRELINGHUYSEN. Mr. Chairman, Mr. Hobson is a very tough act to follow. Before your arrival, Mr. Hobson was in the chair and Mr. Stokes was speaking, so there has been an absolute love-in from Ohio. [Laughter.]

    Very positive. And if you'll pardon——

    Mr. LEWIS. I'm sure you'll take care of——

    [Laughter.]

    Mr. FRELINGHUYSEN. If you'll pardon the expression, Chairman Brown has indeed been pampered appropriately. [Laughter.]

    Mrs. Meek, you wouldn't believe what happened before you arrived. [Laughter.]

DISTRIBUTION OF GRANDPARENT GUIDE
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    Let me thank—Chairman Brown has been extremely solicitous and dedicated. She was good enough to visit my congressional district to Morristown Memorial Hospital and hold a baby safety shower, and I think the repercussions are being felt in a most positive way throughout northern New Jersey. And other members of Congress are wondering how the devil I ever got you there and would like to have you come back. But thank you for your time, and I think you raised a lot of issues to a high range of visibility.

    The pamphlet you held up here—you know, for someone from Ohio, this man has remarkably white teeth. Is that another solicitous comment? [Laughter.]

    What's your method of distribution of this? This is a good pamphlet, but how are you actually getting it distributed?

    Ms. BROWN. It is being distributed through the Consumer Information Center, which is in Pueblo, Colorado, and they do a very fine job of distribution. It's free of charge, so people are very anxious to send for it, and Parade magazine that comes out on Sundays in newspapers across the country advertised it.

    And, of course, we disseminate it through a myriad of other kinds of—nurses and physicians. We have our own list of how it goes out through all sorts of individual groups throughout the country and through other agencies. But the Consumer Information Center is the place that people really know about. Another one of the ways is through—the AARP and that has been very successful.

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    So this has had massive dissemination and will continue, because Procter & Gamble has been quite generous, and they'll keep funding the printing as long as we keep having people who want them.

    Mr. FRELINGHUYSEN. Well, I commend you for it.

    Mr. LEWIS. I notice that it is not Joe Knollenberg, is that right? [Laughter.]

WORKING WITH SMALL BUSINESS

    Mr. FRELINGHUYSEN. That's on the record, Mr. Chairman. [Laughter.]

    All of us are concerned about how the Federal Government treats small business. Can you just briefly describe how your agency ensures that small business is heard and not ignored? I know that one of the things that you've promoted is that you have a good relationship with small business men and women.

    Ms. BROWN. Working with small business is very important. It's especially important to me personally. My father was a small business man. He had a small ladies ready-to-wear store in Washington, D.C., so I'm very aware of the problems of the entrepreneurs in small business as I grew up listening to those kinds of problems at my father's knee. And we are very sensitive to the problems of small business.

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    In 1996, CPSC and the SBA held a joint small business conference in New York City providing guidance on how the small business community could better comply with CPSC's regulation. So we weren't playing ''gotcha'' with them, so we were telling them ahead of time how they could better comply so that they would know much more about how to deal with us.

    And at that conference, we inaugurated our small business Ombudsman Program. And to date we have had direct contact with more than 1,300 small business persons from all 50 states and several foreign countries, so that they could comply more easily with us.

    And I'm pleased to report that the Ombudsman Program received several positive citations in the first report to Congress, ''Regulatory Fairness,'' issued by the SBA's National Ombudsman in December. So I think it has been a very successful program for us.

HALOGEN LAMP SAFETY

    Mr. FRELINGHUYSEN. Relative to an issue that some constituents have informed me of they have a problem getting retrofitting kits for halogen lamps. I know this is an area where you've been doing——

    Ms. BROWN. Right.

    Mr. FRELINGHUYSEN [continuing]. A considerable amount of work. Could you just tell us what progress—

    Ms. BROWN. Yes, of course. The industry worked cooperatively with us, and retailers, to get these guards in stores that people could get to put on top of their halogen lamps because you know the bulb is very hot. And if it falls over or if it touches any kind of flammable material it goes up in flames. That happened at Lionel Hampton's apartment.
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    So we worked with industry and they have this safety guard that was being given away, free of charge, through retailers and through an 800 number. It so happened that we had no idea, neither the industry or the agency, of the huge number of requests there would be for those guards. And, unfortunately, we also hit the UPS strike.

    So the combination of the UPS strike and not having enough guards available made some delay when people went to stores to get them. That has been rectified now, and people are able to get these free of charge so that their lamps will be ever so much less likely to ignite a fire.

SKIING SAFETY

    Mr. FRELINGHUYSEN. Thank you. The last question is similar to the bicycle helmet question. There has been some public attention relative to skiing, and I know that this rubs a lot of people wrong, but I do see, since I get on the slopes on occasion, far more young children wearing helmets than ever before. They can be rented. If you buy them, they're darn expensive. But I was just wondering whether you had looked at that issue——

    Ms. BROWN. Yes.

    Mr. FRELINGHUYSEN [continuing]. And just had any general advice.

    Ms. BROWN. We are looking at ski injuries to see and particularly trying to analyze them to see about the number of head injuries. Children are wearing helmets, and we think that is a good idea. We haven't gotten far enough along to know that they will be enormously helpful.
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    The reason we had been working on bike helmets rather than ski helmets is that the numbers of deaths and injuries, head injuries, with bikes far, far surpasses the ski injuries. But we are working on this now to see if we can come up with some recommendations.

    Mr. FRELINGHUYSEN. Okay. Well, again, thank you, and your colleagues as well, for your help.

    Ms. BROWN. Thank you very much.

    Mr. LEWIS. Thank you, Mr. Frelinghuysen.

    Mrs. Meek?

    Mrs. MEEK. Thank you, Mr. Chairman.

    Ms. Brown, and your colleagues, I am pleased to see you again. And I must commend you for following up on what you promised to do the last time you came before the Committee.

    And I had great success with the baby shower. And just to see how delighted the mothers are in very, very low income areas, they are just excited. We've done it three times. It's a big district we're going around. So we want to thank you. That's a very good idea.

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    This is the one committee you can come to and get something functional done for your district, including the congressional——

    [Laughter.]

    Mrs. MEEK. Well, we can. This is the one subcommittee in appropriations that thinks about something other than a dime. I think that's very good for this committee. The idea that the Chairman incorporated about building a congressional Habitat For Humanity home in the District of Columbia, those are the kinds of things people really look at back home. So I welcome the kinds of things that you do. We've always mailed your information out to all of our constituents, and certainly the people in my age group will be getting this. [Laughter.]

    Ms. BROWN. Well, that can be given out anytime you have a senior citizens forum or even just to parents who can give it to their parents.

    Mrs. MEEK. Thank you.

    Ms. BROWN. Thank you very much. We aim to please. We are——

    [Laughter.]

    Ms. BROWN. We try to be a very practical agency, and that's one reason that the places like the Today show want us to do—
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    Mrs. MEEK. Right. Mr. Chairman, you see how I keep harping on——

    Mr. LEWIS. I see.

    Mrs. MEEK [continuing]. Having women over these agencies? [Laughter.]

    He didn't respond to that, Ms. Brown.

    Mr. LEWIS. I know you were at the hearing yesterday. [Laughter.]

    Let's see. Mrs. Meek, is that it?

    Mrs. MEEK. Yes, sir. Thank you.

    Mr. LEWIS. Thank you very much.

    Mr. Walsh?

    Mr. WALSH. Thank you, Mr. Chairman.

    I only have one question, but just a couple of comments before I do that. This was kind of neat. It reminds me—somebody just told me a story. You may consider it a joke; you may not. But they said, ''What is it that causes grandparents and their grandchildren to get along so well?'' The answer is: they have a common adversary. [Laughter.]
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    I thought that was pretty clever.

    The other is Mr. Frelinghuysen's comment about skiing. The two high-profile accidents obviously were accidents with trees, and please don't get into the business of suggesting that ski areas remove all trees. First of all, they have——

    [Laughter.]

    Mr. WALSH [continuing]. Every tree hugger in America will be after you, and there are risks and rewards that come with glade skiing and other types of skiing. So I would suggest that—and just maybe a little facetious—but don't go too far with that one. [Laughter.]

    Ms. BROWN. Well, Mr. Walsh, may I add that the preliminary analysis of what our staff has done has—does not think that even wearing a helmet would have had any effect on those two very tragic deaths.

    Mr. WALSH. Do you come out with a statement that people should ski under control and within their own level of ability? That would be helpful.

    Ms. BROWN. Right.

    Mr. WALSH. Other than that, I'm not sure.

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    The last one that I did have a question on, and that is you have this consumer hotline——

    Ms. BROWN. Yes.

CPSC WEBSITE

    Mr. WALSH [continuing]. I think very popular and very well used. The question that I had was regarding the Internet and your web site. It seems to me that would be a tremendous tool for the people who are on line. Now, not everybody is on line, but, you know, as we—as schools and libraries—and there is more and more public access to the world wide web, that would be a tremendous educational tool.

    And also, just if you call the hotline, usually you have a specific question. Whereas, the web site, if you get on, you intend to graze and see what else is on there. And it would seem to me that would be a very valuable tool. You'd have to put some resources into it, obviously, but just—I'm sure you've thought about it.

    Ms. BROWN. We have an excellent web site, and it has been cited among some of the more successful web sites. And I don't have our exact statistics, but we have had a tremendous increase in the numbers of hits. We also have a children's web site, ''4 kids,'' so that kids can learn about and help with their own safety as well.

    We are also part of an intergovernmental group that have a web site with the FTC and a couple of other agencies—www.consumer.gov. And so we have been using the web site tremendously. People really find it very, very valuable, and it has become a very major tool of communication.
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    Mr. WALSH. What is the web site?

    Ms. BROWN. Somebody help me.

    Mr. MEDFORD. www.CPSC.gov.

    Mr. WALSH. Thanks. I'll bookmark it.

    Ms. BROWN. Good. We'd like that.

    Mr. LEWIS. Thank you, Mr. Walsh.

NEED FOR ADDITIONAL FUNDS

    We do have a number of questions, again, for the record, and we appreciate your responding to them. The schedule is kind of getting crazy, but I did want to have us spend a little bit of time on the first point that has been raised by others—that is, that there is a disparity between that which was your original budget request and that which was recommended by OMB. And I think the figure falls in the neighborhood of $7.5 million.

    That question—I'd just like to have you spend a few moments on how your priorities are affected, what you would have done with extra monies——

    Ms. BROWN. Right. About $5.3 million in program enhancements are not funded. One-time expenditures would include an information technology program to enhance the agency safety work of $2.4 million. That will not be funded. Something else that will not be funded will be smoke detector technology research, also a one-time expenditure of $500,000, and an update of the agency's 15-year old population model, which would cost $165,000. These are used in risk assessment and cost-benefit analysis.
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    And then there are some recurring expenditures that include some investigation support for technologically complex hazards, that's $1.5 million; extended hours and service for the public through the agency's hotline and world wide web site, $145,000; and some consumer outreach information efforts, such as smoke detectors campaign, reaching families through pediatricians, and outreach through radio, and that's $170,000.

    You can see these are not mammoth amounts of money, but they do, in fact, hamper us in our efforts both to get out to the public and to do our work as speedily and efficiently as possible.

    Mr. LEWIS. Ms. Brown, I am concerned that you are in a difficult position when OMB says X and your objectives are Y. At the same time, I'm not certain that in every circumstance the person who is saying Y necessarily knows the priority, and I'd just like to have you—I understand the delicacy of these kinds of questions, but I would hope that there is a reasonable line of communication for some of the items that you've mentioned. And others that you'll provide for the record I'm sure would cause me to ask questions of OMB, and yet the buck stops somewhere else.

    Ms. BROWN. Well, I'd just like to mention that if we could get an additional $2.4 million for information technology—and I know everybody comes and talks to information technology—but just this small amount would make a huge difference for us. It would improve our productivity and efficiency. It would improve the speed.

    And I've talked about how our agency depends on speed, because speed we need to save lives, to get a recalled product off the shelves quickly and out of people's homes. The industries we deal with, you realize, are at the cutting edge of technology, and we need a better degree of technology to, in fact, keep up with them.
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    The two things that would make up the $2.4 million are one-time expenditures that would have no outyear impact at all. And one would be for $1 million for an integrated data system to speed up our investigations and recalls of potentially dangerous products.

    Right now, we have separate databases and we need to link them, and an integrated system would link them. Let me just give you an example. If I wanted to find out about all of our injury and death information on a product, here is what I have to do now.

    I have to do a search of our death certificate database. I have to do another search of our in-depth investigation database. Then I have to search our consumer complaint and newsprint database. Then I would have to do a separate search of our emergency room treated injury database. And finally, another search of our compliance investigations database.

    The inefficiency, plus the time-consuming nature of that, is quite difficult, and that to integrate our databases at $1 million, which is a small amount, would be a huge, huge help to us.

    Mr. LEWIS. In a facility that is adjacent to the Children's Hospital that you might be visiting at Loma Linda University is a proton therapy center which has been magnificently successful for the treatment of small tumors and prostate cancer.

    We had in a bill while the President was in Latin America an item—a separate bill than this one, but an item that would have broadened that protocol to maybe make some very—we think make some very significant breakthroughs in breast cancer. It was not a direct request.
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    Somebody at OMB thought that that really wasn't very important, and at the very beginning of Breast Cancer Month, the President found himself line item vetoing that item. I'd hate to see us in a condition where one of your items might be inserted in the bill and have a similar action.

    Ms. BROWN. Well, if something were inserted in the bill, we would then say, ''Look, our committee thinks that this is good,'' and we would, quite honestly, use our good offices there to do what we could. If something were inserted, I think we would have a much better chance of talking to our good friends at the White House.

    Mr. LEWIS. All right. We would expect that you probably would. And in the meantime, it is an item that we'll take under serious consideration. If you'd respond to the rest of our questions for the record——

    Ms. BROWN. Yes, of course.

    Mr. LEWIS [continuing]. We'd appreciate it. We have one more hearing from this point forward.

    And Mr. Stokes had some special plans for me this afternoon. I'm not sure if he has discussed it with me yet, but——

    [Laughter.]

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    Mr. LEWIS. In the meantime, we're going to miss him.

    Ms. BROWN. Yes, I talked about that before you came. Miss him desperately.

    Mr. LEWIS. Thank you very much. We appreciate being with you.

    Ms. BROWN. Thank you, sir, and thank you for taking the time to be with us.

    Mr. LEWIS. Thank you.
    "The Official Committee record contains additional material here."

Wednesday, February 25, 1998.

CONSUMER INFORMATION CENTER

WITNESSES

TERESA NASIF, DIRECTOR

BETH NEWBURGER, ASSOCIATE ADMINISTRATOR FOR PUBLIC AFFAIRS FOR THE GENERAL SERVICES ADMINISTRATION

BILL EARLY, DIRECTOR OF BUDGET FOR GENERAL SERVICES ADMINISTRATION

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Welcome to Consumer Information Center

    Mr. LEWIS. If the Committee will come to order, we'll switch to the budget request for the Consumer Information Center. The Center's budget request for direct appropriations in fiscal year 1999 is $2,419,000, which is the same amount provided for the fiscal year 1998.

    In addition to the direct appropriations, the fund is authorized to collect and use funds from other Government agencies and sources to offset its operations up to a total of $7,500,000.

    Now we are pleased to welcome back Ms. Teresa Nasif, the Director of the Consumer Information Center. We will print your entire statement in the record, as is usual. And if you'd introduce your friends who are with you, we'll proceed from there.

Statement of Teresa Nasif, Director, Consumer Information Center

    Ms. NASIF. Thank you, Mr. Chairman.

    With me today is Beth Newburger, the Associate Administrator for Public Affairs for the General Services Administration, and Bill Early, the Director of Budget for GSA.

    Mr. LEWIS. And that's it?

    Ms. NASIF. I have an abbreviated statement.
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    Mr. LEWIS. You just go right ahead.

    Ms. NASIF. Thank you so much.

    Mr. LEWIS. First, I keep doing this because Mr. Stokes promises me he's going to be leaving me, but I can't let him leave too soon, and he may want to say hello to you too.

    Ms. NASIF. Hello, Mr. Stokes.

    Mr. STOKES. Always a pleasure to have you back in front of the subcommittee.

    Ms. NASIF. Thank you so much.

    Mr. STOKES. Thank you.

opening statement

    Ms. NASIF. For nearly three decades now, the Consumer Information Center has successfully performed the vital mission of helping Federal agencies provide important information to the public.

    The information covers a wide variety of essential topics, including health and safety issues, developments in Federal programs and the impact and effects of Federal research and regulatory actions.
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    CIC's fiscal year 1999 request does include $300,000 to continue producing and distributing the Consumer's Resource Handbook. CRH helps Americans find the best, most direct source of help for their consumer problems and concerns.

    Last year, this committee directed CIC to begin producing this landmark publication, and I'm pleased to report that we're nearing completion of the 1998–1999 edition and that we expect to release it in late spring.

    Our work on CRH complements our production of the quarterly Consumer Information Catalog, the primary means for informing the public about the broad range of free and low cost useful Federal publications.

    The Catalog and the CRH are two of the most popular consumer documents produced by the Federal Government.

    During fiscal year 1999, CIC will continue to identify new areas for public education as needed. In fiscal year 1997, we helped to develop and/or promote and distribute 60 new publications.

    For example, the Telecommunications Act of 1996 increased competition among long-distance telephone service providers and brought consumers a greater choice in rates and service options. But increased competition has also led to some deceptive marketing techniques.

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    In response, CIC brought together the Federal Communications Commission, the Consumer Federation of America and MCI Communications to develop Making the Best Call. This publication spells out new telephone service options and helps educate consumers about deceptive marketing practices.

    It also typifies our commitment to CIC's Cooperative Publishing Program, a program which stretches limited Federal resources by matching businesses and trade associations with Federal agencies who share a mutual interest in providing unbiased information to the public.

    CIC remains in the forefront of Federal efforts to disseminate information electronically. The public will access www.pueblo.gsa.gov more than five million times in fiscal year 1999, approximately five times the accesses in 1995, the first full year that the Web site was available.

    And I'm pleased to report that we've just introduced the capability to order CIC publications online. Consumers can now directly order any of the items after viewing the full text of all publications in the Catalog.

    And this is a natural addition to our electronic services and in keeping with our goal of providing the public with faster and easier ways to obtain our information.

    Although CIC is committed to serving consumers electronically, we will continue to focus on a strong and dynamic print distribution program. ''Pueblo, Colorado 81009'' remains one of the best known mail addresses in the country.

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    It's where Americans order millions of publications published by more than 40 Federal departments and agencies. The Government Printing Office facility in Pueblo provides warehousing and order fulfillment services for the tens of thousands of orders received weekly as a result of CIC promotion.

    The numbers of printed publications requested during fiscal year 1997 from the Pueblo facility totaled 8.3 million publications, a 1.3 million increase over the 7 million distributed the previous year.

    Increased distribution also increased public user fees to $297,000. Also during fiscal year '97, CIC joined with GSA's Federal Information Center Program to promote a toll-free number, 1–888–8PUEBLO for citizens to call for a copy of the free Catalog.

    During the first 12 months of operation, the toll-free number was called by 200,000 consumers and is currently receiving approximately 17,000 calls per month to request the Catalog. CIC is now moving forward to provide nationwide toll-free service for the ordering of publications, as well as for a copy of the Catalog.

    In summary, it's our goal to continue our successful publication development, media, marketing and centralized distribution programs while responding to the public's desire for easier and quicker access to information.

    CIC remains deeply committed to the services it has so effectively delivered to the American public since 1970, services that continue to grow in importance as our Nation approaches the 21st Century.
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    We trust that the Committee will agree that CIC is a valuable Federal program and that it will look favorably upon our budget request.

    At this time, I'd be pleased to answer any questions you might have.

    [The information follows:]
    "The Official Committee record contains additional material here."

    Mr. LEWIS. Thank you very much, Ms. Nasif.

    While I welcome you back to the Committee, many of our questions, as you know, relate to specific and detailed items, and if you will respond to them for the record for those, we'd appreciate that.

EFFECTS OF INTERNET

    It is of interest that the budget request does indicate that approximately $300,000 is dedicated for production and distribution of the Handbook for the year 1999. A few years ago, there was some concern that, with the growth of the use of computers, fewer people would be using the services and instead would be using Internet to acquire information.

    Your budget projects no change in the distribution of printed publications, copies of the publication, remaining constant at 8.3 million. What's been the practical effect then of Internet on your operations?
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    Ms. NASIF. When we started our Internet site in fiscal year 1995, we started to experience a decline in publication distribution, and it was logical to see why. Rather than send away to Pueblo, Colorado, someone could access the full text of any of our publications 24 hours a day.

    And we have a search function so that you could actually put in the topic that you were interested in and it would call up the parts of all the various publications that dealt with the issue you were interested in.

    So while our Internet access was booming, we started to see that the print distribution was decreasing. And when I was here last year, I predicted that '97 would continue to decrease. But we just redoubled our efforts and tried really hard to promote the print distribution program.

    We did several special promotions. We were more aggressive about finding corporate partners to help fund the cooperative publications that they do with the Federal agencies. So we were able to get a more appealing mix of titles in the free program.

    And, as a result, we were able to actually increase from 7 million to 8.3 million. We think that print distribution should stay at the same 8 million level even though we are continuing to see the increase on the Web site usage.

    The fact that we are planning significant program improvements letting people actually order publications on the Web site, and also with our plan to hopefully offer the American public the opportunity to order books via a toll-free number, we think that will actually be an impetus to the ordering of publications as well.
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RENTAL CHARGES

    Mr. LEWIS. Okay. During fiscal year 1998, your GSA rental charge increased by about 30%, and fiscal year 1999 rental charges increased another 10%.

    Ms. NASIF. Yes.

    Mr. LEWIS. Mr. Hobson is not here to ask this series of questions, but it has been brought to my attention that Bill Early had something to do with this. [Laughter.]

    And we want to ask more questions of GSA, so we're wondering why?

    Ms. NASIF. Well, I could begin——

    Mr. LEWIS. Sure.

    Ms. NASIF [continuing]. The response, and I'm sure Mr. Early will add to it.

    For fiscal year 1998, we did acquire new space. We acquired 1,000 square feet additional space due to the fact that over the years our staff had increased from 18 to 22 and we had never expanded any, and we were quite crowded.

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    We also had new responsibilities such as the Consumer's Resource Handbook. And we also had an environmental problem. One of the rooms that we occupied, we discovered, was having electromagnetic fields emanating from some mechanical vaulting that our office was located directly over.

    Mr. LEWIS. From a GSA facility?

    Ms. NASIF. We are in a Federal building, and it's a historic building. It is about 80 years old.

    Mr. EARLY. Built in 1917.

    Ms. NASIF. As a result, we realized that there was a problem because our computers were just not functioning well. And when the room was tested, we realized we needed to evacuate the staff.

    And so we acquired 1,000 square feet additional space, and we're now remediating the EMF. But we have found that we really need the additional space for our increased workload and the fact that we have four additional staff members.

    So the increase from '98 to '99 was based on that 1,000 square feet that we are acquired.

    Mr. EARLY. There was some small, overall GSA Government-wide rental rate increases for '99. There's a three percent rate increase for essentially all of the space. You'll be seeing it in the other justifications coming to you from the other agencies.
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    And there was an effort to have GSA compensated for the increased security after the Oklahoma City bombing that it has been absorbing over a number of years. So on a building specific basis, there are some rate increases for security that is in place for an agency's needs.

    Mr. LEWIS. Bill, I'm not sure if you were in the room when Ann Brown was here, but a question was raised by Mr. Hobson relative to the space that they currently have where GSA increased the assessment, I gather, of the land upon which their building is located, and that was the justification for a ten percent increase in their rental values.

    And when the Government doesn't pay taxes on such land, etc., we have questions like that that we'll be pursuing. If not through our committee, it will be elsewhere.

    Mr. EARLY. That's on their new space up there at Silver Spring——

    Mr. LEWIS. I think it is. It's the space they've had for a while. Their consolidated labs, yes.

    Mr. EARLY. GSA is supposed to charge a commercial equivalent rate. Therefore, as market rates in an area go up that reflect increasing land values, GSA would pass the increase through to an agency.

    If they are in the leased space, GSA is charging in new lease assignments, rates to cover actual cost plus administrative fee.
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    Mr. LEWIS. Since this has been a pattern and there's been significant interest in our committee, I would expect that we may very well pursue this with the appropriate subcommittee here to make sure they're asking questions.

    Mr. EARLY. We'd be glad to follow up on those individual——

    Mr. LEWIS. Okay, Mr. Stokes.

HITS ON INTERNET

    Mr. STOKES. Thank you, Mr. Chairman.

    During your last couple of appearances here, we've had some discussion with you about the Internet access to your documents. How many hits would you say you had this past year?

    Ms. NASIF. We had four million page accesses. We do a more conservative measuring than ''hits.'' Page accesses measure when an entire information page is used by a user. If we measured hits, we could actually get a higher number.

    Hits are pieces of information that are downloaded from the server, so you could have one page—if it has a lot of graphics, it could count as ten hits.

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    So we use a more conservative yardstick. And we know that it was four million page accesses, which, translated into hits, probably would be 16 million hits. And this year, in FY 1998, we expect it to be five million accesses.

    Our Web site is very well received. It's a very easy way for consumers to get specific answers to a specific consumer question. And it's promoted quite widely through a number of different computer magazines and different sources.

    Mr. STOKES. What was the status of the hits, say, the previous fiscal year?

    Ms. NASIF. Our first year was FY 1995 and we went from one million to two million in the second year, to four million in FY 1997, and this will be a five million year. So it's really increasing dramatically. And it's estimated that one out of every four adults in the United States now has access to the Internet.

    And with the push to put them in every school and library, we think it really will be reaching all segments of the population. And at the same time, of course, we're keeping up our print program.

    You don't need a computer to access Pueblo. It will soon be as close as a phone call away to order publications. Right now you can call a toll-free number to get the free Catalog. You get the Catalog, and then just mail your order in to Pueblo.

ACCESS TO COMPUTERS
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    Mr. STOKES. Okay. That gets me to the issue we discussed last year about those who have access to computers having the ability to download——

    Ms. NASIF. Yes.

    Mr. STOKES [continuing]. And get the access to your documents, whereas those who do not have access to computers have to pay for the documents——

    Ms. NASIF. Well——

    Mr. STOKES [continuing]. Which you sort of indicated was——

    Ms. NASIF. Yes, that's——

    Mr. STOKES [continuing]. A minimal cost, you felt, 50 or 70 cents.

    Ms. NASIF [continuing]. Right. And you can order up to 25 free publications even when you send in by mail order. There is a $1.00 user fee. But you can order up to 25 free publications.

    Now, with the Web site ordering that we just inaugurated a week ago, however, anyone ordering the publication, a hard copy of the publication, of course, will be paying for it.
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    You can always download it, but many people prefer to have the publication with the original graphics and bound just so that they can keep it as a reference.

    Mr. STOKES. That they don't have to pay for?

    Ms. NASIF. No.

    You can come online, view the publication and get the information for free. If you choose to order the publication and it's a sales document, you would pay for it through our new online ordering system.

    If you order free publications online, there is still a user fee, a $1.00 user fee. You pay a user fee whether you order by mail or Web site.

FAIRNESS ISSUE

    Mr. STOKES. Do you see any issue there of fairness at all as it relates to those who fall into the category of being poorer and those who do not have access and so forth?

    Ms. NASIF. It is a potential issue. And it's an issue being addressed nationally because we do not want to become a Nation of information have's and have not's. I think that's why there's such a vigorous effort to get schools access to Internet and library systems access to Internet.
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    And I know in my own public library, I can walk in and sign up to use the Internet that they have available there for all of the patrons to come in and search the Net and access all of the information. Internet access is the same case as with all new technology—with telephones, with cars, with television.

    At first, it seems to be concentrated in the hands of the better educated or the more affluent, but eventually it becomes available to everybody. And I do believe that's the case with Internet.

    Now it's getting to the point you don't even really need a computer. You can buy an Internet box and you don't need to have a computer. You just get the box and it's like having a television set, and you can have full access to all that Internet has to offer.

    Mr. LEWIS. Mr. Stokes, we're going to have to be very careful about what happens with our grandchildren. [Laughter.]

FREE ADVERTISING

    Mr. STOKES. I notice that your justifications on page 13 indicate that the Consumer Information Center receives an estimated 16.1 million dollars worth of free electronic and print media to advertise its operations and publications, right?

    Ms. NASIF. Yes, that's correct.

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    Mr. STOKES. How do you arrive at this estimate?

    Ms. NASIF. Well, on our television public service spot, which we distribute nationwide, we actually have started a new system of encoding the television spot so that every time it's used nationwide, the A.C. Nielsen Company receives the signal and does a report for us.

    And they can actually tell us in what market, at what time and next to what program it appeared and the dollar value for the time. And we were told that whereas the average public service spot is used by 16% of the stations, ours was being used by 44% of the stations.

    And so we know that we have good play there. We estimate that we've gotten close to 11 million dollars worth of air time just for the TV spot. And in addition to that, we do print ads for newspapers and magazines, and we do radio public service spots.

    And we also count in the time that newspapers and magazines give to our press releases—consumer releases where we give consumer information and mention a publication that's available from Pueblo.

    And so when we factor it all together, we arrived at the 16 million dollars.

    Mr. STOKES. Do you take separate estimates for print space and air time?
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    Ms. NASIF. Yes, we do. We break it out by TV, radio and then newspapers and magazines, the print component.

    It actually used to be easier for us to segment the outlets when we only gave a mailing address. We gave each promotion a different coded address. Now we often give the telephone number, the 1-888-8PUEBLO telephone number, which is resulting in these 17,000 phone calls a month.

    And although we ask on the phone where did you hear about the free Consumer Information Catalog, not everybody remembers because they hopefully have seen it in so many different places they don't quite remember if it was TV, radio or a magazine.

    And so we take their answers and try to do an educated guess as to what is generating what response.

     Mr. STOKES. Okay, I notice that in last year's budget submission, you estimated the 1997 amount would be about $16.8 million, and the 1998 amount would be $17.5 million. This year's submission shows $16.1 million for each of the fiscal years, '97, '98 and '99.

    Can you tell us why the estimates have declined?

    Ms. NASIF. Basically, because it's getting so much more competitive for us public service advertisers. There are more organizations vying for time, broadcast time, and it is actually harder to get broadcast time than it used to be years ago.
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    I have been with the program 25 years at this point, and so I can see over the time how our strategy has had to change in order for us to make sure our spot gets played versus somebody else's. And so especially with deregulation, TV stations no longer have to set aside an amount of time devoted to public service programming.

    It really is up to their own judgement, and they often define their own local programming to be public service advertising and choose not to use spots such as ours.

    One of the things we've done to increase our chance of being used is that we have partners, local partners, on the tag line of our public service announcements. So we might have the Ohio State Consumer Office, for example, or the California State Consumer Office in cooperation with the Consumer Information Center, General Services Administration.

    The spot then counts as a local spot, and we get more air play than if it were strictly a national spot.

    Mr. STOKES. Thank you very much.

    Thank you, Mr. Chairman.

    Mr. LEWIS. Thank you, Mr. Stokes.

    Mr. Walsh.

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MOST POPULAR BROCHURES

    Mr. WALSH. Thank you, Mr. Chairman.

    Thank you for your testimony today. I don't have any oversight questions, but I am curious. What are your most popular—most popular requested brochures or pamphlets?

    Ms. NASIF. Well, the Consumer's Resource Handbook remains one of the most popular. And we are seeing a surge of interest in anything relating to financial management. Making a Will was our most requested publication during a recent sampling period.

    Mr. WALSH. The baby boomers are getting——

    Ms. NASIF. Yes, baby boomers. And things relating to——

    Ms. KAPTUR. What was the one for——

    Ms. NASIF. Making a will.

    Making a Will was our most requested one, and I think that's of interest among many age groups. And publications relating to Federal benefits like Social Security or buying surplus Federal property seem to be consistently among the most popular.

    Mr. WALSH. And if you go on the Internet and you reviewed the list and you want to order, what do you do, put in a credit card or——
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    Ms. NASIF. Yes, give us your credit card number. It's encrypted and we have a very secure system.

    Mr. WALSH. It's secure.

    Ms. NASIF. Yes, it is. And we explain this to the customer, that it's a very secure system and it's encoded, and the information is protected. And we don't retain any information other than the customer's name and address, which we explain to them because we would like to mail them a Catalog in the future again.

    Mr. WALSH. Thank you.

    Mr. LEWIS. Ms. Meek.

CHILD PORNOGRAPHY ON THE INTERNET

    Ms. MEEK. Thank you, Mr. Chairman.

    And thank you again.

    I went to a hearing this morning on the Treasury Postal, and they mentioned something that concerned me a great deal, and that was child pornography on the Internet.

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    I know that there is—this does not have, I don't think, any relativity for what you do, but I wanted to mention that in case you and your group are looking at your long range goals and there is something there that you might tap into that might help the consumer.

    Ms. NASIF. Ms. Meek, I'm so glad you mentioned it. Because in the kits that I brought for the committee members today, we have a new publication on the Parent's Guide to the Internet that discusses this and the kinds of safeguards that a parent should take to protect their children.

    Ms. MEEK. Thank you.

CIC INFORMATION KITS

    Ms. NASIF. Excuse me. Perhaps we didn't——

    Ms. MEEK. Maybe my staff took it. I'll get it.

    Ms. NASIF. Oh, here they are. I can't resist bringing you a kit of information each time I come. And so we have some of the publications that are popular right now, a list of our most popular publications and samples of our press releases, and an explanation of how Members can actually imprint a copy of our Catalog.

CATALOGS FOR CONSTITUENTS

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    I'm pleased to report to the committee that six out of 13 members have imprinted Consumer Information Catalogs this year and sent them to their constituents.

    So we have those here on display, and I'm very, very pleased with the support that we've received.

    And Ms. Meek, thank you for mentioning our Catalog to your constituents in your report to senior citizens in December. We really appreciate it.

    Ms. MEEK. Do you hear everything I do?

    Ms. NASIF. I do, yes.

    Members have the option of imprinting the Catalog with a message to their constituents. And so at the time we go to press, it's a plate change and we will imprint copies for distribution in your district.

    Mr. LEWIS. Ms. Meek, you finished?

    Ms. MEEK. I'm finished, thank you.

    Thank you very much.

    Mr. LEWIS. Okay.

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    Mr. Frelinghuysen.

MEDICAL PRIVACY ISSUE

    Mr. FRELINGHUYSEN. Yes, thank you, Mr. Chairman.

    I was admiring your picture. [Laughter.]

    There's been some discussion—quite a lot of discussion in fact, in the media about medical privacy issues. Is this an area where you've done any work?

    Ms. NASIF. Well, we do have a publication dealing with privacy issues. It's entitled FOIA, Your Right to Know is the name of the publication. And it's done by GSA's Federal Information Center working with the Department of Justice.

    And we've been offering——

    Mr. FRELINGHUYSEN. So, it does not mirror the right to know laws, but——

    Ms. NASIF. It's Your Right to Know. It discusses Freedom of Information as well as the Federal Privacy Act of 1974 and what your rights are in terms of what information you have that should be kept private.

    Mr. FRELINGHUYSEN. Does it have a medical section flavor?
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    Ms. NASIF. I believe it does discuss it in a general way. Of course, the law is 1974, and so it describes what your rights are and what you need to know as far as that law is concerned.

MAILING LISTS

    Mr. FRELINGHUYSEN. And the last question I have, you mentioned the name—or you mentioned the fact that you keep the names and addresses of people who write you. Do you have mailing lists?

    Ms. NASIF. We don't have a permanent mailing list. If you order from Pueblo, we will not keep your name forever. But we will keep your name long enough to send you a Catalog in approximately six months. And so we use the names once or twice, but not forever.

    At the current time, we have about 300,000 names of current users that we will retain and not send them the very next Catalog since it comes out quarterly, but probably two Catalogs down the road.

    And we find that we have an excellent response rate from that group. That if they order it once, they're likely to order again and be interested in the new publications that we have.

    Mr. FRELINGHUYSEN. Some people are chronically interested in getting pamphlets and materials.
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    I think, Mr. Chairman, generally on the issue of mailing lists, I find that while I haven't been in the state legislature for three years, I am still on the mailing list for the EPA.

    And I do think, as a general rule, we ought to build into the language of all of our appropriations bills some requirement that they purge mailing lists on a timely basis because I do think that a lot of people are long gone, deceased, moved on.

    And we must spend oodles of money paying for sending out various pamphlets and fliers. Perhaps not your organization——

    Ms. NASIF. Right. That's why we only use a name once or twice, and we do regularly purge all of our mailing lists. There's a media mailing list purge going on right now by CIC. We maintain our mailing lists continuously.

    So when mail is returned, we immediately take that returned name off. But we still go through an every other year purge of our bulk mailing list, which is 36,000 names of community organizations distributing bulk copies of the Catalog, and our media list.

     And we do it just because it's too expensive to keep names of people who don't order from us.

    Mr. FRELINGHUYSEN. We're very happy that at least one agency has that attitude.
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    Mr. LEWIS. I was interested in your list of questions.

    Mr. FRELINGHUYSEN. I may have to put that in writing.

    Mr. WALSH. Maybe it just shows the wisdom and foresight of the agency to continue you on their mailing list. [Laughter.]

    Mr. FRELINGHUYSEN. You went to the Mr. Hobson School of Flattery. [Laughter.]

    Mr. LEWIS. Ms. Kaptur.

    Ms. KAPTUR. Yes, thank you.

    I also apologize for——

    Mr. LEWIS. Could the record show that Mr. Walsh kept Mr. Stokes' Catalog? [Laughter.]

    Mr. WALSH. I want to get it autographed.

    Ms. KAPTUR. First I want to apologize for not being here for your testimony. I'm ranking member at another subcommittee. And when I take over this place, I will not have simultaneously scheduled hearings.
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    It has been a hard day.

A 50TH ANNIVERSARY CELEBRATION

    So I apologize for not being here. I will tell you a little story because I went to a 50th anniversary of a couple in my district about a month ago. It was a very formal celebration and the entire church was full of people.

    And there came a time when I had to congratulate them in the pulpit and so forth. And I went up to both of them and shook their hands. And as I was speaking to the wife, who was the wife of the pastor, she said to me, ''Thank you for that catalog. I never knew you could freeze cabbage.''

    And I—of all the things that could have been said to me. [Laughter.]

    I never expected that, freeze cabbage. And I knew——

    Ms. NASIF. Which catalog she was talking about.

    Ms. KAPTUR [continuing]. Which catalog she was talking about. And evidently this church has a freezer, and so they were able to buy cabbage down at the market and freeze it for a lot of their members which, in this particular neighborhood, was a good idea. [Laughter.]

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    And that had to be years ago.

    Mr. LEWIS. Have you ever been hit by a frozen cabbage? [Laughter.]

    Ms. KAPTUR. But I just—that was the most amazing moment. I won't forget that one. I mean, everybody's dressed in white dresses and all the singing and everything.

    Ms. NASIF. Our catalog addresses a great variety of topics, and I'm sure we can address——

    Ms. KAPTUR. I was completely caught off guard by that, but it told me that it really mattered—you know, mattered to somebody. It meant a lot.

    Ms. NASIF. Thank you for your kind words.

    Ms. KAPTUR. That's all right.

PRINT COMMUNICATIONS VERSUS ELECTRONIC COMMUNICATIONS

    I have maybe two questions. One is, of all the communications that occur in your office, how many are print and how many are electronic? I know you were answering questions about one million to five million pages that have been accessed on the—through the Internet or through the Web site.
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    But what percentage—ball park— of communications with you are orders for written publications versus electronic?

    Ms. NASIF. The eight million publications distributed represent about two million orders we received in Pueblo.

    So if we use that two million orders going into Pueblo compared to Internet users, we estimate that, for example, the four million page accesses really represents a little over a million users because we use the standard which is one of the many ways of measuring.

     One rule of thumb is three and a half pages of page accesses represents one user. The typical user will go in and read about three and a half pages.

    So we would say maybe 1.1 million users on Internet, versus perhaps two million users ordering from Pueblo. I'm not sure if that's exactly what you're looking for.

    Ms. KAPTUR. The electronic is about half?

    Ms. NASIF. Yes, it is. As far as publications being ordered, of course, most of the orders, at this time, are still print orders. We think that we're going to have perhaps a transformation of that in the next few years with the Web site ordering.

    And if indeed we start telephone ordering, more and more people will be ordering by telephone as opposed to writing. And what we've observed in the private sector is that most catalog businesses get most of their orders by telephone, not by mail.
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    So that you can't really call them mail order catalogs anymore; you have to just call them catalog businesses because most consumers pick up the phone—and you know yourself, if you're a catalog user, do you send your order to L.L. Bean writing it out, or do you pick up the phone and order by phone?

    So we think that that is going to probably become a primary way for us to receive orders in the future by our toll-free number.

MOST POPULAR PUBLICATION

    Ms. KAPTUR. Now the publication you said was the most popular, was it this one?

    Ms. NASIF. Well, that's the Catalog that lists all the 200 publications available at any time. And there should be a sheet in your kit that lists the most popular publications at this time. And the Consumer's Resource Handbook and financial publications, those dealing with Federal benefits——

    Ms. KAPTUR. This is the one.

    Ms. NASIF. Yes, that's the Consumer's Resource Handbook.

    Ms. KAPTUR. Well, I wondered what this——

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    Ms. NASIF. Yes.

    This is, of course, the previous edition. We're working on the new edition right now.

    Ms. KAPTUR. Well, why is this so popular?

    Ms. NASIF. Well, it's a wonderful publication. [Laughter.]

    That's why it's so popular. One hundred and twenty-five pages on how to solve any consumer problem you have. It has a list—a consumer assistance directory of 2,000 names of Federal agencies, corporate contacts, Better Business Bureaus, utility commissions.

    You can look in this book and it will give you a lead on how to start solving virtually any consumer problem. It has been produced since 1979 and it is one of the most popular Federal consumer documents ever available.

    Mr. LEWIS. Ms. Nasif, would you allow me not just one of those, but two of them for—Leon Panetta's going to be in the other room in a couple of minutes, and he may be—I'd like to give him a copy personally.

    Ms. NASIF. Oh, please, yes.

    Mr. LEWIS. I was going to ask you to sign it, but I think I should hesitate.
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    Ms. NASIF. I will show you just the front of the new edition that we are working on. This is just the cover—what the cover will look like. We went through a number of different focus groups trying to figure out how to make it more effective.

    One of the suggestions we received was to have tabs here so if you're looking for how to contact your state and local government, for example, the pages will be color coded and you can go right to that section. And so that's one of the innovations that we will have.

    Hopefully it will be released to the public in June. And you will all receive many copies, I assure you. [Laughter.]

    Ms. KAPTUR. Thank you so much.

    Mr. LEWIS. Thank you, Ms. Kaptur.

    Other members have questions?

GOVERNMENT PRINTING OFFICE

    Mr. WALSH. One last question. Who prints all these? Does the Government Printing Office print these?

    Ms. NASIF. Yes.
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    Mr. WALSH. They do?

    Ms. NASIF. Yes.

    Mr. WALSH. Here? They print them here?

    Ms. NASIF. No, actually they bid it out. And they get the best price possible. We have been going to St. Louis and Omaha to get the Catalog printed over the last year. And——

    Mr. WALSH. They bid it?

    Ms. NASIF. What happens is that we write up a work statement for a term contract of one year, and it specifies, you know, everything we need and the number of copies. And GPO puts it out on the street, they call it, to compete it among printers all over the United States.

    Mr. WALSH. So the Government Printing Office doesn't print this in their own shops?

    Ms. NASIF. No, they don't.

    Mr. EARLY. They're the clearing house for it.

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    Ms. NASIF. Right, they're our agent——

    Mr. EARLY. They do not print it themselves.

    Ms. NASIF [continuing]. In finding us a good price hopefully. And we're coming up now on finding out who our printer will be for the next four editions. We'll know in the next several weeks.

    Mr. WALSH. Thank you.

    Ms. NASIF. You're welcome.

    Mr. LEWIS. Other questions, members?

    Ms. Nasif, thank you very much for being with us. Appreciate it.

    Ms. NASIF. Thank you.
    "The Official Committee record contains additional material here."

Thursday, February 26, 1998.

UNITED STATES COURT OF VETERANS APPEALS

WITNESS

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HON. FRANK O. NEBEKER, CHIEF JUDGE

INTRODUCTION

    Mr. LEWIS. Judge Nebeker, welcome back to the Committee.

    We are going to suspend any in-depth opening remarks, but would certainly welcome you to introduce us to your guests who may be with you.

    It is our intention to begin with your 1999 budget request and ask a few questions after your statement, but not an awful lot more than that. But before I go any further, Louis Stokes tells me this may be the last time he has you before our committee.

    Judge NEBEKER. Am I going somewhere, Mr. Stokes?

    Mr. STOKES. No, Judge, it is me. You are okay. You will be back over and over again.

    Mr. LEWIS. Mr. Stokes has told us he is not going to stand for election on the next go-around, and as a result of that, unless we have you back up here on an emergency basis——

    Judge NEBEKER. I hope that won't happen.

    Mr. STOKES. I may come visit you in court.
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    Judge NEBEKER. You are always welcome.

    Mr. LEWIS. With that, begin with your statement. The statement will be included in the record in its entirety, and from there you can summarize it, as you like.

    Judge NEBEKER. And I will introduce the folks that have come with me for the record: Bob Comeau, the Executive Officer and Clerk of the Court; Sandra Montrose, my Executive Attorney; Ann Olson, our financial officer; and last but not least, of course, is Judge Ivers.

    Mr. LEWIS. Judge, good to see you.

BUDGET REQUEST

    Judge NEBEKER. With your permission, I would like to talk about two topics. The first one, of course, is the budget. And we are asking for an $801,000 increase over last year.

    Now if you had recourse to the transcript of the testimony that I gave a few days ago before the authorizing committee, you would see I said the increase was $876,000, and you might wonder why I am changing the amount. I am changing the amount because I am doing what I am asking you folks to do, and that is to separately consider the pro bono program's budget request from ours. Their increase is $75,000. I subtract that from the total I gave to the authorizing committee, and that leaves us with an $801,000 increase, and we asked for that separate consideration for the reasons you are quite familiar with from years past.
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    Our increase is brought about by a 38 percent increase in the caseload of the court, a marked increase that has resulted from the capacity of the Board of Veterans' Appeals to get its decisions out. They have increased drastically their output and that proportionately affects the calendar of our court.

    We are asking for one additional FTE to enhance our computer capability, which has not been enhanced in the last few years at all. There is a 3 percent rent increase that we can do nothing about, dictated by GSA, and GSA has also, along with the United States Marshals Service, imposed upon us additional security costs resulting from the Oklahoma City bombing incident, so we are adjusting to that as well and trying to do so with this increased amount. And there is a substantial sum that goes to mandated pay increases to include for the first time in a long time, for the judges, as well as our nonjudicial staff. Now that pretty well sums up my first comment respecting the budget.

    [The information follows:]
    "The Official Committee record contains additional material here."

PAY INCREASE

    Mr. LEWIS. By substantial sum, what percentage was used?

    Judge NEBEKER. For the pay increase?

    Mr. LEWIS. Yes.
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    Judge NEBEKER. Mr. Comeau will have the exact figures.

    Mr. LEWIS. It is obvious there is one FTE, and there is an 870 plus thousand dollar adjustment, and that doesn't normally reflect on FTEs.

    Judge NEBEKER. It does not. The major part is consumed in rent and the security enhancements that we have to do and the pay increases.

    Mr. LEWIS. Why don't we ask you.

    Mr. COMEAU. The COLA for the judges amounts to $22,000 of that figure, plus $30,000—they got a COLA this year, but we had no coverage for that COLA, so there is a $30,000 floor on which that is built. This year we are able to absorb that out of the hire lag because our seventh judge, who replaced the judge who died a year ago May, didn't come aboard until late November.

    The staff pay increases amount to $140,000, so that is a total of; $162,000, plus the $30,000—$192,000.

    The new computer—the new FTE is for a computer systems analyst, for which we are allocating about $45,000, so that is $237,000 there.

    Mr. LEWIS. Okay. That gives me a feeling. Go ahead, please.

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CAUSE OF COURT BACKLOG

    Judge NEBEKER. Thank you.

    The second topic I wanted to mention is an atypical one. I am sure you will find it so. The court has had visited upon it a backlog of some 2,300 cases. That does not mean those cases are before the judges for disposition; quite to the contrary. Before a case can be ready for disposition and a decision by a judge or the court, we have got to get the record on appeal together. The Secretary has custody of the record and knowledge as to what is needed in it.

    Then, of course, there is a statute that says, and I quote, ''the Secretary shall be represented before the Court of Veterans Appeals by the General Counsel of the Department.'' Now that is a mandatory representation duty upon the general counsel. With his present staffing, he simply can't perform that statutory function, and he is coming to you for extra money devoted to Group VII, the group of lawyers that represent the Secretary under that provision, 38 U.S.C. 7263(a). And I implore you, we need for them to have that appropriation.

VA REPRESENTATION

    Mr. LEWIS. Judge, let me be very specific about that question. Since I have the wonderful circumstances of not having to be a lawyer, so I am not suffering that difficulty, would you interpret for me that language. Is it conceivable we could say—we could interpret ''presence'' in a way that didn't require a physical body; is there another way of fulfilling that requirement other than a sizable dollar requirement?

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    Judge NEBEKER. Really not. They have to have the lawyers to do it.

    Mr. LEWIS. Help me with the word ''presence,'' that is what I am asking about.

    Judge NEBEKER. Presence? Represent. I'm sorry, represent. In an attorney/client relationship, VA General Counsel's staff attorneys are representatives of the Secretary for the purpose of appearing before the court. They must file a brief. After the record is designated, we have the facts together, we wait then for the appellant's brief, and when the appellant files a brief, it is the Secretary's obligation to do so. We have to have his position in the case before we can decide it.

    Mr. LEWIS. I guess what I will do is try to have my staff otherwise follow through on this line for it. It strikes me that sometimes by way of our language, we create problems that may or may not serve as well a constituency we are supposed to be servicing, and my concern is that that language not lead to a cost load that produces almost zero difference in terms of real representation for the clients who are there. So we need to probe that with you.

    Judge NEBEKER. I am not talking about representation of the appellants. That is the pro bono program, the private

    bar.

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    Mr. LEWIS. All that I am aware of, yes.

    Judge NEBEKER. We are talking about the other side of the litigation, and the Secretary, to be represented in court, has got to have a lawyer who is not so busy that he can no longer function in any particular case. We have had thousands of motions to extend time for the general counsel to do his job in our court—her job up, until a little while ago.

    Mr. LEWIS. I guess staff can tell me. This takes me back to the original decision we made to change the process in the first place, and I wonder if we didn't just create something that becomes another layer that may or may not be improving the condition of the people who are serving. I know that goes to the heart of why you are here.

    Judge NEBEKER. It does, but let me liken it to this. In other Federal courts in the United States, the Justice Department, through the United States attorneys, represents the interests of the United States. In the Court of Veterans Appeals it is the same function, but it is being performed by the General Counsel of the Department of Veterans Affairs. ''You can't get there from here'' without the government being represented.

    Mr. LEWIS. Yes. I guess that is my problem is the cost of money, and you are suggesting you don't want it in your budget, you would like to have it in the other.

    Judge NEBEKER. It is their budget. Taking us back to our discussion about the pro bono program, I think I said to you before, it would be like taking our operating budget and putting it into the VA to fund their Group VII. And—no, everyone would conclude of course not. But in this instance, we need them to have that money, the court does, in order to get to the cases it has, and if it doesn't, the backlog is going to get worse and worse and worse because the Board is producing more decisions, and more than one third of those decisions are denials of all benefits sought. So we can expect a large number of appeals. If we don't break this logjam soon, it is really going to be hopeless.
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    Mr. LEWIS. You have actually answered the first couple of questions I have.

    Mr. Stokes, do you have any?

INCREASE IN BVA DECISIONS

    Mr. STOKES. Mr. Chairman, thank you, just a couple of questions.

    I see here that the Board of Veterans' Appeals issued 43,000 decisions in 1997, compared to 34,000 decisions in 1996. What is the basic reason for the increase?

    Judge NEBEKER. Mr. Stokes, I can't tell you, because the court is so separate from the Board that we are not privy to any of the functioning of the Board. I am sure, though, it is just an increase in the capacity to make dispositions of the appeals that are there. They've gotten more people, they've gotten more support staff, I guess they haven't gotten any more Board members, but they have gotten additional support staff. The Board members now function singly rather than in panels, so that increases their productivity right there.

VA GROUP VII STAFFING

    Mr. STOKES. Judge, in last year's hearing, you indicated that a real potential bottleneck in the entire appellate procedure was Group VII within the Department of Veterans Affairs office, the General Counsel's office, which you said had been starved for personnel. What is your understanding of the personnel situation in Group VII this year.
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    Judge NEBEKER. Mr. Stokes, the court issued an order about 4 weeks ago in a case where there was the sixth motion to extend time to file a brief. The order directed the Secretary to respond to this question: If, within 6 months, this court were to adopt a rule that said caseload, workload, would not be a good cause for an extension of time, was the Secretary prepared to devote the necessary resources to meet the demand that would then be imposed upon it? He filed a response to that on the 19th of February. I can make a copy available, it is public record, if one hasn't already been made available to you. And his response was that he has diverted some available funding to already begin to build up this Group VII in terms of attorney power, as well as support staff, and commensurate with that, providing them additional floor space. He then informs the Court that he has requested another $1 million in the budget you are about to be considering to make that permanent, that is, increased staffing, a permanent thing, and that is the increase that I am talking about in my second point this afternoon.

    [The information follows:]
    "The Official Committee record contains additional material here."

    Mr. STOKES. I see.

    Judge NEBEKER. So the Secretary is doing, I think, just about what he can at this point, but without that appropriation, the changes would just go to the end of this fiscal year, and that would be it.

PRO BONO PROGRAM FUNDING

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    Mr. STOKES. Let me ask you this, so I can get a little clearer understanding. You have been consistent in terms of requesting that the pro bono program be kept separate from the courts. What is your basic reason for that? Let me understand.

    Judge NEBEKER. If the court has to take out of its own operating budget and sacrifice in order to have the Pro Bono Program work, it is like the court out of its own budget, paying lawyers to represent one side of a case before the court.

    Mr. STOKES. It doesn't have anything to do with fairness?

    Judge NEBEKER. It has more to do, I think, with an appearance of unfairness. The court being forced to sustain one side of the litigation at its own expense might appear to be less fair to that side. Those who lose would say that is the reason.

    Mr. LEWIS. And we all know we want the courts to be fair.

COURT STAFFING

    Mr. STOKES. Your point is well taken, I think.

    Now let me understand, in terms of staffing on each side, the court's program. You have how many employees?

    Judge NEBEKER. We have 79.

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    Mr. STOKES. Seventy-nine.

    Judge NEBEKER. Seven judges and 72 staff.

    Mr. STOKES. Now, is that on both sides of the program, or is that the whole thing?

    Mr. COMEAU. That is the whole program. The judges and their law clerks and their secretaries make up 30 of those, and then the rest are all part of the Clerk's Office, my office. We process the cases, get them in, get them shaped, get them to the judge and get them back out on the street again when the decision is rendered—this is strictly within the court structure itself.

    Judge NEBEKER. I want to make sure, when you said program, you weren't including the Pro Bono Program.

    Mr. STOKES. No, I am going to ask you about that, too. In terms of the Pro Bono Program, how much staffing is there?

    Judge NEBEKER. We don't count them as our staff.

    Mr. LEWIS. Mr. Stokes, this is David Isbell, he is with the pro bono program, who is going to answer those questions if you like. Just do whatever you like.

    Judge NEBEKER. How many do you have on your staff?
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    Mr. ROBERTSON. I have nine full time, and there are some part-time folks who are in outreach and education.

    Mr. STOKES. Now in terms of your staffing, does it come through the bar association itself, the pro bono employees?

    Mr. ROBERTSON. There are two attorneys in my office, myself and my deputy. We have three administrative staff, and I have four what we refer to as veterans law specialists or case evaluators. They come to us from the supporting service organizations, such as the American Legion, Disabled American Veterans, Paralyzed Veterans of America. Those are the folks who do the evaluation of the cases which we use as the basis for our decision to accept a case or not accept a case, and then refer it out to pro bono counsel.

    Mr. ISBELL. I might say for the record, the speaker there was Brian Robertson, who is head of the case evaluation and placement operation of the program.

    Mr. LEWIS. Thank you.

    Mr. STOKES. In the documents here, it shows 28 employees. I guess 9.2 are from the grant, and the others come from this other source.

    Well, a further clarification, your total FTEs in the pro bono office are what?

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    Mr. ROBERTSON. I am not sure I can answer that without consulting some documents in my office. Again, I have nine full-time personnel in my office, but there are some other individuals who work part time. There are other components.

    Mr. LEWIS. You have it right there.

    Mr. ISBELL. We have a total of 10 full time equivalents.

    Mr. STOKES. Okay.

    Mr. ISBELL. 10.06.

    Mr. STOKES. Judge Nebeker, let me come back to you for a moment. There are 72 employees of the court—is that correct?

    Judge NEBEKER. Yes.

COURT STAFF DIVERSITY

    Mr. STOKES. Can you give me some idea of the distribution of those employees in terms of gender and race and so forth?

    Mr. COMEAU. Yes, sir. Of the 72 staff, 61 percent are women, 40 percent are minorities and 33 percent are veterans or people who have veteran's preference, including a widow of a deceased veteran.
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PRO BONO PROGRAM STAFF DIVERSITY

    Mr. STOKES. In terms of pro bono FTEs, what is the breakdown there?

    Mr. ROBERTSON. Again, sir, I can speak with respect to my own staff, which is 90 percent of that. I have four women who are employed, of the nine people. Also five men, one of whom is black, and that is the makeup, sir.

    Mr. STOKES. Thank you, Mr. Chairman.

    Mr. LEWIS. Thank you, Mr. Stokes.

PRO BONO PROGRAM FISCAL YEAR

    Mr. Knollenberg is going to have a couple of questions, I think, that relate to Mr. Isbell, at least in part, so why don't you come up and join the judge.

    Mr. Knollenberg.

    Mr. KNOLLENBERG. Thank you, Mr. Chairman.

    Judge, thank you. I know the Pro Bono Program is one that has been around for a while, and there are a couple questions about the 1997 appropriations earmark I believe it was $700,000, right?
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    Mr. ISBELL. For fiscal year 1997, that is right, $700,000.

    Mr. KNOLLENBERG. I have also been told that in 1997, they switched from a Federal fiscal year to the calendar year for operating expenses; is that right?

    Mr. ISBELL. We did do that. We switched from fiscal year ending September 30, to a fiscal year starting January 1 and ending December 31, and we were able to fund that stub quarter, in effect.

    Mr. KNOLLENBERG. What quarter?

    Mr. ISBELL. I call it a stub quarter, like stub financials. Accountants call it that. We were able to fund that stub quarter almost, by reason of our having a surplus, and for various reasons we have had a surplus from each preceding year, so there has always been a carryover that has allowed us to keep operating after the end of the fiscal year and until we start receiving money.

    Mr. KNOLLENBERG. Because you gained a 15-month period there.

    Mr. ISBELL. We managed to stretch our fiscal year into 15 months, but that used up absolutely all of our reserves, and in fact one of the constituent organizations had to pay an additional $8,000 out of its own pocket.

    Mr. KNOLLENBERG. This may be an appropriate question. How much was spent on the Pro Bono Program during the 15-month period from October 1, 1996 until December 31, 1997?
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    Mr. ISBELL. It would have been the amount of our appropriation plus approximately $150,000.

    Mr. KNOLLENBERG. Would you explain partially where the extra funds came from?

    Mr. ISBELL. Well, we had, in each successive year, had an appropriation that turned out to be more than we were able to spend. One year in particular sticks out. It was the year of the great budget crunch, you know, continuing resolutions and so forth, and we anticipated for a good part of that year that we were going to have to go out of business. We simply didn't have the money to keep operating beyond 6 months of the year, and so we cut down on our staff, on our activities. When the funds came through, we were not able to staff up to the point to be able to use all of the funds.

    I don't have a memory as to the particular circumstances of each previous year, but in any event, a switch from a Federal fiscal year to a calendar fiscal year will make it easier for us to operate in the future. And of course we can't count on it. We never budgeted it on the expectation of having a surplus.

    Mr. KNOLLENBERG. So there was a surplus.

    Mr. ISBELL. In each previous year there wound up being a surplus at year end, and as I say, that allowed us to keep operating after the fiscal year end until new funds came in, including the year of the budget crunch.
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PRO BONO PROGRAM IN-KIND FUNDING

    Mr. KNOLLENBERG. Finally, what percentage of the Pro Bono Program is funded by appropriations, and what percentage is funded by the Paralyzed Veterans of America and the National Legal Services Corporation? It may be a random question, but could you respond?

    Mr. ISBELL. Our annual reports put out that information. In terms of cash contributions, the proportion is not as substantial as the amount of in-kind contributions. Two of the organizations contribute staff members to the case evaluation placement component full time. Their salaries are paid by those organizations, and we are not told how much those salaries are, and those organizations do not allow us to report those dollar amounts, although we estimate them. I might mention that if you count the value of contributed services in addition to dollars actually put in, we get a factor of something like 3 to 1.

    Mr. KNOLLENBERG. Thank you, Mr. Isbell.

RELATIONSHIP OF PRO BONO PROGRAM TO THE COURT

    The only other question, and I am not trying to characterize this as the case, but, Mr. Isbell, would it be fair or unfair to say that the Pro Bono Program is kind of a stepchild of the entire program? I don't want to put words in your mouth, but with all the conversation and commentary we have had, I sometimes get that feeling. I don't know if that is the reason you want to separate it, not to suggest that it is.
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    Judge NEBEKER. Let me answer it this way. It was a pilot project funded with excess money when we first started it. It has worked successfully. Fiscally, it is a stepchild; legally, it is a very great help.

    Mr. KNOLLENBERG. Thank you. I think you answered it very well. Thanks to both of you.

    That concludes my questions, Mr. Chairman.

    Mr. LEWIS. Mr. Stokes, any further questions?

    Mr. STOKES. No, Mr. Chairman, thank you.

BUDGET FOR EQUIPMENT

    Mr. LEWIS. You are requesting an increase of $146,000 for computer and printer replacement. How many computers and printers do you plan to replace, and how old is that equipment?

    Judge NEBEKER. I will defer to Mr. Comeau on that one.

    Mr. COMEAU. Eighty computers and twenty-four printers, and we are trying to get all of our automation equipment on a 3-year replacement cycle, which we understand is standard in the automation world because things go obsolete in just over 3 years, so that amounts to about $129,000 of that $146,000. The remaining $17,000, I believe, would be for replacement of software, which is also, from a budget standpoint, categorized as equipment.
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    Mr. LEWIS. There is an additional amount of $108,000, isn't there, for other equipment?

    Mr. COMEAU. Yes, and that gets into——

    Mr. LEWIS. You can provide that information for the record. Also provide for the record an update of the caseload statistics table found on page 11 of last year's hearing, if you could do that.

    [The information follows:]

    The $108,000 budgeted for equipment, over and above the $146,000 for computer upgrades, covers regular Court expenses for furniture, books, telecommunications equipment, copy machines, facsimile machines, and routine upgrades to existing computer software or new automatic data processing software not associated with the programmed computer purchase.

Table 5



Conclusion

    Mr. LEWIS. Other than that, that closes out my questions for the year. Thank you very much, Judge Nebeker.

    Mr. Isbell, pleasure to see you.
    "The Official Committee record contains additional material here."
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Thursday, February 26, 1998.

SELECTIVE SERVICE SYSTEM

WITNESS

GIL CORONADO, DIRECTOR, SELECTIVE SERVICE SYSTEM

    Mr. LEWIS. Welcome, Mr. Coronado. I must say that this should be a reasonably brief hearing, since yesterday's hearing and the day before we filled the room with Members, so there were enough questions to go around. This should be a very short meeting indeed, if that meets with your approval.

    Mr. CORONADO. I appreciate that very much.

    Mr. LEWIS. The Selective Service System is requesting $24,940,000 and 180 FTEs for fiscal year 1999?

    Mr. CORONADO. That is correct.

    Mr. LEWIS. This is an increase of $1,527,000 above fiscal year 1998, and, Mr. Coronado, before having you introduce your guests, let me call on Mr. Stokes for anything he might want to say, and he is going to keep the meeting brief, otherwise, you know, he is going to fire me.
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    Mr. STOKES. Mr. Chairman, I know how to take a hint, if I have learned anything in 30 years.

    I would just like to welcome Mr. Coronado. It is always a pleasure to have you appear before us.

    Mr. CORONADO. Thank you, sir.

    Mr. LEWIS. Your entire statement will be included in the record. We appreciate any summary you might make, and you can introduce whatever friends you like.

    Mr. CORONADO. Thank you, Mr. Chairman. I intend to have a written statement to submit for the record.

    I want to introduce briefly the two key members of the Selective Service leadership, Mr. Willie L. Blanding, Jr., on my right, the Agency Executive Director. He was here last year. To my left is Mr. Lew Brodsky, Director of Public and Congressional Affairs, who has been here many times.

    I would like to dispense with the oral and get on to the questions. I want to say, I appreciate very much the support of this subcommittee and the Congress for allowing us to go forward and do the public's business as far as Selective Service is concerned. We appreciate it.

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    [The information follows:]
    Offset folios 1666 to 1677 insert here

    Mr. LEWIS. We appreciate that, and we understand the spirit with which you present that appreciation, and it is great to work with you.

SPIRIT OF VOLUNTEERISM

    Let's talk about your Spirit of Volunteerism and Awareness initiative. This initiative sounds somewhat similar to last year's Service to America initiative. There is no specific request for additional funds in fiscal year 1999's proposal as there was last year with the Service to America. How does the Spirit of Volunteerism and Awareness initiative differ from last year's Service to America initiative?

    Mr. CORONADO. First of all, Mr. Chairman, I came to you last year and I testified on behalf of Service to America. That was a Selective Service initiative, and we had proposed a three-phase program. We presented to you the financial listing of what we wanted to do, and we already had implemented Phase 1. You, of course, did not agree with Phase 2 and 3, and we heeded seriously your advice. We never went beyond phase 1 of 3. [This was Selective Service.]

    Now, the new initiative is from the Administration and is called Volunteerism——

    Mr. LEWIS. Spirit of Volunteerism.
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    Mr. CORONADO. Yes, sir. Our project officer for that is Mr. Brodsky.

    So, Lew, if you can explain the Administration's initiative.

    Mr. BRODSKY. Mr. Chairman, we intend to support the Administration's emphasis on volunteerism, and as you know, we communicate with America's young men as an integral part of our registration mission, and that gives us an opportunity to encourage volunteerism.

    We have already initiated or will shortly begin to do some programs that are no cost. For example, we are installing links to other Federal agencies on our Selective Service web site. We are also going to distribute literature about volunteer service opportunities when we do our Selective Service registration awareness exhibits around the country. And, we are going to specifically seek out young men and women to serve as volunteers on our local boards.

    Now that being said, in fiscal year 1999, sir, we also plan to modernize our own automation processes, our own systems, to further deliver messages concerning volunteerism as a part of our regular routine mailings to young men. Specifically, we will do an overprint or a tag-on to the acknowledgment card, which reaches about 1.8 million men per year.

    Mr. LEWIS. Describe that for me in a little more detail.

    Mr. BRODSKY. Well, we will have space on the card which will be able to be overprinted. It will be similar to the Phase 1 card from Service to America, but we are freeing up even more space on that card, and perhaps we will go to a larger card that will allow us to promote other activities that deal with volunteerism, such as America's Promise activities, or clearinghouses for community service. And, of course, we will continue to promote Department of Defense opportunities as volunteer opportunities for America's young men.
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    Mr. LEWIS. So in this case we have a card that is addressed to a Mr. Calvin in Blankville, Indiana.

    Mr. BRODSKY. Calvin Lindsey Johnson is fictitious. That is a sample card.

    Mr. LEWIS. And information is developed here that relates to registration.

    Mr. BRODSKY. Yes, and Selective Service specifically. That is how a man gets his unique Selective Service number that serves as his proof of having complied with the registration program, should he seek benefits tied to registration.

    Mr. LEWIS. Above and beyond that, there may be or may not be material on here that would give him information that relates to volunteerism.

    Mr. BRODSKY. Yes. In our concept, there would be additional information to share with the young man that says, if you are interested in volunteer service in the U.S. military, call this number. If you are interested in finding out what you can do in your community, here is a number for you to call.

    Mr. LEWIS. Where did this kind of idea develop; who did the brainstorming relative to this?

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    Mr. BRODSKY. Originally, Service to America, which was the program we hoped to expand last year was directed by the Selective Service System. It was our original idea. It involved, in its later phases—which we never implemented, as you know—providing recruiting leads to AmeriCorps and to the Department of Defense. Again, that was never implemented. We were never funded for that.

    The Spirit of Volunterism idea is Administration-initiated. In other words, the White House has specifically asked Federal agencies to get involved in encouraging a spirit of volunteerism throughout the U.S. So, we are taking this step, taking these steps, we hope, to be able to comply with that White House directive.

    Mr. CORONADO. We attended the Philadelphia summit. We intend to knock out the whole permanent address and free up some space on our acknowledgement cards. We also intend, once we use up stocks of the current card, to drop AmeriCorps. We will drop that based on your feelings about last year. But, I will continue to support the Department of Defense in any way I can. Both numbers were already there. Supplies of this card carrying DOD and AmeriCorps phone numbers will be used up this summer and we will use a new card. It will have space on it for other messages and promote programs as the Administration may ask us. It could, for example, promote AIDS awareness or include other possibilities of communicating public service messages to America's youth.

    Mr. LEWIS. I think we covered the questions I have.

STAFFING

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    The fiscal year 1997 FTE level was 167, a decrease of 23 below last year's estimate of 190. Fiscal year 1998 FTE level of 180 is also below last year's estimated level of 190. What caused the 1997 staffing level to be 23 below?

    Mr. CORONADO. I will defer to the Executive Director.

    Mr. LEWIS. Thank you, sir. Good to see you.

    Mr. BLANDING. Thank you, sir. Sir, first off, last year's requested level went up approximately five FTEs because we were anticipating your approval of the $506,000 for Service to America, and we anticipated hiring on extra people to support that program. Without the money to fund it, obviously, the FTEs were never filled.

    Prior to that, the Agency was going through, if you will, survival at the time. We didn't know if we were going to survive, and for a period we did not hire individuals, and so that is what caused the lag. But since that time employment has slightly increased, but not to the point of filling every FTE.

    Mr. LEWIS. What is your current employment level?

    Mr. BLANDING. For FTEs today, 180.

    Mr. BRODSKY. I think actual fill is slightly below that. There are always going to be some vacancies, sir, as people leave and other people are hired.

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    Mr. BLANDING. The actual employment is 172 or 173.

INFORMATION TECHNOLOGY

    Mr. LEWIS. Okay. Let's see. Is the Selective Service System changing its emphasis, fewer FTE and more funds for other activities, such as information technology?

    Mr. CORONADO. The funding increase we are asking for, sir, is to support information technology, advancements in ADP. We are not changing anything, we are merely moving forward to try to serve America better, more efficiently, more rapidly, and our FTEs should be stable at 180.

    Mr. LEWIS. How much money will go to that extension in terms of information technology?

    Mr. CORONADO. The increase requested in the 1999 budget is $1 million for technology and $500,000 for pay raises and inflation.

    Mr. LEWIS. So it is $1,500,000.

    Most Federal agencies are making modifications to existing computer programs for the next century. Some agencies, like the VA, are spending large sums of money on what is generally referred to as the year 2000 problem. I am stealing a question from my colleague to the right.
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    Mr. HOBSON. I was just marking mine off here.

    Mr. LEWIS. Are you ready for that?

    Mr. CORONADO. We are heading toward that very rapidly. What we are trying to do is more than that. We are trying to get away from the mainframe computer we operate in Chicago which is very expensive. We want to go into a more effective and smaller platform. We are aware of the year 2000 requirements, the glitches that other computers have had.

    Mr. LEWIS. Who specifically in the room will be responsible for that?

    Mr. CORONADO. Mr. Miller is not here, but he heads our Information Management Division.

    Mr. LEWIS. Lately we have been having the person stand up so Mr. Hobson can focus upon him.

    Mr. CORONADO. And, really zero in on them.

    Mr. HOBSON. When they come back and say you want all this money, we are trying to put you on notice now. Don't come back and say you have glitches because we are asking you to look at them now.

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    Mr. CORONADO. Well, sir, we think we have a good approach to the whole thing. We also have a study that will identify problem areas before we really head into this.

    Mr. BLANDING. If I can add on to that, we are testing all of our computer networks next year, 1999, and we will be ready before 2000 rolls around.

REGISTRATION

    Mr. LEWIS. You may not want to raise your hand so high. I appreciate that. What my staff calls SSS, triple S, the home page is available for registration. How many young men registered using the Internet in 1997?

    Mr. CORONADO. It is not quite there. What we are doing is to initiate the registration.

    Mr. BRODSKY. I will explain that. Unfortunately, or fortunately as the case may be, the law is quite specific. A man must ''present himself'' and ''submit to'' registration with Selective Service. We are trying to work out how the ''submit to'' can be covered under an Internet situation. Ordinarily the signature on the card represents the ''submitting to.'' It is proof that the man who is registering is actually the man who is filling out the card. You can't do that on the Internet, so we are looking at other government agencies and how they are working similar issues, such as IRS, which issues a PIN number, and when the tax form comes in, the PIN number then is identified with the tax filer. In a similar way, the registrant might be identified with a PIN number we would issue in advance by a reminder mailing, you might say.
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    Mr. LEWIS. By the time you get a solution, they will be able to flash up a picture.

    Mr. BRODSKY. But the goal, sir, is not only will the man be able to entirely register on line, but almost instantaneously he will get his Selective Service number back from the computer, on-line. That is in our plan. How we implement that depends on how we improve our automation.

    Mr. LEWIS. You are explaining a little bit about future registration for the Internet. How much cheaper do you think that will be, rather than the mail-in cards?

    Mr. BRODSKY. It is hard to give you an estimate right now.

    Mr. CORONADO. We have gone through so many processes. It is $1.06 if you present yourself at the post office, and they handle it for us, but men pay the 32 cents if they put their own stamp on it. So we don't know all the costs. We know we are moving in the direction of better service, quicker service and more accurate service.

    Mr. LEWIS. Do you think by next year we will have a knowledge of what the difference in cost is?

    Mr. BRODSKY. We might have a better idea. I think that the more people input their own information through the computer, the less we have to depend on heavy, labor-intensive keying at our Data Management Center.
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    Mr. LEWIS. Mr. Stokes.

    Mr. STOKES. Thank you, Mr. Chairman.

    Director Coronado, in the discussion I just heard, you indicated registration through computer. What will be the whole means of access to computers for registration; is that a concern?

    Mr. CORONADO. It is a concern. We cannot hope everyone will have access to the computer. The post office will remain in place. However, we are trying to really force the postal clerk out of the SSS registration business by providing the mail-back cards at the post office so men can fill it out and put their own stamp on it. We are providing as much service as we can to the communities at large, and certainly with 34,000 post offices across the Nation, they are very easily accessible. Not everybody will have a computer. Our concentration will still be on the inner-city youth, the high school dropouts, the minorities who do not have those benefits. So, we are making a special effort to reach that segment of our society.

    Mr. STOKES. That was basically my concern about what you are doing in terms of reaching them. But right now I guess your compliance rate is in excess of 95 percent in terms of registration; is that correct?

    Mr. CORONADO. I wish I could tell you that was true, but it is not. Previous budget cuts have forced a downtrend of registration. We are at 90%, but we are curbing that trend. We are having blitzes in areas with high levels of noncompliance, and they all turned out to be inner-city kids, high school dropouts, minorities, the gang members, people who are not part of mainstream USA. I have visited so many GED classes, alternate schools, to get these people to understand that it is important for their future to register. So it is going down, and it is all based on the lack of funding that has taken place in the previous years and public awareness. The money is not there!
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    Mr. BRODSKY. If I can add to that, it is 93 percent currently for 20- through 25-year-olds. If you look at the entire universe in our database, 18- through 25-year-olds, we have dropped below 90 percent for the first time in many, many years. We are at 89.8 percent.

    Mr. STOKES. What category is that?

    Mr. BRODSKY. 18- through 25-year-olds inclusive.

    Mr. CORONADO. The draft-eligibles is 93%.

    Mr. STOKES. That is why I posed the question. I thought here you were saying ages 20 through 25.

    Mr. BRODSKY. 20 through 25 is 93 percent, 18 through 25 is 89.8 percent.

    Mr. STOKES. How does this current breakdown then compare with previous years?

    Mr. CORONADO. We had a higher and much more favorable rate. If the draft ever is enacted, we want a fair and equitable draft, and we need to stay in the high nineties.

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    And how does that compare, Lew?

    Mr. BRODSKY. My experience, Mr. Stokes, just a few years ago we were at 97 or 98 percent, 20 through 25, and about 93 to 94 percent 18 through 25. So, we have dropped a few percentage points. However, because of some innovative planning that has been going on, such as the specific efforts within the inner cities from a public awareness standpoint—the projection would be lower than where we are right now. It is only through application of some innovative public affairs planning and some all out beating the bushes, you might say, that we have arrested the downward trend and reduced it in terms of its steep decline downward, let's put it that way. But, we still have a long way to go to build it back up, sir.

    Mr. STOKES. Then obviously you are telling me that this noncompliance group is composed primarily of minorities, inner-city kids?

    Mr. CORONADO. By and large.

TAILORED BLITZES

    Mr. STOKES. Do you have data on this?

    Mr. CORONADO. We have statistical data based on zip codes, and we have identified 21 cities of low registration, and we have targeted those cities, and we are in the midst of what we call a ''blitz''. A blitz to concentrate on those areas. I just came back from Denver, and California earlier during the year, and south Texas where low compliance is evident. So we have identified that, yes, sir.
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    Mr. STOKES. When you say you are targeting, tell us exactly what you are doing in your targeted efforts.

    Mr. CORONADO. We go into a city, undertake concentrated public affairs, focus a 3- or 4-day blitz where we go in, we have publicity, we get to see the mayor, he issues a proclamation on our behalf, we see the centers of influence, we go on the radio, particularly the radios that would reach the minorities in Spanish, or Mr. Blanding would go to the recreation centers or whatever it is. We hit the print, we go to the Baptist churches where they have the parents, we go to GED classes, alternate schools, the little prison camps they have for juvenile delinquents, that sort of thing.

    Mr. STOKES. When you say ''we,'' who do you send?

    Mr. CORONADO. I go to some. Mr. Blanding represents the Agency, itself from the headquarters. But, we have Reserve Forces Officers assigned to those locales. The detachment commander and his staff will execute the majority of the effort in the high schools with cards to get them to sign up on the spot.

    Mr. BRODSKY. We also try to improve the number of high school registrars who are appointed. Roughly half of the high schools in the country now have Selective Service registrars, a staff member or faculty member who agrees to do an additional duty and act as a registrar within that school.

    Mr. CORONADO. We are also asking our noncompensated Board Members to assist us in this. We are asking our Board Members, who get paid nothing. They are volunteers who adopt a school or adopt a post office and make sure the forms are current, make sure they periodically visit the school and keep the interest. We would like very much to see a civics class that includes the obligation to register with Selective Service. We speak to the commissioners of education at the State level and to the school board presidents. Those are the things that we are doing.
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    Mr. BLANDING. Also, may I add, please, since last year, there are several States that have passed legislation to support Selective Service as well. I think California has come on board since last year. We are working right now with Wisconsin, New Hampshire and Georgia.

    Mr. CORONADO. The last three were Texas, New Jersey and California. They recently passed State laws that support Selective Service registration.

    Mr. STOKES. Director, how many young men registered with SSS in fiscal year 1997?

    Mr. CORONADO. 1.8 million.

    Mr. STOKES. How many of them used the mail-back registration card?

    Mr. CORONADO. I believe we are at about 35 percent of those using the mail-back.

    Mr. STOKES. How did those numbers compare with the budget estimates of mail-backs and post office registrations?

    Mr. BRODSKY. The breakout, sir, is in our annual report, and copies of the annual report are outside. There is an actual pie chart, sir, in the annual report that shows you the registrations. I will try to find that for you real quick.
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    Mr. STOKES. In your statement, you addressed diversity in the Selective System work force. Can you elaborate for us now and expand for the record regarding overall percentages of women and minorities within the SSS work force and trends depicted by new hires during the past year or so?

    Mr. CORONADO. I certainly can. We have a higher percentage of females and a higher percentage of African Americans than the Federal Government as a whole. We are just about there with the Hispanics, we are just a little bit under on Hispanic representation, and we have not met the goals for the other groups, the Native Americans, the Asians and the people with disabilities. We do not have those goals met yet.

    Mr. STOKES. I am going to ask you to provide for the record similar data for both active duty and Reserve officers associated with the SSS activities.

    Mr. CORONADO. I certainly will.

    [The information follows:]
    "The Official Committee record contains additional material here."

    Mr. STOKES. And for the roughly 10,000 uncompensated civilian volunteers serving on the Selective Service boards across the country, what is the Selective Service System doing either directly or through force of persuasion, by example, to increase minority and women representation in those areas?

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    Mr. CORONADO. We have increased women representation dramatically, and as far as the Board Members, the noncompensated Board Members, I am very proud of the fact that Selective Service can look at that and see the local board, in whatever community, represents the ethnic makeup of the local registrant base. We are there, and it makes me feel very good to achieve the goal. And, if there is a vacancy and there are more Hispanics in the area, or more African Americans, that is exactly who is going to get that open slot, because that is something we need to have for the fairness and equity of the System as it exists.

    Mr. STOKES. Thank you very much.

    Thank you, Mr. Chairman.

    Mr. LEWIS. Thank you, Mr. Stokes.

    Mr. Hobson.

HEALTH CARE

    Mr. HOBSON. Well, you took one of my questions, but I have two more. One of the primary missions of the Selective Service System is to conscript health care personnel. Would you explain your efforts to recruit health care workers, particularly in how the specialized pool is identified and contacted; and do you have difficulty meeting the DOD requirements for health care personnel; and how does your recruitment approach with regard to health care personnel differ from that of the general population?

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    Mr. CORONADO. As far as health care, we have the program in place, as far as the Congress would allow us to go. You don't allow us registration for health care, so we don't have that yet. What we also don't have is a full compliance module, which would be a noncritical aspect of this program. We can execute a health care delivery system, if called upon by the Department of Defense. We have no problem with that. There would be a couple things wrong with it, however, or different, I should say. One is that Congress would have to authorize females, because some of the medical specialties, particularly the nursing corps, has a predominance of females. We also would have some difficulty in the compliance, because we would have to generate a list from the American Medical Association or other groups so we could know who is registered with us at the time it happens and what the compliance would be. This would be very fast, the medical professionals would have to register. And, away we would go, with women, in very low compliance.

    Mr. HOBSON. It looks to me like you need to talk to the authorizing committee.

    Mr. CORONADO. To give us more so we can have a more firm program that would mirror the registration of the untrained man pool that we have.

    Mr. BRODSKY. By way of background, I believe Congressman Montgomery was the one who tried to include women, or actually include registration as part of the health care process. In other words, we would be allowed to register health care personnel, as we do with the conventional young man today, but that never really made it anywhere. So, today we have a plan on the shelf, but we don't register health care personnel. We are not allowed to do that.
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RENT

    Mr. HOBSON. Okay. My last question is about your rent. I ask this of everybody. It looks like your rent goes down this time, but goes back up.

    Mr. CORONADO. The rent?

    Mr. HOBSON. I recognize on the budget that your rent decreased this year, but it will increase in 1999.

    Mr. CORONADO. Yes, sir. What we did, we took a complete study of the work areas, and we brought everybody down so we could turn some of the space back to GSA, as one of our efforts to conserve money. That is why the rent went down.

    Mr. HOBSON. Well, it went down, but it will increase again in 1999.

    Mr. BLANDING. May I try to answer that, please? The increase should be marginal, and the increase should be for inflation.

    Mr. HOBSON. Okay. Can you give me the backup of the numbers on that?

    Mr. LEWIS. Maybe you can submit that for the record.
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    Mr. HOBSON. Because I am watching GSA to make sure they treat agencies fairly. Yesterday the subcommittee found an agency with a 10 percent increase in one year, and we want to find out why that is. The subcommittee wants to keep rent costs under control. Funds should be going for clients. That is where it should be going.

    [The information follows:]

    Question. It looks like your rent goes down this time, but goes back up?

    Answer. The Agency's rent decreased in FY 1998 by nearly $74,000 over the previous year because we reduced physical space at the National Headquarters through GSA at the end of FY 1997. However, rent does go up modestly in FY 1999 over 1998 only because of a moderate three percent inflation factor.

    Mr. LEWIS. Mr. Knollenberg, if you had come back a few minutes earlier, you could have taken his other two questions.

    Mr. KNOLLENBERG. Did you ask the question regarding the year 2000?

    Mr. HOBSON. They already got it. He got it.

MISSION
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    Mr. KNOLLENBERG. Great. I will be very brief. I appreciate you being here, Director. The question I have, though, and I am not trying to back you into a corner on this, but maybe I am an old-timer, I happen to be a veteran. I recall the Selective Service very well because they got me.

    Mr. HOBSON. Me, too.

    Mr. KNOLLENBERG. And I suspect many others in this room.

    In 25 words or less, what is the mission statement of the System today, in your judgment?

    Mr. CORONADO. To be at the ready, because no one can predict the future of our country, as evidenced by certain things that happen. We don't know to what extent America would have to respond to a crisis, and America's youth are committed to meeting the challenges of tomorrow by registering with Selective Service.

RELATIONSHIP TO AMERICORPS

    Mr. KNOLLENBERG. In your commentary there is a statement or some filler material here about AmeriCorps. What is the System's relationship to AmeriCorps, and if there is a relationship, how does that function?

    Mr. CORONADO. I feel like AmeriCorps is a busted relationship that I tried to establish, and I was turned down.
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    Mr. KNOLLENBERG. What kind of relationship?

    Mr. CORONADO. Like a friendly relationship that I tried—almost like a wooing relationship. I was going to marry AmeriCorps, and I was told not to, and I separated quickly after that was told to me. There is no relationship between Selective Service and AmeriCorps, other than using up the rest of the stock of acknowledgement cards listing their toll-free recruiting phone number that will expire very soon, and once that is over and done with, we have no connection.

    Mr. HOBSON. The marriage is over, or the dating period, whatever.

    Mr. CORONADO. The dating period is over.

    Mr. KNOLLENBERG. I am glad to hear you say that.

    On page 4 in your commentary, you mention there is a feature, a listing among others, the AmeriCorps number that is available, and you say—I say ''you,'' but the quotation, the statement says, this value-added feature of our acknowledgment process is being accomplished at no additional cost. I assume there is something down here, too, about AIDS awareness and drug prevention?

    Mr. CORONADO. Well, not yet. We have two 1–800 numbers. That is as far as we proceeded in our initial Phase 1 of Service to America. That was our initiative, and we thought it was a good one because we wanted value added. We wanted to serve the American public more, but based on the Chairman's advice, we stopped every single bit of it and the field knows it. Everybody knows it. We will not proceed with that and that was done right after you made your formal decision.
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    Now on the Administration's Volunteer—Spirit of Volunteerism or whatever, all we offered was an opportunity to have 2 inches by 5 inches, whatever it is, blank space on our cards that perhaps, as we talk about what are the needs they might have, we would have an opportunity to have a laser printer print in here ''AIDS awareness'' or an antidrug use message, and that could be changed on a quarterly basis.

    Mr. HOBSON. Just so it is not an anti-Congress message. The reason is that the VA did that.

    Mr. KNOLLENBERG. I think you answered my question. The only thing I thought was a little strange is when you say this process, if it were to have been—if it were to have transpired, would have been cost-free, and no additional cost is cost-free, so I was questioning that. We are talking about history here. This is all ancient history now.

    Mr. CORONADO. This was at no cost. We put that in. That is all we did. But, the new card stock will not continue to support it, and that is what we intend to do. Yes, sir.

    Mr. KNOLLENBERG. I have no further questions. Mr. Chairman, I yield back.

    Mr. HOBSON. One quick question. The number you give today—like when I was in the service, I got a different number. Now it is your Social Security number?
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    Mr. CORONADO. No, it is a unique Selective Service registration number.

    Mr. LEWIS. Mr. Coronado, it is in the early part of the season. We do have come into the room to our meetings our smaller agencies, and we have been experimenting to see whether this was a subcommittee that would take up whatever time might be available regardless of the size of the budget. Now the last 2 days we have had more Members, as it turned out, but proportionately, I want you to know, today, with your Agency, we have taken up more time than even those agencies, which doesn't bode well for the rest of our year. The experiment has failed.

    In the meantime, nice to be with you.

    Mr. CORONADO. Good to be with you, sir. I thank you so much for everything you have done for us.
    "The Official Committee record contains additional material here."

Thursday, March 5, 1998.

COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND

WITNESSES

ROBERT E. RUBIN, SECRETARY, DEPARTMENT OF TREASURY
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ELLEN W. LAZAR, DIRECTOR

Introductory Remarks by Chairman Lawis

    Mr. LEWIS. Welcome, Mr. Secretary and ladies and gentlemen. It is a pleasure to be with you all. This morning Secretary Rubin joins the Subcommittee to present the Fiscal Year 1999 budget request from the President for the Community Development Financial Institutions, CDFI. He is accompanied by several people, including Ms. Ellen Lazar, the Fund's new director. Thank you both for coming so early this morning, allowing us to get to work at a reasonable time. Last year Secretary Rubin testified for the first time before this Subcommittee. His visit signified the importance placed on the initiative by the President. And, indeed, it is suggested that the First Lady thinks that the work that you are doing in this particular sector is important or maybe I am sure all of the work that you are doing.

    Like the President, the Congress signaled its commitment to the evolution of a successful CDFI program and continues to have great hope for the program today.

    Having stated that commitment, however, there is no denying that the CDFI initiative suffered last year from exceptionally poor judgment calls of some of its top managers. Consequently, this year is a rebuilding year. In fact, in my opinion, it is not an overstatement to say that the credibility and continued changes in the way CDFI manages its systems and monitors its programs is required. Its success could very well relate to that.

    The President requested $125 million for the program, an increase of $45 million over Fiscal Year 1998. Ms. Lazar candidly told me that she planned to make changes in the budget request in connection with the fact that it was created or put together before she became its director. I am very pleased today and at other times to listen to your suggestions regarding these changes.
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    Ms. Lazar, I might mention to you that while this is the first hearing, at least for this Subcommittee, this year on the subject, we will have more than one opportunity to discuss it as the whole process goes through the floor and in conference with the Senate, many a turn between now and then, not only this program but many programs.

    I must be equally candid and tell you that I am puzzled that the President has requested an increase of this magnitude given the many management changes and system improvements that remain to be implemented. My concern is not meant as a criticism as much as a concern. I wonder whether it is important for the fund to maybe demonstrate itself. Some suggest walk before you start running.

    Ms. Lazar came to this job in early January and in that time has quickly acted and we understand very effectively acted. In fact, I note that the original budget request anticipated a carryover balance for Fiscal Year 1999 of almost $60 million. As a part of her proposed changes, Ms. Lazar plans to reduce this level to approximately $20 million, a figure which is far more palatable. Yet, clearly concern remains about whether funds appropriated to this account can be spent within the fiscal year, especially with the growing pains suffered during this past year.

    Of equal concern to me is the scarcity of information about what has been accomplished by CDFI with the money provided to them through this initiative. It is my opinion that the concept of this initiative will be successful only if its accomplishments can be measured and quantified.

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    Let me recommend to you, Mr. Secretary, as well as to Ms. Lazar the F.Y. '99 budget request of the Neighborhood Reinvestment Corporation, NRC. Every year in its budget submission, the NRC describes precisely how funds appropriated to them have been invested. For example, the Neighborhood Reinvestment Corporation describes in detail how many homes are purchased and renovated for what prices, the income levels of the families who have received assistance, and how many local affiliates receive training.

    Because of the preciseness by which we are given information and can evaluate those programs, the Neighborhood Reinvestment Corporation has become a favorite of this Committee, in no small part because that precision also is demonstration of a program that seems to do more than pay lip service to helping people. It seems to be working out there.

    The budget submission sets performance goals for the organization that can be reviewed in the next budget cycle to determine whether the goals were met. In the case of NRC, goals are regularly exceeded. Let me challenge the CDFI to meet the NRC's leveraging ratio of $11 for every dollar of public funds.

    Last year, Mr. Secretary, you stated that you believe that this fund has significant potential. You also stated that this Subcommittee could judge the results as the fund evolved. We want to be able to measure those results. Unfortunately, Mr. Secretary, the record is not particularly good, and the problems must be completely addressed. I look forward to having these concerns addressed during the course of the year, and we are at a beginning point this morning.

    So before we call upon you, Mr. Secretary, let me ask my friend Mr. Stokes to make whatever remarks he would like to make.
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Ranking Member Stokes Introductory Remarks

    Mr. STOKES. Thank you very much, Mr. Chairman.

    Secretary Rubin, Ms. Lazar, I would like to join my Chairman in welcoming you and your colleagues to the Subcommittee this morning.

    It seems to me that the CDFI fund has a very important role to play. While the U.S. economy is on the whole doing well, many areas in our country are being bypassed by the current wave of economic growth. Many of these are in central cities. Others are rural.

    As I understand it, the central mission in the CDFI Fund is to assist local organizations that are working to provide capital and financial services in economically distressed areas and, thereby, spur growth and job creation.

    In my hometown, Cleveland, Ohio, we have at least two current CDFI fund grantees: Shore Bridge Capital and Faith Community United Credit Union. The first of these provides risk capital to small and medium-sized businesses to supplement other financing and help them create jobs in the city. The other provides housing loans and other financial services in lower-income neighborhoods. Both, in my opinion, are good examples of the important work being done by community development financial institutions.

    I realize that most of the CDFI fund management team is new this year. And I certainly wish you success and look forward to hearing of your plans for the future.
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    As you know, in the past year, we had quite a discussion, both in committee and on the floor, relative to problems related to the agency. Of course, we are pleased to see you, Ms. Lazar, in place now and look forward to working with you.

    Ms. LAZAR. Thank you.

    Mr. STOKES. Thank you, Mr. Chairman.

    Mr. LEWIS. Mr. Secretary, it may have come to your attention, if not, at least for those who are with you, I might want to make sure we highlight this. I am not sure whether this is my 10th or my 12th year on this Subcommittee. All of that time, I have had the privilege of serving with Louis Stokes. He was my Chairman, is my Chairman. He has announced that he is not going to run for reelection this coming go-around.

    He will be sorely missed in an environment where we have these very complex issues from NASA to HUD to veterans' medical care. Most of the problems are strictly nonpartisan problems. And to be able to work together has been very, very important to me. And so he will be missed by us and I know by you.

    Mr. STOKES. Thank you, Mr. Chairman. Thank you very much.

    Mr. LEWIS. Mr. Secretary, you can read your entire statement or you can summarize it, whatever you wish.

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    Secretary RUBIN. Let me summarize it.

    Let me say we, too, will miss Mr. Stokes.

    Mr. STOKES. Thank you, sir.

    Secretary RUBIN. We worked with Mr. Stokes on a good number of issues, and he will be sorely missed.

    Mr. STOKES. Thank you.

Secretary Rubin's Statement

    Secretary RUBIN. Let me start, if I may, by echoing a comment that Mr. Stokes made. Then I would like to address, at least in the broad sense, a couple of issues you have raised.

    The CDFI Fund budget request of $125 million reflects a view that we have, which is that these issues of the inner-cities and distressed communities more generally are probably the most important domestic issue this country faces. What the administration has tried to do over the past five years is develop a coherent approach based on investing in people, public safety, and then access to capital.

    Within the context of access to capital, the question was: What is an effective way to try to get capital into distressed areas, particularly with leverage so that public sector capital would be leveraged by private sector capital? And it was that idea or that framework, if you will, that led to the development of the community development bank concept.
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    As you know, this has been a bipartisan idea. It is one that the President talked about during his campaign in '92. But similarly and equally was one that many Republicans talked about back then. So our view at least is that this is the fruition of an idea that has been talked about by people in both parties for quite a while before this particular program came into being.

    In terms of the program itself, Mr. Chairman, as you know, basically it is a market-driven approach that involves partnership between private and public sectors. It involves partnership, between nonprofit organizations and the public sector.

    The Fund's aim is to provide access to capital in inner-cities so as to create jobs and growth, provide more access to housing. The idea is to take public money, get at least matching money because there is required to be at least a one-to-one match,—in most cases, we have substantially more than a one-to-one match—and then with both, to promote inner-city economic development with borrowers who could not get access to mainstream financial institutions for one reason or another.

    CDFI Fund has two main programs. The first one is the CDFI Program itself, and the second is the Bank Enterprise Award Program. In the CDFI Program, grants have been awarded at $75 million to 80 recipients. And while I think what you said is undoubtedly true, Mr. Chairman, over time we will need to have better ways of measuring success.

    I think it is difficult in a program like this to do this quickly because what you invest in small businesses, as you well know, takes time for businesses to develop and mature and then determine what kinds of successes you have had.
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    But I must say I have had the opportunity—as I have taken more interest in this, I have spent time on this, more perhaps than a Secretary ordinarily would—to meet with various people who have been involved in this program. There is enormous enthusiasm for this program in the community of people who care about these kinds of issues.

    I have met with a reasonable number of people who have benefitted from the program. And you do get a very, very good sense in both the general community of those who care about these sorts of issues and the people who have been direct recipients of CDFI Program grants that this is something that is working and is having a real effect and having a leveraged effect.

    We go to a meeting, for example, the BEA award meeting, and there are representatives of mainstream banks from around the country there. I do not remember the title of the person. One of the people at one of these banks said that because of this program, because of the involvement of this bank in the CDFI, it has caused the top officers of that bank to think about inner-cities in ways they never had before.

    So I think there are benefits that go beyond those that you are going to be able to measure tangibly, though I would agree with you. Over time, we need to develop ways to try to measure the success of this sort of thing.

    Let me give you two examples, if I may. They are anecdotal. They may not represent a systematic or rigorous measurement of success. One is called Bethex Federal Credit Union in South Bronx, which was a small financial institution originally founded in 1970 by welfare recipients. They received a $100,000 grant to expand financial services and increase business lending.
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    Over the past 18 months, and, I think, fair measure because of that loan, Bethex membership has grown from 1,270 people to 3,000 people. Its assets have increased from $1.6 million to $3 million. In addition, Bethex has initiated a school banking program to encourage savings among students.

    It is those kinds of small programs that I have had the opportunity to see myself, through my involvement in CDFI. They give one a very good feeling about this, not only what it can do, but what it is doing.

    Let me use another example of the impact this Fund has had on an individual, a man named Andrew Fuentes of San Antonio, who had been a construction worker. And then he got sick, and he could not go back to work. So at his wife's suggestion, he made a table and set of chairs for an empty kitchen. Soon afterwards, he was selling furniture to friends and others, but he did not have enough money to buy the wood and kind of things he needed just to engage in his own little carpentry business.

    He got a $3,000 loan from ACCION Texas, which is a 1996 CDFI awardee. That allowed him to expand his inventory, expand his operation, and now he has an ongoing business for himself. It is that kind of more or less micro-enterprise activity that is, I think, a very important part of the profit or the potential of this program.

    On the BEA side, this year we received 104 applications, a 48 percent increase over last year. If you ever had the time, Mr. Chairman, and you went to a meeting, as I have done, as I said a moment ago, of the BEA participants, you see representatives of mainstream banks across the country with enormous enthusiasm for this program. And I have to believe, based on what I have been told, anecdotally, as I mentioned before, and other things I have heard, that the enthusiasm is then transferred back into the banks themselves and has an effect much beyond that which you can see simply through the CDFI activity.
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    In addition, quite a number of these awardees not only are doing the kinds of things that enable them to get the awards, but then, although they are not required to do so, they are taking the awards and they are reinvesting them in inner-cities or in CDFI types of activities. Citibank, for example, had a $227,000 award. And then they took the award and reinvested it in helping to build the capacities and skills of CDFIs.

    As you correctly say, there have been some growing pains. And I think that our focus in those growing pains is very much helped by the congressional oversight function. I think your's served a very useful purpose. But I am also convinced that we have strengthened the internal controls. We have strengthened the procedures. I think these problems have been dealt with effectively, and I think we are in very good shape right now, although we will obviously continue to work on procedures as the program builds.

    The Fund recently received, as you probably know, an unqualified audit for its activities since inception. And with Ellen Lazar and a new CFO and Maurice Jones, the new Deputy Director, I think that we are very well-positioned to move forward with dedication and focus on what I think is enormously important program.

    Let me just add, if I may, Mr. Chairman, that all of us at Treasury are committed to making this work. This is not something that somebody started and then it is kind of floating on its own.

    Jerry Hawke, our Under Secretary for Domestic Finance, is here. Michael Barr is here, who has been a special assistant to me with respect to, among other things, urban issues. And, from the Secretary on down, we are committed at Treasury to making this work.
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    When there are issues—as you correctly pointed out there were some last year we took control of these issues quickly. And, under Jerry's leadership, we took hold of it, and we did the things that needed to be done. I am very comfortable that those issues have been dealt with and we are on very solid ground as we go forward.

    [The information follows:]
    "The Official Committee record contains additional material here."

    Mr. LEWIS. Mr. Secretary, just a word about how I think we should proceed this morning.

    Secretary RUBIN. Sure.

    Mr. LEWIS. I know that you have pressure for all kinds of other obligations. And I think it would be appropriate for me to proceed with members who have questions for the Secretary himself. And we will go forward. And Ms. Lazar is very important to demonstrate for us her leadership as well.

    Secretary RUBIN. And then, if I may, Mr. Chairman, when I leave, Jerry Hawke, who is our Under Secretary, will come up to the table.

     Mr. LEWIS. Sure. That is fine.

    Secretary RUBIN. Jerry can also be very useful in this.
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URBAN RENEWAL

    Mr. LEWIS. Let me mention an item. I do not believe I have ever mentioned this in a public forum, but it has been in my thought for a lot of years. A graduate school program in San Francisco and a thing called urban renewal came to my attention, a new program established with enthusiasm, as you described, enthusiasm and a lot of idealism. Its purpose was urban America and its problems.

    In California, there were two cities that first made application and were designated as urban renewal projects. One was San Francisco, where I was doing this work. The other was my hometown: San Bernadino. And they both demonstrated just what a disaster can result from an idealistic program put together with enthusiasm that is not measured carefully. Urban renewal by any measurement is a program that at best did little more than pay you to spend taxpayers' dollars.

    In city after city across the country, it has been used to clear property, create nice developable land for which big business comes in and competes with one another as cities compete with one another.

    And there is no net difference. The marketplace would have done the same thing if there was real value. All you have to do is look at downtown San Francisco and scratch your head. And if you go to downtown San Bernadino, it is even worse, amazing, and time after time across the country.

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    That was only 1958 or '59. Since that time, program after program with enthusiasm and with idealism have delivered money to suede shoe people in local communities who are going to tell how to better improve their community.

    Right now the County of San Bernadino is trying to get rid of a set of movie houses they have built. My own city was asking for money to do the same thing, and I said: For gosh sakes, you have got about 150 new theatres around here.

    Why is the County of San Bernadino trying to get rid of their houses at those new shopping centers? Because they are losing $60,000 a month. With idealism and enthusiasm, let us move at great care as we measure these programs would be my point.

PROGRAM MEASUREMENT

    Secretary RUBIN. No, I would not disagree with that. Pat Moynihan, Senator Moynihan, wrote a book ''Miles to Go.'' About a year ago maybe it came out. I do not remember exactly. It really makes exactly the point you did or are making, which is programs should have accompanying them some scheme for systematic measurement of results.

    I think that is right. I think that is something that CDFI needs to develop over time. I think it is much harder when looking at these kinds of activities, versus housing, to be systematic at least with housing.

    Having said that, I think this is really in a sense a program that is the antithesis of urban renewal because local people are going to know what is best for their communities and the private sector is the best place to see or at least private sector economic activity is the best way to try to create activity in inner-cities.
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    So if you take the two examples I used, what happens is you have these small community development financing decisions that then provide resources to people to engage in what, in fact, is private sector activity.

    Mr. LEWIS. Yes. We have started an experiment by way of this Committee in which a small amount of money is going to be spent in a few very small cities to try to deal with the fact that in a specific region, there are 1,000 burned-up homes.

    How do you go in? You use Habitat for Humanity. You use the private sector, et cetera, and actually get volunteers to come in and redo those homes, make them the marketplace available to middle-income families, et cetera. Good idea. Whether or not it will work, it has got to be measured very, very carefully, yes.

    Secretary RUBIN. Oh, I agree with you. Listen, I think measurement is a very important thing. I agree with that, but I also thought you were making yet another point, which I was agreeing with as well, which is that the extent to which we can rely on private sector market forces, as opposed to government telling people what to do, we are likely to have better results.

    That is really what the thrust of this is. This is pretty much I think why it originally grew out of as much a Republican idea as it was a Democratic idea.

    Mr. LEWIS. Beware of suede shoes, Mr. Secretary.

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    Mr. Stokes.

MINORITY FINANCIAL INSTITUTIONS

    Mr. STOKES. Thank you, Mr. Chairman.

    I would like to ask you about something that may or may not tie directly into CDFI. Last night just before I fell asleep, I was lying in bed reading Jet magazine and ran across a very interesting story about a program that you, the President, Rev. Jesse Jackson, the Labor Secretary, and others participated in, I guess on the day we celebrated Dr. Martin Luther King's birthday up on Wall Street in New York. And I guess this was a first. Wall Street closed down its headquarters for the first time in celebration of Dr. King's birthday. And, evidently, my good friend Rev. Jesse Jackson was the keynote speaker.

    I guess the thrust of the program that day was the lack of participation in the financial world and financial institutions of minorities and what can be done to try and turn that around.

    Can you just talk about that a little bit and whether this relates at all to the CDFI Program in some way?

    Secretary RUBIN. Relates to the CDFI Program? I think the broader issue, and I think Rev. Jackson and I discussed it——

    Mr. STOKES. At least talk about the broader issue for us since we do not get you too often.
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    Secretary RUBIN. He had called. Alan Greenspan and I both went down. I think it was a very good thing to do. It was his notion—I think he is right—that there is very much of a tendency for people in these institutions to hire and promote people that are sort of like themselves. It is probably a pretty natural human characteristic, I guess. And what he was saying is that what you needed to do is increase the awareness of everybody available to these institutions.

    I said in my remarks, Mr. Stokes, that it seemed to me that it was in every institution's bottom line self-interest—forget any other concern—in this highly competitive world that we live in to have the best possible people. If they are going to have the best possible people, what they ought to do is reach out to the whole population in the country.

    One of the things we have done at Treasury, for example—and we did it at the investment banking firm I was at before I came to government—was to start recruitment from these institutions that never would have thought of Wall Street; Morehouse, for example. And I think it was a very good thing to do because the consequence was it gave us access to people who if they would not have thought of us, we would not have thought of them.

    Mr. STOKES. It is a little different market up there.

    Secretary RUBIN. Yes. It is a different group of people. It is not people we ordinarily would have thought of, or who would have thought of us.

    So I think what Rev. Jackson did was very constructive. I do not know whether he plans to do it every year or not, but it seems to me that it would be a useful thing to do every year.
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    With the CDFI Program, yes. I had not thought about it before, but to the extent that people working in these smaller institutions gain—actually, it is a very good point I had not thought about—experience in credit analysis and credit evaluation and performing financial services functions, then they have equipped themselves for those who wish to do it to go on into mainstream institutions. It never occurred to me until you just mentioned it this moment. It could actually become, if you will, a training ground incubator for people to then go on to the mainstream financial services institutions. So I think it is a good point.

    Mr. STOKES. Thank you.

    Let me ask you this: I was present at the White House a few years ago when the President first announced this program. He had several people there that day who were examples of the kind you pointed to a few moments ago, the kind of small loans that you make that enable really small people to start being able to get into the mainstream of American business. But the underlying reason that the government has to do this, as the President stressed that day, is because our conventional financial institutions are not fulfilling this function. And so the federal government has to step in to a void, so to speak.

    It would seem to me that concurrent with the government trying to fill this void, we ought to be doing something about the standard conventional financial institutions at some point in time actually taking on the same kind of responsibility towards these small businesses that they do towards the large corporations.

    It is easy for the large, big, biosciences to get loans from financial institutions. Why should it be that small people cannot get the same type of consideration from our standard financial institutions?
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    Secretary RUBIN. Well, I guess in my view—others may have other views—I think that, on the one hand, there actually has been a lot of progress over the last I guess four years now, four or five years, four years maybe, CRA really has been—well, it is about four years—restructured and reframed and has become a much more effective program. And the amounts of capital flowing from mainstream institutions in inner cities, other distressed areas increased very substantially.

    Having said that, a big bank is not really set up to provide a $3,000 loan to Mr. Fuentes. First of all, if it is a character loan, it is not a loan that was based on a credit history.

    Mr. Stokes, I may be wrong about this, but my guess is that mainstream financial institutions are never going to be set up for that kind of a loan and there is going to always be a vacuum that CDFI kinds of institutions are going to have to fill.

    I think what we can try to do—and I actually think this is working quite well so far—is to get mainstream institutions to help support the CDFI Programs because then they will be right there on the ground, if you will, and equipped and set up with a mind-set to provide $3,000 loans to people who do not have credit histories but who they think are serious about what they are doing.

    So I think your point is well-taken. And I think through CRA, we have been successful in bringing a lot more capital in. But I think this purpose, this market, if you want to think of it that way, is probably one that is never going to ever be served by—well, maybe financials will—the great preponderance of mainstream financial institutions.
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    Mr. STOKES. So it is putting an almost permanent need for this type of an institution to fill this void.

    Secretary RUBIN. You know, permanent is a long time. So I do not know. [Laughter.]

    Mr. STOKES. You do not know whether you want to go that far or not.

    Secretary RUBIN. Yes. Permanent is a very long time. I think for as far out in the future as I choose to look, yes, I kind of think so.

    Mr. STOKES. Thank you very much. Thank you, Mr. Chairman.

    Mr. LEWIS. Mr. Frelinghuysen.

BIG BANKS AND COMMUNITY DEVELOPMENT

    Mr. FRELINGHUYSEN. Very briefly, Mr. Chairman.

    Good morning, Mr. Secretary. I would like to follow up on Mr. Stokes' comments. I think for average consumers' banks, they are unresponsive, uncaring unless you have a hell of a lot of money, unless you are in a business with a huge asset base.

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    Some of the mire on the whole credit union issue, one of the things that speaks well for the credit union system, is the fact that they are there in the community. And it is difficult for us to tell from the materials in front of us whether any of the mainstream players are actually in this game.

    You know, what percentage should we say of large financial institutions? God only knows what their names are any more because there have been so many consolidations. How many of them are actually participating in a substantial way in this new program? In your testimony on Page 7, you say that we are now in 30 states. Are there parts of the country where you have not been able to make any inroads into some communities, with or without bank participation?

    Secretary RUBIN. You know, on the question of how many of the large institutions, I do not know the answer to that. Ellen may have a better sense. But I must say when you go to these BEA meetings, you see the big names of American banking, the Chases and the Banks of America. It is very gratifying to me to see the numbers of these very large banks that I know in a very different way that are at these meetings; and the enthusiasm of the people that they send there.

BANK ENTERPRISE AWARDS

    Ellen, I do not know. Would you like to expand on that?

    Ms. LAZAR. Yes. There were 104 banks that just applied in the most recent round of BEA that we received applications for a couple of weeks ago. The banks range in size from really smaller institutions in communities that have an awareness of the program to the large, multi-state banks. We have awarded money over time to institutions as small as $3 million and as large as $35 billion. So there is a broad range of institutions that have been participating in the Bank Enterprise Award Program.
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    [The information follows:]

    The Fund has conducted two rounds of awards under the Bank Enterprise Award (BEA) Program. The headquarters of the Bank Enterprise Awardees are in 22 states and the District of Columbia. The states and territories with few or no Awardees are in the following regions: outside the continental United States; the northwest and upper Midwest; southwest (excluding California); and a few states east of the Mississippi.

    Ms. LAZAR. We continue our outreach and intend to do more in the coming year to develop more communications tools to reach out even further and deeper into communities.

    We have received applications from all over the country. Our awardees were admitted to the 30 states that we mentioned.

    Mr. FRELINGHUYSEN. So the other states are not participating because there is not enough money?

    Ms. LAZAR. Not necessarily.

    Mr. FRELINGHUYSEN. It has more to do with the fact that those 30 states represent the greatest concentrations of distressed areas?

    Ms. LAZAR. I think that that is correct.
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    Secretary RUBIN. Or it could be the quality of the applications.

    Mr. FRELINGHUYSEN. So you are entirely satisfied with the reaction of the overall national banking community to this program?

    Ms. LAZAR. We have seen a 93 percent increase since the program was initiated 2 years ago in the number of applications that we have. I would not say I am satisfied. I would like to reach out further and deeper into the banking community so that they have a greater awareness of the work that we are doing and make sure that more of them participate.

    Mr. FRELINGHUYSEN. Maybe they would have less exposure in places like Indonesia and perhaps more potential for gratification if they did something in their own backyards.

    Ms. LAZAR. I agree with you.

    Secretary RUBIN. I think you raise a more general point that is well-taken. And I also think it makes a case for the credit unions, which they are not so enthusiastic about.

    Mr. FRELINGHUYSEN. Thank you. Thank you, Mr. Chairman.

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    Mr. LEWIS. Mr. Knollenberg?

    Mr. KNOLLENBERG. Mr. Chairman, thank you very much.

    Mr. Secretary, good to see you again.

    Secretary RUBIN. Very good to see you.

    Mr. KNOLLENBERG. It is a pleasure at any of them that we see you at.

    Ms. Lazar, welcome. We are looking forward to your success in that role.

    Ms. LAZAR. Thanks.

    Mr. KNOLLENBERG. I do not have any significant questions, but I have one.

    Mr. LEWIS. Wait a minute.

LEVERAGING

    Mr. KNOLLENBERG. I have one. I do not know if you mentioned this, but you did say that there is leverage within the program. I think it is at least a one for one. I think that I have read where there is potential for it to be three to one, maybe even four to one. So would you explain, Ms. Lazar, a little bit on how you generate those kinds of ratios?
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    Secretary RUBIN. Sure.

    Mr. KNOLLENBERG. What brings that about? The match is one for one.

    Secretary RUBIN. The match is actually running much more like three to one, is it not, or something?

    Ms. LAZAR. Yes. We do not have complete statistics, but it is our understanding that it is a higher ratio.

    Mr. KNOLLENBERG. Is that right?

    Ms. LAZAR. Yes.

    Mr. KNOLLENBERG. And so if there was a number out there that you could make public, what would it be?

    Ms. LAZAR. I have heard numbers anywhere from three to four times as much leverage. I cannot corroborate those numbers, and I would like to spend some time doing that.

    Secretary RUBIN. Remember, it depends on what happens within the institution. They are required to put up one to one, but, then, they are the ones who by virtue of trying to use this that comes in to try to see if they can get two to one, three to one, four to one, whatever it may be.
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MICRO ENTERPRISE

    Mr. KNOLLENBERG. You called it micro, I think, or it is a micro loan or maybe it was Mr. Stokes who referred to as a micro loan, which leads me——

    Secretary RUBIN. That is one part of the program, these micro enterprise loans.

    Mr. KNOLLENBERG. Yes, which kind of mirrors what is being done in foreign operations where we make micro loans to women, in particular, in various countries. That is just beginning to grow, but the success of that has been quite good. Did this come after that?

    Secretary RUBIN. As the Chairman said, there is this bank—I do not know the name of it—in Bangladesh.

    Mr. LEWIS. Grameen.

    Ms. LAZAR. Grameen Bank.

    Secretary RUBIN. Right. That really has become renowned for this micro enterprise program.

    Mr. KNOLLENBERG. Yes.
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    Secretary RUBIN. The First Lady developed a very strong interest in micro enterprise lending. And I believe it would be fair to say that that was part of the thinking that led all of us to focus on micro enterprise lending in the CDFI context. And I think it is a very, very promising idea.

    Mr. KNOLLENBERG. So it was triggered, then, by what we were doing overseas?

    Secretary RUBIN. In part. There were people who were thinking about it independently of that, but I think that lent some additional energy to the thought.

     Mr. KNOLLENBERG. Mr. Chairman, I do not have any other questions. Again, thank you, Mr. Secretary.

    Secretary RUBIN. Thank you.

    Mr. KNOLLENBERG. Ms. Lazar, everyone else.

YEAR 2000

    Mr. LEWIS. Thank you very much, Mr. Knollenberg.

    Mr. Secretary, I know that you have got a little problem schedule-wise. So we do very much appreciate your being here.
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    When you mentioned character-like loans, it raised a point that Mr. Knollenberg was raising. The micro enterprise loans that kind of began with an experiment in Bangladesh, where loans began to be given to women, raises a question that I will ask further of Ms. Lazar: What percentage of our loans end up going to small businesses run by men? And we will talk about women as well.

    Before we get into that, let me mention to you that if Mr. Hobson were here, he would ask you the question about F.Y. 2000. All of us are attempting to push our agencies to look with great care about not how we got into this crazy mess of not thinking about what happens when the new millennium came along but making sure that we are prepared and be prepared to fire whoever is in charge and his or her supervisors if we end up having a crisis afterwards because it is a serious difficulty. And I hope people are giving time to it.

    Secretary RUBIN. We have the second largest activity level in the federal government, computers, after the DOD, because of IRS and also for some of the FMS which handles the government payments and intragovernmental financial affairs.

    I meet biweekly with our Assistant Secretary of Management and our Treasury CIO. We have, I think, 325 critical missions, if I remember correctly. And with the exception of one mission in the intragovernmental area, I think we are pretty much on schedule, Mr. Chairman.

    But this is enormous. We plan to spend $1.4 billion at Treasury. By the time this gets done, we plan to spend about 600 and some odd million dollars in 1998. This is an enormous enterprise with us, and we are exceedingly focused on it.
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    You are absolutely correct. This is of immense importance.

    Mr. LEWIS. I would only add this point because of your business experience and perspective. The IRS spent several billions of dollars reexamining their computer systems, and it has all been a loss. In the marketplace, you know, there would be a brand new head. So we ought to be really making sure that this is——

    Secretary RUBIN. We have a brand new head.

    Mr. LEWIS. Okay.

    Secretary RUBIN. No. You know what we did, what we brought in was—and I think it was the right thing to do—instead of bringing in a tax lawyer, we brought in a CEO of a large company. And we said that this is a management job, not a tax job.

    Mr. LEWIS. Right, exactly.

    Secretary RUBIN. I think the concept was right. I think we were very lucky to get the person we got.

    Mr. LEWIS. Yes. Okay. It is that style, approach, and priority that I would suggest for all of us.

    Secretary RUBIN. Could I just add one more thing?
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    Mr. LEWIS. Certainly.

HEALTH OF CDFI FUND

    Secretary RUBIN. You had mentioned in your opening comments concerns about the various problems. I really do think that these things have now been taken care of and they have been effectively addressed.

    This happens to be a program I am personally extremely interested in. I call it people's capitalism. I think it is really a very good program. And I think all of the comments you made about urban renewal are pretty well-taken.

    My view, at least, is that I think there is a real chance this program could be the antithesis of that kind of a program. It is not a top-down. It is right in the community and so forth.

    Mr. LEWIS. Yes.

    Secretary RUBIN. If you all develop concerns or issues that you think are not being addressed exactly the way you think they ought to be, in addition to working with Ellen and everybody else and Jerry Hawke, you are more than welcome to call me. I can assure you that all of Treasury will focus on the issues that you raise.

    Mr. LEWIS. We appreciate that. And let me say the questions were raised from the authorizing side within the House. And they brought them to our attention. Nonetheless, there were members who were very seriously concerned. And they are very pleased with the interaction and the response, the two-way communication, and also the movement. And so for that, you are complimented.
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    Secretary RUBIN. We worked with the authorizing committee.

    Mr. LEWIS. I know you did.

    Secretary RUBIN. I did as well personally to deal with this.

    Mr. LEWIS. We got a lot of positive feedback regarding that. And if the whole system operated that way, you know, we would make some progress around here.

    Anyway, we will recess for just a moment. The Secretary has to leave. We appreciate your being with us.

    Secretary RUBIN. Well, thank you, Mr. Chairman. It is good to be with you again.

    [Recess.]

    Mr. LEWIS. If we can come back into session. I might mention that all of our members, please don't be disappointed with the crowds or lack or crowds because members have conflicting subcommittees, including shortly, Mr. Stokes, who's got to go on to another subcommittee.

    I don't know if you have questions of Ms. Lazar or not, but if you do, Mr. Stokes, I'd call upon you for whatever you wish. In other words, before you have to take off, or I'll go forward.
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    Mr. STOKES. Whatever. I don't want you to interrupt, you know, your way of doing things.

    Mr. LEWIS. We're in this together.

    Mr. STOKES. Right. I appreciate it.

FY 1999 BUDGET REQUEST

    Mr. LEWIS. Okay, I'll proceed and then I'll call on you. Thank you.

    Ms. Lazar, the fiscal year 1999 budget request was created prior to your arrival as we discussed earlier. Now that you've had time to review the budget submission you've decided to make some changes, as you indicated to me privately.

    The changes include: increasing the financial assistance to city advised activity by $18 million over the President's request, from $42 million to $60 million; the direct loan subsidy activity is increased by one million dollars from $2 million to $3 million; the Bank Enterprise Award program is increased by $10 million, from $25 million to $35 million; and the training and technical assistance activity is increased by $2.5 million from $20 million to $22.5 million.

    Why did you make these changes and are the changes supported by the Department of Treasury and OMB? The latter is a given, so why did you do it?
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    Ms. LAZAR. We looked at these changes internally. We still need to bring them to OMB. These are our estimates of what we can spend in the coming year.

    It's my expectation that we'll be able to obligate approximately 86 percent of the $146 million in the first year of '99, and that we would be able to obligate a total of $126 million in fiscal year '99.

    Again, these numbers have been reviewed at Treasury; we still need to bring them to OMB and discuss them.

    Mr. LEWIS. As we look at the changes that you're proposing relative to CDFI, is there sufficient demand among CDFIs and banks for these increases that you're suggesting?

    Ms. LAZAR. We believe there is. As I've mentioned earlier, we increased the number of applications that we've gotten under the Bank Enterprise Awards from our original number of, I believe it's 54, to 104 this year.

    We have requested, asked for, a total of $35 million in Bank Enterprise Awards. We have approximately $25 million to give out. So we see an increased demand for these funds.

    We're going to be continuing to train organizations and it's our expectation that we're going to have many more competitive CDFIs. Over the course of time we've had 500 applicants for our funding requesting a total of $400 million.
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    This year we expect that we'll have an increase over last year in the number of CDFI applicants that we have. So these numbers are really based on our expectations for growth and growth in the industry.

    Mr. LEWIS. Maybe you'd share a bit of that with us, then, Ms. Lazar. If the increases are appropriated, how many CDFIs and banks will receive assistance and will the size of the financial assistance grants to CDFIs be increased?

    [The information follows:]

    For this year's core component round of the Community Development Financial Institutions (CDFI) Program, the Fund expects to make awards to approximately 50–60 CDFIs. In the next round, which will be in FY99, the Fund expects to make awards to 60–75 CDFIs. The size of the financial assistance will depend on a number of factors, not the least of which is the amount of matching funds obtained by the CDFIs.

    In the round that will end in September 1998, the Fund expects to fund 65–75 awardees under the BEA Program. During FY99, the Fund expects to make awards to 80–90 banks under the BEA Program next year.

    Ms. LAZAR. I don't have a good answer for you to that question. We have certified now, 196 CDFIs; we have about 70 applications in our pipeline. My expectation is that everybody who has applied for certification did so with the intention of applying for core grant awards.
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    To the extent that we have seen growth in both programs I expect that we'll continue to see that growth. I'd be happy to get you stronger numbers in the coming months. We have a round that's going to be started for the CDFI program in March. We expect to have applications in by the beginning of June and that will help support, I think, our growth numbers.

    We're also doing quite a bit of training this year. We're putting a notice of funds availability on the street for $5 million next month and with that money we intend to train smaller, more nascent institutions. We expect that that capacity-building effort will also increase the number of competitive CDFIs around the country.

    This past year we gave out over $5 million to two large, intermediary organizations, and they will in turn re-lend that money, re-grant that money to smaller CDFIs. It's our expectation that that money will support over 200 institutions in the next five years.

MEASURING RESULTS

    Mr. LEWIS. Ms. Lazar, I presume that you, with your sophistication, had heard the term ''walking around money''?

    Ms. LAZAR. Yes, I have.

    Mr. LEWIS. You mentioned the street, and walking around sometimes has to do with walking around with money in the street.

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    Ms. LAZAR. Yes.

    Mr. LEWIS. I do not mark myself as one of those who's a cynic, but there are those who suggest that a program like this, if not carefully monitored, could be little more than walking around money for organizations that were interested in supporting their slant on the world, if you will.

    Frankly, I would not ascribe that to these programs, but it's very, very important that we measure carefully what's happening out there; make sure that expanded numbers of grants as a result of applications are being monitored, that they're getting to those businesses and stimulating opportunity for people.

    I'll be very interested in looking at the number of women, for example, who receive applications, or women's small businesses, etc., in this process, going back to the price of a dream.

    Let me be specific. Does CDFI have the capacity to effectively administer these increases with their existing staff?

    Ms. LAZAR. I believe we do. Right now we are allotted 35 full-time employees, and right now we're building the staff. We brought on Paul Gentille, our CFO, who has been growing the administrative side of our house. He's brought on an awards manager, an accountant; he'll be bringing on a controller in the next month.

    And having those systems and awards monitoring procedures in place will help us make sure that we're putting the money to good use.
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    We're also building our program staff. Maurice Jones, who had been our counsel, became our deputy for Program and Policy in the last month. Under Maurice will be four managers: a manager for each of the programs and a manager for policy and research. And it's our intention that these folks will be charged with helping us administer and run the program.

    Mr. LEWIS. I am impressed by the emphasis to strengthening management and improving internal systems and the like. What was the result of the fund's first financial audit?

CDFI FUND ANNUAL REPORT

    Ms. LAZAR. The fund received an unqualified opinion on its financial statements from our auditors, KPMG Peat Marwick. What that means is that our financial statements were fairly and accurately presented.

    Peat Marwick did note certain material weaknesses that were identified in our audit, and we have been working on those material weaknesses and taking corrective action that I expect will continue throughout the year, but we're working quickly to address the problems.

    Mr. LEWIS. Would you outline some of those major weaknesses and what actions you're taking?

    Ms. LAZAR. Sure, I'll be glad to. One issue that was raised was a lack of formal FMFIA process and internal controls over procedures. The Fund actually did in fact, conduct an FMFIA review in October and November of 1997. You'll recall that the audit covered fiscal years 1995, 1996, and 1997.
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    The Fund was also given advice that we should be filling certain vacant positions including a CFO position and an awards manager position; which we did this last fall. There was no formal review of monthly financial statements and accounting records, and we're doing that all now that we have the appropriate systems in place.

    We were also criticized for inadequate delineation of organizational responsibilities within the Fund, and we've now submitted an organizational proposal to the Department for their approval; which includes mission functions, an organizational chart, staffing plans.

    Under Secretary HAWKE. Mr. Chairman?

    Mr. LEWIS. Yes.

    Under Secretary HAWKE. May I supplement that very briefly?

    Mr. LEWIS. Sure. Secretary Hawke.

    Under Secretary HAWKE. I think it's important, and I know you do understand that the auditor's report really speaks as of the end of the last fiscal year, which was September 30. And their comments about material weaknesses therefore, really spoke as of that date.

    I think the auditors in their report recognized that management itself had identified the material weaknesses and subsequent to the close of the fiscal year, over the last five months, have been working very diligently to correct those weaknesses and have in fact done so.
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    But that timing difference, between the date as of which the auditor's opinions spoke and today, is important to recognize.

ESTABLISHING SYSTEM AND PROCESSES

    Mr. LEWIS. I can understand the sensitivity here. You know, one of the reasons we work very closely internally with IGs for example, is we find that a lot of times they give us some objective opinions. Anyhow, we do appreciate your comments.

    During the last year's hearing Ms. Moy testified that some of the delay in selecting winners and awarding funds is due to need for the Fund to establish systems, procedures, and infrastructure. Have those issues been addressed?

    Ms. LAZAR. I think they have been. This year we developed and we have a very detailed system for choosing applicants. We work with our reviewers and go through the selection process in a very deliberate fashion. We've developed conflict of interest procedures and numeric worksheets to ensure that there's fairness and rigor in our selection process.

    Subsequent to the selection process we work with our awardees to develop performance goals that go into the assistance agreements we enter into then. We work with them to develop both performance goals over the course of five years as well as financial covenants that they need to meet over time.

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    That documentation gets done through a combination of work between our staff and the awardee. We have boilerplate documents now in place for each type of assistance, which has helped speed up the process.

    And we did workshops with all the awardees last December to explain the award process to them, to walk through the assistance agreements with them, to ensure that they understood what their responsibilities were in terms of developing the performance goals and participating in the closing process.

    Another aspect of the closing process that had in the past I think, delayed disbursement of funds, was really the reward of matching funds to our awardees to ensure that they've gotten the matching funds.

    Mr. LEWIS. Ms. Lazar, as I hand the questioning period over to Mr. Stokes, let me take a moment though, as we welcome Under Secretary Hawke to the table. You might take up and introduce your other guests as well as the Under Secretary.

    Ms. LAZAR. Well, I have Maurice Jones who's our Deputy Director for Program and Policy; Paul Gentille who's our Deputy Director for Management, and CFO.

    Mr. LEWIS. Welcome, gentlemen. Mr. Stokes.

GRANT SELECTION

    Mr. STOKES. Thank you, Mr. Chairman. Ms. Lazar, you sort of touched on this a little bit, but let me go into it a little deeper with you.
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    One of my concerns would be the fact that when we took this bill to the floor last year we must have spent money in about three hours, maybe four hours, with the Authorizing Committee bringing up amendments attacking parts of the bill.

    And paramount in their concerns were two things, and they were well taken in both instances. One were allegations related to conflicts of interest and the granting of loans; the other was political considerations entering into the granting of loans.

    Those of course, are very serious concerns and we took them seriously. And of course we addressed all of these things in Conference, and Secretary Rubin and the rest of the Agency were very concerned about these problems.

    What are you doing to ensure that these type of things will not occur in the future?

    Ms. LAZAR. Let me say that it's my understanding that in the past there's been no political influence used in determining who the winners are. We've had and will continue to have, a very fair and objective review process.

    We solicit applications, we send out a Notice of Funds Availability and issue new regulations. We in turn then review the applications that we get through a very rigorous, 2-step process whereby we do really a qualitative evaluation and then reduce our qualitative evaluation to a numeric worksheet, which helps us compare and contrast our awardees, one to the other.
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    This is done through a group of both outside reviewers and internal staff. It's my intention this year to have as many staff as I can put onto this project as possible, and to limit the number of outside reviewers that we use.

    We go through a very rigorous conflict of interest review before we bring on outside reviewers to ensure that none of them have potential conflicts with any of the awardees.

    At the time the awards are in fact, made, there is no review from others at the Treasury Department. The decisions are made within the CDFI Fund. And as in the past, these decisions will not have any political influence over them.

    Under Secretary HAWKE. Mr. Stokes, could I add one or two notes?

    Mr. STOKES. Sure.

    Under Secretary HAWKE. First of all, as the Chairman recognized, we have been working closely with the Authorizing Committee, and the oversight effort that they have gone through I think has contributed tremendously to the improvement of the Fund's processes.

    They really did focus our attention on things that needed to be done; we've tried to work closely with them and be responsive to their concerns. And I think that process has worked exactly as the Secretary said it should work, and we're pleased with that.
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    Mr. LEWIS. Let me interrupt just a moment, Mr. Stokes.

    Mr. STOKES. Sure.

    Mr. LEWIS. One of the items in connection with that is that there was, when people began to focus upon problems, there were some who wanted to make this a cause celebre and it could have easily been a demagogic effort to create differences between we and them and those and so on.

    But I must say that the Authorizing people, the leadership there was more concerned with the program and results than otherwise, and I thought there was a very healthy and professional exchange of the kind that helped us all rather than getting bogged down in some of the stuff that sometimes goes with these debates.

    Mr. STOKES. I quite agree with you. In fact, even on the floor I thought, you know, bereft of any type of partisanship.

    Under Secretary HAWKE. I think that's right. The other point that I wanted to make is this. I've been involved with this program right from the very start and as the initial Director, Kirsten Moy and I discussed the formulation of basic policies in the program, I made it emphatically clear that this program, in order to maintain its credibility, it had to be completely free from outside influence.

    This was originally, as you know, a program that was going to be run in a freestanding fund, and it was assigned to Treasury. And we made it an important foundation precept of this program that the programs be completely insulated from outside influence.
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    The Treasury Department has no role whatsoever, in the granting of awards. The decisions on awards are made professionally by the staff and the director of CDFI. They don't consult us, we don't know what the recommendations are, and we have done everything we can to insulate this program from outside political influence in order to maintain its credibility and validity.

    Mr. STOKES. Ms. Lazar, when you make a grant you enter into an agreement with the grantee. Do you include certain performance goals and are they then monitored?

GRANTEE PERFORMANCE GOALS

    Ms. LAZAR. Yes. We in fact, negotiate performance goals with our awardees and the performance goals are really performance goals out into the future. They're over a 5-year period. At the end of five years we expect each of the awardees to be in a particular place.

    There are benchmarks that are required to be met and those benchmarks are monitored on a regular basis. We now get reports from our awardees. We intend to bring on staff that will be able to work with the awardees who are, you know, as they move forward, to make sure that they're meeting their benchmarks.

INTERMEDIARIES

    Mr. STOKES. I understand you're planning to make some grants to a special category of CDFIs that you referred to as intermediaries?
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    Ms. LAZAR. Yes.

    Mr. STOKES. What do these organizations do?

    Ms. LAZAR. The intermediary organizations generally work at a higher level. They're often groups that do training and lending work for their industries, for their particular industries.

    We made an award to the National Federation of Community Development credit unions; we've made an award to the National Community Capital Association. Both are organizations that do, in fact, new lending but work with a broader membership that really have the opportunity through them to growth to their capacity.

STAFFING

    Mr. STOKES. Now, your budget documents indicate CDFI Fund staff is expected to more than double this year, from 14 full-time equivalents in fiscal year '97 to 35 in fiscal year 1998.

    More employees, you know of course, are not necessarily a bad thing. But I recall the Fund criticized last year for allowing two contractors. Yet this is still a substantial increase.

    Tell us why you're adding this additional staff.
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    Ms. LAZAR. The staff is necessary so that we don't need to rely on contractors in order to effectively administer the programs that we've been charged with running.

    We need to add this staff. This staff was approved in the past in our appropriation, and at that time it was the judgment of the Congress that that was the level we needed to effectively run the programs.

    Mr. LEWIS. The original authorization was for 35, and you've just never gone up to that.

    Ms. LAZAR. That's right. Right now we're bringing the staff on so that we can grow capacity and talent within the organization so that there is continuity rather than relying on contractors. We feel that that is a better way to run the ship.

VOLUME OF GRANT APPLICANTS

    Mr. STOKES. Well, lastly, let me ask you this. In terms of the volume of grant applications, in ratio to the amount that you're able to bring, give us some idea of how that works.

    Ms. LAZAR. In the past, let me see, I've brought some numbers here. In the past we had over $400 million in requests for CDFI money. We had a total of about $60 million to give out; between $60 and $70 million. Actually, we obligated $71 million. So that was $400 million to $75 million.
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    Mr. STOKES. You gave out 75?

    Ms. LAZAR. No, we had $75 million, I'm sorry. Let me correct myself. We had $71 million to award out and we had $400 million in applications in the CDFI Program in the past.

    The number of applications that we received in the BEA Program; let's see how much we leveraged here. Our BEA Program in the past has been well subscribed. This year we have $25 million to award and have $60 million in applications; so we have three times as many applications. Four times.

AWARD PERCENTAGE OF REQUEST

    Mr. STOKES. Give us some idea also of what percentage in each individual case, let's say. We have an application before you. What percentage of the request are you able generally, to give? Can you break that down for us at all?

    Mr. JONES. I'm not sure I can break that down that specific, because we have to go back and look at each application, but let's take a look at the first round.

    We had 268 applications in the first round. We only had enough money to fund 31 of those institutions. And in most cases we were not able to fund those institutions at the full amount that they requested.

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    Same thing the second round. We had approximately 159 applications. Yes, about 159 applications. We were only able to fund 46 of those. Again, in each case we weren't able to fund the applications at the full amount that they requested.

    Now, in some cases, the reasons why we weren't able to fund them is they didn't have sufficient matching funds. And in other cases we determined that they were asking for more money than they could absorb at that particular time.

    Or in other cases we decided that it would be more prudent to give people grants or loans as opposed to equity investments. So when we get into the evaluation process there are a number of factors that would contribute to why we make particular decisions.

    Mr. STOKES. Okay, thank you very much. Thank you, Mr. Chairman.

AFFIRMATIVE ACTION

    Mr. LEWIS. Thank you, Mr. Stokes. Ms. Lazar, before I hand the round over to my colleague from New Jersey, I think you may know that over time Mr. Stokes and I have expressed some interest in areas that might be described as affirmative action.

    It is my intention as we ask you to review your work and measure it over time, to apply some of those principles to our questions. I don't expect that they will be an extension of his questions that would cause me to ask whether or not applicants are registered or not, or even whether they're Republican or Democrat.

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    But it is every important that we proceed in a way that overcomes difficulties that relate to perception of outside interests and political preferences in this application process.

    But touching on affirmative action specifically, could you tell me, of the institutions which were successful applicants, how many of those institutions happen to be run by women?

    Mr. JONES. I don't know the answer to that at this time, but I can go back.

    Mr. LEWIS. Well, off the top.

    Mr. JONES. Off the top of my head.

    Mr. LEWIS. Ms. Lazar must.

    Mr. JONES. We can go back and get you that answer after this.

    [The information follows:]

    Approximately 60 percent of the core component CDFI Program awardees have a woman as Chief Executive Officer (or equivalent) and/or Chair of the Board (or equivalent).

    Mr. LEWIS. I've had a project for about a decade that's involved in trying to find more women to run in Republican primaries across the country and increase the numbers thereby. We've had some success, but this does not relate to that.
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    Mr. JONES. I can particularly look at California. We can go back and get that information.

    Mr. LEWIS. Mr. Frelinghuysen?

DEPRESSED COMMUNITIES

    Mr. FRELINGHUYSEN. Yes. Ms. Lazar, what do you mean exactly, in the second page of your testimony, and I quote, ''the Fund's efforts are designed to turn dysfunctional markets into well functioning, local economies''.

    I may have a fixation on words here, but what does that mean? I'm familiar with dysfunctional people, but I just need, as succinct as possible, an explanation of exactly what that means.

    Ms. LAZAR. I think that what I'm saying is that we want to work in communities where they traditionally and for a long time have not had access to capital, particularly for small business, for community facilities, and for housing.

AUDITED FINANCIAL STATEMENT

    Mr. FRELINGHUYSEN. All right. Thank you. Can I take it from the earlier responses that all of the auditor's points that raised some red flags have been answered?

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    Ms. LAZAR. They're in process and we have plans to fix all of them. All are in process.

    Mr. FRELINGHUYSEN. So there will be at some point in time, a sheet of paper where the auditor will have raised some points and there will be an actual response which the Committee will have an opportunity to evaluate?

    Ms. LAZAR. Our goal is to make sure that by the time we're audited again next year, these material weaknesses are gone.

MATCHING FUNDS

    Mr. FRELINGHUYSEN. All right. Do you require a dollar-for-dollar match before awarding grants?

    Ms. LAZAR. Yes.

    Mr. FRELINGHUYSEN. Do you require that the grantees demonstrate in any way a guaranteed source of funding before you award the grant?

    Ms. LAZAR. We look at their business plans, we look at their matching funds coming in. We look at their financial viability, we look at their financial statements and their comprehensive business plan pretty closely.

    Do you want to add anything more?
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RISK

    Mr. JONES. Let me add to that, we do in fact, ask them to put forward information that will demonstrate to us that they won't be reliant on the Federal Government for financial viability in the future. So they have to put forward to us some projection of the sources of income that they're going to receive over the next five or so years.

    Mr. FRELINGHUYSEN. So the answer to my question, do they have to demonstrate a guaranteed source of funding before you award the grant, or is it just that you have a feel-good feeling about them?

    Mr. JONES. With respect to the match, they have to show us that they have an actual legal commitment that guarantees that they're going to get that matching money.

    With respect to the other dollars going forward to ensure that they're actually going to be financially viable, we don't ask them to show us a guarantee. We ask them to give us a projection that is convincing to us that they actually will have enough funds to be financially viable in the future.

    Mr. FRELINGHUYSEN. Is there a matching requirement in the BEA Program?

    Mr. JONES. No sir. There's no matching requirement.
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FINANCIAL CAPACITY

    Mr. FRELINGHUYSEN. Could you comment briefly on, in your testimony on I think it's page 8, you say the fund builds a financial capacity, etc., etc., in the form of equity, investments, grants, loans, or deposits, to enhance the capital base.

    What's the spread between grants and loans here? Obviously there's a big difference between a grant and a loan.

    Ms. LAZAR. Actually, I have some numbers for you on that.

    Mr. FRELINGHUYSEN. Maybe just give us a percentage figure. We would like the specific information.

    Ms. LAZAR. I have it.

    Mr. FRELINGHUYSEN. All right. Go right ahead.

    Ms. LAZAR. In 1997 we made equity investments in the amount of $6,650,000. We gave out $24,528,000 in grants; $1.2 million in loans; and $914,000 in technical assistance.

NEW JERSEY BANKS PARTICIPATING

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    Mr. FRELINGHUYSEN. All right. I'd like to know specifically, and this refers to some of the questions I asked the secretary when he was here, what banks in New Jersey are participating? You may not have that answer.

    Ms. LAZAR. I don't know that I have it now. I do know that First Union has participated.

    Mr. LEWIS. Why do you ask that question?

    Mr. FRELINGHUYSEN. I'd like to know and I'd be interested in knowing what community organizations you've had some interaction with.

    Ms. LAZAR. I'd be glad to get you a list of the New Jersey.

SUCCESS STORIES

    Mr. FRELINGHUYSEN. What's entirely natural is to hear some of the specific success stories, and we have some anecdotal evidence, wherein we had some specific failures or non-success stories.

    Ms. LAZAR. That's an interesting question.

    Mr. FRELINGHUYSEN. And better yet, from those, what have we learned?

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    Ms. LAZAR. That's an interesting question for me because I've been working on success stories of late.

    Mr. LEWIS. Have you had to work hard to find them?

    Ms. LAZAR. No, I haven't had to look under rocks. But my understanding is that we've had four awardees that have not yet received their disbursement from our 1996 round. Maurice, maybe you can share with us, what's holding those up and maybe those would be responsive to the Congressman's question.

    Mr. LEWIS. Excuse me just a second. Did you say four awardees who have had successful application?

    Ms. LAZAR. Yes.

    Mr. LEWIS. But have not received funding from the '96 round?

    Ms. LAZAR. That's right.

    Mr. LEWIS. Just curious. I wanted to clarify it.

    Mr. FRELINGHUYSEN. Yes, thank you, Mr. Chairman, for that clarification.

    Mr. JONES. There are four awardees.
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OBLIGATED FUNDS

    Mr. FRELINGHUYSEN. Therefore, my next question will have to do with the issue of what you've used in the way of money and what you anticipate is a possible carryover of funds?

    Mr. JONES. There are four awardees from the first round who have yet to receive their monies.

    Mr. LEWIS. How many of them are working at this table? I'm sorry.

    Mr. FRELINGHUYSEN. You're the Chairman.

    Mr. JONES. The reasons really at this point are reasons that are specific to these institutions. All of them have statutory requirements that they must comply with before we can legally give them the money.

    For instance, if they do not have the matching funds in-hand we cannot give them the money until they raise it, or until they receive it.

    Mr. FRELINGHUYSEN. So the money is being held in abeyance?

    Mr. JONES. So the money in some cases, is not actually in the hands of the awardee for particular reasons between that awardee and whoever that third-party source of funds is. Until they get that money, we won't give them our money.
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    We've had particular situations with banks who are concerned, who have to go through and get the approval of their regulators, and if they're State regulated they have to get the approval of their State regulator, as well, before they can get our money. We're waiting for that sort of thing to happen.

    So in each case, we're prepared to give them the money as soon as they satisfy these prerequisites that are in our statute that they have to satisfy. But you know, there are four that don't have their money; there are 27 that actually already do have their money.

    And as soon as these get their act together, basically, we're ready to give them money as well.

    Ms. LAZAR. Yes. While we were waiting we realized that we did have the information on the New Jersey organizations that have been certified.

    The Camden Community Credit Union, the Cooperative Business Assistance Corporation in Camden, the New Community Development Loan Corporation in Newark, the New Community Federal Credit Union in Newark, the New Jersey Community Loan Fund in Trenton, which was an awardee last year.

    Also the Delaware Valley Reinvestment Corporation which is located in Philadelphia but does a great deal of work in Camden, has been an awardee over time.

    Mr. FRELINGHUYSEN. That sounds like they're good groups.
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    Ms. LAZAR. Yes.

    Mr. FRELINGHUYSEN. The money we appropriated in fiscal year 1998, will we use all of that funding and do you expect to have any carryover?

    Ms. LAZAR. I need to reiterate that this is 2-year money. We expect to obligate 82 percent of our 1998 money this year, and expect to have a carryover of about $21 million into 1999.

TRAINING

    Mr. FRELINGHUYSEN. And lastly, can you describe the new skill development training initiative that you've requested $50 million for? What's led you to believe that there's a need for a skill development among the CDFIs, and can you elaborate by what you mean?

    Ms. LAZAR. Sure, I'll be glad to. Our capacity building initiative is something that was intended by our original authorizing legislation, both in our core program and in a separate section in the authorizing legislation. We're encouraged to go forward with helping to grow and build the industry, to develop capacity within the industry.

    We've seen that there are a lot of small organizations that have a need for growth, that need to develop certain business skills, including comprehensive business planning.
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    Mr. FRELINGHUYSEN. People competent enough to fill out the paperwork for the program?

    Ms. LAZAR. I think beyond that. People who are competent to manage and run an institution that's going to be able to remain in the community beyond their support from the Federal Government; that are going to be able to sustain themselves into the future.

    This month we're going to be issuing the Notice of Funds Availability for a $5 million round to provide training and technical assistance for small organizations who otherwise wouldn't be competitive. They will select the type of training they need and we will evaluate what they selected against what their plans are for the future.

DIFFERENCE—CDFI FUND AND NCUA

    Mr. FRELINGHUYSEN. What's the difference between the CDFI Fund and the revolving fund administered by the National Credit Union Association, who was also in here the other day? The NCUA?

    Ms. LAZAR. I'm not sure I have a good answer for that.

    Mr. FRELINGHUYSEN. Well, maybe for the record you'd be good enough to provide that.

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    Ms. LAZAR. I'd be glad to get back to you and differentiate the two.

    [The information follows:]

    Our understanding is that the National Credit Union Association (NCUA) Revolving Loan fund only provides debt financing. The CDFI Fund provides technical assistance and financial assistance in the form of equity, loans, deposits and grants. We also understand that the NCUA Revolving Loan Fund only makes loans to low-income designated credit unions. The CDFI Fund provides assistance to banks, thrifts, CDFIs and organizations demonstrating that they will become CDFIs within two years. CDFIs include a diversity of institutions such as credit unions, banks and bank holding companies, multi-bank community development corporatins, microenterprise loan funds, business and housing loan funds and venture capital funds. Finally, we understand that the terms of the loans are uniform under the NCUA Revolving Loan Fund. Under the CDFI Program, the form, value and terms of the assistance depends on the match presented in an entity's application for assistance.

    Mr. LEWIS. The Secretary did allude to the fact that the credit union's funds are involved in similar activities, and there's obviously some competitive relationship, if not otherwise.

    Ms. LAZAR. We're very active. The National Federation of Community Development Credit Unions, which are the smaller credit unions around the country, are very actively involved with the CDFI Fund.

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    They're an awardee in our intermediary round. Their members have been big users of the CDFI Fund. I will find out some more and see where there's overlap.

    Mr. JONES. I will say this. The revolving fund that the NCUA administers is just for credit unions; that's one big difference. Credit unions can be winners under our program but they have to be credit unions that satisfy our test at CDFI; which I do not believe, in fact I'm almost certain, that the NCUA does not require.

    But we'll get back to you on the particular differences.

    Mr. FRELINGHUYSEN. Thank you, Mr. Chairman. Thank you both.

    Ms. LAZAR. Thank you.

    Mr. LEWIS. Ms. Meek.

ADEQUATE FUNDING LEVEL

    Ms. MEEK. Thank you, Mr. Chairman. Good to see you and all your staff. My question is similar to Mr. Frelinghuysen's question regarding the revolving loan of the credit unions. I think I talked to you about it.

    I have sort of a visceral feeling about the CDFI. I strongly support it; I think it's a very good program. But I don't think, with the problems we have in many of these urban and rural communities, that there's enough money in this fund to really help.
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    So they said, well there she goes. I'm sure my Chairman is saying, well there she goes, one of those Democrats. I can see it in his face. That's not what I'm seeing.

    Mr. LEWIS. Ms. Meek, that's not what you see in my face. If we had more people like you around here we wouldn't have very many problems.

OUTREACH

    Ms. MEEK. I just believe in spending the money where there is a need. I'm very thrifty otherwise, as my staff can tell you. But I think there is a need, there is such a strong need for capitalization in many of these rural and urban communities; very, very strong need.

    Much of what I hear my President talk about when they talk about the great economic status, the high economic status that this country is in, much of it has not gotten down to many of the people I represent.

    There are so many, many communities and groups that would love to do well in business but they cannot get the capital. And I become frustrated, Ms. Lazar, after so many years of working and trying to do this. They just can't get access to it.

    Now in researching what you've done, I think it is excellent. You haven't been there very long; this fund is good and it will be even better. But the match is hard for some of these small groups to get.
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    I have one or two small manufacturers; they're small in my district. They're about to close because they can't get loans from the banks.

    There's only one bank in my large, metropolitan Dade County, down in the south end, West Miami, that has been able to access the Fund. I'm very happy to say, they did get an award because they were able to loan money.

    And Ms. Lazar, I've known you for many years in housing. You know what the needs are in these areas. And much of it is, the need is greater than it was when you were working in housing.

    So I guess my question is, there seems to be something missing in terms of, how do we get the money to some of the people—the banks, thrifts, and organizations who need it? They must get the 100 percent match; I can understand that.

    The Fund has limited funds. Your certification is obviously very accountable. I'm searching for a word and I haven't gotten the word in my mind yet. But it's not a dichotomy but there's something missing between the people who need the capital and the ability of the public, of the small businesses to get it.

    Now don't fool yourself. There's very little help in SBA. They'll say, well go to SBA, you can do this. But I have so many, many small business people who have come to me and said, Ms. Meek, we can't get loans from the Government because we have to put up everything that we own; everything.
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    My inquiry is not quite a question; it's more of a plea, really. And I see this particular fund and this particular program as being a big part of the answer. I'm just not able to structure what I'm saying that's missing here.

    First of all, the Business Assistance Center in Miami is the one organization that's certified to even loan money. I called them, not this time but last year when this came up. I called them. I wanted to know why they were not putting any money on the street and why they didn't have enough to help out.

    They said, well, we don't have the matching money to do that. Now, the Business Assistance Center is not the only center in the middle of Miami's urban community, the inner city, that would need the loan money.

    Have you heard this frustration before from others, or am I the only one that you've heard it from? My second question is, how can they get access to capital, other than through CDFI? Is your intermediary program the kind of program that would lend itself to access from these businesses?

    See, in a small community the businesses are the ones that provide the jobs; that's where the jobs come from. We keep talking about welfare reform but we don't know how to solve it. In Dade County we have 25,000 women going off welfare and they don't have jobs for them, yet we can't get help from some of the five Government programs that are working there. That's my frustration.

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    Now I know you're not the Oracle of Delphi so you may not be able to answer. But I needed you to hear my frustration. Go ahead, Ms. Lazar. Anybody.

    Ms. LAZAR. My sense is that, as we grow, as we spend more time doing outreach in various communities around the country, through a Web page, through newsletters, through our relationships with the more mainstream banks, we can then reinvest in some of the community development financial institutions in their communities.

    We'll be able to get the word out more and really provide more access through the community development financial institutions to the type of small businesses you're talking about.

    You know, I was dismayed to hear that there were so few organizations in South Florida that have been engaged in this, and I think that that's the case in different parts of the country where there are pockets that really need to be targeted for more marketing activity and more outreach by the Fund.

    We intend to do that this year and I'm planning on hiring an external relations person and have a staff that will be able to help us do more outreach than we've done in the past.

    Ms. MEEK. Okay, so my question was one in terms of how much outreach you're going to do to try to reach some of these under-developed areas. You only have four in Florida. Florida is a very, very large State.

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    So either the word isn't getting out, we're not doing a good enough job as representatives in those areas, and to have only four is very small for the State of Florida. So I guess we both have to do a better job in that regard.

    Ms. LAZAR. I agree with you.

    Ms. MEEK. Well, I thank you, Mr. Chairman.

    Mr. LEWIS. Ms. Meek, on your question specifically, a portion of their budget request involves technical training and assistance for the people that are served out there, and it seems to me that there really is a need for that, to make sure that you've tapped into those communities.

    My colleague, Mr. Frelinghuysen, always in special ways gets my attention. When you mentioned the word Web page he said, good God, do you know how many people don't know what a Web page is? And the people we're trying to deal with here don't know what a computer is.

    Ms. MEEK. They don't have any access to it.

    Mr. LEWIS. And our mindset, where we come from, ofttimes, biases are kind of what we deliver out there. And it's important for us to know that.

    As you were discussing earlier, sometimes I just kind of presume people understand what my concerns are. But as you were talking about those applicants who were successful and then the length of time that you were responding to Mr. Frelinghuysen, its '96 go around, it popped into my head, for gosh sakes, I'm on the margin.
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    I'm a businessman or woman who wants to expand my activity, and I see this pool here that I might get access to and I make an application and hallelujah, I get accepted. And it's 1996 and we ain't got the money yet. I mean, either it's technical assistance or training or there's something wrong with the people we're selecting; that is, they're either too solid.

    So the question came to my head is, a piece of that; only a piece of it. And how many of those businesses who are successful outcomes or would be successful applicants, who are now broke out of business because of the length of time that's involved here?

    Do we have any idea how many of those who actually are successful are out of business now?

    Under Secretary HAWKE. I think it's important Mr. Chairman, again to focus on the fact that the recipients are community development financial institutions as opposed to the ultimate business.

    Mr. LEWIS. No, I understand that, but nonetheless. Go ahead.

    Mr. JONES. I was just going to say, of the ones who have not received our money yet, we are constantly monitoring to make sure that they are in business.

    Mr. LEWIS. I hope so.

    Mr. JONES. In fact, if they go out of business we probably won't give them any more money.
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    Mr. LEWIS. Hey, that's a good idea. If you're going to start that process I've got a brother that I'd like you to deal with.

    Mr. JONES. Can I just add something? We have had two outreach sessions in Miami over the last two years for the Bank Enterprise Award Program, and we will constantly increase those outreach sessions to try to inform the public more about these programs; both on the CDFI side of what we do and the BEA side.

    And we've got approximately six applications pending for certification as CDFI from the State of Florida. So the word is getting out.

    Mr. LEWIS. We may want to follow up. Please, go ahead.

LEVERAGING

    Ms. MEEK. Where do you get your money? I know you get most of it from the Federal Government. Where do you get your other?

    Mr. JONES. We get all of it from the Federal Government.

    Ms. MEEK. Why can't you leverage the money you get from the Federal Government? Can we do that? What other sources do we have?

    Ms. LAZAR. We in fact, require that our applicants for the CDFI Fund have a one-to-one match from private sector dollars. So they're all leveraging our money.
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    Ms. MEEK. What do you mean, your money? I mean the money you have. Yes, the $125 million. To get other monies; is that possible?

    Mr. JONES. That's not possible. We don't have the authority to do that.

    Ms. MEEK. Well, you can't get blood out of a turnip if it's not in it. So if you don't have that much money, you can't get any more from the rest, I guess.

REPORTING SYSTEMS

    Mr. LEWIS. But on your point, in my introductory comments when the Secretary was here I asked the two of them to take a hard look at NRC, Neighborhood Reinvestment Coalition for their leveraging dollars that are Federal dollars on an 11:1 basis.

    And we're talking about, you know, in four communities redoing neighborhoods and using volunteer, non-profit Government agencies, locally, etc. And at best we're doing, gosh, two or three to one here.

    And so the question is, or what we were suggesting is, take a hard look. There are some programs that really work. We'd like to have yours really work.

    The budget submission does not contain a great deal of information about what has been accomplished with the funds provided to CDFI. Monitoring the uses of the funds has been a priority.
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    Have you, or do you intend to implement reporting systems and monitoring systems? The answer of course is?

    Ms. LAZAR. Yes.

    Mr. LEWIS. Do you expect to hire contractors to carry out any of these monitoring responsibilities?

    Ms. LAZAR. No, we don't.

    Mr. LEWIS. So it's going to be done internally?

    Ms. LAZAR. We intend to do it internally.

    Mr. LEWIS. Will the monitoring be based upon results?

    Ms. LAZAR. Yes.

    Mr. LEWIS. Can we expect a compilation of the results of the Federal Expenditures?

    Ms. LAZAR. Yes.

    Mr. LEWIS. And when?
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    Ms. LAZAR. We will be bringing on a person to do policy and research in the next month. We now have our awards manager in place. The awards manager has been developing a process for reviewing the materials for monitoring our awards on a regular basis.

    We do have reporting requirements in our assistance agreement and those reporting requirements, I'm happy to report, are really being adhered to by our awardees. We recently did a complete review of our files to ensure that the reports that had been due have come in.

    They've been read by our staff. What we're really going to try to do in the next year is develop a homework quantitative approach to analyzing the reports and being able to talk with you about that further.

INTERNAL CONTROLS

    Under Secretary HAWKE. Mr. Chairman, we also have created a separation of functions within the Fund so that the monitoring activity will be carried out primarily under the Chief Financial Officer and not the Deputy for Program and Policy.

    So that this is sort of a private sector model where we bring to bear that kind of objectivity so that people who are monitoring and evaluating performance are not the same people who might have a vested interest in the policy decisions that were made at the time awards were made.

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    Mr. LEWIS. But I would hope that all three of you would look at that leveraging question that we were discussing, to help us better understand what's in place that works and how we can expand or extend those patterns.

    Because you know, there are only so many of these dollars to go around. If we do the leveraging, if we monitor it carefully, have results at the other end as our expectation as we evaluate these efforts, it helps all of us. Especially when we're going through these tight budget hearings.

    Ms. LAZAR. I understand.

REVIEW PROCESS

    Mr. LEWIS. At last year's hearing, Ms. Moy testified that the review process was a 3-tiered process. Are the criteria in those tiers still in place?

    Tier 1, completeness of application; Tier 2, successful Tier 1 applications meet the financial and organizational capacity requirements to be a CDFI; and tier 3, more of tier 2 criteria plus other factors?

    Ms. LAZAR. Yes.

    Mr. JONES. Well, at last year's hearing Ms. Moy was describing, all of those components are there, not necessarily in the tiers. But we have to review all of the applications for completeness, we have to review all the applications for quality.
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    Mr. LEWIS. Boy that really surprises me. I wonder why we even ask that.

    Mr. JONES. We have to review them for quality as well. The tiered level was a pretty structured process. We don't have that particular structure anymore but the contents that were included in those structures are still there.

    We've got to do all that review plus look at the capacity of the management, the ability to raise matching funds, look at the track record, look at the financial projections, and then make decisions.

    Mr. LEWIS. Who selects the successful applicants?

    Ms. LAZAR. The successful applicants will be selected by a team of staff and reviewers.

    Mr. LEWIS. I kind of want to be pretty specific about that. Is it just you randomly select a group of staff members internally and say hey, you review these applications and select applicants and then make awards?

    Ms. LAZAR. We're in the process of formulating how those decisions are going to made for this year.

    Mr. LEWIS. That wasn't what I was asking about.
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    Ms. LAZAR. No, no, I understand. Maurice, why don't you describe how it was done last year?

    Mr. JONES. Let me tell you how we've done it in the past and then how we think we may modify this year. We had two steps to it last year, and this is the CDFI program, to be specific.

    Mr. LEWIS. Correct.

    Mr. JONES. In the first level of review in the CDFI Program we got the assistance of outside contractors to help us pare down from, I think it was 159 applications, to about 60.

    In that process we had contractors, with expertise in the CDFI industry, review the applications, do due diligence on the applications, and then make recommendations to us, the Fund staff, about what applications should be considered further.

    The results were about 60 applications. We then had a panel of three; two of whom were from within the Federal Government, one was a fund staffer, another was on detail from another Federal agency.

    They took those 60 applications and then recommended ultimately, the 48 to the Director that we selected, and at the end of the day the Director selected the 48 who we chose as winners.
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    Mr. LEWIS. Okay, just review that last bit for me again. How many were involved?

    Mr. JONES. At the outset we had 159 applications. That 159 were parsed out to about 20 different contractors. Those contractors then recommended from that, about 60 applications that we were to consider further for funding. So we eliminated a little over a hundred.

    From the 60 we then had a panel of three.

    Mr. LEWIS. Internal panel?

    Mr. JONES. Yes sir, an internal panel.

    Mr. LEWIS. Of three people.

    Mr. JONES. Of three people, that looked at the 60 and made recommendations to the Director. She used those recommendations to choose 46. She then was ultimately the chooser of the winners.

    Mr. LEWIS. Now, I'm asking for your personal experience in this because I sense that you have had that personal experience.

    Of the 60 upon which 48 were selected, were there close calls involved?
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    Mr. JONES. Oh yes. There were definitely close calls involved.

    Mr. LEWIS. By chance, were some of the differences in the close calls based upon what the applicant said they wanted to accomplish with the fund?

    Mr. JONES. Yes. One of the things we looked at for instance, is the potential, community development impact of our investment. And in many cases we made, this wasn't dispositive, this was one major factor that actually led us to choose one applicant over another.

    So they have to put forward a comprehensive business plan. This business plan is a plan that covers at least the next five years of the work that they propose to do. And that is a key document in our review of the applications and ultimately in our decisions to fund them.

    We're not only looking to fund institutions that are viable and that have good management and that have a sound track record; we're also looking to fund institutions that have a great potential for community development impact.

    And so yes, is the answer to your question. That definitely made a decision.

APPLICANT DEMOGRAPHICS

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    Mr. LEWIS. Ms. Meek, this line of questioning is very much parallel to what you were asking about, and it sure strikes me that internally here that we might help ourselves, maybe help CDFI as well, if we with our staff, try to focus upon a group like these 60 applicants; eventually 48 selected, and looked at them in various categories.

    What is their size, what number of employees? The applicants themselves are the institutions that deliver money, but beyond that they are recipients.

    I'd be interested also in knowing, as we do that kind of looking, I'd like to have more input regarding the 60 applicants. When did they apply, how long did it take, and then money in hand; how long before they got money in hand.

    And I'm really sensitive about the fact that you've got applicants dealing with people who are marginal employers, or people who are somewhere near the cusp, you know, whether we are helping people survive or whether we just have them survive for a while and later go broke, are we contributing to the environment that improves the economy?

    Under Secretary HAWKE. There's a tough balance to strike there.

    Mr. LEWIS. There is, sure. But that's kind of what, you know, the Government shouldn't be involved if we're not going to deal with tough balances.

    Under Secretary HAWKE. In a sense, the fact that we've got four or five applicants from the first round that haven't received their funds shows that the Fund is being very careful in the disbursement of Federal money.
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    So there is that tension between wanting to make sure that all the preconditions have been met and their matching funding is there, and meeting the concern that you've very properly raised, Mr. Chairman, that there are people out there that actually need this money and are not able to get it from conventional, financial institutions.

    Mr. JONES. Let me just add to what the Under Secretary has said. We had an instance where we chose an applicant in Richmond, Virginia, that struck us as a pretty sound investment. They were involved most primarily, in affordable housing for low income individuals.

    Well, after we had chosen that group as a winner, the CEO and the loan officer left the organization.

    Mr. LEWIS. This was the contractor lender?

    Mr. JONES. Right. Yes sir.

    Under Secretary HAWKE. The CDFI.

    Mr. JONES. This is the CDFI itself that we chose. So we were left with a situation of not having in place the very management that we decided to invest in.

    And so what we did in that case was, we had to delay until there was some semblance of management to replace prior management, and some sense on our part that in fact, the business plan that the old management had put forward, was still one the new management subscribed to.
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    Otherwise, it wasn't clear to us that we were still investing in the same institution. You know, that's the sort of thing that you can't predict, but it happens.

    And when it does happen we have to pause to make sure that we're still making a sound investment and that the institution that we're investing in still subscribes to the business plan that it put forward in its application. That's the sort of challenge we have, and that's the sort of challenges we have with the four that are outstanding.

    Mr. LEWIS. Thank you. Mr. Frelinghuysen.

    Mr. FRELINGHUYSEN. I have nothing more, Mr. Chairman.

    Mr. LEWIS. Ms. Meek.

SUCCESS RATE PARALLEL MARKETPLACE

    Ms. MEEK. Just in a follow-up to your question, Mr. Chairman, in terms of the regular marketplace, what has been your success in terms of your investment in certain institutions, those that failed and those who are able to continue?

    Have you had any record of failures similar to what happens in the marketplace with investments? In terms of your funds?

    Mr. JONES. We have no institution that we have invested in thus far that has failed.
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    Ms. MEEK. So you're doing better than the general populace?

    Mr. LEWIS. Question mark.

    Ms. MEEK. Thank you.

    Mr. LEWIS. A couple of other questions. We have a number of questions that we'll ask you to respond for the record.

    Ms. LAZAR. Okay.

PERFORMANCE PLAN PROCESS

    Mr. LEWIS. After the fund selection of successful applicants, those organizations of the funds are legally required to negotiate performance plans before the award is released. How long does the performance plan process take?

    Ms. LAZAR. To negotiate the performance goals we had workshops with our awardees for the 1997 round in December, where we sat and explained to them in fact, what work was going to be required of them.

    Staff has told me that they're coming in right now; that they're submitting their performance goals and their financial covenants.

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    I think in the past, in the first year it took a lot longer. I think people have a deeper understanding now of what they need to do. Number of months?

    Mr. JONES. Yes, it could take three weeks, it could take a month, it could take longer. It really depends on how quickly the CDFI that we chose responds to us.

    What we have to do is to base their performance goals on the business plan that they put forward in the application. What we usually do is, we'll read through their business plan, they will propose to us what they would like to have as performance goals.

    We read through the business plan, we measure that against the business plan. We also measure it against the historical performance of the institution, usually over the last three years.

    And if we don't think what they're proposing to do is challenging or ambitious, we go back and try to negotiate. Have you got higher goals? But sometimes we get them coming in with goals that we believe are much too high, much too optimistic. And so we end up going back saying, is this realistic? We don't want to set you up for failure.

    So that process can take three weeks; it could also take a month or more.

    Mr. LEWIS. Are CDFIs on track with their performance plans? I mean, do we have a hole here somewhere, a problem, or generally would you say that they are performing in a way that reflects the plan?
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    Ms. LAZAR. From anecdotal evidence that we've seen my sense is that these organizations that we've made awards to in the past are really thriving; that the awards have been very useful to them; have helped them increase their activities.

    It's really meant to bolster their bottom line and give them the opportunity to do more in their communities. And I think that that's in fact, happening.

    Mr. LEWIS. Let me just ask one more question area then, and we'll go to the record as I suggested.

CAP ON AWARDS

    The funds authorizing statute restricts individual CDFIs from receiving $5 million over three years. Fiscal year 1999 is the fund's fourth year of existence. Have any CDFIs hit the ceiling?

    Ms. LAZAR. No sir. We have had one CDFI that has received $4.5 million. That CDFI has been the CDFI that has received the most amount of money since we've been up and running, and no other CDFI has hit the $5 million ceiling yet.

    Mr. LEWIS. Maybe that one, but address the question more generally. Do you anticipate that any of the first round CDFIs will reapply for another term of funding?

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    Mr. JONES. I would think so, yes sir.

    Ms. LAZAR. Yes, we think so.

    Mr. LEWIS. Do you have any idea what percentage might be returning?

    Mr. JONES. Well, between the first and second rounds because we have done two rounds thus far, we had five repeat, what we call repeat offenders; reached down in the second round.

    Mr. LEWIS. I do that with candidates.

    Mr. JONES. The likelihood is that we'll get more folks who were winners in the first and second round to come back to us now. But I have no sense of precisely what that will be.

    But what that means is, five out of 46 institutions that we chose in the second round, were first round winners as well.

RE-APPLICATIONS

    Mr. LEWIS. Do you treat those re-applicants any differently than first time?

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    Mr. JONES. No sir. They have to go through the same process again and they have to put forward the same application materials and go through the same review and there's no guarantee that they'll be successful the second time around. It really depends on what they're proposing and whether we see it as a sound investment.

    Mr. LEWIS. My colleagues, additional questions? Ms. Lazar, gentlemen, it's a pleasure to have affirmative action working right here before us.

    Ms. LAZAR. Right.

    Mr. LEWIS. With that then, for this year at least, the meeting's adjourned.
    "The Official Committee record contains additional material here."

Thursday, March 19, 1998.

AMERICAN BATTLE MONUMENTS COMMISSION

WITNESSES

GENERAL FRED F. WOERNER, U.S. ARMY (RETIRED), CHAIRMAN, AMERICAN BATTLE MONUMENTS COMMISSION

MAJOR GENERAL JOHN P. HERRLING, U.S. ARMY (RETIRED), SECRETARY, AMERICAN BATTLE MONUMENTS COMMISSION

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KENNETH S. POND, EXECUTIVE DIRECTOR, AMERICAN BATTLE MONUMENTS COMMISSION

COLONEL ANTHONY N. COREA, U.S. AIR FORCE, DIRECTOR, OPERATIONS AND FINANCE, AMERICAN BATTLE MONUMENTS COMMISSION

COLONEL DALE F. MEANS, U.S. ARMY, DIRECTOR, ENGINEERING AND MAINTENANCE, AMERICAN BATTLE MONUMENTS COMMISSION

    Mr. LEWIS [presiding]. The meeting will come to order.

    Today, we will be taking testimony for the Fiscal Year 1999 budget request for the American Battle Monuments Commission and the Office of Inspector General of the Federal Deposit Insurance Corporation. The first step is, of course, ABMC, whose Fiscal Year 1999 request is $23,931,000, which is a decrease of $2,966,000 below the 1998 funding level. Testifying on behalf of ABMC again this year is, of course, the Commission's Chairman, General Fred Woerner.

    Welcome, General, and as you know, we under normal circumstances suggest that you can summarize your testimony, and it will be included in the record. Before getting into that, I'll be asking you to introduce your guests in a moment and then ask that you give your oral testimony here to us.

    But before we get to that point, let me call on my colleague, Mr. Stokes.

    Mr. STOKES. Thank you, Chairman. I don't have any formal opening remarks. I just want to welcome General Woerner and colleagues, and say it's always a pleasure to have you appear before the Subcommittee, and as I wind down my career here, I'll have some regrets about not having the chance to associate with you in this formal respect. But I certainly look forward to some informal relationships with the Commission, even after I leave here.
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    Mr. LEWIS. Thank you, Mr. Stokes.

    General, before I start to ask questions, please introduce your guests, so they're in the record as well, including the gentlemen behind you.

    General WOERNER. To my right is the Secretary, General Herrling. To my left, Mr. Ken Pond the Executive Director and to my rear, Colonel Tony Corea, who handles money and operations, and Colonel Dale Means, who handles the engineering and maintenance.

    Mr. LEWIS. My friend, Mr. Hobsons is going to be going to another meeting and he's going to submit his questions for the record, and maybe would like to make a 10-second comment.

    Mr. HOBSON. I just want to say thank you. I really wanted to thank your people. Last year I was over in Luxembourg and I hadn't been there in over 30 years and I went to the cemetery. Your people were most gracious. They did a good job there, and I just wanted to say, thank you.

    Mr. LEWIS. Good. Thank you.

    Mr. HOBSON. I will submit for the record.

    Mr. LEWIS. Ms. Meek, I think perhaps you wanted to speak?

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    Ms. MEEK. I don't have any questions, Mr. Chairman.

    Mr. LEWIS. All right. Thank you, Ms. Meek. Thank you.

    General Woerner, in an effort to begin to get your backlogged maintenance under control, the Congress last year increased your appropriations by $3 million over the budget request. I understand that a new such list was developed just recently detailing all of the necessary maintenance projects at your various cemeteries and monuments on a priority basis, and assume that work on some of these project has gotten underway. In terms of numbers and cost of projects, can you please give us an idea of the progress that's been made to date, what you expect to complete this Fiscal Year, and what will be carried out in 1999?

    General WOERNER. Yes, sir. Would you like me to respond to that question or make an introductory statement first of all?

    Mr. LEWIS. I'm sorry. Of course, I meant to have you give your introductory statement. I'm sorry, General.

Opening Statement

    General WOERNER. Not at all, sir.

    Mr. Chairman and members of the Committee on behalf of the Commissioners of the American Battle Monuments Commission, I am sincerely pleased to appear before you today. I begin by thanking you, Mr. Chairman and the members of the Committee, for the very generous support you have provided over the years, and in particular, this past year with the $3 million plus-up.
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    I add a personal and special note to Congressman Stokes, in anticipation of his retirement; thank you for your long term support and commitment of our activities, sir. We wish you the very best in retirement.

    Mr. STOKES. Thank you.

    General WOERNER. We seek approval of our appropriations request today on a simple premise: That the matter in which we care for our honored war dead is a measurement of the importance that we as a people give to the service and sacrifice of all those who have worn or are wearing a military uniform.

    Associated with this trust, that has been given to the Commission, the care and maintenance of the facilities, the grounds, the monuments, the cemeteries are quite labor-intensive. In fact, in our proposed budget for 1999, personnel costs account for a full 64 percent of our budget. This year we are conducting a survey, a comprehensive and independent manpower study, of all our personal assets. This study will clearly define our manpower requirements for each individual cemetery. We will make whatever adjustments are required based on that and hopefully maximize our shrinking manpower.

    The remaining 36 percent of our budget is required to fully fund our operations, engineering, maintenance, rent, utilities, supplies, equipment, and administrative cost. In managing that 36 percent, we do not, like some other agencies—most other agencies—have the option of closing or consolidating facilities. Therefore, we have to increase our efforts to achieve efficiencies through other means. One of the primary means available to us in this age is automation, and we are pursuing this in our operations and financial management areas.
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    The Congress has been most instrumental in our success at maintaining a high standard of excellence by providing us the funds required to accomplish our objectives. We sincerely appreciate the visit Mr. Cushing, of your staff, and his colleagues made to our cemeteries this past year.

    Your added funding of $3 million has done nothing less than change the psychology, the emotions and the thinking, of the Commission from the lowest to the senior managerial levels. I sense, in my four years with the Commission, that we had slipped into a mentality of managing progressive decay to the best of our ability. With that $3 million plus-up and our economizing to allocate greater portions of our budget into engineering and maintenance, we have erased that mentality. There is now a new positive feeling throughout the organization that we can restore our cemeteries and monuments to the glory they truly merit. And I sincerely, as an individual and as Chairman, thank you, sir, for the support that has truly made this revolutionary change possible.

    To maximize the $3 million that you are giving us, we are micromanaging it from my level to that of the Secretary, through Mr. Pond, and to the levels of the overseas directors and superintendents. We are grouping together projects such as replacing the sprinkler systems, replacing the fuel tanks, and maintaining roads and pathways to achieve economies of scale; thus, permitting contractors to submit consolidated bids and giving us better value for our dollar.

    In order to keep the momentum going on this reduction in the backlog of maintenance of key projects, we propose, within our FY 1999 budget that we are submitting to you at this hearing, dedicating $3.6 million in maintenance funding. This level of funding will help us to continue to reduce mostly the backlog of projects.
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    As you know, the vast majority of our budget is spent overseas, and therefore subject to foreign currency rate fluctuations. For the second consecutive year, we have repriced our budget to conform to Fiscal Year 1999 rates directed by the Office of Management and Budget. This repricing, which is generated by today's strong dollar in Europe, has allowed us to reduce our request by slightly over $1 million.

    In 1996, the Congress specifically directed that the American Battle Monuments Commission prepare agencywide financial statements annually, beginning with the Fiscal Year 1997, and that these statements be audited in accordance with accepted governmental auditing standards. I can now report to you that the General Accounting Office and a designated CPA firm has just completed the first such audit of our Fiscal Year 1997 operations.

    Furthermore, I am very pleased to report to you that we received—in technical terms—an unqualified opinion or—in nontechnical terms—a ''clean audit'' on our balance sheet, which we understand is a very rare occurrence on initial financial audits. Additionally, we have been recognized as one of the first agencies in the Executive Branch to be ''early complied'' with the 1998 accounting standards prescribed by the Office of Management and Budget.

    With continued success in our audits and the parallel implementation of a new, integrated financial management system, we expect the Commission to achieve yet new levels of management excellence within the next two to three years. While pleased with the audit, one important material weakness was highlighted. We were aware of it, had already briefed you on it, and we're working to it. That is the inadequate controls over our information technology as a result of rather ad hoc developments of multiple accounting systems.
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    As I reported last year, we contracted with the Department of Treasury's Financial Services Center regarding the replacement of our multiple accounting systems with one fully integrated system. We anticipate selecting a system this year and implementing it next year; thus, resolving this material weakness.

    Finally, we of course have in additions——

ACCOUNTING SYSTEM

    Mr. LEWIS. Excuse me. Let me interject at this point. The audit led to a highlight that suggested a need for integration of your accounting systems?

    General WOERNER. Yes, sir.

    Mr. LEWIS. And so then you went to bid essentially and looked at various prospects of some form, selected the system that you were going to use. It sounds like it's taken two-and-a-half years to correct the problem.

    General WOERNER. No, sir. We knew——

    Mr. LEWIS. Did you get that impression?

    General WOERNER. We knew the problem ourselves. In fact, we had informed you of the problem last year.
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    Mr. LEWIS. Yes. That's the first year and then the second year and then——

    General WOERNER. We had already initiated that. The audit merely confirmed what we were already working on.

    Mr. LEWIS. You were already working on it and you were trying to find a solution. Why does it take three years to get to the solution?

    General WOERNER. For that, I'll turn to the expert.

    Mr. LEWIS. Excuse me for doing this.

    Colonel COREA. We used money the first year to begin the process and we had money appropriated by the Committee this year to begin funding a new system.

    Mr. LEWIS. Yes, but you identified the problems a year ago.

    Colonel COREA. Yes, sir.

    Mr. LEWIS. And you began working on it?

    Colonel COREA. We began working on it in-house. We had the Treasury come in to help us confirm requirements. We had no real money starting until this year.
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    Mr. LEWIS. I would think it would be priority enough you would have done something with money internally?

    Colonel COREA. It's a major difference to us, sir. We have to select an integrated system authorized under GSA's Federal Procurement Schedule which includes some eight commercial off-the-shelf choices.

    Mr. LEWIS. And that takes about a week, correct? [Laughter.]

    Colonel COREA. No sir, it takes more selection and development time because we're talking about a system that will work for ABMC's Overseas requirements: Even the commercial off-the-shelf systems (COTS) are all primarily for U.S. dollar accounting and most of what we do is also done in foreign currencies.

    Mr. LEWIS. Correct.

    Colonel COREA. Since the commercial systems are built for U.S. operations it's taking us that time to do this, in a deliberate manner, to make it right from the beginning. In spite of that, as General Woerner just mentioned to you, we were able to get a ''clean audit'' the first time out. So I'm not worried about our controls or what we're doing. But we are working extra hard to get to the new accounting system. There's no question about that.

    Mr. LEWIS. We probably ought to have Mr. Hobson here to ask the 2000 questions, do you think? [Laughter.]
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    Colonel COREA. We will be year 2000 compliant.

OPENING STATEMENT CONTINUED

    General WOERNER. Sir, in addition to our overseas mission, we, of course, have the additional mission mandated by Congress to construct the World War II memorial. As I reported to you last year, the rainbow pool site on the mall was dedicated on November the 11th, 1995, by the President. And the following January the President announced, the winning design by Friedrich St. Florian. Since that time, reviews by the Commission of Fine Arts and the National Capital Planning Commission have resulted in the requirement to modify the design. The basic design remains sound, but too big. So we are adjusting it to more appropriately fit within the rainbow pool site.

    Professor St. Florian is currently working these modifications. We anticipate that the modifications will meet the expectations of the Commission of Fine Arts and the National Capital Planning Commission when we again appear before them later this spring.

    Senator Robert Dole, our National Capital Campaign Chairman and his Co-Chairman, Mr. Fred Smith of Federal Express, are working closely with the members of the World War II Advisory Board in raising the $100 million that we anticipate will be required to construct the memorial.

    In summary, sir, since 1923, the American Battle Monuments Commission, its cemeteries, its memorials, monuments, and markers have been held to a high standard in order to reflect America's continuing commitment to its Honored War Dead, their families, and the U.S. national image. The Commission intends to continue to fulfill this noble trust while continuing efforts to improve overall management and operational efficiency. Our appropriations request, sir, for Fiscal Year 1999, is $23,931,000. We welcome your questions, sir.
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    Mr. LEWIS. Mr. Stokes?

    Mr. STOKES. Thank you, Mr. Chairman. Do you want to——

    Mr. LEWIS. Just go right ahead.

    Mr. STOKES. Okay. Thank you, Mr. Chairman. I appreciate it.

    General Woerner, after I've posed my questions, I may have to go out and go to another subcommittee, too. So you will understand my reason for leaving.

WORLD WAR II MEMORIAL DESIGN

    Mr. Chairman, I just have a couple of questions about the proposed project on the mall for the World War II memorial. During last year's hearing, the American Battle Monuments Commission witnesses indicated the design and review process would take 10 to 12 months, starting with the first review last June. As General Herrling stated at that time, and I quote him, ''Now that doesn't mean that it's going to be smooth sailing. There will be a lot of comments from the members of those commissions, and a lot of modifications as we go through this process,'' closed quotes.

    Can you tell us exactly where you are in the process and what has transcribed since you were here last year?

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    General WOERNER. Yes, sir. General Herrling was prescient in his statement that it would not be smooth sailing and that there would be a lot of comments. I'll give you an overview and ask General Herrling to give you a bit more detail, sir.

    We presented the design. During the course of review of the design, the site was reconfirmed. Really, there was no doubt in our minds going in, but that just reinforced locking it in. The general feeling of the commissions to which we presented the design was that there was a disconnect between what the site called for and the size of the memorial that we were proposing. It was not the basic design concept that was a problem, but rather berms and columns. And so, we have been, since those hearings, in the process of redesign and modification to accommodate the guidance we received from both commissions.

    We're doing our homework. We're not just waiting until then to inform them of the direction that we're moving, and we have reason to be quite optimistic about the second round of hearings that will take place in late spring.

    Mr. LEWIS. Can I interpose a question?

    Mr. STOKES. Certainly, Mr. Chairman, go right ahead.

    Mr. LEWIS. I'm just wondering what the artist, the original designer, felt about these commissions requiring the scale-back, et cetera. Give us a bit of that dialog.

    General WOERNER. John, would you?
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    General HERRLING. Mr. Chairman, I'd say he was a little bit taken back by the comments that he received from both the Commission of Fine Arts and the National Capital Planning Commission. And as a former professor of architecture, as a Dean at The Rhode Island School of Design, he's been involved in a lot of international and national competitions. So, the criticisms he got on his design, I think, caused him some concern.

    Mr. LEWIS. I'm really surprised at that. [Laughter.]

    General HERRLING. But it's very interesting because it reminded me that Henry Bacon's first design for the Lincoln Memorial was rejected, Bacon went back to the drawing board, and what evolved was the Lincoln Memorial as we know it today. So, I think there was an element of encouragement there for him. But, anyway, he's back redesigning the memorial. He's taking into consideration the guidance and the comments that were received from both the approving commissions.

    Mr. LEWIS. If I can just interpose for a moment, Mr. Stokes——

    Mr. STOKES. Sure.

    Mr. LEWIS. I'd kind of like to have our staff find for us the original design of the Lincoln Memorial to see if you would like it better. [Laughter.]

    You may find that you guys are right on target with it. [Laughter.]
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    General HERRLING. But he is now in the final phases of completing the redesign concept, and we expect as Chairman Woerner said, to go back before the commissions in the late spring. We are fully confident that we will have the design concept approved at that time.

    In the meantime, we've conducted a first year of a fundraising campaign with Senator Dole as the Chair and we've had a very good year. We've taken in over $20 million. And just two weeks ago, the Veterans of Foreign Wars committed to a fundraising goal of $7.5 million. Also half of that money already received has come from corporations. There are several $2 million gifts, and there are several $1 million gifts. The rest has come from foundations and individuals and a very good direct mail campaign. So, the fundraising campaign has come a long way and we expect that once we get an approved design, it will really take off.

WORLD WAR II MEMORIAL FUNDRAISING

    Mr. STOKES. Let me then just sort of follow up on that because I did want to get into some funding questions. Page 28 of your budget justification portrays the funding summary of the World War II project. It shows that in 1997 the expense of the project was $6,408,000, exceeded revenues of $3,741,000 by more than $2.6 million. The 1998 estimated revenues are $20 million.

    And I realize that the Commission does not have any role in private fundraising, and that this schedule is only for informational purposes. But since the fund balance at the end of 1997 is only about $5.3 million, and since estimated expenses are nearly $14 million in 1998, private contributions need to be at least approximately half of the estimate for the fund to remain solvent. Can you tell us what would happen if revenues did not materialize as expected?
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    General HERRLING. The revenues did materialize, Mr. Stokes, as expected. They did, and we've had a very good year.

    Tony, you can provide details to it.

    Colonel COREA. Sir, we're absolutely at this point ahead of schedule in terms of all our revenues. In our last report that we did at the end of last month, February 1998, we were at 122 percent of where we need to be at this point in time in the year. As a matter of fact, on the expense side we were about 64 percent, which meant we were spending less than we intended to spend. So we're very positive about where we are.

    In addition to that, we're doing cash flow analysis and projections because, as you are pointing to, solvency is the question. We could be making profit and still be broke by not having cash. However, our cash flow estimates are on target, and as a matter of fact, we're favorably exceeding them monthly.

    So we're very positive at this point in time that, if everything continues as it has and, as General Woerner and General Herrling have mentioned, improves from here, this will continue to be good in terms of financial results.

WORLD WAR II MEMORIAL CONTRIBUTIONS

    Mr. STOKES. Can you tell what has been contributed to date this Fiscal Year from private sources?
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    Colonel COREA. From private sources this Fiscal Year? If you'll give me a minute, I can find it, sir.

    Mr. STOKES. Okay.

    Colonel COREA. Over the last, I'd say 14 months, as General Herrling said, we have received $20 million from private sources.

    Mr. STOKES. That's very encouraging, Mr. Chairman.

    Mr. LEWIS. And that's without an approved design?

    General WOERNER. Without an approved design.

    Mr. LEWIS. I'm wondering myself what the total cost was of the Roosevelt Memorial. You're not familiar with that?

    Colonel COREA. I don't know, sir.

    Mr. LEWIS. It was over $100 million. We had a very significant fundraising program for three years, it seemed to me.

    Colonel COREA. That actual number, this year through the 28th of February, was $8.6 million, and that's from October 1997 through February 1998—five months.
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    Mr. STOKES. Mr. Chairman, I appreciate your accommodating me and I yield back.

    Mr. LEWIS. If I could follow up on your last question——

    Mr. STOKES. Sure.

    Mr. LEWIS [continuing]. Relative to design, and so, I am curious to know whether that requirement of redesign, et cetera, is going to impact the schedule of completion of the project. We're scheduled to have it—Memorial Day 2000, we're supposed to have the ceremony? Veterans Day.

    General HERRLING. Veterans Day in the year 2000, we hope to break ground for construction, but this doesn't include dedication.

    Mr. LEWIS. Dedication, okay. All right.

    General HERRLING. One of the requirements——

    Mr. LEWIS. So what you're really saying is we can break ground any time. So it doesn't really——

    General HERRLING. We can't do that, Mr. Chairman, because the government requires you to have all the money in the bank before you can turn the first spade of dirt.
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    Mr. LEWIS. That's the response I was looking for. Thank you. [Laughter.]

    Thank you, Mr. Stokes.

    Mr. STOKES. Thank you, Mr. Chairman.

ENGINEERING AND MAINTENANCE FUNDING

    Mr. LEWIS. I posed that question regarding the $3 million and a list of projects or needs that were outlined. Could you give me an idea or respond to that question and tell me how much of the $3 million will be obligated by end of the Fiscal Year or end of Fiscal Year 1999?

    General WOERNER. Yes, sir. All of it will be obligated, and I'll ask Colonel Means to give you more details on that, sir.

    Colonel MEANS. We expect to fully obligate that $3 million plus-up by the end of this Fiscal Year. That money has been fenced and is being applied to engineer projects, primarily concentrated in Europe, but also the Mediterranean region. We are using that $3 million plus-up, sir, really as a supplement to our normal engineer and maintenance program and expect to put over $6 million into engineer projects within the ABMC arena this Fiscal Year. This will leave us in a position to go into 1999 to apply over $3 million of our—if you'd like me to go back late——
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    Mr. LEWIS. That's okay.

    Colonel MEANS [continuing]. I'll be glad to do that. We're going to apply over $3 million from our program to engineer projects in Fiscal Year 1999. This will continue to decrease our backlog, and if everything unfolds the way we expect it to, that will allow us to wrap up the end of Fiscal Year 1999 with about $6.7 million in backlog, and at that point I think I can safely say that we would be able to begin to manage the backlog on a very systematic basis each year.

ENGINEERING AND MAINTENANCE REQUIREMENTS

    Mr. LEWIS. Can you give us an idea of how you actually develop these lists, how you prioritize, et cetera?

    Colonel MEANS. Yes, sir, I can. If anyone wants to precede me——

    General WOERNER. Go right ahead.

    Colonel MEANS. What we have here in developing our engineer projects, what I call the master priority list, is input and review at three levels, and it all begins with the superintendent at the cemetery who is really master of his—or someday her—ship and he knows his cemetery or installation better than anyone else. We look to the cemetery superintendent as the primary generator of engineer project requirements. However, his submittals have to be reviewed and approved by our regional headquarters, the directors there in each case, in order to validate the project, to review it, to make sure that it's properly combined or consolidated with other requirements, and then is passed to the Washington office for staff review and validation and approval as well. So, we have three levels of input and review, and what you see on our consolidated master priority list is a complete rollup of what we feel is an accurate representation and a honest portrayal of our requirements in the field, based on realty in the field today, sir.
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    General WOERNER. Sir, we sincerely view the $3 million plus-up as a special trust and figure that, if we fail in that, you're going to kill us and you deserve to. As a result, this has been conveyed to the field. General Dickey, our European director, is managing it on a day-to-day basis. General Herrling in the Washington office has a monthly review of that particular slice of the budget to ensure not only that we obligate the funds, but that we obligate them wisely against a prioritized list. We're going to do it right, sir.

CEMETERY LABOR PROJECTS

    Mr. LEWIS. I'm interested in pursuing a little bit the way one goes about doing the work. We mentioned that our committee traveled with you this last season. During that session or that process an issue arose relative to what appeared to be pretty competent staff people doing most of the responsibilities that were laid before them. But the question swirled around whether or not they'd be able to do their ordinary duties and at the same time carry forth these additional maintenance jobs. I imagine that circumstances are different at every location, but what I'd like to know is whether this issue has been resolved, and if so, tell me how and how.

    General HERRLING. These special projects you're referring to, Mr. Chairman, are called cemetery labor projects. They're actually projects that are undertaken by the cemetery workforce.

    Mr. LEWIS. Yes.

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    General HERRLING. And normally, that workforce is involved in the care and the maintenance of the cemetery itself. Particularly through the primary growing season, you've got folks that are out there taking care of lawns and hedges and trees and gardens, and things like that. Outside that primary growing season, the requirements out in the cemetery tend to be less. So it gives the superintendent the flexibility to take some of that workforce and selectively put them on projects that he needs to get done: repairing of stone walls or fences or walkways, or things like that.

    But this is done on an exception basis. They're some rules to go along with getting approval for a CLP, or a cemetery labor project. And those are: It can't interfere with the normal operations and care of the cemetery. You've got to have the qualified people who can do this job competently, and you've got to have the material to do it.

    So, CLPs save the government money because we don't have to go out and contract the work, but you have to be careful on the basis on which they're used. We try to ensure that CLPs are closely scrutinized to make sure it doesn't detract from the normal operations of the cemetery.

    Mr. LEWIS. What percentage of these CLPs are being done by contract?

    General HERRLING. All CLPs are done in-house.

    Mr. LEWIS. Okay.

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    General HERRLING. But there are——

    Mr. LEWIS. But in terms of the $3 million, what are we contracting out? What percentage of the $3 million?

    General HERRLING. Oh, I'd say, probably most of it——

    Colonel MEANS. Virtually 100 percent of that $3 million plus-up will be contracted out, sir.

    Mr. LEWIS. Why?

    Colonel MEANS. Because we——

    Mr. LEWIS. Because your normal staff is overworked?

    Colonel MEANS. Absolutely. Yes, sir. We do not have the internal capability to deal with doing that level of engineer and maintenance projects within the Commission.

    General WOERNER. In terms of manpower and skilled labor, sir.

    Mr. LEWIS. You know, dealing with the year 2000 problem is a big problem in my office. I acquired some extra energy, et cetera, et cetera. But I laid it before my staff and said, hey, we've got to get this done. Some way it's getting done and they didn't contract out to do it.
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    My point is obvious. Isn't there some flexibility within staff whereby these—I'm just laying the question out because it's a real one in my mind.

    General HERRLING. Yes sir. But some of these projects are fairly major, where you've got to replace entire sprinkler systems or you've got to pull old fuel tanks out of the ground and replace them; you've got to do paving to repair parking lots and drive ways and things like that. So, those large projects we almost always have to contract out because they take too much time away from the cemetery staff, and we always don't have the expertise to do them.

ENGINEERING AND MAINTENANCE BACKLOG

    Mr. LEWIS. Okay. According to your budget justifications, you expected that by the end of Fiscal Year 1999 your backlog maintenance, repair, and capital improvements would be approximately $2,600,000. This, of course, assumed full funding of the President's budget. I understand that this number has now changed to an additional $4.1 million worth of projects that have been added to maintenance list. Could you or your staff outline specifically where we are today on this matter and what you expect to accomplish in the 1998 Fiscal Year, as well as 1999?

    General WOERNER. Yes, we can, sir.

    Colonel MEANS. To lead off, I think we can attribute the fact that there has been an increase in our backlog of engineer projects to the fact that we are now conducting more intensive, more comprehensive inspections of our facilities at our cemeteries.
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    Mr. LEWIS. Going from what was $2.5 million to an additional $4 million, that's quite a significant jump. I would have assumed you would have been carefully looking at your facilities long before that. I mean, I would think every year, as guys do their normal work, people do their normal work, there would have been flags if there were problems arising at X and Y locations. That's how you develop backlogs.

    Colonel MEANS. Well, hopefully, sir, that was the system at the time. The only thing that I can attest to is, personally and professionally, is what I've gone out and seen and observed and dealt with. I've now visited 22 out of our 24 cemeteries worldwide, along with our three separate major memorials, located in New York City, San Francisco, and Honolulu, and sometimes a building or structure or pavement may look good, but the reality is that there are underlying problems that have been developing over time. And I think that these more comprehensive and intensive inspections have revealed that there's more work to be done than we previously expected. We also have a very competent, new regional engineer in the Paris office who has been very aggressively looking into the engineer status of the projects there. So, I think the first factor that we can attribute the increase to is more complete, more comprehensive, more intensive inspections.

    Secondly, I would say, frankly, we're getting more top-level, top-team management interest and support, led by the Commissioners who visit our cemeteries, asking questions about engineer projects. General Herrling specifically works those when he goes into the field, and he's leaving this afternoon for a swing to the Mediterranean region—later this afternoon. We'll be looking at those projects.

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    Our regional directors are much more intensively concerned with the engineer aspects of their regions, and we also, as a third factor, have some superintendents who have finally recognized and understand now that we are absolutely serious about what we're doing, and we want a good, what I'll call, solid, justifiable, supportable, and defendable engineer project list which is subject to validation and scrubbing by two higher headquarters levels.

    I also would say that we believe—and this may be a fourth factor—that we're seeing an accelerated decline through normal aging and deterioration. We had a very brutal winter in Europe, not this immediate past winter, but the winter of 1996–1997. And it had very high impact on a number of our masonry structures; for example, grand staircases, retaining walls, pavements, and what have you. So, we at this point are hopeful that we have our arms around this animal and we're now able to deal with it.

    Mr. LEWIS. As you proceed with this effort, one would assume that the priority projects were worked on first, and that the remaining on the list are somewhat of the lower priority. That may or may not be the case.

    General HERRLING. That is the case.

    Mr. LEWIS. That is?

    General HERRLING. And the priorities go something like this, Mr. Chairman: First priority goes to anything that has to do with health or safety. The second priority goes to those things that have to do with environmental impacts; thirdly, those things that affect the cemetery operation or appearance to a major degree; and fourthly, those things that affect cemetery operations or appearance to a lesser degree. There is an established priority and the highest priorities are funded first.
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    Mr. LEWIS. We've talked a lot with other people with whom we work about the difficulty of tough budget years, et cetera. Can you give us some feeling for the down side? What happens if we aren't able to respond in a fashion requested here? What's the down side of all that in delay that might be the result of lower funding?

    General WOERNER. The current split of 64 percent to personnel and 36 percent to operations will be exacerbated, and our backlog of maintenance will significantly increase and what we will return to, sir, is a condition of managing progressive decay rather than a restoration.

    Mr. LEWIS. Do you have any questions? Mr. Walsh?

    Mr. WALSH. Thank you, Mr. Chairman.

ABMC SECURITY

    I wasn't real clear on your charter, and so I thought I would go over it and learn a little bit. I'm just looking through here. But what I was interested in, and it doesn't really come under your purview, but you may comment on it. I got a letter from our local Federal attorney, Tom Veroni, and from the Vermont Federal attorney, Charles Tessler. What they're contacting me about is there's a historic area between Montreal and New York City where there are a number of battlegrounds, major battlegrounds, Ticonderoga, Lake Champlain, and others. They're going to have sort of a catalyst to talk about people stealing things out of these historical sites. Anything that isn't tied down, people will carry off. Is that a problem in your sites, too? It seems sacrilegious, but——
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    General HERRLING. It's not so much that there's vandalism or things missing from the cemetery proper. People will tend to break into the maintenance areas and steal equipment, trimmers, mowers, that sort of thing. But we haven't had any serious problems with it.

    General WOERNER. Ours is not a problem of collectors. It's common criminality raiding our supplies.

    Mr. WALSH. And you have burial grounds around the world?

    General WOERNER. Overseas, around the world.

    Mr. WALSH. Primarily in Europe?

    General WOERNER. Primarily. Europe and the Mediterranean.

    Mr. WALSH. And the Mediterranean.

    General WOERNER. That's right.

ABMC BUDGET

    Mr. WALSH. And how did the President treat your budget this year? Did it increase, decrease, flat?
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    General HERRLING. We have a flat budget.

    Mr. WALSH. Okay, so it's level funded?

    General WOERNER. Yes, sir.

    Mr. WALSH. So in order to raise your folks' pay and keep up with the rest of the world, where do you cut? Where do you reduce spending?

    General WOERNER. In a flat budget, as salaries go up, we have no other option than to take it out of the operating accounts.

    Mr. WALSH. How long has that been going on, level funding?

    General WOERNER. How many years have we been flat?

    Colonel COREA. We were virtually flat, but this committee was kind enough to give us $3 million for our backlog in maintenance. Of course, our numbers go up $3 million. But if you take that out, it's basically flat. But then there's a foreign currency aspect to it because the dollars in our budget allowed us to save some money. So, consequently, that savings were attributable to or used for some other projects or programs, like pay raises as well as some other small increases for maintenance, headstones, services and supplies that we have in the budget.

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FOREIGN NATIONAL EMPLOYEES

    General WOERNER. We haven't mentioned it, but we are concerned. France may go to a reduced work week. We have already experienced a workweek reduction from 48 to 39 hours.

    Mr. WALSH. In France?

    General WOERNER. In France. And now there's a very real possibility, even as early as 1999, January, of it going from 39 to 35 workhours per week.

    Mr. WALSH. You have to pay the same rate?

    General WOERNER. Yes this will mean that will have a 10-percent impact on our personnel budget and available workhours in France.

    Mr. LEWIS. And the pay is controlled by our relationship with the country that's involved, right?

    General WOERNER. Exactly. We have no control over it whatsoever.

    Mr. WALSH. What do you need to stay whole this year? It will probably be redundant of the chairman's questions, but——

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    General WOERNER. While fully supporting the President's Budget, I would welcome the opportunity to demonstrate our management of another plus-up earmarked for engineering and maintenance.

    Mr. WALSH. And how much would that be?

    General WOERNER. We could handle the same amount that you gave us this past year, sir.

    Mr. LEWIS. Once you get it? [Laughter.]

    Mr. WALSH. Nobody said it would be easy when you work for us. These are hard choices, obviously.

    Mr. LEWIS. Mr. Walsh, we've got three minutes now.

    Mr. WALSH. Yes, I've actually already voted, Mr. Chairman.

    Mr. LEWIS. Oh, I see. Excuse me. I wish you had told me that.

    Mr. WALSH. I should have told you. [Laughter.]

    Mr. LEWIS. Excuse me, gentlemen. The new chairman will take over. [Laughter.]

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    If you need more questions, they're right here.

    Mr. WALSH [presiding]. Let me go through your questions for you.

    I've got a terrible cold. Stay as far away from me as you can. I'm going to have to go out, too, because we have a second vote.

    But the Chairman did discuss that possibility with you, an increase in your budget?

    General WOERNER. No, sir.

    Mr. WALSH. He hadn't gotten there yet? Okay.

    General WOERNER. No, sir.

MANPOWER

    Mr. WALSH. Let me just run through a couple of questions for the Chairman, to save him some time and probably yours, too. During Fiscal Year 1998, ABMC will be conducting a manpower study, so as to clearly define the manpower needs of each cemetery. What problems exist which resulted in your need for such a study?

    General WOERNER. John, please.
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    General HERRLING. The problem, Mr. Walsh, is that over the past probably seven years we've taken a reduction in our manpower, and it's down to the point now where it's starting to cut into the operations of cemeteries and how well we can maintain them. We haven't had a good manpower survey to determine what our requirements are, but OMB keeps telling us we're going to have to take additional cuts every year. So, we reached an accord with them this year that if we conducted a very thorough manpower study, they would take a look at that, and then determine if further cuts were warranted or if we had reached a point where further cuts were not necessary. So we're doing a very comprehensive manpower study to determine that.

    Mr. WALSH. What's the status of this study?

    General HERRLING. The contract was just let this month and we expect to have the results by the end of this summer.

    Mr. WALSH. This is an evaluative analysis of all of your operations and the demands——

    General HERRLING. It will.

    General WOERNER. It will, sir, total personnel done by an outside authority.

    Mr. WALSH. Will it be done within a timeframe such that we can include those calculations in our 1999 appropriations?
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    General WOERNER. No, the results are to be included in our FY 2000 budget request.

    Colonel COREA. That's the intention.

    Mr. POND. The contractor tells me that she should be concluded by October in doing the 18 cemeteries in Europe.

    Mr. WALSH. Be concluded by October?

    Mr. POND. Yes, sir. The 1st of October.

    Mr. WALSH. It won't make it. We have to know by June or so.

    Mr. CUSHING. Probably September we could still deal with it.

    Mr. WALSH. Okay.

    Mr. POND. We can probably make September but this would not allow time for a proper review, analysis and OMB approval during this cycle.

    Mr. WALSH. All right. Why don't you take that on advisement then; if you can move it along—because there will be some reengineering at the end on this. The Fiscal Year ends the 30th. So if we had it by the beginning of the month—okay?
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WORKWEEK IN FRANCE

    Let's see. Okay, it's our understanding that the work—yes, you just sort of alluded to this—the workweek for the majority of the European workforce is now 39 hours. Much discussion surrounds the notion of France considering a 35-hour workweek. Will your manpower study include any analysis to determine exactly what a reduced workweek will mean for ABMC in terms of both workforce and manpower costs?

    General WOERNER. We have been managing all along, sir, the reduction of hours available to us. There's two dimensions of the hits that we've been taking. One, of course, is in the authorized workweek. The other has been in the reduction of spaces within the organization. We have had to manage this in-house over the years. What we haven't done is seriously address the cost of leveling of our manpower internally within the organization, and this is where we are going to be applying the outside expertise that we are contracting for. Most certainly, the possibility of a reduced workweek in France will be factored into our considerations in our defense of manpower.

    Mr. WALSH. What percent of your operations are in France?

    General WOERNER. Pardon, sir?

    Mr. WALSH. What percent of your operations are in France?

    General WOERNER. Eleven cemeteries out of 24 is the best measurement, sir—significant; plus, our overseas headquarters is in Paris. So it's a major focal point of our activity. Such a workweek reduction amounts to, our rough calculation, of a loss to us of 10 percent of our workweek—a very significant impact.
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    Mr. WALSH. And then with level funding——

    General WOERNER. Exactly, sir. It means we have to convert operational funds that should be going into this backlog of maintenance into casual hire, temporary hire.

    Mr. WALSH. Anymore that we need to get in? Yes, we haven't begun the next set of questions but there is a five-minute vote right after. I think what we'll do is, if there are some follow-on questions, we'll submit those for the record, if you could get back to us with your responses.

    Thank you very much.

    General WOERNER. Thank you very much, sir.
    "The Official Committee record contains additional material here."

Thursday, March 19, 1998.

FEDERAL DEPOSIT INSURANCE CORPORATION

WITNESSES

GASTON L. GIANNI, JR., INSPECTOR GENERAL, FEDERAL DEPOSIT INSURANCE CORPORATION

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PATRICIA BLACK, COUNSEL

REX SIMMONS, ASSISTANT INSPECTOR GENERAL FOR MANAGEMENT AND POLICY

BUDGET REQUEST

    Mr. LEWIS [presiding]. This morning I'm pleased to welcome Mr. Gaston Gianni, the Inspector General for FDIC.

    The budget request for the Office of Inspector General for Fiscal Year 1999 is $34,666,000, an increase of $301,000 above Fiscal Year 1998.

    Normally, Mr. Gianni, I would turn to Mr. Stokes who would have opening remarks, but we have conflicting subcommittee meetings here.

    In the meantime, feel free to make any opening remarks that you might have.

Opening Remarks

    Mr. GIANNI. I appreciate the opportunity to be here today Mr. Chairman. First, let me introduce my colleagues. On my left is Patricia Black, my counsel, and on my right is Rex Simmons, my Assistant IG for Management and Policy.

    Mr. Chairman, I'm really pleased that you've taken time to hear our budget request, and I'd like to have my full text submitted for the record and I'll try to summarize it for you.
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    Mr. LEWIS. Thank you.

OVERVIEW OF FDIC OIG

    Mr. GIANNI. I've been the Inspector General for the past two years at the FDIC, and since coming to the FDIC, we've made a number of changes to improve our operations. We merged the two Inspector General offices, the RTC and the FDIC. We've had to downsize from 370 to our current level of about 218. We also reviewed what and how responsibilities under the Inspector General Act were being carried out and have made a number of changes to strengthen our operations and organizational structure. We've also increased our communications with the Corporation. My philosophy is that the Inspector General's office has to work hand in hand with the agency as we carry out our respective responsibilities. We've also established an Office of Congressional Relations and Evaluation to provide quick assistance to the Corporation in addressing management controls. We've consolidated and expanded our Office of Counsel. We've tried to take a more proactive approach with the Corporation in carrying out our work, so as to provide our input sooner rather than after the problem has occurred.

    We've refocused our audit work into the financial and program and performance review areas.

LAW ENFORCEMENT RESPONSIBILITIES

    An Inspector General's office has a law enforcement responsibility, and one of the things that I was really concerned about was the adequacy of our training. As a result, we initiated a very intensive training program for our law enforcement agents. We also recently entered into Memoranda of Understanding with the Justice Department to have deputization for my agents and with the FBI regarding how we will coordinate and cooperate with them in carrying out our investigations.
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APPROPRIATION REQUEST

    I feel very positive about the accomplishments that we've made during my first two years with the Corporation, and certainly I am happy that we're here to make the request for our appropriation. It's basically a hold-steady appropriation for the coming year. There is an opportunity for us to increase our staff somewhat. As we look to the future, I see us playing a continued role in carrying out audits that address the major issues facing the agency. To accomplish this, we've allocated our resources among the issues identified in the Corporation's Results Act strategic plan. Hopefully this will enable us to address the most pressing issues.

    Our actual budget increase is about .01 of a percent increase over last year, primarily to deal with implementation of a new pay-for-performance system, as well as relocating some of our staff in California from Irvine to San Francisco, and to cover some of the inflationary costs that we anticipate.

    I would be happy to answer any questions that you might have.

    [The information follows:]
    "The Official Committee record contains additional material here."

STAFFING LEVELS

    Mr. LEWIS. Let's start by having you give me a feel for just how large the organization is, how many FTE.
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    Mr. GIANNI. We have 241 full-time equivalents that we are requesting in the budget. I believe the Corporation as a whole has at the present time 8,000 people. So we are a relatively small portion of the Corporation.

LAW ENFORCEMENT ACTIVITIES

    Mr. LEWIS. You would appropriately describe your responsibility of that of being a law enforcement responsibility. Would you discuss that a bit for us? Tell us of some of those activities that we would see as law enforcement activities.

    Mr. GIANNI. Okay. I have approximately 39 agents on staff out of the 218. Their primary responsibility is looking for fraud against the government, against the Corporation. Right now, most of our work deals with contractor-related fraud associated primarily with the work of both the Corporation and RTC in liquidating the assets from the banking and thrift crisis of the late 1980's and the early 1990's. Oftentimes in managing these assets, the Corporation relied on contractors to perform the work, and so much of our investigative work focuses on contractor fraud.

    In addition, we've had several cases where the Corporation has contracted for legal services and firms pad their bills, and intentionally try to hide it from the Corporation.

SAVINGS FROM OIG INVESTIGATIONS

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    Mr. LEWIS. Would you give us some of what you would really describe perhaps as an accounting matter, but could you, for the record, provide us with levels of money that you would suggest these efforts may have saved the government? What kinds of dollars were involved in these fraud cases and describe them, et cetera? I would just like to get a better feel for what kind of values the government is receiving for that sort of, what is called, law enforcement activity.

    Mr. GIANNI. Sure.

    [The information follows:]
    "The Official Committee record contains additional material here."

    Mr. GIANNI. Collectively, this past year, we had, I believe, about $6 million in restitutions, and collections was about $5 million as a result of our investigative work. We're planning to look at the restitution area where there is a large amount of money that is owed the Corporation. In a certain percentage of these cases, people have hid their assets from the Corporation and have indicated that they are unable to pay the Corporation. So we're looking for that type of activity.

FINANCIAL REGULATORY AGENCIES

    Mr. LEWIS. Mr. Gianni, you know that the FDIC is one of five organizations that are involved in regulating financial institutions. There are similar problems in terms of oversight responsibilities, et cetera. Is there coordination between these agencies in the work that you do?
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    Mr. GIANNI. Certainly, there's coordination at the agency level. Five regulatory agencies—they have the Federal Financial Institution's Examination Council.

    Mr. LEWIS. I'm thinking of the IGs, of course.

    Mr. GIANNI. The IGs, yes. I meet monthly with the other IGs to go over the types of work that we're doing and to coordinate projects. This past year, we identified one area where we could establish a joint project. We reviewed the organization and operation of the Examination Council and made some recommendations to the council this past month. We plan to continue doing a follow-on project related to the Council's training function. My hope is that over time, we will be able to identify other cross-cutting issues that we will be able to address.

    I know that in the past, there has been some concern or questions asked about the differences in the regulatory practices of overseeing the various institutions.

    Mr. LEWIS. Right.

    Mr. GIANNI. I think that it would be quite possible for us to initiate a project, to look at, and compare, and see where the differences are, and see whether they're justified.

INDEPENDENCE OF INSPECTOR GENERAL
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    Mr. LEWIS. As you know, we deal with a number of Inspector Generals in various agencies that come before the Committee. The Housing Inspector General, for example, is carrying out some very special work that relates to the interest of the Committee. The independence of those Inspectors General is very important to the agencies that they work with.

    So I'm wondering outloud really whether there should not only be coordination between these ideas, but whether there shouldn't be perhaps consideration of a single IG organization that deals with financial institutions that would address all of these five areas.

    Mr. GIANNI. Well, it's an interesting thought, and I certainly——

    Mr. LEWIS. Has it ever been discussed?

    Mr. GIANNI. It has not been addressed among ourselves. Right now, the Office of Thrift Supervision and the Office of the Comptroller of the Currency are covered by the Treasury IG. They have administratively appointed IGs at the National Credit Union Administration and the Federal Reserve. Such a single IG would require legislation. I certainly would support such a proposal. I'm not sure where the respective agencies would come out in that regard. But in the meantime, I'm looking for opportunities where we can work together to identify projects and work in that fashion.

YEAR 2000

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    Mr. LEWIS. I appreciate that response. What role does the Inspector General have in making sure that the FDIC computers will be ready for the year 2000?

    Mr. GIANNI. A very important role. Right now, we're trying to assist the Corporation. The Corporation has put together a very extensive plan to address the issue. GAO recently issued a report and indicated that more guidance was needed to assist the financial institutions assess their servicers, whether their service providers are going to be year 2000-compliant; and, secondly, whether their customers, major customers, are also year 2000-compliant.

    What we're trying to do in the IG community is assist the administration in ensuring that their respective agencies meet the year 2000 requirements. We're currently looking at how the Corporation is going about implementing its year 2000 program and will be testing to make sure that they are getting the right information; to make sure that they keep on schedule, and as we find opportunities for them to tighten up and make improvements, we're passing that information on to the Corporation. Right now I think the Corporation has a very aggressive plan to meet the timetables of having an assessment of its 6,200 financial institutions under its responsibilities completed by the end of May.

    Mr. LEWIS. Thank you. That's very helpful.

    Mr. Walsh?

    Mr. WALSH. Thank you, Mr. Chairman.

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    On that year 2000 issue, one of the institutions wasn't ready—what's the down side for the customers, for example? What's the scenario you would envision?

    Mr. GIANNI. The worst-case scenario would be a stoppage of payment of funds, either coming in or going out, and just the whole financial transactions for that financial institution would come to a stop until the problem was corrected.

    Mr. WALSH. So within the electronic transferring system the banks have——

    Mr. GIANNI. We have electronic transfers; the problem is from a standpoint of balances and the financial institution losing all of its records because it would revert back to a year 1900. And so, you have to deal with this on an institution-by-institution basis, but if it begins to happen with any degree of regularity—and let's say the percentages start to increase; then you worry about what the outside implications are, even for people who might be doing business in an institution that is sound and has met all of the standards.

    So, I think it is very important. The Corporation is putting a lot of energy and a lot of resources into ensuring, or at least helping the financial institution to make the necessary move to deal with these problems. And they are also spending money to make sure that the FDIC's internal systems are in compliance with the year 2000.

    Mr. WALSH. Fortunately, at least it seems currently the banking industry is much healthier than it was back in the 1980's, the early 1990's. Do you anticipate banks, especially smaller banks, maybe rural banks, having problems providing the resources that are needed to fix this computer problem?
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    Mr. GIANNI. For your smaller institutions, I think there is a concern, even though last year was a banner year in the financial industries. I think many of the smaller institutions rely on service providers to provide most of their support activities. So, therefore, it's important that these service providers are taking the necessary action. But there is always that risk that people will be unwilling to make the investment because this requires a substantial investment.

    Mr. WALSH. In order to meet their obligations to be members of the FDIC, do you require certain things of them?

    Mr. GIANNI. That is correct, and the Corporation is currently developing a plan that if, in fact, between here and the year 2000, they find banks that are deficient in either their plans or their actions to address the problem, that they can begin to take the various regulatory actions, cease and desist, and at some point in time they will have to make a decision as to whether even to take over that financial institution.

    Mr. WALSH. So, it is possible they could.

    Mr. GIANNI. That is possible.

    Mr. WALSH. That would be the exception to the rule, I would think.

    Mr. GIANNI. I think it would be the exception. I think right now the statistics would indicate that a relatively small number are in the unsatisfactory area, and hopefully, through aggressive oversight, these institutions will pick up their pace and solve the problem before the time comes.
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    Mr. WALSH. Do you look at if the banks that are members of the FDIC in terms of their fiscal strength, their managerial strength?

    Mr. GIANNI. The Office of Inspector General does not. That is the responsibility of the Corporation and its Office of Supervision.

    Mr. WALSH. Thank you.

    Mr. LEWIS. Ms. Kaptur?

    Ms. KAPTUR. Thank you, Mr. Chairman.

    Good morning.

COST OF SAVINGS AND LOAN CRISIS

    Mr. GIANNI. Good morning.

    Ms. KAPTUR. Good to have you here, Mr. Gianni.

    I have several questions, having served on the Banking Committee many years before coming to this committee and having been here during the savings and loans crisis. I'm wondering where you could refer me or if you could obtain information for me on the cost to the public at this point of the refinancing of all of the debt, the public debt, that has been issued to essentially bail out those institutions. I have read many articles indicating it is now the third largest contributor to the public debt, but because it is incorporated into the overall debt financing, it's hard to get a handle on the actual costs. I'm very interested in that cost, dating back to the 1980's. Where would I obtain that disaggregated information?
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    Mr. GIANNI. I know about a year-and-a-half ago, the GAO did put together a report that estimated the cost of the savings and loan crisis and the cost that it—and I believe the cost was somewhere in the $125 to $130 billion range, if my memory serves me right. And some of the financing is still going on, but I believe that GAO did take the financing costs into consideration in coming up with its cost estimate. But we can provide this for the record.

    Ms. KAPTUR. And if you could obtain all of the information, I want to go over it with a fine-tooth comb.

    Mr. GIANNI. Yes, ma'am. We'd be happy to.

    [The information follows:]

Cost of Savings and Loan Crisis

    The U.S. General Accounting Office (GAO) issued a report entitled Financial Audit: Resolution Trust Corporation's 1995 and 1994 Financial Statements (GAS/AIMD–96–123, July 1996) that addressed the cost of refinancing the debt the government incurred in cleaning up the savings and loan crisis. According to GAO, in total, the Congress provided funding to cover $105 billion of losses and expenses associated with RTC's resolution of failed institutions. GAO reported that approximately $209 billion in estimated interest payments would be needed over 30 years to cover the interest expenses related to appropriations used to cover direct costs of the crisis.
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    A copy of this report will be sent to the subcommittee.

    Ms. KAPTUR. And it's significant because it is over a 30-year period.

    Mr. GIANNI. Yes, ma'am.

    Ms. KAPTUR. So, when you look at what the cost is, it is absolutely phenomenal. And the American public doesn't really see this. They think that we're wasting money on foreign aid. We probably are in some senses, but if you look at the amount that this particular refinancing contributes to the accumulation of the public debt, it is really significant. So, any way you can help me understand what that is, I would appreciate it.

    Mr. GIANNI. We'd be happy to.

INTERNATIONAL LENDING

    Ms. KAPTUR. Secondly, having lived through that and several other banking crises, as you look at safety and soundness—in the international lending arena, I have also lived through the Mexico situation here, looking at a lot of the speculative activity of the banks. Now, we have the Asian situation, and it is unclear to me exactly which U.S. institutions, if any, are involved in all of that—again, a very high-risk type of lending.

    To what extent does your analysis involve careful monitoring of the international lending activities at these lending institutions? I didn't see that in your——
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    Mr. GIANNI. No, ma'am. Basically, that is a responsibility of the regulatory agencies themselves. I know the Corporation, FDIC, currently has the insurance responsibility for all 11,200 banks——

    Ms. KAPTUR. Yes. Yes, absolutely.

    Mr. GIANNI [continuing]. And thrifts. And, they have looked at what impacts this may have on the insurance fund. Certainly, the Federal Reserve and OCC have looked at it. I don't have the specific information, but individually they've looked at it, and there is a working group among the regulatory agencies to try to bring all of this together, to assess potential impact. So each agency is monitoring. I don't have that information, but I would be happy to try to get it together and provide it to you.

    Mr. LEWIS. If you can do that for the record, we would appreciate it.

    Mr. GIANNI. Yes.

    [The information follows:]
    offset folios 2066 to 2068 insert here

    Ms. KAPTUR. If you can help me think through this issue and your involvement—obviously, you're there as the insuring entity. In the end, it all comes to rest at your foot, at your doorstep, doesn't it?
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    Mr. GIANNI. Certainly, it does come to rest at the Corporation, as the insuring entity. While that's not my responsibility as the Inspector General, I certainly have a responsibility to ensure that the Corporation is doing what it needs to do and will work with the Corporation to get that information.

COMMUNITY REINVESTMENT ACT

    Ms. KAPTUR. All right, I appreciate that.

    Now, in the area of mandated affirmative credit activity, such as the Community Reinvestment Act and the Homeowners' Disclosure Act, what type of priority do you place on monitoring the affirmative activities that institutions are required under the law to provide to their credit communities? Do you get involved in that at all?

    Mr. GIANNI. The Corporation has a program to review each institution's community reinvestment activities. And they do that through a series of onsite exams of the institutions over a three-to-five-year cycle. And they, along with the other regulatory agencies, collect this type of information. As the Office of Inspector General, we just recently began to look at how well that program was being implemented. And I don't have any results yet, but we are spending some of our resources to see how that program is administered by the Corporation.

    Ms. KAPTUR. Wonderful. I am very interested in that area, as you can tell.
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    Mr. GIANNI. Yes, ma'am.

CREDIT CARD BANKRUPTCY

    Ms. KAPTUR. And finally, again in the area of safety and soundness, I have been very troubled by the bankruptcy of individual American families, looking at the rate. Some say, well, the law is too lenient, and therefore, it's too easy to file for bankruptcy, and many people file before going through consumer credit counseling, and so forth. But, nonetheless, I think the numbers show that we are a debt-driven country and some people really get in over their heads.

    I have become increasingly troubled by the credit card mailings that lending institutions send out, including to children who are 12 and 13 years old who may subscribe to the Internet. And therefore, they get these offerings to purchase credit as a minor. I have a whole set of concerns regarding the promotion of debt as opposed to savings by the lending community, particularly the kinds of habits they establish in our youth. And I'm wondering what you might be looking at in terms of the activities of these institutions to push credit to the point where, in an average week, you can collect half a waste basket full of this stuff that is mailed out to families across this country.

    Mr. GIANNI. Well, my office at this point in time has not taken a look at that. The Corporation, however, has been monitoring bankruptcies and has recently issued a trends report on bankruptcies and what are some of the causes of this increase in bankruptcies within our country. Like you say, it's currently running around 1.2 million per year, 1.3 million per year. Part of the reason for the increase is attributed to credit cards. But one more time, I would be happy to see that you get a copy of that information. I think you'd find it very helpful.
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    [The information follows:]

Credit Card Bankruptcy

    Since this question does not pertain directly to Office of Inspector General operations or work it has performed, we asked FDIC's Division of Insurance to respond. Their response follows:

    Credit card chargeoffs reached a record high of 5.37 percent in the third quarter of 1997, and declined only slightly in the fourth quarter. One factor in the high rate of credit card losses is the continuing increase in consumer bankruptcies, which rose 20 percent in 1997 to over five filings per thousand of population. Credit card lending, however, remains one of the most profitable lines of business in banking, although higher credit losses and more competitive pricing have led to declining profitability at credit card banks in recent years. It appears that most institutions that specialize in credit card lending have the financial strength to absorb further increases in credit losses and additional erosion of interest margins without jeopardizing their solvency. In his testimony before the Senate Subcommittee on Financial Institutions and Regulatory Relief on October 21, 1997, FDIC Chairman Hove observed that developments in credit card lending warrant continued close monitoring by both bankers and their regulators.

    The Division of Insurance (DOI) at FDIC has conducted extensive analysis of recent trends in consumer bankruptcies. These studies note that the trend towards higher bankruptcies is taking place nationwide, and that the increases are higher than one would expect given current levels of consumer indebtedness and the robust nature of the economic expansion. A number of legal and demographic factors appear to be useful in explaining differences in bankruptcy rates across the nation. However, there does not appear to be much evidence that changes in federal bankruptcy law are responsible for the large increases in bankruptcy rates that have been observed over the past 20 years. Instead, as described in the FDIC Publication Bank Trends, it seems likely that the surge in bankruptcy filings is largely the result of the deregulation of consumer interest rates that took place 20 years ago. In the current deregulated environment, annual credit card solicitations have run into the billions and annual personal bankruptcies have soared past one million while credit care lenders continue to earn healthy profits. The implication of these studies is that a high rate of personal bankruptcy seems likely to remain with us as a long-run consequence of consumer interest deregulation.
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    Four Bank Trends articles on the topic of personal bankruptcy trends can be found on the FDIC website at www.fdic.gov/publish/bktrnds.

    Ms. KAPTUR. And any work that you can do to give us a sense of the scope of the advertising that goes into it in relation to your own work and to what extent does that have a relationship to people getting hooked early and becoming debtors at a very young age would be greatly appreciated by this Member.

    Mr. LEWIS. Ms. Kaptur is really asking you, as Inspector General, to encourage the agency to provide not only this information, but your oversight of how they're going forward with these kinds of questions.

    Mr. GIANNI. I understand.

    Mr. LEWIS. Anecdotally, Ms. Kaptur, I just learned that a very dear friend of mine who recently became a father for the first time, his 9-month-old son has received an application in the mail. [Laughter.]

    Ms. KAPTUR. My own opinion is it's out of hand, absolutely out of hand.

    Mr. LEWIS. Mr. Gianni and your friends, I appreciate your being with us, and we look forward to continue to communicate with you.

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    Mr. GIANNI. Certainly, sir. Mr. Chairman, if there are any other areas you would like us to take a look at, we would be more than willing to entertain those requests.

    Mr. LEWIS. Thank you.

    Mr. GIANNI. Thank you for the opportunity to be here today and we look forward to your continued support.

    Mr. LEWIS. It's a pleasure to work with you.

    Ms. KAPTUR. Thank you very much.

    Mr. LEWIS. With that, the meeting is adjourned.
    "The Official Committee record contains additional material here."