Segment 1 Of 2 Next Hearing Segment(2)
SPEAKERS CONTENTS INSERTS Tables
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DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT, AND INDEPENDENT AGENCIES APPROPRIATIONS FOR 1999
THURSDAY, FEBRUARY 12, 1998.
CHEMICAL SAFETY AND HAZARD INVESTIGATION BOARD
WITNESSES
PAUL L. HILL, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
JERRY POJE, BOARD MEMBER
OPENING STATEMENTS
Mr. LEWIS. We will call the meeting to order. Dr. Hill, I have an opening statement, and then we will hear from Mr. Stokes. Both of us probably briefly. And from there if you'll introduce your guests.
Mr. HILL. Certainly.
Mr. LEWIS. Dr. Hill, this is the first hearing on the President's Fiscal Year 1999 Budget Submission for Departments, Agencies, Appropriations and Boards under the jurisdiction of the VA, HUD and Independent Agencies Subcommittee.
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Perhaps it is fitting that the first agency at our first hearing this year should be the first United States Chemical Safety and Hazard Investigation Board, which is appropriately testifying before the subcommittee for the first time.
The Chemical Safety Board was created by Congress through Section 112 of the Clean Air Act amendments of 1990. Minimal funds were appropriated for beginning the operations of the Board in fiscal year 1995. Those funds were later rescinded.
During portions of fiscal years 1996 and 1997 the administration has attempted to provide certain services meant to be the responsibility of the Board through an interagency agreement between OSHA and the Environmental Protection Agency.
In part because of recognition that this EPA–OSHA alternative was not working satisfactorily, the Congress provided $4 million for beginning operations of the Board in fiscal year 1998, Public Law 105–65.
And then for fiscal year 1999, the Board's initial request was for $7 million. However, that request has subsequently been modified upwards to $8,261,000. We hope to discuss this and other matters in some detail in a few minutes.
Before introducing our witnesses formally for the record, I would like to recognize my friend, the former chairman of this Subcommittee, who is thinking seriously about not returning this next Congress. We may work on that.
Mr. Stokes, it is my sincere pleasure to welcome you this morning for the beginning of what I truly hope will be a rewarding and meaningful year for you and me.
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Mr. STOKES. Thank you very much, Mr. Chairman. I do have just a few comments I would like to make. This hearing formally starts the Subcommittee's efforts to craft the annual VA, HUD, Independent Agencies appropriations bill.
This fiscal year will mark the 24th annual bill that I have worked on in this Subcommittee. Of the 16 terms I will have served in the Congress by the end of this session, 12 of them include service on this Subcommittee.
When I first joined the Subcommittee I sat way down at the end of the table where Mr. Wicker sits now.
Mr. LEWIS. Where?
Mr. STOKES. No. Mr. Frelinghuysen, I guess, is in that spot now. I was further than Mr. Wicker.
But I sometimes used to wonder how long it might take to reach the Chairman's seat, and serving under the able leadership of Eddie Boland of Massachusetts and Bob Traxler of Michigan, it never occurred to me that after attaining the chairman's gavel that I might continue moving down the table on the minority side. [Laughter.]
Mr. LEWIS. Never occurred to me either. [Laughter.]
Mr. STOKES. And it looks like you don't have to worry about it.
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But I can say that there is no one that I enjoyed more giving the gavel to than Chairman Jerry Lewis.
This year will be the 16th year that he and I have served together on the VA, HUD Subcommittee. So we have been through both thick and the thin. We have seen some partisan skirmishes, and bipartisan cooperation. We have seen agencies come and go, budgets rise and fall.
We have seen great legislative victories in the Committee and on the Floor, and we have seen our share of defeats, too. Through it all there have been at least two major themes: constancy and change—change in the agencies, the people, the fascinating and complex issues with which we have had to deal with constantly, and the courtesy, the professionalism, dedication and loyalty to the Committee and the Congress demonstrated by the members of the staff of this Subcommittee.
I look forward to this year's cycle for many reasons. If the economy continues at its present pace, we have the opportunity for a balanced budget for the first time in 30 years.
We have an opportunity to deal with many difficult and exciting issues, all the way from the Aeronautics and Space Administration's International Space Station to the Climate Change Technology Initiative, to adequate funding levels for our nation's veterans, to operations of the Chemical Safety and Hazard Investigation Board.
I look forward to working closely with Chairman Lewis, and the other fine members of this Subcommittee this year.
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With that I will take this opportunity to welcome you, this being your first opportunity to appear before our Subcommittee. We want to welcome you and say that we look forward to working with you also.
Thank you, Mr. Chairman.
Mr. LEWIS. Thank you, Mr. Stokes.
Before we proceed from here, I would like to mention to those members who are present that in working with our staff we have developed a rather intensive schedule for our hearings between now and roughly the early part of June.
We would hope, pending some possible interruption by other legislative matters, such as appropriations supplementals, et cetera, we would hope to complete our hearing process very early in the year in order to go to mark up some time in June, and perhaps have our work entirely completed on the fiscal year discussions before we recess in mid-summer.
That is an ambitious schedule, and already on the horizon there is some indication of supplementals. But I would hope that we would try to work through regardless of supplementals and continue with our effort.
So with that it is my pleasure to welcome Dr. Paul L. Hill, Jr., to the Committee as our first witness. Dr. Hill, if you could introduce our Board members and other guests who you might have brought with you.
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MR. HILL'S OPENING STATEMENT
Mr. HILL. Thank you, Mr. Chairman. It is certainly my pleasure to be here on this auspicious occasion of being the first, and having it be our first opportunity to speak to this Committee directly.
We do appreciate what you have done for us in the past in initiating this agency.
With me today is Dr. Jerry Poje, also one of the Board members. And behind me are several members of my initial, although fledgling staff, as this agency begins.
Again, Mr. Chairman, and Mr. Stokes, thank you for the kind words that you have offered this morning. This is certainly an opportunity for us to provide to you some comments on our budget, and I'd like to just give you some of the highlights of what we have been doing in the short period we have been in operation.
Indeed, I think we have a very positive story to tell. I think we have accomplished several things in a very short period of time. I would like to give you some of those highlights, and then ask your guidance on some of the additional issues, and any thoughts that you might have in those areas.
First, as you are well aware, this agency received its first appropriation less than four months ago. On January 5th we opened our doors for business as an agency in temporary offices here in Washington.
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SPARKS, NEVADA EXPLOSION
On Wednesday of that same week we had an explosion in Sparks, Nevada that took the lives of four individuals. By Friday of that week I had seven technical staff on site conducting an investigation of the cause of that tragedy.
Out of this experience we have not only completed the site work investigation in 30 days, but we have also developed insights into fiscal, procedural, technical and logistical matters that will dictate much of the Board's future.
Also out of this effort, working relationships with the State of Nevada, as well as Federal OSHA have been formed and are proceeding.
In addition, we have pursued various statutory and non-statutory relationships with NTSB, EPA, DOE, FEMA and many others. For example, the FEMA agreement to share accident reporting efforts will cost the Board a fraction of the cost that would have had we developed this capability internally.
Also with the collaboration of other agencies, we have developed a first rate communications capacity, including a Web site. And I have copies of our Web site, which becomes operational today.
This will allow public access to this Board, to its findings, and to its day to day functions that we hope to allow greater public access to the Board by all of the parties who are interested in this particular arena to access our functions.
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BUSINESS PLAN
In essence, we have followed the business plan that we submitted to you last fall. That plan described a business philosophy with respect to our budget submission, responsible expenditure of our funds, effective and informative investigations and a flat organizational structure.
Our goal is and will be an efficient, flat structure that builds on existing resources within the Federal system before suggesting that we might need to build additional capacity.
The Congress has challenged us with the statutory authority to seek out opportunities within the government itself, and to make recommendations about how more effective and productive response to chemical accidents and their prevention may be made, encompassing the entire Federal effort.
This is no simple challenge. A few modifications to our authority could make very real differences in our fiscal budget and corresponding capabilities.
First, we have noted that the NTSB has specific authority to use volunteer assistance during the course of their accident investigations. This saves the agency untold millions of Federal dollars by enhancing its ability to conduct its activities.
Similar language would assist the Board also if we are allowed to use volunteers, rather than paying for all the assistance that we gain at a site like Sparks or others around the country.
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A second opportunity may be realized in the reserve model that FEMA and the Forest Service and some other agencies use in having those types of expertise available as reserves to the agency, and used only, as FEMA does, when there is a disaster or a need to use those employees.
That would be another cost saving opportunity that we would suggest should be considered.
Finally, the mandatory requirements in the Act to investigate certain accidents is often difficult to budget. Various accident investigations vary widely in their complexity and their cost.
A provision for no-year funds, or an emergency reserve fund to deal with this issue would greatly increase the Board's fiscal ability to respond to the unpredictable nature of our Congressional mandate.
We intend to take up these issues with our oversight committee, but because they have fiscal ramifications to our budget we wanted to bring them to your attention today and ask you further guidance on those types of issues.
Mr. Chairman, this concludes my brief remarks. I'll be pleased to respond to any questions that the committee may have on any of the material that is before you or anything that I said today.
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[The information follows:]
"The Official Committee record contains additional material here."
Mr. LEWIS. Thank you, Dr. Hill. I appreciate very much the summarization of your remarks, and I know there is more detail that will be added for the record.
I note we have joining us Mr. Wicker and Mr. Frelinghuysen, and you probably should make special note of the fact that Mr. Mollohan, who does come from West Virginia—I am not sure you live in his District, but I know you are close by otherwise.
Mr. HILL. Yes. Hello, Alan.
AMENDED BUDGET REQUEST
Mr. LEWIS. I was going to raise the question regarding that problem in Nevada, and so I am pleased that you highlighted that. Would you give us kind of a feel by way of discussion here what lessons you think you have learned that would be of interest to the committee in this first experience, in terms of the way you might respond to future events.
And did any of these lessons have an impact on your decision to submit an amended 1999 budget request? And, if so, we would like to have you provide some specific budget details that impacted your decision in connection with that.
Your original fiscal year budget, as I mentioned earlier, was for $7 million, and late Friday afternoon you submitted an amended budget including $8,216,000. I am aware, of course, that you are still in the very early stages. setting up your office and so on.
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But if you would relate a little bit more of that, and perhaps expand upon your experience working with FEMA. I am concerned that your agency could find itself in the same king of circumstances FEMA has over the years, where they have an established base budget and then an emergency arises and there are requests for supplementals that of late have been the whole budget for all intents and purposes.
And the same thing, I think, could occur here, and careful coordination, of course, will be important with that prospect. Any response?
SPARKS, NEVADA INVESTIGATION COORDINATION
Mr. HILL. Yes. I appreciate your remarks, Mr. Lewis. The Sparks incident, I think, gave us first hand observation of an incident that required quick decision making in order to respond to what was otherwise a tragedy in the very early stages of our ability to do so.
We called upon the U.S. Department of Energy and the fact that that agency has a cadre of existing investigators that are used only at DOE sites. So in the government, that was good place for us to find that kind of expertise.
I called the Secretary's office, and we were able to, over the phone, decide on using those individuals to conduct this investigation.
The other very positive thing about using the DOE personnel at the national laboratories is that, again, an existing capability. But they also have developed a defined technical protocol to how one goes about conducting an investigation.
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That was, indeed, one of the problems and one of the criticisms of the other fledgling program in this area that you mentioned in your opening comment, that there must be a very defined procedure for industry, for effective public, all to understand how these investigations will occur.
Indeed, we gained a lot of insight, even using the DOE protocol, applying it to this site, because obviously it is a private site, it is an explosives manufacturer for the mining industry.
In addition to conducting an investigation, we also assessed that protocol, and are using the information learned out of that to achieve a better understanding of what our overall protocol will be for the Chemical Safety Board.
We have looked at the expense of the employees, what it takes to get a technical team organized on site at a command center, with phone lines, and equipment. That, we found, is more expensive than we probably estimated in our original budget.
If you look back at our original budget, we had no history at all to base those budgets on, other than bits and pieces of information that we gathered from EPA and other agencies.
So we felt that our original estimates were low, based on no experience. The Sparks experience gave us further insight, that indeed these situations can have costs that we have not identified at that point; and I think that is what we tried to explain in the budget amendment.
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Your question about the FEMA relationship, we simply were looking at FEMA. The thing that we really accomplished at this point is using their response notification system to cut our own costs.
If we had to hire three employees, for instance, much less buy equipment to get those types of notifications, we felt that that was indeed a big cost savings at FEMA.
We are still looking at those three items as far as which would be the most appropriate for us to respond to the variety of accidents, and not knowing the extent or cost of those.
And I am not prepared today to make a recommendation as to which approach is best for us. I simply wanted to throw that out to ask your advice and consent and thoughts about how we might proceed in the future.
But we are looking at all of those things as a means of trying to meet our mandate.
Mr. LEWIS. In this environment in which we are making a serious effort to examine existing programs and responsibilities, reduce the rate of growth of government, creating new agencies is a delicate business, to say the least.
Mr. HILL. Yes.
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Mr. LEWIS. And, indeed, there is great hesitancy on the part of the House in general to move in the direction of presuming that more is better, when the Committee has been stressing very strongly that we can do more with less effectively if we will.
And so it is within that context, and recognizing we are dealing with a very delicate area that some of these initial questions are developed.
INVESTIGATION PROCESS OF CSHIB
Last fall, the Congress determined to fund the Board, in part, because we were concerned with the process that was developed for EPA and OSHA in lieu of the Chemical Safety Board, to undertake accidental investigations.
It has been stated that the independence of the National Transportation Safety Board in investigating transportation accidents was to be your model for chemical accidents. At the same time we might concur with the NTSB as a model in the context of how investigations might be accomplished, we certainly do not expect for you to view the NTSB as a model in context of how to grow a Federal bureaucracy.
You may or may not be aware that there was a significant train accident in the San Bernardino Valley in California some months before.
Mr. HILL. Yes.
Mr. LEWIS. That happened to occur not in my District, but in Congressman George Brown's District, which is adjacent to mine. A big part of the circumstance was about 200 yards from the home where I was raised, so I was somewhat interested in that problem.
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We cannot begin to provide you with the kind of financial resources, of course, that NTSB has experienced, over $40 million. That has been provided over time. At the same time, I believe it is our responsibility to provide you with the resources that are necessary within reason to allow you to perform your statutory mission.
EXECUTION OF THE FY 1998 BUDGET
Having said this, we now find ourselves approximately four and a half months into the 1998 fiscal year for which you have been provided $4 million. Please give me a feeling generally where you are in the execution of your 1998 budget.
Mr. HILL. We have provided some detail in the attached documents that we have provided today on our current expenditures.
We have committed, of course, such items in the budget as our costs for personnel and rental. Many of those things will stay static throughout the year, and those funds are already committed.
We see the expenditures going throughout the year, having many investigations which are likely to take our funds. We indicated that we would do up to ten investigations this year. That's what we budgeted for, and at the current rate we have indicated just from yesterday's calls to the National Response Center, and to the FEMA line, that there are many, many more investigations than we were likely to be able to get to.
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As far as staffing, we have brought on five staff at this point. As you know we have a total of 14 staff positions to fill this year that are non-Board members. So we are proceeding as expeditiously as possible in working with the existing budget—not trying to get ahead of ourselves, but trying to stay on track with our projected expenditures throughout the entire year.
I would like to comment also on your reference to the NTSB. In my comments, we do compare ourselves to the NTSB. That is the easiest concept for most of the public sector to understand who we are and what we do through that comparison.
But our philosophy, as described in the budget plan, is along the lines of what you indicated, Mr. Chairman, and that indeed is a flat organizational structure trying to take advantage of existing resources that are already in the Federal system, trying to use volunteers as I mentioned.
We do not intend to grow this agency into just another bureaucracy. And our goal—and what I think we have accomplished in a very short period of time demonstrates that we are moving in that direction.
Mr. LEWIS. Thank you, Dr. Hill. Mr. Stokes?
Mr. STOKES. Thank you, Mr. Chairman.
Thank you, Dr. Hill, for your testimony. You mentioned this first incident which occurred in Reno, Nevada, which I guess occurred about two days after you had opened your doors.
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Mr. HILL. Yes.
STAFFING THE SPARKS INVESTIGATION
Mr. STOKES. At that time how much staff did you have?
Mr. HILL. We had two people on staff at that point.
Mr. STOKES. And you went yourself.
Mr. HILL. Yes. And Dr. Poje, as well.
Mr. STOKES. And you mentioned that on January 9th you were leading a team of six individuals.
Mr. HILL. Yes.
Mr. STOKES. How did that come about?
Mr. HILL. Those individuals were the DOE professionals that we pulled in from the Department of Energy.
After I called the Secretary of Energy's Office, they agreed to let us use their personnel at the Federal laboratories. Those individuals came from Oak Ridge National Lab, and Pacific Northwest Laboratories. They were industrial hygienists. They were process engineers. One was an explosives chemist that we brought in to analyze the chemicals that were on site and what had occurred.
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They were a professional team that were from the national laboratories.
Mr. STOKES. Have you hired a chief investigator yet?
Mr. HILL. No, I have not. I am looking to hire a chief investigator. In fact, that is a difficult thing, where you've talked with several people—in fact we found one who is retiring from NTSB. But he is taking retirement, so we could not get him.
He has offered to provide us some level of assistance, as has the agency. But we do not have a chief investigator at this point in time.
STAFFING THE CSHIB
Mr. STOKES. Now, your legislation calls for five Board members, I believe?
Mr. HILL. Yes, sir.
Mr. STOKES. How many are currently confirmed?
Mr. HILL. We have three confirmed currently. And I just spoke with the White House last week about the potential nominations of two additional individuals whose names were put forward back in 1994 when ours were, but they were never officially nominated.
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The White House has indicated they are going to pick up that process, and have indicated that they would try to expedite getting those confirmations up here to Congress were that to occur.
Mr. STOKES. In terms of a three member board as opposed to a five member board, what is your assessment?
Mr. HILL. Five members are better, in that we need the broad expertise. As I look at the statute, I think the Congress fully intended that there be a variety of expertise as well as backgrounds, talents, interests in a variety of issues that could render the decisions of this Board.
Certainly I have expressed to the White House that I am extremely supportive of a fully staffed Board.
AMENDED BUDGET REQUEST
Mr. STOKES. Dr. Hill, let me ask you this: the formerly submitted budget request for the Safety Board was $7 million for fiscal year 1999. And then I guess about a week after submission of that request you modified it to $8.2 million. Is that correct?
Mr. HILL. Correct.
Mr. STOKES. Now, I guess the legislation for the Board does not permit any review of budget estimates by the Office of Management or any other government agency. In terms of your two budget submissions, is the modified submission the last submission by the Board?
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Mr. HILL. Yes, sir.
CSHIB PERSONNEL
Mr. STOKES. Two elements, the personnel compensation and ''other services'' make up more than 72 percent of the Board's budget. Proposed average salary of $100,000 is nearly 30 percent higher than the average salary of NTSB employees of $77,000.
Tell us why the salaries of Chemical Safety Board employees exceed those of the NTSB workers by $30,000.
Mr. HILL. We looked at, again, with the flat organizational structure of not having a lot of middle management, and trying to take advantage of as much assistance at the site, if we were given the types of relief that we had talked about in getting volunteers, most of those salaries, the reason they are high, would be first of all that they are the prime management.
It is a smaller number of people, if you look at the overall consistency of this Board. It is a small number of top managers, as well as being highly trained in the technical arena, as well as being managers.
We also looked at the Defense Nuclear Board which asked for relief of the General Services Pay Scale simply because they felt they could not get the types of technical expertise to come to work for the government that those individuals could get working in private industry.
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Now, admittedly, we are not hiring nuclear engineers, but we are looking for very senior engineering individuals who may have had many, many years of service, both in the technical arena and in the managerial arena.
Mr. STOKES. I would like to ask you to submit to us a detailed staffing plan, showing job titles, salaries, et cetera, and so forth. Would you do that for us?
Mr. HILL. Yes, sir.
[The information follows:]
U.S. Chemical Safety and Hazard Investigation Board
Congressman Stokes requested that the Board submit to the Committee a detailed staffing plan, showing job titles, salaries and other associated information. Included in the Board's business is a section describing the Board's projected organizational structure. Since the entire business plan has been provided to Committee staff, only select pages addressing the Congressman's request are appended.
The Board is following its business plan to the maximum extent possible. As indicated therein, during the first year the majority of personnel will (and do) consist of Board members and senior staff. Consistent with the CEO's directions, the latter are charged with (1) establishing the policies, procedures and programs of the Board, (2) writing job descriptions for and hiring junior members of their respective functional areas, and (3) securing the external support needed to efficiently, effectively and economically perform the Board's mission. Accomplishment of the operational objectives set forth for the first year is directly dependent upon the senior Board staff.
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To date, the following positions have been or are scheduled to be written for FY98 in order to provide a skeleton staff. However, not all the positions have yet been classified (i.e., assigned an official title, series and pay-determining grade level) by GSA's personnel staffing specialist who is servicing the Board.
Classified and Filled: GS–15—Program Manager; Public Affairs Specialist; Attorney Advisor. GS–13—Public Affairs Specialist. GS-–11/12—Program Analyst.
Written But Not Yet Classified: Targeted at GS–15—Special Assistant (Research); Special Assistant (Investigations); Special Assistant (Technical Operations). Targeted at GS–14 (but may be approved for higher pay if OPM concurs with Board's request for special ''pay band'' typically used in recruiting for hard-to-fill technical positions)—Accident Investigator (more than one job will be filled).
NOT YET WRITTEN: Targeted at GS–12/13—Information Management Specialist. Targeted at GS–9/11—Administrative Assistant (more than one job will be filled).
Ten additional positions have been requested for FY99, the second year of the Board's startup phase. This figure includes the six senior executive service positions which have been requested from but not yet approved by the Office of Personnel Management (which will replace the current GS–15 positions). It does not count the one position requested to provide dedicated support to four Board members (other than the Chairman/CEO). The job descriptions (which will dictate both job titles and grade-dependent salaries) will be written by the senior manager in each functional area and will reflect determinations of needed expertise. Nevertheless, based on the work to be performed and objectives to be accomplished, we anticipate assigning positions such that the resultant staffing pattern looks similar to that shown below. Note that the absence of significant numbers of lower graded staff reflects the Board's intent to outsource administrative operations, permitting it to focus more of its resources on mission-specific operations. The effect of this strategy is to have less (albeit higher paid) on-board staff and lower costs for support services, but a higher average salary structure due to the smaller personnel base on which to compute average pay.
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FUNCTIONAL AREA AND STAFFING: Office of the Chairman, Chairman, 2 professionals and 1 support; Board Members, 4 members and one confidential assistant; Investigations, 4 professionals and 1 support; External Relations, 4 professionals and 1 support; Research, 3 professionals and 1 support; Legal Operations, 2 professionals and 1 support; Technical Operations, 2 professionals and 1 support.
Mr. STOKES. Your justification material indicates that the $750,000 requested for personnel benefits was based on 25 percent of salaries for people covered under the Civil Service Retirement System, which most Board employees are expected to be under.
On what do you base this statement?
Mr. HILL. The 25 percent on retirement system?
Mr. STOKES. Under your justifications, you indicate that $750,000 is requested for personnel benefits——
Mr. HILL. Yes.
Mr. STOKES. You say that's based on 25 percent of salaries for people covered under the Civil Service Retirement System, quote, which most Board employees are expected to be.
Mr. HILL. Yes.
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Mr. STOKES. Could you tell us what you base this statement on?
Mr. HILL. I'm sorry, Mr. Stokes. I would need to assess how that figure was arrived at. Obviously it came from an assessment of looking at other agencies. Since indeed our history is so short, we no doubt pulled this information from some other example in the Federal Government.
I would have to get back to you as far as where that came from, and we would be glad to give you details.
Mr. STOKES. You can elaborate on that in the record for us.
Mr. HILL. Yes, sir.
[Response from Mr. Hill follows:]
U.S. Chemical Safety and Hazard Investigation Board
''Mr. Stokes, to clarify that 25 per cent figure—that figure is the 'load factor' which federal agencies use to estimate the cost of all federal employee benefits—for example health and life insurance—plus the Government's contribution for employees' retirement. The 25 per cent figure is used for Civil Service Retirement System—CSRS—covered employees, versus 20 per cent for Federal Employee Retirement System—FERS employees. That's because typically CSRS employees are that much more expensive to Agencies than FERS employees, because Agencies must contribute more to a CSRS employee's retirement than to an employee covered under FERS. Our budget projections are based on CSRS costs because our more senior employees are—or will be—primarily covered under the more costly CSRS.''
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ACCOUNTING AND FINANCIAL CONTROLS
Mr. STOKES. Dr. Hill, what accounting and financial controls does the Board have in place to insure that expenses do not exceed resources available to the Board?
Mr. HILL. We fully intend, and have described in our business plan, operating with having an internal accounting as well as our General Services Administration agreement. In fact, they are handling most of our personnel and accounting capabilities right now, as they do uniformly with many other agencies.
So General Services Administration is handling that on our behalf, and we have an agreement with them.
FY 1998 SUPPLEMENTAL APPROPRIATIONS
Mr. STOKES. Let me ask you this: in terms of the financial obligations incurred to date, does it appear to you that you are likely to submit a supplemental this year?
Mr. HILL. No. We don't intend to do that. You never say never in the accident business, unfortunately, as we see with other agencies. But the reason we responded after speaking briefly with Committee staff last week is that we felt we could make some justification now, when we had the opportunity to speak directly with you, rather than coming back later.
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Mr. STOKES. Thank you, Dr. Hill. Thank you, Mr. Chairman.
Mr. LEWIS. Thank you, Mr. Stokes.
Mr. Frelinghuysen.
Mr. FRELINGHUYSEN. Thank you, Mr. Chairman.
Good morning, Dr. Hill. I come from the State of New Jersey, which by its industrial history probably has more chemical operations past and present than most States. And am certainly supportive of what you are doing.
I would just like you to address the issue of expectations. I mean, to a certain extent, by our giving you these taxpayer dollars, we anticipate that you will have a full plate. From what I can gather you have a large plate now.
EXPECTATIONS OF THE CSHIB
Is there not a real potential here for raising expectations that may not be met? I am supportive of what you are doing, for selfish and parochial reasons, and I do have a specific site, the Lodi site in New Jersey.
But there could be a hundred Lodi's. I am just wondering how you are dealing with the issue of raised expectations?
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Mr. HILL. I agree with you. I think that is indeed something that can occur. We are trying to deal with that issue, both in the information that we are putting out, as well as the initial plan.
In fact, what we said was this first year we would investigate only those accidents where there was a death involved. As you are aware, the statute is very broad. It gives us authority to look at a lot of different situations.
We are trying to exert some fiscal responsibility on that as well internally, and communicate that to many others, that we cannot investigate all these sites.
The other language in the statute talks about cause to be investigated, if we do not investigate a site with our own staff employees.
The incident last week in York, Pennsylvania, we followed that very closely. There was a death involved, but we made the decision, after about 30 hours of deliberation, and following all the information that was coming in about that particular incident, that it was being investigated at the local level.
There was not a release in that particular situation, so we decided not to investigate it. I think there is a chance of raising the expectation, but we are trying to put forward the concept that in these first years, especially, we are trying to make assessments of what the actual needs are, and what should be, and we would like to bring that back in future years as further guidance.
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Mr. FRELINGHUYSEN. We are here to wish you success. This is a beast that we created. Some good people like yourself are going to the mat for good purposes. But in reality you are in the court of public opinion. You have Congressional demands, and there is going to be an expectation that, you know, when I call Dr. Hill people over there are going to jump, at the Board.
And I noted in your statement here that you put yourself down as a scientific investigatory organization.
Mr. HILL. Yes.
RELATIONS WITH PRIVATE INDUSTRY
Mr. FRELINGHUYSEN. You better have a full complement of public relations or you are going to have some sort of a public relations disaster.
I would like to have a clearer idea as to—what your relationships are going to be with the Chemical Manufacturers Association, American Petroleum Institute, which is also referred to in your testimony.
As I read your comments—and I don't want to read things in there that were not—we have had productive meetings and discussions with representatives of those groups.
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Mr. HILL. Yes.
Mr. FRELINGHUYSEN. To the lay person or somebody up here, I am not sure what that means, but I would think that you would have to heavily count on their knowledge of their industry. Obviously their need to get after members that in fact are not abiding by proper safety rules.
Because the bottom line, by your own comments here, your motto is public safety is key.
I would like to know what you literally are doing to cement those partnerships, because I would assume some of those corporate resources inevitably would have to be used in a lot of these investigations and solutions.
Mr. HILL. Yes. In fact, we have worked very closely on those partnerships, and indeed one of the previous questions from Representative Stokes about members of the Board, one of the oncoming members is a former industry retiree who would bring another complement to the Board.
The industry has expressed very strong support of that individual, in making sure that his concerns are noted in Board decisions, and we are hopeful that that will occur.
There has been a lot of the discussion with the Chemical Manufacturers Association and API to this point, that those agencies, those organizations want to make sure that their interests are taken into account as you have indicated.
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I have spoken with them. I think the leadership of those associations, I think they feel very confident that this approach is one that is, because it is independent, it is a fair approach to these industrial tragedies.
They have said to me privately, look, we want to know what goes wrong as well. In fact, the industry has wanted to know for a number of years, but because of liability purposes, which are dealt with in our statutory authority, they have not compiled the kinds of information to look at long range trends, except internally, in individual businesses. Not as an industry as a whole.
So our relationships with them have been—they have been extremely supportive as well as discussing with them the eventual procedures, protocols and things that we would utilize in our day to day investigations.
In fact, we said, look, we are developing a draft protocol; we would like not only the industry but other constituent groups to tell us, is it technically accurate, and have welcomed their participation in developing that.
In fact, I think, very telling, the attorney for CR Chemical, the accident in Nevada, indicated that he felt that the Chemical Safety Board was the most fair and objective approach to dealing with an industrial tragedy.
FUNDING WITH OTHER AGENCIES
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Mr. FRELINGHUYSEN. And a comment, the other agencies that you contact, DOE, FEMA, are you making sure that they are not dumping some things into your lap? In other words, I know you used the term in your statement here, that you are the lead agency, but sometime people assume that if you are the lead agency, you have deep pockets.
I assume you are putting up some barriers.
Mr. HILL. Absolutely.
Mr. FRELINGHUYSEN. Besides the fact that if there is a death involved, putting up some to make sure that DOE is not shunting off all sorts of investigatory work that they perhaps should be funding?
Mr. HILL. No, In fact, one of the first things we'll tell them is, look, we do not have a lot of resources. That is why we are calling you. In fact, we knew that DOE had this type of expertise.
They already have their Congressional defined arena that they operate in, which we would not. We simply borrowed their expertise and applied it to the public sector, private facilities.
But no, there is not a transfer in any way of authorities, and we are very mindful of that.
LODI, NEW JERSEY EXPLOSION
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Mr. FRELINGHUYSEN. The chemical explosion in Lodi, New Jersey, is there somewhat might be anticipated relative to a report? Is that one of those areas you are looking at?
Mr. HILL. Yes.
Mr. Frelinghuysen. That's my local question.
Mr. HILL. Yes indeed. In fact, one of the things that we want to do and are already building the information to be able to assess what has happened in the past few years, is accident reports are available, and the Lodi report has now been released by EPA and OSHA.
But there are records and documents that we would like to review in building our own data bases, in building our own programs to say what should be done differently.
Will we reinvestigate that site? No, I do not think we have the resources to do that. But that does it rule out that in reviewing the information we might not have recommendations coming out of it.
Mr. FRELINGHUYSEN. Good luck. Hold on tight.
Mr. HILL. Thank you.
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Mr. LEWIS. Thank you, Mr. Frelinghuysen.
Mrs. Meek.
Mrs. MEEK. Thank you, Mr. Chairman.
WORKING WITH OTHER AGENCIES
Mr. Hill, I have listened with interest as you made your presentation and to the other members ask you questions. It appears from your business plan that you plan to hold all this together by what seems to be just the cooperation of a multiplicity of agencies helping you.
And I am just wondering very strongly how you will be able to do that with the budget that you submitted here. And you have already said, by your own admission, you do not want to build a big mega-agency.
But you do want the reputation of your agency to be accountable, I am sure. It appears to me that is going to be difficult to do.
I have read your relationships with these assisting agencies, and the memorandum of understanding that you have with some of them. How much confidence do you have that you are going to be able to, in case things get tight, and they will get tighter, that you are going to be able to fulfill the obligations which you have promised this committee and the American public you are going to do. That's my question.
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ORGANIZATION PLAN
My second concern is that even though you have everything on paper planned here, you do not have any middle managers, anyone who is going to go out and really watch these people.
What big master plan do you have in the back of your head that is going to help make all of this work? Because organization is ad enough when you have middle managers to help you.
DEVELOPING M.O.U.'S
Mr. HILL. To respond to you first question, Representative Meek, I do have confidence. I met directly with the OSHA Assistant Secretary, and spoke with him about developing this MOU.
A lot of it is built on personnel relationships with those other agencies in describing a memoranda which will then be implemented about our relationship, about who will provide what.
Much of what we will be doing at the site is also relationships. A lot of discussion has gone on about what happens at an accident site. EPA and OSHA already have enforcement capabilities. Those will not go away. Those agencies have their own Congressional mandate to be there to do certain things.
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What we have mostly indicated in those memoranda have been working relationships, where there is not a lot of transfer of resources or even individuals necessarily.
In some cases, however, as you pointed out, we have found that we can take advantage of existing infrastructure, and as far as reporting accidents. Those agencies are already mandated to do that, and have been doing it for a number of years.
That was the reason for trying to take advantage of it, and not build another agency which I think would cost us more and would be even, perhaps more nebulous in its early stages in its ability to respond for the American people as you indicated.
Mrs. MEEK. Good luck.
Mr. HILL. Thank you.
Mrs. MEEK. Did you have something you wanted to add?
Mr. POJE. I was just going to say, I think the issue of coordination at the Federal level is crucial.
Mr. LEWIS. Excuse me. Would you spell your last name? It's Poje?
Mr. POJE. Poje. P-o-j-e.
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Mr. LEWIS. Thank you. Excuse me for that.
Mr. POJE. We are aiming to build a technical, scientific organization with full knowledge that there is technical, scientific aspects to the rest of the Federal Government.
For example, on scene, we want to have some investigation capacity into medical related issues that might be associated with this. We have already begun discussions with the Assistant Administrator of the Agency for Toxic Substances and Disease Registry, the Director of the National Institute of Environmental Health Sciences, the Director of the National Institute for Occupational Safety and Health.
All of those agencies have some great technical competencies, and some degree of relatedness to our mission. It is our belief that we can hone a memorandum of agreement with them that explicitly defines where the overlap of our agencies would be, and how best to apportion those responsibilities to assure that the end product of our investigations are the most technical competent that any Federal agency would be able to accomplish.
Mrs. MEEK. Thank you.
Mr. LEWIS. Thank you, Mrs. Meek.
Mr. Wicker.
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Mr. WICKER. Thank you, Mr. Chairman.
LESSONS LEARNED IN NEVADA
Dr. Hill, what did we learn on this first investigation in Nevada?
Mr. HILL. Well, we have not—it is primarily procedural at this point. We have not concluded the investigation. This is, the report has not come to the Board for a final decision at this point.
All the field work has been completed. The team left the site last Friday. They are now compiling an internal analysis of all of that data, and will be presenting a report to the Board members in the next few weeks.
At that point, we would then disclose the findings of that investigation and make any recommendations about that particular type of operation.
For instance, the Governor of Nevada put together a task force to look at regulatory controls within the State. They are very interested, because there are other similar facilities within, just within the State of Nevada, they may be using the same equipment, that may be using the same practices, that indeed we can make recommendations.
But we are not at a point of making recommendations on the findings right now.
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NATURE OF THE NEVADA EXPLOSION
Mr. WICKER. But surely you can share with the Subcommittee what the nature of the accident was and what you preliminarily think caused it.
Mr. HILL. Certainly. The nature of the accident, what occurred, this was a facility that used a material called PETN, which was shipped in from China. It is shipped wet, and it is a powder, and it is a highly explosive powder—the reason it is shipped wet.
It is put in a drying building which used only to take the water out of it. Then it is mixed with TNT in large metal stainless steel vessels, which in this case, by the way, were purchased several years ago—they were ex-military equipment that this company bought.
Those vessels then have a large stirring device. That powder is mixed with some other powdered chemicals heated to a certain level where it becomes liquid. And then in the bottom of the vat, the material is taken out as a liquid.
These workers were pouring it into cardboard tubes such that it looks like sticks of dynamite. Then at the site, of course, it becomes explosive when a blasting cap is placed in that material.
Now, what happened, there were 12 Hispanic workers there. There have been lots of allegations that there may have not been clear training. There may not have been proper instruction in their native language.
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There are lots of issues that have been raised. Now, we do not have any determination as to the full extent of those at this point in time. In fact, that will be many of the parts of the final assessment.
But one body was recovered—actually two bodies were recovered, and then the other two, there was nothing to recover.
NEVADA ON-SITE INVESTIGATION
ATF was at the site and helped the local sheriff's department recover the bodies, and after that portion was done, we took charge of the site to do this long range investigation.
What we have found is that there is potential contamination of materials. There are a variety of things that we are looking at right now as to the causation of the explosion.
ATF was able to determine that one of the mixing buildings blew first, and then the PETN building blew second. It measured 2.2 on the Richter scale, and was heard twenty miles away.
We have lots of photographs of the site, photographs of evidence, that indicates that indeed there was really nothing left at the site.
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We know there was some indication that the material, the initial explosion took place at a site within that first building. And we have isolated our investigations on that site. But I cannot go into any further detail subsequent to the actual report coming out.
Mr. POJE. If I could just augment that, though, Mr. Wicker. I think the things that we are learning are several that relate to the functions of the Board, and building our own technical competency.
The conduct of an investigation, the gathering of several different types of evidence, whether it is testamentary evidence, whether it is documentary evidence, or whether it is physical evidence of the facility and what had happended, we are learning from this experience the kinds of procedures that we will need to engage in the conduct of that.
And in addition to the collection and the examination and the determination of the accuracy and the adequacy of the evidence, we are also attempting to evaluate multiple procedures of analysis.
There is a well honed and developed technological basis to the conduct of investigations of chemical failures. That includes a number of different analytical techniques.
We will be applying multiple techniques to a single incident as a way of verifying that we are getting to the best determination of the root and contributing causation to that incident, and from that will emanate the findings and recommendations of this investigatory body.
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OTHER AGENCIES IN NEVADA
Mr. WICKER. How many agencies were involved in this Nevada investigation? You had some folks from DOE to help you in a tight spot.
Mr. HILL. Yes.
Mr. WICKER. Do you anticipate doing that again?
Mr. HILL. In this interim stage, we very well may. In fact, we've developed from DOE a list of the investigators and their particular expertise, such as whether they are chemists or metallurgists or whatever.
But in this interim period, until we have our own staff, we may well do that.
Mr. WICKER. What other agencies showed up?
Mr. HILL. The other agencies that were on the scene included the local sheriff's department, the Alcohol, Tobacco and Fire Arms, because in a situation like this where there is an explosion the presumption is that this may well be sabotage or some sort of the an intentional act, and until that is rule out—that has to be done, of course, first. So ATF was there.
The State agencies. There was the State OSHA. We were assisted in working with them by Federal OSHA, although Federal OSHA did not have an on site presence.
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We also worked with even the county health department which was securing the site for environmental clean up after the fact.
M.O.U. WITH ATF
Mr. WICKER. So the only other Federal agency that was actually there on site was ATF?
Mr. HILL. That is correct.
Mr. WICKER. And are you going to need to develop one of these MOUs and ATF?
Mr. HILL. Yes.
Mr. WICKER. How is that coming?
Mr. HILL. That, we have not gotten to it yet. We have two that are mandated by our statute—the one with OSHA and the one with NTSB. We are working on those first, and they are in draft right now.
The one with ATF, in fact, as they were turning over the site to us at the press conference in Reno, they said here is a Federal agency that conducts the long range investigations. We are leaving. We are probably going to see more of the Chemical Safety Board, and we will probably need a memorandum with them. And indeed we agree.
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M.O.U WITH EPA
Mr. WICKER. Okay. And the EPA, also. You are expecting to complete your memorandum of understanding when with EPA?
Mr. HILL. We are beginning to work on the one with EPA. That is not required in the statute. But it is one that we thank is necessary. In fact, I wrote to Administrator Browner last week and told her I felt one would be very appropriate, and we needed to pursue that.
In fact, we have met with EPA at different levels, and I am meeting with the Administrator next week to initiate that MOU. EPA was not at the Nevada site.
Mr. POJE. and I have a meeting scheduled tomorrow with the Assistant Administrator for the Office of Solid Waste and Emergency Response at which this will be a topic of discussion.
Mr. WICKER. Let me say I am sorry I have to leave and go to another hearing, since I have three subcommittee hearings scheduled on top of each other.
NUMBER OF FY 1998 INVESTIGATIONS
Let me just ask, if I might, Mr. Chairman, you expect, Dr. Hill, to do ten investigations this year. Is that this calendar year?
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Mr. HILL. In essence it is.
Mr. WICKER. I notice in your overview that that would investigate not even all of the accidents which you termed major catastrophic, which involved—well, what is the definition of a major catastrophic?
Mr. HILL. Well, what we have indicated is that we would investigate those where there is a death. And the statute does not allow us to not investigate if the death is off site of a facility. What we would hope to do is those we could not cover, we would use the clause about causing to be investigated.
In indeed there was a detailed capability within a State, for instance, that the investigation was occurring, we would probably work with them to insure that our information was gathered, but would no send our own team if we felt it was being appropriately handled.
Mr. WICKER. And that statement also applies to the 6,500 non-catastrophic annual accidents?
Mr. HILL. There are many, many small ones that all come into the National Response Center. And what we try to do is screen through those to determine which ones constitute major catastrophes. That is, major property damage, off site impact, or death, as the statute outlines.
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We said this year in the first budget plan that we would only focus on those where there is a death in this first round, and it would move to others with the Congress's approval.
Mr. WICKER. Well, I agree with Mrs. Meek and Mr. Frelinghuysen, that you're in for an interesting time.
Mr. LEWIS. Thank you, Mr. Wicker. Mr. Mollohan?
Mr. MOLLOHAN. Thank you, Mr. Chairman.
Mr. LEWIS. I might mention before Mr. Mollohan begins, members are going to other meetings were they have conflicts. Defense is meeting down the hall, et cetera. The bells begin to ring and we start having votes, and we are going to go through three agencies this morning.
So there will be a number of questions that are submitted for the record, and we would appreciate your responding to those.
Mr. HILL. We'd be glad to.
Mr. LEWIS. Mr. Mollohan.
Mr. MOLLOHAN. Thank you, Mr. Chairman.
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Dr. Hill, welcome to the hearing, and I join the Chairman and Ranking Member and the members of the Committee in welcoming you here. I hope that you are getting going on the right foot, and that we are able to provide you with the resources to enable you to do a good job.
A couple of the members have explored the issue of industry cooperation which is kind of a basic principle with regard to this whole initiative.
Mr. HILL. Yes
Mr. MOLLOHAN. You have undertaken one investigation.
Mr. HILL. Yes.
INVESTIGATING VS. NOT INVESTIGATING
Mr. MOLLOHAN. And you have had the opportunity to undertake more than one, and you have looked at them and decided not to go in?
Mr. HILL. That is correct.
Mr. MOLLOHAN. How did you discriminate between going in and not going in and investigating? What are one or two that you decided not to undertake?
Mr. HILL. The most recent one, I think I mentioned earlier, was the York, Pennsylvania one that occurred just last week.
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That situation, we learned from the local officials who were on the scene, who we kept in touch with all day, the day of that event, that there was not a chemical release.
And we felt that given our statutory mandate, we would need to look and see if the chemical was indeed the problem that caused the fatality at this site.
There was a fatality, but we understand that that person was farther away, and it was not caused by the chemical itself.
So we chose not to investigate that particular one. In addition, there was a level of investigation going on by the State of Pennsylvania that we thought was sufficient.
Mr. MOLLOHAN. So you are going to be investigating cases that you feel will establish some basis of knowledge that will be important as an example for industry, or as a case study for industry? Is that it?
Mr. HILL. Yes, indeed.
Mr. MOLLOHAN. You are not investigating everything.
Mr. HILL. I think that is what we are limited to in this early stage.
INDUSTRY COOPERATION
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Mr. MOLLOHAN. Industry cooperation, how do you secure it? I guess using the Nevada example. Did you have industry cooperation in the Nevada case?
Mr. HILL. Yes, we did. We had very good cooperation with the company. They felt that they truly wanted to understand why this happened, why they lost four employees, why they lost their entire facility.
Mr. MOLLOHAN. Do you think you are in any better position to achieve that cooperation, and therefore get at the underlying cause than they say OSHA or BATF or any other investigative regulatory organization?
Mr. HILL. Yes, indeed. In fact, as the industry has indicated, they had a problem with the last approach, with the EPA/OSHA approach simply because those agencies are enforcement by their very nature.
And they felt how can you come in and do an objective causal analysis if you are also trying to enforce some section of a rule that may have been violated. That gets into some legal contention as well about those agencies perhaps exceeding their authority.
So there are lots of problems, and the industry felt that it was an unworkable situation, is what they have said.
Mr. MOLLOHAN. But your investigation is going to uncover the same basic facts, are they not?
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Mr. HILL. It will uncover the facts of the case, and those facts, as in the Nevada case, will be shared with the agencies. The State of OSHA is there uncovering facts right alongside of our people, and sharing that information with ours.
However, it is the Board's assessment, analysis of those facts, the assessment and the recommendations that you have provided in the statutory language that is protected. And I think the industry feels that that is a very positive initiative or influence for them to be more proactive in welcoming these investigations.
AMENDED BUDGET REQUEST
Mr. MOLLOHAN. You have amended your budget request, $1.2 million. What is that for?
Mr. HILL. That is primarily based on the information that we have gathered over the past four months that indicates that some of our estimates were low for some of the other budget items.
We have simply increased those particular items.
Mr. MOLLOHAN. You need more people? You need more office space? You need more resources?
Mr. HILL. We need more resources, and we need additional space for those individuals. We also need to increase the level, because we're finding that the types of expertise that we need to conduct these investigations are probably not people that we could find at very low salaries.
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Indeed, they are expensive to get.
Mr. MOLLOHAN. Thank you, Mr. Chairman.
Mr. LEWIS. Thank you, Mr. Mollohan.
We, as I indicated, have a number of questions that we will be submitting for the record. Mr. Hobson normally asks a number of questions relatives to space and the square footage cost and——
Mr. HILL. We have all that.
Mr. LEWIS. He would suggest that it is very important that we recognize that everybody wants to work downtown even though they live in Maryland or Virginia. For some reason they like to travel to the center of the city and get in traffic and otherwise, and of course the rental space is much higher there, et cetera.
Mr. HILL. Yes.
Mr. LEWIS. Those questions will be a part of the record.
CSHIB HIRING ISSUES
Mr. LEWIS. You indicated earlier that attracting people of high quality when you have a tight ship can be difficult. There is not any question that GS limitations are very real.
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I note that you are talking about looking to a potential personnel pool as a source for people, who are a part of CSRS, which would indicate that many of those people are 15 or 20 year employees.
Reaching out and finding excellence is a difficult process. And I would hope that especially the Board members are looking very closely at whether we are actually performing a new and important service, versus redoing what is already being done elsewhere.
The reason I raise this point for your consideration beyond this meeting is that this Subcommittee involves many an agency and commission. It involves fundamental needs that involve the lives of children, housing for the poor, et cetera, and every dollar that goes to one location takes away from another, because we only have so much in our total pool.
And it is very important that you help us with that, and a tight ship, of course, is critical. I understand that some of the challenges you face also are critical.
So we welcome you to this first hearing. We tried to be relatively light and soft in this go round, but this is only the first time. And so we appreciate your being with us.
We have a vote on, by the way, and then we will come back and start hearings on the DOD Civil Cemetary expenditures. Essentially that's Arlington Cemetary.
Mr. HILL. Thank you, Mr. Chairman.
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Mr. LEWIS. We will be in recess. [Recess]
"The Official Committee record contains additional material here."
Thursday, February 12, 1998.
CEMETERIAL EXPENSES, DEPARTMENT OF THE ARMY
WITNESSES
JOHN ZIRSCHKY, ACTING ASSISTANT SECRETARY OF THE ARMY, CIVIL WORKS
CLAUDIA TORNBLOM, ACTING DEPUTY ASSISTANT SECRETARY, MANAGEMENT AND BUDGET, OFFICE OF THE ASSISTANT SECRETARY OF THE ARMY, CIVIL WORKS
JOHN C. METZLER, JR., DIRECTOR, ARLINGTON NATIONAL CEMETERY
RORY D. SMITH, BUDGET OFFICER, ARLINGTON NATIONAL CEMETERY
Mr. LEWIS. Mr. Zirschky, appreciate your being with us. We will call upon you after a brief outline that I will provide on the pattern of your request to introduce your guests with you and then, after you summarize your statement, we will try to go to questions and move along as quickly as possible.
It is my pleasure to welcome John Zirschky, the Acting Assistant Secretary of the Army for Civil Works, to present your proposal for the year ahead of us.
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The 1997 actual appropriations for your expenditures were $11.6 million and 121 FTEs. 1998 appropriations were $11.815 million with 117 FTE. The 1999 request is for $11.666 million and 112 FTEs, a decrease of $149,000, and 5 FTE.
A lot of discussion in the public media has swirled around your agency. I want you to know that this is the Appropriations Committee and while we are very concerned about oversight of the way funds are used, while I will have some questions for the record, and may lightly touch on some questions regarding the way we make some of these decisions, this is not going to be a forum for a media consumption kind of discussion, I would hope.
You have had plenty of that and you will have plenty ahead of you, I am sure. In the meantime, we are talking about the dollars, and I want to see them used to serve those people who served us by their past work for all of us.
So in the meantime, Mr. Zirschky, we would appreciate it if you would give us your statement, with summary, and we will proceed from there.
Mr. ZIRSCHKY. Thank you, Mr. Chairman, and members of the Subcommittee. Thank you for the opportunity to testify on the Arlington budget. Working with Arlington has been probably one of the greatest honors that I have had in my career.
It is a very special place, and it is very special to be associated with America's premier military cemetery.
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With me today is Jack Metzler, the superintendent of the Cemetery, Rory Smith, the budget officer for the Cemetery, and a new person, Claudia Tornblom. Steve Dola, who was our Deputy Assistant Secretary for Management and Budget retired after more than 30 years with the Army at the end of December.
Mr. LEWIS. I intended to mention his retirement. I hope you will communicate to Mr. Dola and express our appreciation for his service, and we will miss him. And there is little doubt that his able replacement establishes goals early, and they are probably the right goals.
EXPANSION
Mr. ZIRSCHKY. There are two things I would like to talk about today: expansion of the Cemetery and the budget request. First I will briefly hit on the expansion.
Space in the Cemetery has been a big issue of late, and unless we take action, today's heroes by the time they pass away, will not be able to be buried in Arlington Cemetery.
The Cemetery is projected to close for new burials in the year 2025, which may sound like it is a long time away, but for example, we still have Medal of Honor winners serving in the military today, from the Vietnam era, and if they live to the average life expectancy, the Cemetery will close before they pass away, and they will not be able to be buried in the Cemetery.
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We have worked hard in my office and with Jack to expand the Cemetery and develop a new master plan, going back to the early 90s, to give us the chance to, for the first time, expand the Cemetery.
We believe we can keep the Cemetery open through the entire next century, but we need your help. There are three ways we will need your help: first, the budget request includes a half million dollars for a concept plan for expansion. We have identified three areas where we would like to expand the Cemetery, and now we need to go the next step and analyze how we would use those sites, whether it would be for columbariums, or internments, in other words, grave burials.
So we have asked for a half million dollars to initiate that study in fiscal year 1999.
Secondly, I would like to offer an invitation to you, Mr. Chairman, and your committee to come visit Arlington Cemetery. I would like to show you the three areas that we are talking about. Some have misrepresented that we are going to destroy the Custis-Lee Mansion because some of the lands are associated with what we call Section 29, which includes the Mansion. The specific lands we want, however, are not actually near the Mansion.
So we would like to take you there and show you the actual property. In many cases much of it is on the other side of a maintenance area and not located near the Lee Mansion at all.
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You would also be welcome to lay a wreath at the Cemetery in honor of the veterans and the men and women who are buried there. Any of you would be welcome, at your convenience, to come over.
Third, after you have seen the land, we are going to need your support to make the land transfers that we are talking about a reality. The Administration supports expanding the Cemetery, but you know sometimes bureaucratic resistance can be a bit of a problem.
We believe legislative help would insure that future of the Cemetery.
BUDGET HIGHLIGHTS
To talk about the budget, as you mentioned, Mr. Chairman, we have asked for $11.6 million for fiscal year 1999. In addition, they have done a thorough review of our books for the past decade. We found about $633,000 of unobligated money that we would like to recover and propose to use in fiscal year 1999.
That gives us a total request of about $12.3 million, or a total budget for the Cemetery of about $12.3 million. We want to use $9.4 million of that for operation and maintenance, the grounds keeping, mowing, general maintenance activities; for the administration of the Cemetery, will need about $914,000; and for construction about $1.985 million.
Some of the new construction we are proposing is $800,000 for a new wash stand/fuel island, to wash and fuel our vehicles in full compliance with environmental regulations. We want to expand our maintenance work done by contract by about $253,000.
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We would like another $250,000 to restore Old Memorial Amphitheater. Last, we are also asking for about $80,000 to fund, by contract, an environmental manager for the Cemetery.
Briefly, Mr. Chairman, those are the highlights of our budget request. Last, we have submitted a strategic plan for the Cemetery as required by the Government Performance and Results Act. One of our primary goals is to maintain the dignity of the Cemetery and to keep the Cemetery open through the next century, and we won't be able to do that without the help of this committee.
[The information follows:]
"The Official Committee record contains additional material here."
Introductions
Mr. LEWIS. Ms. Zirschky, would you care to introduce your colleagues who are with you?
Mr. ZIRSCHKY. The ones behind, sir?
Mr. LEWIS. Yes.
Mr. ZIRSCHKY. Okay. We have Colonel Sharon Volgyi, who works with the Military District of Washington, Steve Grames, and chief of program and budget is Sue Pfeiffer.
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Mr. ZIRSCHKY. And Stacey Brown is with my office.
Mr. LEWIS. Okay. Thank you.
Mr. ZIRSCHKY. General Foley, the Military District Commander of Washington and , for example, a Medal of Honor winner that I mentioned has unfortunately been required to accompany a head of state. So he could not be here.
Mr. LEWIS. We welcome you all. And I must say it is a part of our understanding of our responsibility here, but often times not stated directly that there are men and women who served the country very well who happen to be getting older and older.
And in our work, the reality is that one piece of the commitment we have made involves interment and cemetery use, here as well as across the country. And that is a piece of our budget that in the future we will be adjusting upward for a period of time, at any rate.
And I think we have to deal with that as it is, and deal with the authorizing committee realistically in connection with that.
Nonetheless, the pressure is on in terms of budgetary requirements, and I hope that we can work together in a positive way.
I may very well want to take up your suggestion that some of us come to the Cemetery and look at the specific property that your are talking about. Lots of questions about the environment and other issues that do affect all elements of change within our society, including government agency proposals for change.
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So we will deal with that as we move forward, and hope to work closely with you.
I think I will submit a number of these questions for the record.
It is important to me that we have some feeling from you, Mr. Zirschky, relative to proposals that are out there that involve some changes in the guidelines relative to those who might use the services of the Cemetery.
POLICY AND GUIDELINE REVIEW
Do you feel that there is a need for you to review past policies and implement new guidelines? Would you discuss that with the committee for the record?
Mr. ZIRSCHKY. With respect to——
Mr. LEWIS. With respect to those who are qualified for burial or for other services.
Mr. ZIRSCHKY. I believe we just finished a master plan that we have discussed with the Committee for many years, and it is currently before the National Capital Planning Commission.
And in that master plan we recommend that every five years a review of the eligibility requirements be conducted, so that if we are not able to expand the Cemetery, and we want to keep it open, we will need to restrict even more who is eligible to be buried there.
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So my office recommended that every five years such a review be conducted.
ELIGIBILITY CRITERIA
Mr. LEWIS. Okay. So you are suggesting that there may be a need for tightening criteria, and that very much is linked to your proposals for expansion and attempting to find a guideline in terms of space available and otherwise that seems to make sense and works?
Mr. ZIRSCHKY. Yes, sir. Our goal is to keep that Cemetery open as long as is possible. And with our expansion we can keep it open for another hundred years. If we are not successful, and we still want to maintain the ability to keep the Cemetery open, because it is a very special place, we will have to restrict who is eligible to a much smaller group of people.
Mr. LEWIS. The House Veterans Affairs Committee has held a hearing on this matter recently, and this is an area of their responsibility from the authorization perspective. The Appropriations Committee is very sensitive to that and I appreciate the work that they are about, and we hope we will have their cooperation and exchanges at a staff level that reflect all of our interests in connection with those matters.
I am going to submit the balance of my questions for the record. If you would respond, I would appreciate that.
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Mr. LEWIS. Mrs. Meek.
Mrs. MEEK. Thank you, Mr. Chairman. I don't have any questions. Thank you. Good to see you.
Mr. LEWIS. Mr. Frelinghuysen?
WASH STAND/FUEL ISLAND
Mr. FRELINGHUYSEN. Not too many questions. You have a wash stand fuel island? I remember last year the National Park Service took a lot of heat up in New Jersey because they spent $900,000 on some sort of toilet facility.
I would suggest that you reconfigure the wording there, for what it's worth. Or just make it clear what you are doing. I'm not sure I need to know the answer.
Mr. METZLER. I would just answer a little bit about what the wash island and fuel bay is all about.
Currently, we do not have an approved facility to wash our vehicles. We are just washing them in the street, and the water is going into the storm system. This fuel island wash bay will allow us to have a closed loop system so that the water will be captured and then properly filtrated.
Mr. FRELINGHUYSEN. It's vehicles?
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Mr. METZLER. It is vehicles. Yes. And then of course, this also gives us a modern gas station, if you will, where we are able to dispense our fuel for our vehicles.
VISITOR STUDY
Mr. FRELINGHUYSEN. And last year you requested $35,000 for the study of a more accurate method of counting visitors?
Mr. METZLER. That is correct.
Mr. FRELINGHUYSEN. You are continuing that study? And what does it all mean?
Mr. METZLER. Well, we have not actually proceeded with that study yet. We are in the process of getting ready to do that. We have been consulting with some other government agencies about the process.
We have been requested to get a better understanding about what are the demographics of the visitors who visit Arlington Cemetery and come to visit from around the country.
That will be tied into our strategic plan as well. This will be the first of a number of requests that we will have over the year to continue looking at the demographics of our visitors.
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Mr. ZIRSCHKY. It is the second most visited site in Washington, D.C. About 4 million visitors a year, which is difficult because it is also a place where we would like to maintain not a tourist atmosphere for those who are burying their loved ones.
So that is one of the challenges we are facing.
CONGRESSIONAL CEMETERY
Mr. FRELINGHUYSEN. Understood. And this may not be an appropriate question, but have any of you ever visited the Congressional Cemetery along the Anacostia?
Mr. METZLER. I have.
Mr. FRELINGHUYSEN. You have. In many ways the people who are buried there have probably served their country every bit as well and with distinction as many of the people buried at Arlington.
But some of you have been there to see that site?
Mr. METZLER. Yes.
Mr. FRELINGHUYSEN. Thank you, Mr. Chairman.
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Mr. ZIRSCHKY. I understand that a church or someone was interested in operating that cemetery.
Mr. METZLER. It is a church owned facility. It is not a government facility.
Mr. FRELINGHUYSEN. I'll bet in the old days it was probably cleared by the Army Civil Works.
Mr. LEWIS. As a matter of fact from time to time there is interest in the House, and those people who surround the House, past members and otherwise, express interest in that Cemetery. It is a church-owned location, and there is a conflict there in terms of our ability to impact that facility. Sometimes there are serious problems with care and otherwise.
Perhaps separate from this meeting we might have a discussion regarding that to try to figure out how we can make sense out of a long-term plan in connection with that cemetery, which is a pretty important national location.
Mr. Mollohan.
DEFERRED MAINTENANCE
Mr. MOLLOHAN. Mr. Chairman, I just have a couple of questions here with regard to deferred maintenance.
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I am just wondering if I might ask one question, a bottom line question. Has your budget in the past reflected a deference of maintenance to say within an overall OMB total so you can fund your administration accounts and other accounts?
Mr. METZLER. We have not actually listed a deferred maintenance column, if you will.
Mr. MOLLOHAN. I am not asking that.
Mr. METZLER. Okay.
Mr. MOLLOHAN. I am asking you have you deferred maintenance.
Mr. METZLER. Yes. We have deferred maintenance.
Mr. MOLLOHAN. What kind of problem is that creating? You are going to have to address it sometime.
Mr. METZLER. Well, we are addressing it right now on a priority basis. The most needed items in the Cemetery are getting corrected.
Mr. MOLLOHAN. In this budget you are addressing it?
Mr. METZLER. This budget, for instance, the Old Amphitheater, this structure is over 100 years old, and we were finally able to partially fund it last year, and we are going to fund the rest of it this year.
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Mr. MOLLOHAN. That is one structure.
Mr. METZLER. That is one structure.
Mr. MOLLOHAN. Overall.
Mr. METZLER. Our master plan has identified a great need for the infrastructure to be looked at at the Cemetery, and the process of the master plan was to give us a logical process to repair the Cemetery on a long-term basis.
Mr. MOLLOHAN. To ask for increased budgets?
Mr. METZLER. That is correct.
Mr. MOLLOHAN. And does this budget request reflect that at all?
Mr. METZLER. This request only reflects the study for the additional lands.
Mr. MOLLOHAN. So you are still not asking for enough money to keep up with maintenance in this budget?
Mr. METZLER. That's correct.
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Mr. MOLLOHAN. Thank you, Mr. Chairman.
QUALITY AND LEVEL OF MAINTENANCE
Mr. LEWIS. Thank you, Mr. Mollohan. To supplement Mr. Mollohan's question, I presume, you indicated there may be a request for reprogramming coming forward, and I assume that is a piece of your effort to try to maintain the quality and level of maintenance that we expected in the past.
Mr. Metzler, with the 1999 Budget request, I will submit this for the record, but I would like to have you be very specific when you respond. We are attempting to maintain the Cemetery in as good or better condition than in 1992, and there are more people being interned, et cetera. In shrinking budget circumstances, even reprogrammings don't last forever.
So I would like us to really be as specific to the committee in terms of our priority problems as you can be.
Mr. METZLER. We will. We will take a real close look at that.
[The information follows:]
Specific Maintenance Items Addressed and Deferred
Establishment of a graveliner program and headstone cleaning program are relatively new, expansion of the tree and shrub maintenance contract and headstone raising and realigning are also currently underway. The graveliner program prevents significant maintenance problems of sunken graves in the future. Cleaning headstones enhances the overall appearance of Arlington National Cemetery. Our goal is to clean at least one third of all the government marble headstones each year and our level of funding was doubled from 1997 to 1998, the second year of the program, to attain that goal. We are increasing the amount provided in this budget for aligning headstones which is another overall appearance enhancer. In 1996 we began to contract tree and shrub maintenance that was previously performed by civil service staff, since that contracting effort began we have added additional work that we had always wanted to perform but did not have the manpower to complete. We have recently started an annual maintenance fund for the eternal flame at the Kennedy gravesite and have upgraded the old electrical system there and throughout the northern portion of the cemetery. We recently completed a significant clean up of Section 27 and installed upright headstones in that section that was the only area of the cemetery that had flat grave markers. The repair of rainwater leaks at the Memorial Amphitheater and replacement of marble that had deteriorated there has also recently been accomplished. Repair of the McClellan gate to restore it has also just been done. A reprogramming request is forthcoming that will request funds to repair a broken stormwater sewer line in section 33 and we hope to be able to proceed soon with the much needed replacement of the historic Custis Walk.
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The 1999 budget request includes $100,000 to repair roads and $50,000 to repair flagstone walkways. Roof repairs are planned for the ceremonial shelter at the Columbarium, the lodge at the Soldiers' and Airmen's Home cemetery and the reception building at the Memorial Amphitheater. Replacement of old and worn carpet is scheduled for several areas. $50,000 for repair of the irrigation system in the parking facility is funded. Restoration of the Logan Mausoleum is planned for $28,000 and upgrade of the kitchen and bathroom at the Soldiers' and Airmen's Home cemetery is planned. The electrical system at the Memorial Amphitheater will be upgraded for $50,000 and $10,000 is planned for replacement of shrubs. The restoration of the Old Memorial Amphitheater has proceeded for $175,000 and an additional $250,000 is included to complete this maintenance project.
While more funds could always be utilized at Arlington we have received more than the initial guidance level over the recent years and have made conscious decisions on what to defer. A careful effort in developing the new master plan categorizes the specific maintenance needs in a logical order instead of taking a band-aid approach. We will continue to expand contract efforts where they make sense and enhance the appearance of Arlington. We will also do our part to remain within the overall caps established by the Congress and Administration.
PLANNING LEVEL ESTIMATE
Mr. LEWIS. And as an indication of concern that gets very specific on our part, I note with interest your testimony about a $500,000 figure relative to the planning for the expansion. I found over the years that, kind of like members of subcommittees, planning will take up as much time as we have available regardless of the subject, that architects will spend as much money as there possibly is available regardless of the real need.
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I would be interested in some detail for the record on how well you might do on $300,000 rather than $500,000 and let us use that as a base for some discussion.
Mr. METZLER. Okay.
Mr. LEWIS. Do members have any additional questions?
[No response.]
Mr. LEWIS. If not, we have CEQ up ahead of us, and I know how much time we want to spend with the gentle lady.
So with that, Mr. Zirschky, Mr. Metzler, I appreciate your being here, and ladies and gentlemen, it's a pleasure to be with you. Look forward to working with you.We are all in this together.
Mr. ZIRSCHKY. Thank you, Mr. Chairman.
Mr. LEWIS. We will be in recess for a few minutes as we change subjects.
[Recess.]
"The Official Committee record contains additional material here."
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Thursday, February 12, 1998.
COUNCIL ON ENVIRONMENTAL QUALITY
WITNESS
KATHLEEN A. McGINTY, CHAIR
Opening Statements
Mr. LEWIS. If we can come back to order.
I am very, very appreciative of a witness who comes to us. She has written out her notes last night, rather than having staff prepare it three days ahead of time. That's very interesting. I am sometimes better off the top. [Laughter.]
Ms. MCGINTY. This was in the cab on the way here.
Mr. LEWIS. Very important. Before I begin my own introductory statement, Ms. McGinty, as you may know, the Chairman, among other things, comes from the West.
Ms. MCGINTY. Yes.
Mr. LEWIS. And there is a group of people out there, members who are concerned about Western issues that sometimes have environmental implications. And they were concerned that sometimes when they communicate directly to you that you may or may not—sometimes staff gets in the way and they do not let you see those wonderful and important communications.
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And so they asked me to present this to you personally. And since they had me sign it last, they were afraid I might not sign it. I told them I would do that.
Ms. MCGINTY. Thank you very much.
Mr. LEWIS. And I would like you to examine that carefully on the way back in the cab.
So we are now going to turn to the Council on Environmental Quality and the Office of Environmental Quality, whose fiscal year 1999 budget request is $3,020,000. This figure represents an increase of $520,000 over the 1998 appropriated level, and is identical to the President's fiscal year 1998 request.
Testifying on behalf of the Council is the able Chairwoman, Kathleen McGinty, with the Office of Environmental Quality.
Ms. McGinty, we welcome you again this year. It is a delight working with you and yours. As in previous years we would invite you to summarize your opening statement as you see fit. Your written statement will, of course, be included in the record, and members would like to spend time in personal exchange and questions.
Ms. MCGINTY. Terrific.
Mr. LEWIS. So, Mr. Stokes very likely has an opening——
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Mrs. MEEK. He has a Subcommittee meeting.
Mr. LEWIS. I'm just thinking he probably has a statement that we will make sure is in the record. I know you will pay very careful attention to Mr. Stokes' questions as well.
Ms. MCGINTY. Always do. Yes.
Mr. LEWIS. Ms. McGinty.
Ms. MCGINTY. Thank you, Mr. Chairman. I am particularly happy that I did the following. Since I didn't know I was going to receive a gift today, let the record show an official bribe for the Chairman, the ''I Love NEPA'' Valentine's gift for you.
Mr. LEWIS. I love NEPA. Let me say, you realize we are under severe restrictions regarding gifts. Is this edible?
Ms. MCGINTY. You better have Frank take a bite first.
Mr. LEWIS. Frankly, I was thinking about making it a bipartisan bite. [Laughter.]
Nonetheless the gift is welcomed. We do accept things from California, if they are made in California. Otherwise only if they are edible. [Laughter.]
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Ms. MCGINTY. I think it is Whitman's Chocolates from New Jersey.
Mr. FRELINGHUYSEN. Ah.
Mr. LEWIS. Frank tells me, quickly, that it is government to government so it is okay.
Ms. MCGINTY. Oh, so it is okay.
Mr. LEWIS. We'll have to examine what is okay government to government.
Ms. MCGINTY. I was just going to say, just imagine then the reciprocity there could be.
Mr. LEWIS. Almost endless, as a matter of fact. Do you scuba dive, by the way?
Ms. MCGINTY. I do.
Mr. LEWIS. I thought you probably would.
Ms. MCGINTY. Dangerously.
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Mr. LEWIS. Ms. McGinty.
MS. MCGINTY'S OPENING STATEMENT
Mr. MCGINTY. Thank you, Mr. Chairman, members of the Committee. Thank you for the opportunity to spend some time with you today. I wanted to share with you a little of what we have done in the last year.
We have been busy. For better or for worse we have been busy. And I think we have accomplished a lot. Also I would like to share with you some of the things we would like to accomplish in the year to come.
To place in some context in terms of what we have tried to accomplish, I wanted to go back to what is our charge, and our charge is the National Environmental Policy Act. I want to start there, because I think the charge of NEPA actually states as succinctly as can be stated that we have been trying to do.
As the Committee, I think is aware, NEPA, the National Environmental Policy Act, actually does not charge us with protecting the environment per se. Rather, in a much more creative and poetic stroke, it charges us with creating productive harmony among our environmental, economic and social objectives.
Now, especially in Washington, D.C., the idea of harmony is a bit of a challenging thing to have to shoot for, but I think it is exactly right. The reason I think it is exactly right, Mr. Chairman, and we've discussed it before, it does seem to me that for far too long we have made something which is a common ground among us all, and that is our care and commitment to the environment, into a battle ground.
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So what have we done towards this achievement of productive harmony? We have tried, first and foremost, to try to build partnerships, to try to serve as mediators of disputes, to try to create win/win approaches that reflect and respect the variety of our values—not just the environment, no just the economy, not just social concerns—but the multiplicity of those taken together, and to try to create the space for us to move forward together.
PUBLIC/PRIVATE PARTNERSHIPS
So some examples of what we tried to do in that regard: First, public/private partnerships. We have now set the stage to launch a major new clean water initiative. Last year was the 25th anniversary of the Clean Water Act. We have tried to build a new partnership to set the course for the next generation of clean water.
That partnership will bring together the agricultural community and State and local and Federal Government in a new initiative that on the one hand sets new standards for things like nitrogen and phosphorous that were implicated in the pfiesteria outbreak in the Chesapeake, but also provides new money, new tools, new resources for the agricultural community and for urban communities to get at that next major stage of clean water issues, which is non-point sources of pollution.
SUCCESSFUL PUBLIC/PRIVATE PARTNERSHIPS
Second, we have seen the fruits of one of our earlier public/private partnerships. This one is particular with the Big Three automakers. Instead of just rewaging the battles over CAFE, the Corporate Average Fuel Economy standards, we said isn't there a way for us to move forward together?
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And what we have done, primarily, is to open the doors of our national laboratories, and have our researchers working in partnership with the Big Three. A lot of folks thought it couldn't be done when we in 1994 set a goal that by the year 2003 the automakers would produce a car that achieved three times the fuel efficiency of current vehicles with no compromise of safety and performance.
And lo and behold, just this last year, in December, we saw the Big Three come forward and announce that they will do it not in 2003, but in fact in 2001. That research, that productivity resulted from this partnership that the Congress has supported and that we launched in 1994.
ENVIRONMENTAL TECHNOLOGY MARKET
Third, in terms of public/private partnerships, each of you in your Districts has an endless number, almost, of environmental technology companies. Across the board nationwide environmental technology is an $180 billion market employing 1.2 million people.
The problem is that most of the most innovative companies, they are small companies who are having a very hard time in accessing Federal resources, accessing technology programs, and, importantly, accessing export opportunities abroad, because of how small they are.
In my office is housed an inter-agency task force to promote environmental technologies. We are beginning to see the benchmarks of progress there. By last year we had increased the exports of environmental technologies by more than 50 percent since 1993.
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We also hosted an event where we brought companies from Europe to the United States and partnered those companies with small U.S. companies so that joint ventures could be formed.
So we are moving forward in public/private partnerships.
BREAKING GRIDLOCK
Second, in terms of achieving this productive harmony, we have been trying to break gridlock over issues that have been in gridlock for a long time. Just last month we worked with the EPA, the Federal Department of Transportation and the Georgia State Department of Transportation who were at significant loggerhead about five pending highway projects that had been proposed.
EPA was poised to prohibit all five of those projects. We jumped into the equation, brought the parties together with the upshot that three of the five were approved to go forward immediately.
The remaining two are conditionally approved, the condition being that we will finally insist that Atlanta, which is far behind in its Clean Air Act requirements, to in 18 months time put together a Clean Air Act conformity plan.
Broke the gridlock. Allowed that to move forward.
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Dredging in the ports of New York and New Jersey. Congressman Frelinghuysen can certainly speak to this. he has had this as one of his concerns. We have worked very hard there, where environmentalists, the courts, State and local government at loggerheads in terms of keeping those ports competitive, which means dredging them and deepening the channels, but also not seeing additional contaminated dredge spoils go into the ocean.
The upshot of that work is that last year we permitted more dredging activities than had been permitted to go forward in three years time before that. And, on the environmental side of that equation, we closed what was known as the Mud Dump Site, which was an ocean dumping ground for contaminated dredge spoils, and the public had spoken loudly that they didn't want contaminated materials being dumped in the oceans.
But by bringing the parties together, we enabled the dredging to go forward, while attending to that ocean pollution concern.
In the budget this year, CEQ also made sure that we had a new initiative. The next piece of insuring the competitiveness of that port is to dredge to the port's main antery to 45 foot draft. And with the budget initiative that we have launched, it is a $10 million commitment to start that work and to get the dredging done.
Along with that comes a new Federal commitment to support that dredging project.
INTER-GOVERNMENTAL COOPERATION
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The third area that I wanted to highlight, Mr. Chairman, is in addition to the breaking gridlock, and in trying to form public/private partnerships, we also work assiduously to try to insure inter-agency coordination and inter-governmental cooperation.
Inter-agency coordination, I think that Everglades Restoration is a terrific example of that, where we have five, six, seven different Federal agencies. They have come together with one coordinated vision of how Everglades Restoration should proceed.
We now have the full backing of the State, the local water management district in working with us on that.
Further, to insuring inter-agency coordination, CEQ co-chairs, the Administration's effort to put forward our policies on reauthorities of the highway bill, the ISTEA bill, which we have sent to the Congress for your consideration, and also now co-chairing with the National Economic Council, the Administration's efforts on electricity restructuring, and to put forward a proposal there.
Finally, in terms of insuring inter-governmental cooperation, I share especially with the Chairman something I am sure you will be interested in. We have been working very hard on new arrangements under the Endangered Species Act, and hopefully within two weeks we will be able to announce a new partnership with the State of California, as we have previously done with the State of Oregon, which in the case of steelhead salmon will avoid a Federal listing.
I do not want to prejudge the conclusion of that but that is where we are heading. And just months ago we entered into a similar partnership with the State of Oregon on both coho and shortly on steelhead salmon as well.
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With some of these accomplishments, Mr. Chairman, we have also had some disappointments, areas where we are not above to move forward as productively as we would like.
There are specific instances of that. Certainly Congresswoman Meek has been a leader in looking at the Homestead Air Force Base situation, and there we are working together, because we did not accomplish all that we would like to have accomplished there last year.
NEPA REINVENTION
But overall the largest area of disappointment for us is in our comprehensive NEPA reinvention effort. Last year, with your support, we started that effort, built a collaboration with the Western Governor Association, the Western States Foundation, Duke University, the University of Montana, the University of Wyoming, and launched a major reinvention effort.
That effort began to deliver results and produce very significant products. One, we agreed to reemphasize that there should be time limits on how long EIS's take.
Two, we issued guidance in changing those documents from impenetrable scientific documents into documents that would be written in plain English. Third, we reminded the agencies that they have page limits they should be working within, so that EIS's are not more than 150 pages, unless there is some reason why they need to be longer, and for EA's 15 pages was the recommendation.
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Finally, we came up with performance measures. We want to start to be able to quantify how the agencies are performing in executing their NEPA responsibilities. All of this was under way. All of its beginning to bear very important and productive fruit.
However, we did not receive the funding last year that we had requested to continue this initiative, and that meant in the very first day of this fiscal year I had to suspend the reinvention effort.
It is my top priority. If I cannot do it systematically, an overall, comprehensive reinvention of NEPA, to take it on on a case by case basis. We are working right now—Mr. Chairman, you would be interested to know, I think—with FEMA to change their hazard mitigation environmental requirements so that they will be much shorter and much more cost effective, so that FEMA can respond, for example, to flood situations in a timely fashion.
We have just finished working with the Army, the Air Force, in revising their NEPA regulations. But we would like to do this in a systematic way across the board, and it would be our top priority, to try to resuscitate that effort this year.
And I hope to work with the committee towards that end. Thank you very much, Mr. Chairman.
[The information follows:]
"The Official Committee record contains additional material here."
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Mr. LEWIS. Thank you very much, Ms. McGinty.
Beginning my own questions, I am going to go off staff's line of priority to some of my own. Some recent occurrences have helped to crystalize in my mind's eye perhaps a function of your work, as apparent in terms of its potential value to anybody who would but look.
And there are two instances that I would point to and ask for your brief response, and I will proceed to other questions.
SALTON SEA
In the late 1960s and early 1970s the District that I presently represent was held by Congressman Jerry Pettis. It included San Bernardino County, a very big part of it, and also much of Riverside County, including the Salton Sea.
You have referred to the Salton Sea in your formal testimony. But Jerry Pettis' service here was shortened by a tragic airplane accident. He was killed and his seat was filled by his wife, Shirley Pettis.
Following her coming to the Congress, she placed as her number-one priority doing something about the Salton Sea. That was in 1974. There was kind of a natural competition in the House for dear dollars that oftentimes are not available in the volume we would like.
And there was also a competition in the House that involved kind of partisan credit stuff—who gets the credit for being most concerned about the environment. Oftentimes it seems to me that the environment and the concerns about it are very, very important.
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We have left the real discussion to the people on the fringes, either no environmental work at all, or everything. Perfection or nothing. And in the meantime the important center is left out of that discussion, because people seem to be busy with their lives doing other things.
Nonetheless, 1974 it was Mrs. Pettis' highest priority and almost nothing happened except a lot more money spent on a lot more studies. Tragically 25 years later we have a special election in the same territory—Sonny Bono killed in a tragic accident. And his number one priority was the Salton Sea.
Recent studies have led to solutions to the problems around the Sea, that probably are of the narrowest form, the lowest possible cost, and perhaps will serve to stop the final killing of the sea, in short term, but certainly will not restore it to its potential.
I mean, if there ever was an illustration of the need for coordination and cooperation, insuring that no more money is spent on studies, and that we recognize this as an environmental asset of huge proportions, that can be restored without outrageous cost, but which has very complex overlapping jurisdiction.
The country of Mexico is involved. The farming community is involved, et cetera, et cetera. But think about it—1974, Mrs. Pettis comes to Congress, and her number one priority. Clearly we had room for the Bay Delta and its problems and the Salton Sea.
In the meantime, that asset is all but in a handbasket. Now, ahead of us will be a whole set of other studies. NEPA would be a piece of that, of course.
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I would think that experts could show us that in past studies, by quick review and short reference, we could probably with very low cost could say, these seem to be the alternatives.
Like, maybe, in three days, we might be able to do that. For if we wait 18 months for a study we are shortening the five-year time frame in which people say the sea will be dead. And the recovery time may be beyond us because we have got all these conflicting interests that would appear when everybody knows it is a life or death environmental problem.
Now, I just cannot find an illustration around that causes my imagination to figure out how better we could demonstrate that your agency actually might work. And, so, kind of in a formal way, I am asking you to get in the middle of this and coordinate between the departments, between the Administration's expressed interest, and now, bipartisan interest. The difference between 1974 and 1998 is that in recent years George Brown and I have been working on the Salton Sea project. He was born in Imperial County, he has a great interest in it. I wish that he had been talking to Mr. Miller in 1974.
But, in the meantime, we do not have much time left. I would kind of look to the year ahead to look for a demonstration, if you will. You have a great opportunity here.
SALTON SEA
Ms. MCGINTY. Well, thank you, Mr. Chairman.
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We have recently gotten involved in this issue. In fact, at an earlier request of Speaker Gingrich who called right after the tragic death of Mr. Bono and said, we really would like to have a bipartisan effort here, can you help facilitate it?
So, we did get involved. I think that there is some progress. For example, it would be our intention not to try to recreate the wheel in terms of the very good working relationship that has been put together with the Salton Sea Authority, a relationship that has the State and local machinery, I think, working together well.
NEPA AND SALTON SEA
In the NEPA process, I would also anticipate that that should not be, as I think you are suggesting, about new studies necessarily but—and this speaks to a fundamental misapplication of NEPA, which is—that it is not supposed to be the excuse for generating more paperwork. It is supposed to be the framework for decision making so that the economic analysis is on the table, the social analysis is on the table, the environmental analysis is on the table and you have a structure through which those various analyses are brought together into a comprehensive and coherent whole.
And, second, what NEPA is supposed to do is to say before the Federal agencies at any rate make any decisions, the public needs to be involved. So, it would be our hope to use NEPA as the framework to ensure that we have that coordination in the Federal participation and use it also as an opportunity to enhance public participation with the Salton Sea Authority.
Mr. LEWIS. It strikes me that the reality in and around the Salton Sea is that we are dealing with an emergency. And the Seretary has certain authority that certainly could be applied in emergency circumstances. It also strikes me that the local authority, because they have been told you only have got X number of dollars available and it has been a very limited number of dollars, that their conclusions are to take us to the least possible solution rather than restoring the asset.
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In the middle of that, if the Secretary has any kind of interpretative emergency authority, it seems to me that almost the total environmental community has to recognize that those thousands of dying birds every day these days, et certera, et cetera, creates a circumstance of real opportunity to show that even the Federal Government can move quickly, especially when we have had all these years of opportunity for study and a lot of money spent on those studies.
So, I urge you to raise this right up to the top of list. I think it is the most important critical environmental issue in the entire West. And, indeed, if there is credit to go around, there is credit for everybody. But more importantly, the environment is fundamentally involved.
SEVEN OAKS DAM—SANTA ANA RIVER
Another illustration of a similar circumstance that I bring to your attention for it, too, raises to the highest level a potential difficulty for the environment. The Seven Oaks Dam is a part of the Santa Ana River project. It is the largest line of water, potential water flow in the country where lives and property are involved and it is unprotected. We currently are in the midst of a billion and a half dollar project to protect the Santa Ana.
ENDANGERED SPECIES ISSUES
Within that environment, two years ago the Secretary of the Interior, by way of press release, indicated that the San Bernadino Kangaroo Rat was not an item that was likely to be listed because there are all kinds of listings. And I gather that at any rate would not be listed, not to be of concern.
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Recently, apparently, it is alleged at least, as a result of a conflict between the agency and a relatively small developer who was proposing development of like 240 acres, the San Bernadino Kangaroo Rat was listed on an emergency basis and it affected the whole basin, including the Seven Oaks Dam. They stopped their work, et cetera. And you are talking about potentially tens of thousands—and in the meantime, the rain is falling. It does cause our credibility, at least, to be challenged.
It strikes me that, if indeed, there is that kind of one-upmanship at the local level, which is totally oblivious to a broader problem, that there is a need for somebody in the middle of that to kind of say, hey, friends, let us take a look at what this is all about.
When George Brown and I came together and raised some of these questions publicly and pointed to this press release, suddenly there were meetings taking place in Los Angeles that said, maybe we can temporarily suspend any impact upon the dam's work. Now, wait a minute, that ain't the way it is supposed to work.
Now, it seems to me that if, over the next several years, we are valuating the real value of coordination and cooperation between agencies, we have got a couple of test possibilities here that might deserve your attention.
Ms. MCGINTY. Mr. Chairman, on the latter example, I mean I certainly will look into it. Two other examples come to mind that seem relevant to this that we have been involved in and have been able to figure out some solutions.
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Congressman Cal Dooley came to me about a year and a half or so ago. He was concerned about the Willow Fly Catcher and not being able to keep Lake Isabella at flood stage levels and it seemed like there was going to be a crisis there. But we were able to figure it out by bringing the various agencies together, we were able to find habitats that could be developed for the Willow Fly Catcher outside of the Lake perimeter, and, anyway, achieve a win-win by not having flooding in the area but still not flooding out the Willow Fly Catcher in the lake basin, itself.
So, there may be similar opportunity here and we would be happy at your invitation to look into it.
Consider myself invited.
Mr. LEWIS. Yes, you are invited. We are looking for the value of all of our agencies and commissions and especially those who coordinate between interests that really are all the same but sometimes exercise themselves differently.
Mr. MCGINTY. They do not realize it.
Mr. LEWIS. Good.
Mrs. Meek.
Mrs. MEEK. Thank you, Mr. Chairman.
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It is good to see you again.
Ms. McGinty has mentioned the fact that we have been working together trying to resolve some situations in my county. And I thought that I would talk just a little bit about them today and see if I can get some answers. And I am certainly hopefully they will be a little bit more definitive than some answers I received in the past.
HOMESTEAD AIR FORCE BASE
I had a chance to review the testimony from last year and I also remember it very well. I have to say that my folks back home are not pleased at all with the progress that has been made between then and now. First of all, there was a discrepancy in what you thought would happen at Homestead Air Force Base then and what is happening there now. And I guess my end conclusion is that there is really nothing happening there now, very little.
Last year, you were reviewing the Environmental Impact Statement on the Base to determine if it was adequate to allow the transfer of the Base to Dade County and allow the County to begin development there. I was every optimistic about the comments you made at that time. You said you were confident that in four months to a year the Base would be transferred.
Certainly I told that to my constituents and the people in Dade County. I think if anyone knows what happened there in 1992 this Base and, subsequently, that whole area was almost wiped out by Hurricane Andrew. We were very optimistic; but now because of the decisions that CEQ was involved in, that decision is several years down the road.
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The original supplemental EIS, the original EIS statement gave us confidence that in a year the Base would be transferred. But a lot of things have happened since then. We have lost the confidence of the public; that is, the Federal Government lost the confidence of the public.
And listening to my chairman I think there is some precedent for communities losing confidence in the Federal Government, because of the delayed implementation of certain things that were promised by agencies of the Government.
And I think that it is high time we stopped some of that. It undermines the credibility of those of us who are elected officials, and, number two, it undermines the public's trust in Government.
So, the people in Dade County feel that they have been betrayed because of any number of things that have happened since then. For an example, I understand there was no choice in selecting the baseline for comparing before and after, comparing the noise, the traffic, pollution and all, with the Base development plan which was originally developed.
I think, and I am sure you do too, that there is some room for us to make some judgment calls there. But if you chose a day before the Hurricane Andrew struck, the baselines would be a fully active Air Force Base, as all of you know, Homestead Air Force Base; if you chose the day after the hurricane struck, then the baseline would be essentially a decision based on a wiped out, desolate airstrip with no buildings and no human activity at all.
HOMESTEAD'S ENVIRONMENTAL SENSITIVITY BASELINE
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Can you tell me what baseline was chosen for the environmental sensitivity analysis at Homestead? Who made this decision? Did you concur in it, and why?
Ms. MCGINTY. Thank you, Congresswoman.
First of all, I just want to acknowledge your very hard work in this regard and I have appreciated the patience that you have shown, the tremendous number of hours that you have put into this. I want to acknowledge that we did not accomplish all that I had hoped we would be able to accomplish last year. And I suppose a little irrational exuberance comes into play sometimes.
The fact is that we do wrestle with tremendously difficult challenges and what I have tried to share with you today is our success in figuring those out and getting some win-win solutions. I thought that we would be able to do that in Homestead as well, but despite how hard we all might try, we cannot just wipe away mistakes that had been made in the past and those mistakes proved insurmountable.
NO-ACTION ALTERNATIVE
Where we are right now is hopefully in a place where we can start on a cleaner slate and move forward and you have my commitment that we will try to do that as expeditiously as possible. To answer your specific question about the baseline, when an agency is to undertake a significant action like the transfer of an Air Force Base, for example, they look at various alternatives. One alternative that it required them to look at is what is called the no-action alternative and this gets to your baseline question.
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The no-action alternative starts from the baseline, if you will, of what does the world look like today? That is the premise on which, then, if the agency is going to build a bridge or transfer an Air Force Base, the comparison is to what does the world look like today before I effectuate this decision that I want to effectuate?
The reason why that is an important principle in the NEPA kinds of analyses is that the alternative that, frankly had been pressed for decades, for two decades, the two and a half decades of NEPA's existence by the environmental community and others, is that no, no, no, the baseline, if you will, the no-action alternative, should not let us take the world as it exists today, but in the case of Florida, you know, let us take the world as it existed before Ponce de Leon set foot in South Florida. And there were lawsuits after lawsuits where environmentalists tried to have that be the baseline.
And, over the course of two decades, the result was that the court did not agree with that and said, no, it does not make sense to try and go back to the forest primeval and make decisions on that basis. Take the world as it exists at the time you are making your decision and compare the world as it would exist after you made your decision to as it exists right now today.
That is standard NEPA practice, long fought through the courts and that is the practice that the Air Force and the FAA, who were the agencies that made the decisions in this case—which you asked that question, too—that is what they did in this case as is standard practice.
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Mrs. MEEK. I do not think you answered my question. I wanted to know what baseline was chosen?
Ms. MCGINTY. The baseline would be the world as it exists today, the day that the agencies, the Air Force and the FAA, are preparing to make their decision.
Mrs. MEEK. See, that is our problem. We could go on and on with this discourse. But the bottom line is that in spite of all of the amalgamation of agencies that have been involved here, we still have not come up to the place where we have an environmental impact study that gives us clearance to get the land.
Ms. MCGINTY. Right.
Mrs. MEEK. If I may go a little bit further?
Ms. MCGINTY. Please.
Mrs. MEEK. The people back home are ragging me and calling me and meeting with me about this. There are several questions that I need to ask you. And I do not want to take up all the time of the Committee but I would like——
Mr. LEWIS. We will give you full opportunity to submit any others for the record, if you would like.
SEIS CONTRACTOR
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Mrs. MEEK. If I may go a little bit further, you have already chosen a contractor to do the SEIS.
Ms. MCGINTY. The Air Force has, yes.
Mrs. MEEK. That is right. And my constituents are questioning me as to how or what process was chosen. What process was initiated to hire this contractor? Just how did this happen? Who chose this and was it an open bidding kind of contract? They seem to have the feeling that someone from that area perhaps would know more about this. I do not know who was chosen but I wanted to ask you that question. Those are questions that are being asked of me.
Ms. MCGINTY. Yes. Well, I think on this one, Congresswoman, I will need to respond for the record.
[The information follows:]
HOMESTEAD AIR FORCE BASE
The contractor chosen by the Air Force to do the SEIS is Science Applications International Corporation (SAIC). The Air Force and the Air National Guard periodically select a number of different environmental and planning contractors through competitive bidding processes. Those contractors, having already been selected competitively, are then available to be put to work quickly as the need arises. SAIC is an experienced EIS contractor and was available under that process. They were put on contract within 30 days of the announcement of the SEIS. Going through a new competitive process would have required significantly more time.
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Ms. MCGINTY. But the Air Force and the FAA chose the contractor, I think, through their normal contracting provisions and I do not know what that all entails.
Mrs. MEEK. Okay. Most of all, the time element, Ms. McGinty, is so important to the people back home. That is some of the correspondence I have seen dedicated to all of this process and the fact that now we have another SEIS coming up.
It seems to be a very protracted process. And it might take years because right now, after that, there will be other studies that the county must do and the State of Florida must do. So, you can imagine our frustration.
HOMESTEAD TIME-LINE
My main question to you is, as the person over this entire, I guess, joint venture, agency-type situation, there is no way you can estimate how long this is going to take, not with any degree of definite times.
Ms. MCGINTY. What is currently planned is that after the scoping process as it is called and the public hearings, so that the public has input, is had in April. In May, the agencies will negotiate a schedule with the county and with members of Congress, who want to participate in that, for how long the processes that have to follow from those public hearings will take.
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COSTS OF HOMESTEAD DECISIONS
Mrs. MEEK. I will end with this question and I will submit the rest for the record. How much money has been spent up to this date and how much do you anticipate to be spend before the SEIS in concluded?
Ms. MCGINTY. I would need to respond for the record on that and I would be happy to try to get you that information.
[The information follows:]
HOMESTEAD AIR FORCE BASE
The 1994 EIS cost $950,000. The draft Earth Tech report cost $354,000. The SEIS will cost the Air Force $3 million. SEIS-related studies being undertaken by the Federal Aviation Administration are anticipated to cost between $750,000 to $1 million.
Mrs. MEEK. Thank you very much.
Ms. MCGINTY. Thank you.
Mr. LEWIS. Thank you, Mrs. Meek.
Mr. Mollohan.
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Mr. MOLLOHAN. Thank you, Mr. Chairman.
AMERICAN HERITAGE RIVERS
Ms. McGinty, you are in the process of designating some or we are in the process of designating some ten American Heritage Rivers. And you have initiated that and we are certainly interested in it. I am interested specifically in the financing part of it. Are the departments and agencies that are supposed to participate in this stepping up to their funding responsibilities? If so, are they a part of the President's budget request?
Ms. MCGINTY. Congressman, there are 13 different agencies who are involved in this. Because the program is about a reinvention of the way they otherwise do their activities—and the reinvention primarily being rather than have the agencies, top-down, decide how to spend their resources, that local communities would say that these are the resources we need, that would be bottom-up—there is not an additional funding request that has been made because the point of this is not to create a new program but to integrate the programs that already exist and make them more accessible to local communities.
Mr. MOLLOHAN. So the money is going to come out of——
Ms. MCGINTY. Existing programs and budgets, yes.
Mr. MOLLOHAN. Have those been identified where this money is going to come from?
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AMERICAN HERITAGE RIVERS PROGRAMS
Ms. MCGINTY. The programs that are involved have been identified. Again it is 13 different agencies. It is programs from the Park Services' programs where they advise communities on how to receive preferable tax treatment for historic properties, to the Department of Commerce which has a program where they provide experts to communities in community design so that some communities want to put amphitheaters and greenways on the sides of their rivers and try to attract economic activities along the river-front.
Mr. MOLLOHAN. So, they are just offering up current programs as participants in this overall American Heritage Rivers initiative?
Ms. MCGINTY. Yes, that is correct.
In fact, there is one example of a program which exists and monies that have been expended but hopefully through this program will achieve greater, will be more available to the public. The Department of Defense has what is considered the most sophisticated computer analyzing technology to help identify what are the best economic investments a community can make when they are trying to diversify their economic base.
That data, that computer software right now is only made available to communities experiencing base closures and realignments. And the point of this is to say, why should we have——
Mr. LEWIS. It must be a computer capability that is only shy of the capability demonstrated by the IRS. [Laughter.]
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Ms. MCGINTY. Well, in the year 2000 it is all going to be kaflooy anyway. But anyway, the point, for example, would be to have communities across the country be able to have access to that and that would be one part of what we had hoped communities would be able to resource and access through this initiative.
Mr. MOLLOHAN. I am asking the follow-up questions for the record. Thank you.
Ms. MCGINTY. Thank you.
Mr. MOLLOHAN. Thank you, Mr. Chairman.
Mr. LEWIS. Thank you, Mr. Mollohan.
Ms. McGinty, another problem that I would put on your plate that relates to this Santa Ana thing, just because it illustrates the need for coordination between agencies and short cutting difficulties, apparently in regions in the country, it is especially true in the Santa Ana River Basin, there is a small little crop called the Arundo which is, the handle it receives from others is, ''the weed from hell.'' And apparently it is a bamboo-like weed that grows in our channels.
Ms. MCGINTY. Yes.
FLOOD CONTROL CHANNELS
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Mr. LEWIS. And in more than one instance this weed, when high-water flows come into those channels, that were developed in the first place for flood control, this weed is in the way and when it is swept up roots and all comes out, and it clogs up the pipelines and bridges have collapsed as a result of it, et cetera.
And yet, there appears to be some serious difficulty in our ability to go in and make sure that those channels are open. Apparently the study time to clear the channels is longer than we can wait between floods. And the reason I point to the Santa Ana River Basin is only because it has been since 1938 since we have really been in-depth challenged at the 200-plus flood-year level. You would not remember this but I was quite young.
I dropped a ping-pong ball out my window in the back yard and it dropped 18 inches and hit the water and floated out the back fence. That was the real time of the Santa Ana River. The Lord has blessed us since then. We have had serious floods but nothing quite like that in Southern California inland. Should we have it, now there are tens of thousands of homes in that flood channel and there are multi-billion dollars of property. Yet, much of the channeling is clogged.
Ms. MCGINTY. Right.
Mr. LEWIS. And to wait until after the fact and say, hey, that is a problem. And one more time I think your agencies are very—and it was five or six years back the person can do all that and I think you got more than that.
Ms. MCGINTY. Well, I——
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Mr. LEWIS. I know that is why you are here.
Ms. MCGINTY. Well, just think how much more we could do.
Mr. LEWIS. Frank said you might say that. [Laughter.]
Ms. MCGINTY. Does that make you sleep better at night. [Laughter.]
I have not heard of this particular invasive species but I have heard of the problem overall in terms of being able to clear drainage channels and things like that.
Mr. LEWIS. Yes.
ENDANGERED SPECIES IN FLOOD CHANNELS
Ms. MCGINTY. Sometimes there is an endangered species issued that seems to be involved that if it is habitat there seems to be restrictions there. When that seemed to be the locus of the concern last year, we did issue a new policy, had the Department of Interior issue a new policy which declared it to be an emergency activity to clear those channels when there was a flood situation.
Mr. LEWIS. We actually have those kinds of emergency authorities?
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Ms. MCGINTY. There are those kinds of emergency authorities and——
Mr. LEWIS. We might even affect the Salton Sea situation.
Ms. MCGINTY. Indeed, I have that as my first item to investigate. But to your specific point, and I would have to respond further to see how exactly relevant this is, but even as we speak right now, we are working with FEMA to do a programmatic EIS program for them so that they do not have to do a separate environmental analysis for each activity that they might pursue in terms of hazard mitigation or avoidance.
Mr. LEWIS. It is just that kind of thing that we have been addressing.
Ms. MCGINTY. That is what we are trying to do on a programmatic basis.
Mr. LEWIS. Yes. I would very much appreciate being kept apprised of that sort of effort where there is real value to be had there.
Ms. MCGINTY. Sure.
NEPA REINVENTION
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Mr. LEWIS. Let me briefly before I turn to Mr. Stokes, ask a few questions that are of very high priority within our committee. I could not help but notice that NEPA reinvention was the first item listed within your justification.
Ms. MCGINTY. Yes.
Mr. LEWIS. Let us see, your program highlights involve some 28 pages and that was the number one. On a scale of one to 10 and if one is very, very import, how important is this effort to reinvent NEPA?
Ms. MCGINTY. I think it is a top priority.
Mr. LEWIS. In your mind, how does it compare in importance to the other activities performed by CEQ and OEQ?
Ms. MCGINTY. It is of a different nature than the other activities. The other activities become driven by case-by-case problems that Atlanta cannot build its highways, the governor of California is going to face huge restrictions if we list steelhead and, so, we jump into those issues with this idea that we should integrate environmental, economic and social concerns but it is on a case-by-case basis.
The NEPA reinvention effort is an attempt to get out of the fire-fights and understand programmatically and systematically how the entire implementation of the Act should be changed. That is what we had launched with tremendous public participation and that is the program now on a systematic basis we have not been able to continue.
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OTHER CEQ PRIORITIES
Mr. LEWIS. And does it have a higher priority though than activities such as dispute resolution and policy coordination?
Ms. MCGINTY. No. I think it has all been equal priority and sometimes those other issues of an emergency nature. The Atlanta situation, just to harken back to that for a second, we got called into that literally days before the Georgia Department of Transportation's plan that it had accepted was set to expire and either they were going to get these highways approved or they were not. And it was almost a 48-hour kind of turn-around that we had to respond to.
So, again, I think these things are of equal priority, it is just that the urgent nature of some of the case-by-case fire-fights seem to take precedence in terms of where your time and attention is.
REINVENTION VS. RESOLUTION AND COORDINATION
Mr. LEWIS. Well, I can understand that but for the record I am very interested in getting a more detailed evaluation for products that are number one on your list. It does seem to take a back seat to some of these other fire-fights that you describe and I am interested in whether or not some of the dispute resolution and coordination actions listed among your program highlights were of higher importance for staff assignment and tax dollars and program dollars than reinvention.
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Ms. MCGINTY. Hmm-hmm. Well, I would be happy to go through them but whether it is Speaker Gingrich calling on behalf of the Salton Sea or actually Speaker Gingrich calling on behalf of Atlanta highways, we respond.
Mr. LEWIS. Before we actually follow-on with any more detail, let me ask a number of items that relate to kind of a bottom line question.
Ms. MCGINTY. Please.
Mr. LEWIS. First, you listed only program highlights not necessarily everything your office has or hoped to accomplish.
Ms. MCGINTY. Yes, sir.
Mr. LEWIS. Second, your offices have not resolved all outstanding disputes among the Federal agencies nor have they coordinated all of the policy that awaits to be coordinated.
Third, you have not discovered all the new ways to do business that you would like to discover and implement, both at CEQ and OEQ——
Ms. MCGINTY. Oh, for sure.
Mr. LEWIS [continuing]. As well as other Federal agencies.
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Fourth, that politics plays a very large role in these things, if not a majority part, in the choices that your office makes in terms of where you put their financial and staffing resources. All of that is a part of the decision making process.
In the final analysis, I am interested in knowing, Ms. McGinty, is not your decision whether or not to fund NEPA reinvention a matter of setting priorities, high priorities, both political and national in scope, within the context of limited financial resources and the stated goal of the White House and the Congress to limit the growth of government?
Ms. MCGINTY. Well, as I said, it is a priority and we do continue the reinvention effort as best we can. For example, we are going to work with FEMA to change their regulation. We have worked with the Army, the Air Force, FDA and saved FDA $15 million in revising theirs.
But what I would like to be able to support is an effort which is not just about our staff doing work but which is a very publicly engaged effort, as we previously had launched it with universities across the country engaged, with the Western governors engaged, but takes a tremendous amount of coordination, a tremendous amount of bringing not only the agencies together but all kinds of entities across the country and that is something that we have not been able to support with just having 19 people in addition to all of the other responsibilities that we have to carry out on a day-to-day basis.
FY 1999 BUDGET PRIORITIES
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Mr. LEWIS. In the years that you and I have now have had a chance to deal with one another, I have noted that reinvention was an item, you know, first for discussion and then a high priority and then otherwise, but somewhere along the line the squeaky wheel kind of gets in the way of all of that. So, I anticipate, I guess, that by the time we are together next year we will have done the reinventing and——
Ms. MCGINTY. I do not know, sir, that we would be able to do the reinvention project because it was not funded in last year's budget.
Mr. LEWIS. With a staff of 19, let us put six over there.
Ms. MCGINTY. Well, there are other things that we would not be able to do.
Mr. LEWIS. No, this is correct, in a shrinking budgetary circumstance that is right.
Ms. MCGINTY. Including many of the things maybe we have talked about today. And I do want to underscore that every one of these initiatives or issues or problems that we take on are, we handle them in the spirit that NEPA lays out which is to bring those environmental concerns together with economic and social considerations. It is not—we have worked assiduously to move away from the polarized, black hat, white hat kinds of approaches. So, in everything we do, and in some of the initial conversations we had, Mr. Chairman, yes, we were talking about reinvention, but where CEQ at that time had focused a lot of its resources was, for example, in reinventing the way the Endangered Species Act is implemented. And the product of that is we now have more than 300 habitat conservation plans, voluntary partnerships with private industry and State and local government.
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EPA REINVENTION PRIORITIES
We focused our attention on the problems in some of EPA's programs. So, now we have Project XL, the Common Sense Initiative, things that are trying to forge different ways to get the job done.
Everything we have done, I would like to think and I believe strongly, is about reinvention because I do not believe in the polarized kinds of approaches we have had before. I genuinely think, I have not a small number of disagreements with friends in the environmental community about this, that approaches that say that either the environment wins or the economy wins is a formula that means no one wins in my estimation.
And certainly as we face the larger environmental challenges—climate change, and some of the things of a global nature—if we think we are going to meet those challenges with these narrow-minded, polarizing kinds of approaches, I think that that is short-sighted, indeed.
Mr. LEWIS. Okay.
Just a comment. The Fiscal Year 1997 NEPA Reinvention work was done with a smaller budget than we provided in 1998. It was $2.4 million versus $2.5 million.
Ms. MCGINTY. Yes, sir, and it was done with the help of agency detailees which we were prohibited in our budget from continuing last year and we had to fire our NEPA director because our budget last year told us we could not have agency detailees.
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Mr. LEWIS. It is all a matter of priority.
Ms. MCGINTY. In all of them, yes.
Mr. LEWIS. And I understand the squeaky wheel is really a big problem but, you know, the number one, two and three problems in the country that relate to environment and the need for coordination kind of somewhere rise to the top. NEPA reinvention is among your highest priorities?
Ms. MCGINTY. It is one of my highest priorities, that is right.
Mr. LEWIS. So, we are just pushing just a little bit.
Ms. MCGINTY. I understand, fair enough.
Mr. LEWIS. Mr. Stokes.
Mr. STOKES. Thank you, Mr. Chairman.
Well, since, Mr. Chairman, you were nice enough to invite Ms. McGinty to be here today I thought I could at least attend and once again welcome her before our subcommittee.
Ms. MCGINTY. Thank you.
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Mr. STOKES. And I apologize for not being here for your formal presentation. As the Chairman said, I am sort of shuttling between two subcommittees today trying to do my job in both areas.
I have read your testimony, however, and I do have a couple of questions, Mr. Chairman, to pose to Ms. McGinty.
Mr. LEWIS. Sure.
CLIMATE CHANGE TECHNOLOGY INITIATIVE
Mr. STOKES. Ms. McGinty, one of the major controversial environmental issues will undoubtedly be the Administration's Climate Change Technology Initiative. This week's Congressional Quarterly has an article entitled, ''Clinton's Global Warming Plan Meets a Wall of Opposition.''
There are several other articles I think that have indicated that many businesses are opposed to this initiative. The House Ways and Means Chairman appears to be opposed to the Administration's proposed tax credit. Some opponents, both in Congress and elsewhere, believe that the Administration's 1999 budget request amounts to an effort to implement the international treaty resulting from Kyoto sessions before the treaty is even submitted to the Senate for ratification.
These are just some of the concerns that have come to my attention. Can you address some of these issues for us indicating what the council's role is and is expected to be relative to this whole issue?
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Ms. MCGINTY. Sure. Thank you, Mr. Stokes.
And I think your statement quite accurately portrays some of the real challenges and concerns there are on all sides about the climate change issue. You asked about our role. I co-chair the policy development process in the White House on climate change and my co-chair is Gene Sperling, the President's economic policy advisor.
GOALS IN KYOTO
What we have tried to set forward is a plan that is built on three major pillars. One is to say that we have to have realistic and achievable emissions reductions goals. That meant, sir, in the international arena we said, no, to folks like the European Community who wanted to go much further and insist on much more drastic cuts. We said we cannot do that. That is not realistic and achievable.
The upshot of the conference in Kyoto was that we achieved the target essentially that the President had laid out.
The second major pillar was that in moving forward to achieve that target, whatever the emissions reduction goal is, that we ought to do it in a way that harnesses market forces, that gives our industries as much flexibility as possible to get the job done in the cheapest way possible.
We worked hard in the international arena to secure the flexibility that we asked for in the treaty. And this, again, was in the face of opposition from many countries including the European community who wanted to say, no, no flexibility, we are going to have an international command and control type of approach where everyone agrees to the same measure to implement in every country. We said, every country is different. We ought to be able to have the opportunity to use as much flexibility here domestically and to use partnerships to achieve emissions reductions, if it is cheaper to reduce those emissions in another country.
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The third pillar was that we needed to secure the participation of all countries, including developing countries in the effort to reduce greenhouse gas emissions. Now, it is on this score, this third score, that while we have gotten important tools in the Kyoto treaty to achieve that goal, we did not fully achieve it in the Kyoto Protocol. And that is why to the other point that you made about ratification, we would not proceed towards ratification until and, therefore, would not proceed to take on binding obligations here in the United States until we more effectively secure the participation of key developing countries. And that is what we will be working on diplomatically and internationally this year to try to get done.
KYOTO TREATY RATIFICATION
Mr. STOKES. So, then the whole question of the President submitting the treaty for ratification is highly unpredictable?
Ms. MCGINTY. The exact timing of when we would submit the treaty for ratification is not certain until we secure that participation of the developing countries but what the President has said is that in the interim we will not subject ourselves to binding obligations of any kind until we secure that meaningful participation.
What we are trying to do in the interim is not to do anything that is of a binding nature but to work with industry to set up opportunities where industry voluntarily can secure or pursue emissions reductions. And before you came in, sir, I had mentioned our partnership, for example, with the automobile industry where we now have the automobile industry saying voluntarily that they can significantly reduce their emissions and it is those kinds of approaches we are trying to pursue.
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SUPERFUND REAUTHORIZATION
Mr. STOKES. Okay. Let me ask you about another controversial environmental issue and that is Superfund reauthorization.
Ms. MCGINTY. Yes.
Mr. STOKES. As you know, the program's authorization started several years ago. Various attempts since then to reauthorize the program have gone nowhere. This subcommittee has done the best job it could to fund Superfund but our hands have largely been tied. Tell us what has and what is the Council doing to get Superfund reauthorized and fulfill the promises made by President Clinton in the Kalamazoo Initiative.
Ms. MCGINTY. Yes. Thank you.
Well, our role, again, is we get together with the President's economic advisor, I co-chair the Administration's effort to put a Superfund proposal and policy together. And that resulted several years ago in our submitting legislation to the Hill, legislation that was supported by all the major chemical companies and large industries as well as people like the Sierra Club and environmental groups who really had pulled a coalition together.
Unfortunately, that legislation did not pass on the Hill. So, we are still in a place where we have not secured reauthorization.
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We are gearing up again this year to try to build on some progress that was made last year. In the Senate, Senator Chafee and Senator Smith did host some negotiations that we thought were productive and we hope will be resumed to the end of reauthorizing Superfund.
But in the meantime, we are working on things like the activities you have been very much involved in on Brownfields. And, in fact, I visited some Brownfield sites, yes, with your staff in your district where we see if we can provide some initial start-up funds the ability to bring those properties back into productive and healthy economic use is something that we have seen as a productive way to bring people together and move forward. And, so, there is additional money in the President's budget to accomplish that objective, accelerating our work on Brownfields and there also is additional money, overall, in the President's budget to accelerate Superfund clean-ups, as you noted, the President called for in the Kalamazoo Initiative.
BROWNFIELDS
It was very impressive, by the way, the work that was being done in your district, bringing back this whole strip of properties that had been abandoned.
Mr. STOKES. I appreciate the fact that you took the time to go out and look at what we are doing there. We, too, are very proud of what we are doing. Cleveland has been a sort of a pilot in the area of Brownfields.
Ms. MCGINTY. Yes.
Mr. STOKES. And, so, I appreciate that.
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Ms. MCGINTY. One of the things, pardon me——
Mr. STOKES. Sure, go ahead.
Ms. MCGINTY [continuing]. That I think is an important piece of this that we learned from the Cleveland experience is the importance of having a local partner in doing Brownfields because a lot of businesses came and said, all right, we are willing to go back and redevelop that Brownfield, but if you have got something that is essentially 20 X 20, it is not bit enough. We need contiguous pieces of property so that we can put our Walmart in or whatever it is. And there we had, with your office's assistance, the local zoning authorities working with us to put that whole strip of property together which businesses said they needed in order to have an economical presence, they needed more space.
That is a critical piece to making the Brownfields work.
SUPERFUND REAUTHORIZATION IN 1998
Mr. STOKES. I agree. And I guess my final question under this Superfund situation, because it has led to a great deal of frustration, I think, on the part of the Chairman, myself and others on this subcommittee that we have not been able to get reauthorization from the authorizing side.
Ms. MCGINTY. Right.
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Mr. STOKES. In your professional opinion, do you see reauthorization taking place this year?
Ms. MCGINTY. Well, I say honestly that I think it will be difficult and for a good reason and for bad. The good reason is that in the Senate side, anyway, I think one of the first priorities will be the Endangered Species Act reauthorization. That will consume the committee for some period of time.
But the good news is, I think, there is hope there we can actually get that done. The bad news is it may mean that Superfund does not get taken up until later in the session and maybe too late in the session to get it done.
On the House side, here, just the week before last, I spoke with Mr. Boehlert to see what we might be able to do. He was going to try to speak with Mr. Bliley and see if there was any way that they could come up with a united front on this, if there was any hope of that. And we are just not sure where those conversations will lead.
Mr. STOKES. Well, thank you very much, Ms. McGinty. It is always a pleasure to have you before us.
Ms. MCGINTY. The same, thank you.
Mr. STOKES. Thank you, Mr. Chairman.
Mr. LEWIS. Mr. Stokes.
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Mr. Knollenberg.
Mr. KNOLLENBERG. Thank you, Mr. Chairman.
Ms. McGinty, it is good to see you.
Ms. MCGINTY. It is good to see you.
Mr. KNOLLENBERG. The last time I saw you we were in Kyoto.
Ms. MCGINTY. That is right, with dark rings under our eyes.
Mr. KNOLLENBERG. I know all of you went through a battle for several days and I commend you for your durability because that was not easy.
Ms. MCGINTY. Thank you.
THREE GOALS FOR KYOTO
Mr. KNOLLENBERG. I want to talk to you about a couple of things. You mentioned there were three basic goals.
Ms. MCGINTY. Kyoto, yes.
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Mr. KNOLLENBERG. Yes. and I think you said that in your opinion two of those goals have been met in the short-term. What do you mean by short-term?
Ms. MCGINTY. The first two which have to do with a realistic and achievable target and then flexibility, we were able to secure in the Kyoto agreement a target that was reflective of the President's target rather than the European Community.
And on the flexibility piece, we were able to secure agreement on things like emission trading, joint implementation and those kinds so initiatives. but the third prong is the question of securing the meaningful participation of developing countries and there, while we got some tools we can work with towards that end, the clean development mechanism, for example, the ability of developing countries to opt into the treaty, those things were secured but we did not actually get those countries to opt in and to sign up and to secure their participation.
Mr. KNOLLENBERG. Well, I am going to address that in just a second. In regards to the second goal, developed countries are expected to play a large part in reducing emissions. For example, the automotive industry will have a large part of this burden.
In fact, unlike the Kyoto agreement that was drafted beforehand, we actually signed—I say, we—the signatories signed a document that required 7 percent less carbon dioxide or emissions that were 7 percent lower than 1990.
KYOTO TREATY AND THE AUTO INDUSTRY
Now, what this, I think, says is that it puts a tremendous burden on the auto industry to meet some of the goal that you and others have outlined. For example, I drive a late model Geo Prism, 1996, and I get 40 miles to a gallon if I am lucky, very, very lucky. For the automotive industry to do their part to meet these requirements it looks to me like we are going to have to do something in the way of twice the CAFE standard, three times the CAFE standard—and with the introduction of the hybrid vehicle they are talking about now, which by the way, will not hit the roads until the year 2001, I think it puts a tremendous amount of weight on the automotive industry. You know, the battery powered vehicles have not been exactly hot items. I think they sold 400 in California and Arizona. There is a tax credit, obviously, that is the lure to bring people into that. But it just has not been very popular. And my concern is that when, I know we are talking about the 3rd goal which pertains to the way, I think you know the answer I do not have to ask you, what's China's obligation on this whole thing, (Kyoto) it is zero.
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Ms. MCGINTY. Right.
Mr. KNOLLENBERG. Brazil is zero, Mexico is zero, India is zero. The U.S., of course, has to meet a target well below the 1990 numbers.
So, I am trying to find out—one is, these goals that have been set to produce cars, it is almost like putting the cart in front of the horse, are saying that to do your part, America, to do your part automotive industry, you are going to have to produce cars that are getting two or three times what they are currently getting. Unless there is some breakthrough, some monumental breakthrough I do not see that happening.
NUCLEAR ENERGY
You can address it if you will, but the other thing that bothers me about Kyoto, and try as I may I could not get anybody, anybody to even talk about nuclear. One of the problems that is not a problem, in Japan because they can practically meet, I believe and you can correct me if I am wrong, their targets with their nuclear capacity because they are growing their nuclear power as a part of Kyoto. It is up over 40 percent and I cannot tell you how many more they are building but they continue to build more and more nuclear power plants. France is up to 75 percent. Not a problem for them. They can literally meet their targets with nuclear power.
What I did not hear over there and maybe you can speak to this, what better power source, of energy than nuclear power? And, yet, no one in the Administration, the President has not talked about it, we could not get anybody that we talked to in our deliberations with all the signatories, the delegates, no one wanted to talk about nuclear power. Why?
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Ms. MCGINTY. Shall I start with that one and work backwards?
Mr. KNOLLENBERG. You sure can.
Ms. MCGINTY. On nuclear energy, I mean clearly that is an essential part of our fuel mix today and 20 percent or more of our energy provided by nuclear energy and hopefully will be for more than the foreseeable future. One of the initiatives that we have launched in this regard is that in the climate initiative that the President has proposed as a part of his budget submission to the Congress it calls for a diversified energy portfolio, for sure, with additional investments in solar energy and renewable energy and things like that, energy efficiency.
But there also is a new initiative on the nuclear side to try to extend the life of the nuclear facilities that we have currently operating and to look into whether it is 10 years or 20 years how the life of those facilities could be extended. And that is one of the initiatives that is included in the President's climate plan.
Mr. KNOLLENBERG. But just to keep the nuclear plants we have right?
Ms. MCGINTY. Well, that is the piece that is spoken to in the initiative but it is on top of the general investments we make in nuclear energy research every year. This is just a new initiative inspired by the reality that many of these plants are 20, 25 years old at the moment and the reality that for the variety of reasons that you perhaps know better than I, we have not had new nuclear facilities sited or build since 1978 or whatever.
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So, it is just to say that we know that that is a reality. Is there any way we can address that specific problem?
CLIMATE CHANGE FORMULA
To go back to some of the other points that you had made. I will start with just a technical point and if it would be helpful to you I would provide this in writing for you. But the complicated formulas that were talked about in Kyoto, while they resulted in a number on paper that says it is 7 percent below 1990 levels by the years 2008 to 2012 for the United States, when you account for the fact that we have these six gases instead of three, and when you account for our insistence, which we secured, that SINCS be in there as well, the math actually comes out to about a 2 to 3 percent reduction from 1990 levels, so, closer to what the President had called for which was a flat, meet 1990 levels. And it is a complicated formula. I would be happy to provide it for you if you want to see.
Mr. KNOLLENBERG. I would want that.
[The information follows:]
CLIMATE CHANGE FORMULA
The 7% target represents at most a 3% real reduction below the President's initial proposal of reducing greenhouse gases to 1990 levels by 2008–2012. The remaining 4 percentage points result from certain changes in the way gases and sinks are calculated and do not reflect any increase in effort as compared to the President's original proposal.
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Changing the baseline for the three synthetic greenhouse gases from 1990 to 1995 accounts for about 1% of the 7% reduction. Use of these three gases has grown since 1990, so that permitting a 1995 baseline allows for a higher overall baseline than the Administration assumed last October when the President announced his goal of reaching 1990 levels by 2008–2012. Making reductions to meet a higher baseline is of course easier than making reductions to meet a lower baseline. Had the United States maintained the same level of effort assumed by the President in October, and no other factors had changed, the shift to a 1995 baseline for the three synthetic gases would, alone, have transformed the President's goal of 1990 levels into a goal equivalent to 1% below 1990 levels.
Altering the accounting method of carbon-absorbing activities, such as planting trees, accounts for about 3% of the 7% reduction. The President's original goal assumed that the 1990 baseline would be lowered by carbon-absorbing activities, but under the method agreed in Kyoto, such activities do not lower the 1990 baseline. Because the 1990 level baseline is thus higher under the Kyoto agreement, the U.S. target becomes somewhat less stringent. Specifically, had the U.S. maintained the same level of effort assumed by the President in October, and no other factors had changed, the shift in the accounting method for carbon-absorbing activities would, alone, have transformed the President's goal of 1990 levels into a goal equivalent to at least 3% below 1990 levels. (As noted above, certain carbon-absorbing activities will count again emission reduction commitments in the budget period.)
Mr. KNOLLENBERG. It is troubling to me that I know about the basket of gases and if that does come down to that number that is closer to what we had originally expected but it is still not on the mark.
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PARTNERSHIP FOR A NEW GENERATION OF VEHICLES
Ms. MCGINTY. No, no. It is on the order of 2 to 3 percent below 1990 levels. The last thing I would say is in response to your specific concerns about the automotive industry. As is reflected in our testimony, CEQ does chair the effort for the Administration on the Partnership For a New Generation of Vehicles. And I guess what I wanted to say is that the spirit that brought us to that kind of approach rather than continuing the battles over the traditional regulatory approaches that had been taken in the past, is the spirit we will take with us when we think about how the automotive sector can contribute to the climate initiative.
And we were very pleased to actually see in December the Big Three able to announce that, as you rightly note, 2001, to have production vehicles that achieve 80 miles to the gallon. And even today we have an event with the auto manufacturers celebrating their commitment to produce now the cleanest cars in the world as they have through this 49-State car initiative. But the point I just leave with you is that that kind of working together in partnership that we have tried to forge over the last five years is what we will bring to this issue as we move forward on climate, as well.
PARTNERSHIP FOR A NEW GENERATION OF VEHICLES GOALS
Mr. KNOLLENBERG. So, I guess I see that program, that partnership, almost too optimistic. It is classically optimistic and it suggests some things. For example, this partnership agreement which you have just discussed said that vehicles, within 10 years, they will be three times as fuel efficient as today's cars with no loss of performance, no loss of amenities, nothing to change the performance or the size or the safety.
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Now, that is—this is 1998, so in the year 2008, are we talking, 2010?
Ms. MCGINTY. Well, this partnership was launched in 1993 so the goal is for 2003.
That is when it would be——
Mr. KNOLLENBERG. You mean that is when it would start, 2003?
Ms. MCGINTY. Yes, it would start in 2003. And what the December announcement was, was the auto makers saying we can beat that. We will have your production ready vehicles in 2001 instead of 2003.
Mr. KNOLLENBERG. But even in saying that, the automotive industry knows, too, that it will not have but a few models in the showroom in five years.
Ms. MCGINTY. And it takes a long time to penetrate the market place.
Mr. KNOLLENBERG. You have to penetrate the market, you are talking about 15 million annual sales in cars and what are you going to get? Maybe a pinch. Now, is that really going to get you to where you want to go if these targets are legally binding and that is what bothers me.
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Ms. MCGINTY. Yes, sir.
Mr. KNOLLENBERG. Because legally binding targets say that there is every reason to believe that they should reach some closure on this that is close to what the estimate is and I just have to wonder how we are going to do that.
Ms. MCGINTY. I think you are absolutely right in saying this is an ambitious target and it is and as the environmentalists have said, boy, we sold out and we did not do enough. No. This is a very ambitious target, indeed.
CLIMATE CHANGE FLEXIBILITY
But the one thing I would say is related to the flexibility piece. We said no to some of the European proposals, for example, that would have said, your automobiles have to achieve X, Y, Z miles to the gallon. We will decide as a nation where we can achieve reductions, and where it is going to take longer to achieve reductions and try to offer that kind of flexibility to get the job done in a way that makes sense. And that might mean that it takes longer for the automotive industry to be able to have products that sufficiently penetrate the market.
Mr. KNOLLENBERG. And if I could, Mr. Chairman, one final question. Is there a way that we can induce the developing countries to come on board? That was the original part of the Byrd Amendment insisted in the Senate.
Ms. MCGINTY. Insisting on it, yes.
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Mr. KNOLLENBERG. And, in fact, I think it should be acceptable to insist that still be the case. So, how do we bring them on board?
DEVELOPING COUNTRIES AND KYOTO
Ms. MCGINTY. Well, first, we agree absolutely with the point that the developing countries have to be part of this and we would not, as the President said, we will not assume binding obligation ourselves until we secure the participation of those countries.
Just a short comment on it, in my mind the job with regard to developing countries is in some respects much harder now that we are post-Kyoto, in some respects easier now that we are post-Kyoto. It is harder post-Kyoto because we do not have the pressure of 160 nations coming together all of whom need to give something so that a deal, if you will, gets reached. It is easier because one of the upshots of Kyoto, as you well know, is that the Berlin mandate which said that the developing countries do not have to do anything is QED now. Now, the Berlin mandate is done and we move on.
The second reason I think it is a little bit easier is that the G–7 is very interesting, always interesting to work with but there is an interesting dynamic within the G–7. It is not a monolith, as you know. And when you get out of having to deal with the G–7, as a whole, and now move forward maybe with one-on-one diplomacy there are the Koreas, the Mexicos of the world who have been much more forthcoming and at least showing some degree of interest in participating.
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Mr. KNOLLENBERG. Ms. McGinty, thank you very much.
Ms. MCGINTY. Thank you.
Mr. KNOLLENBERG. Mr.Chairman, thank you.
Mr. LEWIS. Thank you, Mr. Knollenberg.
The chair has run out of time but before we actually closed down this session, I do want you to know that I appreciate your responses to Mr. Knollenberg's questions.
I personally over the years have watched the benefit from keeping pressure on Detroit and, at the same time, recognizing that we have got very serious work dealing with our constituents, the consumers, out there, who when they start to revolt our whole program may fall apart as a result of what they perceive to be credibility. At the same time, the developing world should be a very real part of our target.
WELCOME TO MR. BEVILL
I want to take just a moment to welcome Tom Bevill to our subcommittee who is one of the great members of the House and Mr. Bevill, I want to just take a moment to share with those who are present one of the really phenomenal items that have developed over time as a result of your leadership and work. You will recall the proton beam treatment facility that was developed in Loma Linde, California, directly as a result of your leadership in your subcommittee.
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Mr. Chairman, you will be interested to know that that work is truly revolutionary in terms of non-invasive surgery for cancer treatment, having fantastic impact upon treatment without invasive surgery for small tumors, for prostate cancer, and the committee has just moved forward with broadening that protocol where serious impact is going to be made on treatment of breast cancer in the very near term. It is really an phenomenal and revolutionary process that would not have taken place without a public and private partnership that you very much were at the point of and we appreciate very much the results we are seeing there.
Mr. BEVILL. Thank you very much and I am glad that Mr. Stokes heard that because he never did give me credit for anything. [Laughter.]
Mr. STOKES. Tom, you spoke too quick. I was just going to ask the Chairman to allow me to have a beautiful biomedical science building that will be at Case Western Reserve University in Ohio thanks to Tom Bevill. [Laughter.]
Mr. BEVILL. These two, I really do not think they have room for any more public works projects. [Laughter.]
Mr. MOLLOHAN. Mr. Chairman, I just wanted to say I am very appreciative for my share of Tom Bevill's——
[Laughter.]
And if you are expressing thanks, I must do, too.
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Mr. LEWIS. Ms. McGinty, Mr. Price has a couple of questions and unfortunately the Chair must run down the road for I have got a commitment that is very, very serious.
And we will close down the meeting from there but it has been a delight and it is always a delight, Ms. McGinty, and we appreciate your responsiveness to our formal questions as well as those that have taken place here.
Ms. MCGINTY. Thank you.
Mr. PRICE [presiding]. Thank you, Mr. Chairman.
I apologize for my delayed arrival.
Ms. McGinty, let me just add one question here and if you could maybe answer briefly and then supply a fuller answer for the record.
Ms. MCGINTY. That is fine.
PFIESTERIA RESEARCH
Mr. PRICE. I did not want to raise the question of this pfiesteria research because it has been a major environmental issue in North Carolina where it was first identified and, of course, the Chesapeake Bay region, as well. Could you just tell us briefly about the role that CEQ played in following the outbreak of pfiesteria last year and what you are doing now to address this problem and how this work relates to the Clean Water Initiative?
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Ms. MCGINTY. Well, first I want to thank you for your good offices enabling us to conduct the work that we have done on this in your backyard at Research Triangle and those facilities.
What CEQ has tried to do is to bring all of them various agencies that have a piece of this—EPA, USDA, the Corps of Engineers, the Fish and Wildlife Service—there are any number of agencies that are doing research, that is research that is relevant to this, but to bring that research together so that it is focused in a laser beam kind of fashion as best we can on trying to figure out some of the answers to the pfiesteria problem.
CLEAN WATER INITIATIVE IMPACT ON PFIESTERIA
We had moved from just coordinating the research to launching now two initiatives that we hope can be part of the solution to the problem that has been identified. The first is the one that you referred to which is the Clean Water initiative and the initiative will represent hopefully when it is fully launched a public/private partnership between the public side, State and Federal Government, and the private side, the agricultural community, farming interests, in a joint effort both to reduce nitrogen and phosphorous loading into watersheds, and we will set new standards to that end. And also a new $570 million set of initiatives to put resources at the disposal of, for example, the agricultural community to help us get the job done.
CONSERVATION RESERVE ENHANCEMENT AND PFIESTERIA
The second initiative I will just mention very briefly is the conservation reserve enhancement program where we most recently worked with the State of Maryland at $200 million-odd initiative to look at the State as a whole and be able to put initiatives in place, again, working with farmers to protect all of the critical watersheds which feed into the Chesapeake Bay. We are working on similar initiatives with Oregon, Washington, Illinois, I believe, and I think Wisconsin, states that see the benefit of taking a comprehensive approach to these issues, realizing really everything is linked together. If we look at the problem as a whole we probably have a better chance of solving it.
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Mr. PRICE. Well, we do have serious research efforts now going on in various settings. I think the coordination of that is important to make certain that the labor is divided in an effective and efficient way.
Ms. MCGINTY. Right.
Mr. PRICE. And then I think it is important to look at these new initiatives so that maximum attention is paid to the pfiesteria affected areas participating in these new efforts. So, we look forward to working with you on that and we appreciate your testimony.
Ms. MCGINTY. Thank you. We had the diversity of agricultural interests in yesterday and they very much feel that we have got some of the seeds here of a very good initiative that will help them in the effort they want to undertake which is better to protect key watersheds. So, they are very much a partner with us.
Mr. PRICE. Thank you very much.
Ms. MCGINTY. Thank you.
Mr. PRICE. With that, we will adjourn the hearing.
"The Official Committee record contains additional material here."
Tuesday, February 24, 1998.
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NEIGHBORHOOD REINVESTMENT CORPORATION
WITNESSES
GEORGE KNIGHT, EXECUTIVE DIRECTOR
CLARENCE SNUGGS, DEPUTY EXECUTIVE DIRECTOR/TREASURER
MARY LEE WIDENER, PRESIDENT, NEIGHBORHOOD HOUSING SERVICES OF AMERICA, INC., [NHSA]
ROY DAVIS, DIRECTOR, FINANCE, ADMINISTRATION TRAINING, HUMAN RESOURCES & RESEARCH
JULIA HUNTER GALDO, DIRECTOR, COMMUNICATIONS AND INFORMATION SERVICES
MARGARET KELLY, DIRECTOR, FIELD OPERATIONS
CARLOS PORRATA, DIRECTOR, INFORMATION TECHNOLOGY, PROGRAM REVIEW & INTERNAL CONSULTING
JEFFREY BRYSON, GENERAL COUNSEL
Opening Statements
Mr. LEWIS. The meeting comes to order. It is my pleasure to bring this meeting to order to welcome one of my favorite Federal organizations who delivers services in ways that if we would do it across the government, we would all be better off.
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I wanted to mention at the beginning of this hearing for the record, Mr. Knight, that I know that you are aware that Neighborhood Reinvestment has, among other things, become an active partner in the House that Congress Built and our efforts to try to symbolize the values of making homes available to working Americans across the country.
Just this last weekend, we kicked off the Houses that Congress Built in the West by a groundbreaking in Apple Valley, California, where neighbors are coming together. In that process, a total of $60,000 was presented for the partnership that is taking place in this relatively small community; very, very exciting stuff.
Now, I must tell you that that day the Lord wasn't exactly with us. The wind was blowing at 50 miles an hour, and it was about 40 degrees, and people talked longer than they should, but, nonetheless, the partnership was working.
Today, we welcome George Knight from the Neighborhood Reinvestment Corporation to testify before the Subcommittee on the matter of the NRC's fiscal year 1999 budget request. The NRC is an organization that does just what it sets out to do, providing affordable housing options for low income families and helping us all rebuild neighborhoods.
The NRC is a true, good investment for the American taxpayer. From the appropriations they receive, the NRC leverages those dollars and many more from the private sector. For example, in 1997, Congress appropriated $49.9 million to Neighborhood Reinvestment. With that appropriations, the NRC brought in investments of $544 million, a ratio of 11 private dollars to one public dollar.
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Besides helping people into homes, the work of the NRC has a positive ripple effect on the neighborhoods in which they participate. Block by block, new home owners and newly renovated homes revitalize communities. As a community becomes stronger, the tax base increases and attracts more private investment.
While the NRC's accomplishments are high, their operating expenses and FTE numbers remain low. Operating expenses shown in 1998 to the 1999 core budget represent only a nine percent increase, and FTEs increased by five. The NRC seeks $90 million in 1999; $65 million for the core program and $25 million for a new home ownership pilot.
Mr. Knight, I look forward to your testimony today and to hear more about the accomplishments of the NRC and what you have planned for the future. If you would introduce your guests who are with us, friends of the family, we would appreciate it.
Mr. Knight's Opening Statement
Mr. KNIGHT. Thank you for your kind remarks. I believe you remember Roy Davis, who is our Director of Finance; Jeff Bryson, who is our General Counsel; our Controller, Allan Martin; Margaret Kelly, who is Director of Field Operations and responsible for all of our field work; Mary Lee Widener, who is President of Neighborhood Housing Services of America, a critical ingredient to our work; and actually a special treat, her board chair, Dan Dixon, is in the back corner hiding—Senior Executive of World Savings—who as a volunteer serves as the board chair of NHSA; and Julia Galdo, our Communications Director; and a brand new face—Hugh Guest, our Deputy last year who you knew retired during the year, and this is Clarence Snuggs's second day on the job.
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Mr. LEWIS. That is why you are not smiling, Clarence.
Mr. KNIGHT. It is good to have him. He brings a wonderful background and was the Chairman-Elect of the Baltimore Neighborhood Housing Services after a 20-year history with Maryland National Bank; and Carlos Porrata, our Technology Chief.
Mr. LEWIS. Carlos, welcome.
Mr. KNIGHT. Mr. Chairman, I am delighted to be here and appreciate deeply your support and comments and the committee's support of the NeighborWorks network over the years and Neighborhood Reinvestment. As you pointed out——
Mr. LEWIS. Before you start, George, Valerie tells me that one more time if we don't recognize Mr. Stokes, he may really be unhappy with her, and rarely is he unhappy with her.
Mr. STOKES. Well, I am not going to ever be unhappy with Valerie.
Mr. LEWIS. Louis Stokes, as you all know, is my Chairman, and it is my pleasure to recognize him for any comments he might have.
Mr. Stokes' Opening Statement
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Mr. STOKES. Thank you very much, Mr. Chairman. I would appreciate the opportunity to just make a brief statement. I would like to join you, Mr. Chairman, in welcoming Mr. Knight and all of his colleagues to our subcommittee this morning.
While there are many Federal programs involved in housing and urban development, the Neighborhood Reinvestment Corporation occupies a special and important niche. The Corporation's focus is on mobilizing public and private resources to bring back deteriorating neighborhoods or to prevent them from deteriorating in the first place. It operates with small scale local affiliates and seeks to use modest public funding to leverage larger amounts of private investment.
The work of Neighborhood Housing Services of Cleveland provides a good illustration of the achievements of your network of organizations. From January 1, 1993, to June 30 of 1997 the Cleveland organization was able to leverage grants of $434,612 from the Neighborhood Reinvestment Corporation to a total investment of $6,513,900, a healthy 12-to-1 ratio. And this kind of ability to leverage other public and private capital is one of the keys to the success of the NeighborWorks concept.
I understand further that the Neighborhood Reinvestment Corporation recently completed a five-year campaign to increase home ownership among low-income people, and the success of the campaign has surpassed the goals set forth. I want to congratulate all of you on that success. I look forward to hearing more about that campaign and your plans for a follow-on effort, as well as about the rest of your budget proposal. And with that, I look forward, Mr. Knight, to your testimony this morning.
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Mr. KNIGHT. Thank you.
Mr. LEWIS. With that, George, you are on. Go right ahead.
Mr. KNIGHT. Well, given your comments on the Houses that Congress Built, I think the last time Mr. Stokes and I were together, we were in T-shirts in southeast——
Mr. STOKES. That is right.
Mr. KNIGHT [continuing]. Putting some nails into one of those houses.
Mr. STOKES. I was leaning upon my chairman for leadership in how to put those nails in.
Mr. LEWIS. You know, I just might interrupt by saying that one of the things I have never forgotten and never will forget was Louis Stokes coming to the microphone that day and saying that this was the most fantastic experience that he had ever had in terms of community cooperation. I had the same impression, but it was really an inspiration.
Mr. STOKES. It really was. It really was a great occasion.
Mr. LEWIS. Go ahead. Sorry, George.
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Mr. Knight's Opening Statement
Mr. KNIGHT. 1997, as you have remarked, was a banner year, and I thought in preparing these remarks it would be a fair question for you to ask me, in 1997 an additional $10 million was appropriated and what did we get for it?
Mr. LEWIS. Right.
NEIGHBORHOOD REINVESTMENT CORPORATION ACCOMPLISHMENTS
Mr. KNIGHT. And I am pleased to tell you that you have already reported the headlines, if you will, that the 177 NeighborWorks organizations increased their direct and indirect lending by $124 million. It was about a 29 percent increase.
They substantially improved—created new—put homeowners in 11,257 units. That was a 22 percent increase. And they worked on their clean-up and fix-up efforts—they paint and repair homes—on a minor basis at 10,700 units, and that was, I believe, a 57 percent increase.
Mary Lee and the secondary market had their second highest year ever in terms of purchasing $37.5 million worth of loans. And, as you know, the NeighborWorks organizations themselves own mutual housing units and affordable rental units, and that base expanded from a little more than 13,000 to a little more than 15,000, about a 13 percent increase.
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Training increased by 10 percent. We added five additional programs. A hundred new communities were served through the existing network, and we joined the modern age by coming live on the World Wide Web.
I think the base that was laid in 1997 is one we are building on now. Many of the funds that went into the revolving loan funds will be lent and relent through NHSA's process. The training—the 3,000 plus folks who were trained—those skills don't go away. They stay serving their communities. And we think the electronic age will provide a great vehicle for getting more information out to more people in a very cost-effective way. So I want to thank you for your support in 1997.
CAMPAIGN FOR HOME OWNERSHIP
As Mr. Stokes mentioned, the Campaign for Home Ownership ended December 31. It had begun five years earlier with a drop in interest rates, a rise in employment. A group of 20 innovative programs came together and said, you know, we would really like to capitalize on a proven strategy for neighborhood revitalization, home ownership, and they set ambitious goals.
They set a goal of 10,000 new homeowners. They, at the time, were doing less than 1,000 units, annually. We have ended up putting 14,000 families into home ownership. Eleven percent of those families earn less than $15,000, and remarkably five percent of those families earn less than $10,000. They set a goal of investing $650 million in their neighborhoods. It turned out to be an underestimate by a lot. It turned out to be closer to a billion dollars.
But, most importantly, they set out to serve people who were renters in their neighborhood, who looked like the families of their neighborhood, and on that goal they achieved a tremendous success. Ninety-five percent are first-time buyers. Seventy percent of them are low or very low income.
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Sixty-one percent are minority. Forty-two percent are female heads of household, and 37 percent of these folks are paying less or just a little bit more to own than they had been paying to rent. So we were very delighted with this outcome.
We learned the lessons—the tried and true lesson that if you own something and you have the pride of paying back your mortgage, you have a larger sense of control and influence in your neighborhood, and you exercise that. We learned that capital is available, lots of private capital is available. It can be mixed and used to reach people who otherwise you might not think could be reached if you used some innovation and some nonconventional capital.
We learned the full-cycle approach. Time with people up front during the process and afterwards is really critical to having them stay in the home. And, most importantly, we learned that these clients are good risks. The delinquency rates on them are tracking about a point and a half above conventional and about three points below VA–FHA. So while the book is young, we think this is a good indication of the future.
As the campaign came to an end, a number of our private partners and many NeighborWorks organizations which had grown from 20 to over 100; said we have got to do it again. And last September, individuals such as Leland Brensel, Chairman, Freddie Mac and Rhonda Woodward from Allstate and Barry Zigas from Fannie Mae challenged the network to triple its goals, to put on a campaign through the year 2002.
And they have set goals—preliminary goals of 25,000 new homeowners and about $1.8 billion in investment. It will be launched formally on May 5, and I would invite each and every one of you to come and join us on that day.
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COMMUNITY REVITALIZATION
But revitalization, as you know, is much, much more than just home ownership. Many, many of our homes are reaching that certain age. Forty-two percent nationally are more than 40 years old, and in central cities, it rises to more than 54 percent. We have got to continue the effort to rehabilitate those homes, to work with existing homeowners, to make those also places of pride in the neighborhood.
Community revitalization, as you well know, means building social capital, creating opportunities, assets, and hope. It also means deploying the financial resources of loans and new construction and insurance products. We are proud that for 20 years the network has been doing that, and now we are experiencing a large set of requests to expand it.
We have NeighborWorks organizations that are expanding from their city operations out into the inner suburbs. We have got organizations that are being requested to serve towns that lie hundreds of miles from where they serve—a long way from their base of operations. And we have many, many organizations who are not currently affiliated with the network who want to become a NeighborWorks organization.
COMPUTER SYSTEM NEEDS
I would have to tell you that the conventional lending industry, as you know, is undergoing a computer revolution. In '95, probably there were almost no computer automated originations. And by the time we finish the refinance boom in '98, it may be 75 percent. We have got to bring the neighborhood based groups up in their computer skills to be able to participate in this, or their neighborhoods will be left behind. With that, I look forward to your questions, and thank you once again for your support and encouragement.
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[The information follows:]
"The Official Committee record contains additional material here."
Mr. LEWIS. Thank you very much, Mr. Knight. As you can see, my Committee is being very responsive to those programs at work. And because of the turnout this morning, I would like to have my colleagues begin to participate as early as possible. So let me turn for initial questions to my colleague, Mr. Stokes.
NEIGHBORWORKS in inner cities
Mr. STOKES. Thank you very much, Mr. Chairman. Mr. Knight, it might be helpful to the Committee if you might sort of just briefly describe for us the kinds of things that a NeighborWorks organization does to assist an inner city neighborhood faced with deteriorating housing and a growing number of vacant units. Just give us an idea of how their function works.
Mr. KNIGHT. The basics are simple, and the operation is all local, and the strategies are all set locally. But the basics are to create a partnership between the residents of that community and the private sector and the public sector; to have every group have a set of funds—revolving loan fund—that they can use to extend credit to any (responsible family who owns a home or wants to own a home) to make that home be a place of pride in the neighborhood; to work with their neighbors to organize other activities that may be needed and locally designed to change that neighborhood, whether it is working with the youth to turn them from a negative to a positive force, whether it is dealing with crime, clean up, fix up, whatever it takes—certainly Habitat, Christmas in April, those kinds of activities. Those are the basics.
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How it is carried out locally is determined locally, set locally, and the strategies vary. In your community, as you know, two years ago, one of the neighborhoods was afflicted with a huge number of vacants, and so the Cleveland NHS purchased a number of them and conducted an auction so that on a single day I think it was 20 plus units were purchased with the confidence that it wasn't just me purchasing but my neighbors were all purchasing together. We were all going to take care of the vacants in this small area. Frankly, that couldn't have been done without first the local effort and second the (line of credit) extended by NHSA. Because this was a risky, innovative approach they would not have found a lender willing to do it. And so NHSA's $600,000—I can't remember——
Ms. WIDENER. $650,000 line of credit for 25 units.
Mr. KNIGHT. I knew Mary would know the numbers—helped make the difference.
Ms. WIDENER. And all 25 units have been rehabilitated. So the first thing is 25 vacant units are now 25 solid units owned or to be owned by the homeowners.
Mr. STOKES. By new homeowners?
Ms. WIDENER. Yes.
NEIGHBORHOOD REINVESTMENT CORPORATION FILLING GAPS
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Mr. STOKES. Are there other ways in which you have filled the gaps that are left open by the manner in which the private sector and government agencies operate home ownership?
Mr. KNIGHT. Well, there are a lot of gaps, and multifamily is one gap. But on home ownership specifically, the first five-year campaign showed us that for every dollar available in downpayment assistance and closing cost assistance and second mortgages, there were about $12 in conventional first mortgages. And that $12 of conventional firsts really to some extent only flows because you have the $1.
As you move down the income scale and you get down to those families I mentioned earlier, who earn below $10,000 annually, and five percent of the purchasers were below $10,000, you need a little more on the second mortgage side to make a first mortgage work.
For every dollar in the second capital, there is $6—$6.30 in conventional first mortgage money. If you think of the cost of subsidizing someone at $10,000 over a long term in a rental apartment versus helping them purchase a home, we think home ownership has a lot of other benefits as well. And still of the $7 spent, you are only putting up $1. $6 is coming through the conventional sector.
So I am not sure whether that is a gap. It wouldn't exist if you didn't have both parties. You couldn't take $7 in public funds and achieve very much. I mean, you could but you would have only 14 percent of the total. If you add those $6 from the private sector, you expand your pie and your impact by a whole lot. So I guess that is filling a gap. It is achieving a whole lot that otherwise just wouldn't be done.
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NEIGHBORWORKS risk mitigation
Mr. STOKES. Mr. Chairman, I am just going to pose one more question, and then I will yield back because you do have a number of members present today, and I know you want to give them a chance to participate. Mr. Knight, your budget justifications include some very impressive statistics. Regarding the amount of private-sector funding that you and your affiliates are able to leverage; tell us what makes this possible, and, in particular, what is it about the involvement of a NeighborWorks organization that makes investment more attractive to private lenders?
Mr. KNIGHT. Well, not to sound too much like a banker, Mr. Stokes, but basically it mitigates risk. The NeighborWorks organization mitigates risk. It mitigates risks by providing seconds, by providing quality counseling to the purchaser, by providing quality rehab counseling to the family if they are undergoing rehab, and being able to deal with the other issues in the neighborhood; the lack of insurance, a vacant lot next door that needs to be taken care of. It mitigates those risks, and that makes it attractive for a private lender or insurer or other financial source to risk their capital.
Ms. WIDENER. I would like to add to that answer——
Mr. STOKES. Sure.
Ms. WIDENER [continuing]. By saying that clearly one of the types of private investment that would not occur is the investments in the secondary market program, which have represented more than $250 million of capital that is at a below market rate. These investments serve unconventional special purpose credit needs that wouldn't meet normal credit standards in any event.
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And in addition to the fact that the NeighborWorks organization is there and represents in itself a credit enhancement, the support of this committee, of the Neighborhood Reinvestment Corporation, has made it feasible for us to provide credit enhancements and facilitate the use of that social investment money in a manner that makes the investors comfortable. So they feel it is efficient.
They are able to serve, actually back, over 500 communities by making a single investment in NHSA. That is very efficient; and in addition they have our operational expertise, as well as the loan loss reserves and credit enhancement reserves that make them comfortable that their investments will be repaid as promised. And over a 20-year history, that has been the case.
Mr. KNIGHT. If you want to electrify a crowd, Rhonda Woodward, Senior Vice President of Allstate and Board Member of NHSA stood up last as September part of the celebration of the end of the campaign committed $100 million of NHSA purchases. And Allstate, for public good reasons, not under CRA or anything, has been a long-term investor in NHSA. These funds are secured by seconds and firsts that otherwise don't meet conventional standards.
Mr. STOKES. Thank you very much. Thank you, Mr. Chairman.
Mr. LEWIS. Thank you, Mr. Stokes. Mr. Wicker.
Mr. WICKER. Thank you, Mr. Chairman. And, Mr. Knight, I too was out at Southeast when we were wearing T-shirts and driving nails. It was a wonderful experience, and I am glad to have been a part of it. We are planning to do that at several locations this year in my congressional district.
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Mr. KNIGHT. Terrific.
NRC AND THE HOUSE THAT CONGRESS BUILT
Mr. WICKER. Specifically, what was your agency's role? I know that several governmental entities were there that day, but what did the Neighborhood Reinvestment Corporation do for that project that——
Mr. KNIGHT. On that particular day?
Mr. WICKER. Well, throughout the——
Mr. KNIGHT. Well, not judging the competence of some of our staff who were there driving nails, including myself by all means——
Mr. WICKER. Most of us were amateurs on that.
Mr. KNIGHT. We provided the film crew that documented that day, and working with the Habitat folks recorded the event on film. And so in terms of that particular day, that is what we committed. We serve on the steering committee and are working under Habitat's guidance on the whole roll-out of this effort across the country.
This is a natural fit for us, if you will. Many, many, many NeighborWorks organizations and Habitat chapters already work hand-in-glove and have for a long, long time, so that this comes quite naturally.
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Mr. WICKER. I see. You didn't expend any funds on that particular project other than to help publicize it around the nation. Is that correct?
Mr. KNIGHT. We shot some footage. We shot some film, and we have dedicated some staff energy, including the weekend——
Mr. WICKER. I am just trying to understand——
Mr. KNIGHT [continuing]. Saturday.
Mr. WICKER. Fine. I am just trying to understand your agency's role in that time line. I noticed on page three of your testimony you list lessons learned, and they are all positive. What mistakes were made? What things don't work? Can you give us any insight there, or was everything positive?
FULL-CYCLE LENDING
Mr. KNIGHT. Yes. I put mistakes in a positive way. We certainly learned that families need what we call full-cycle lending. If you counsel a family up to a certain point, particularly a first generation buyer—and by first generation buyer, I mean somebody whose family—who grew up in a household that they did not own—if you counsel them just up to the closing point on the mortgage, you really have missed something. And so we found very early on that you really have to stick with that family through the first six months or year of owning, providing continued budget counseling.
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When you purchase a home, if any of you have done recently, you know you are flooded by every credit extending offer in the world—furniture dealers, credit card dealers, everything. So helping that family through that first six months or year when they are in, we learned that that is critical. You must do that.
Mr. LEWIS. 125 percent of equity is the case.
Mr. WICKER. Right.
Mr. LEWIS. The minute you own——
Mr. KNIGHT. Well, we are very conservative. I mean, the front-end ratio in most cases is 20 or 25 percent. These are very low-income families. They don't have much room for error. So that was clearly a lesson learned.
Secondly, a lesson learned was that home maintenance tasks—if you have been a renter your whole life, you are used to picking up the phone and calling for the repair. As a homeowner, we all know if we have ever called in a plumber, that it can be an extremely expensive lesson if you don't know how to change those washers. And so early on, we found families in trouble and we realized some of those maintenance things they haven't adjusted to. So many organizations now run home-maintenance training.
And the third lesson which we will apply big time to the second campaign is creating what we call a home ownership center, that is a one-stop place where families can come, not only the families being helped by the campaign, but any family—an existing owner, a middle income owner can come and find out about insurance or maintenance or how to finance or how to refinance a home.
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And this grew out of experiences in Vermont, a rural state that was struggling to reach out into far corners and pockets that weren't so easy to reach, and help families who may be in early delinquency trouble and do it in a setting that is nonpunitive; do it in a setting where they can explore the realistic options for themselves. So we plan to set up a lot of home ownership centers.
Mr. LEWIS. Thank you, Mr. Wicker.
Ms. WIDENER. Could I answer——
Mr. LEWIS. Sure. Please.
MISTAKES AND LESSONS
Ms. WIDENER [continuing]. In relation to what mistakes were made—because I think that is a fair question. And I would like to acknowledge on the secondary market side that we underestimated. We really underestimated the pace of activity that the programs would experience and realized that we must raise money one to two years out so that we can have a certainty of funds available for the groups so that there are not programmatic starts and stops. We didn't realize that when we showed an interruption of funds it really jangled the groups across the network, and we don't want that to happen again.
Mr. LEWIS. Okay.
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Mr. KNIGHT. The campaign took off so successfully in fiscal year '95, the sales of the secondary market hit $52 million. And we had to close the window in December, and that was a huge jar across the network. And then as you know, last year it was about $18 million as we rebuilt reserves, and that is why we are so excited this year to be back to $37.5 million.
Mr. LEWIS. Yes. Very, very good.
Mr. KNIGHT. Yes. That is good. Thank you, Mary.
Mr. LEWIS. Very good testimony. Thank you. Ms. Meek.
Mrs. MEEK. Thank you very much; good to see all of you again.
Mr. KNIGHT. It is good to see you again.
NRC'S LOW ADMINISTRATIVE COSTS
Mrs. MEEK. It appears to me as I look at your budget that success hasn't spoiled you in that you are operating your FTEs almost as low as they were when you were making this money. I am looking at your sheet——
Mr. KNIGHT. That is correct.
Mrs. MEEK [continuing]. On sources of all funds. Explain that to me.
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Mr. KNIGHT. Well, I am cheap? No.
Mr. WICKER. Or you could say, ''I am terrific.''
Mr. KNIGHT. No, I can't say that. Yes. The action is at the local level, and so we are really trying to get as much of our funding out at the local level as we can. I would have to say particularly since Margaret Kelly, our Director of Field Operations, is sitting right behind me with a sharp object in her hand, that we do have to add some staff.
The growth of activity has really put a strain on us, and so we really do need at this level of activity grow. Otherwise, I think, unfortunately, I could find myself back here telling you that we were having some disasters that we didn't know about because we weren't ahead of them and we weren't watching. And I don't want to ever be in that position with you or the committee. We think the funds at the local level is where you get the spin and the impact.
LOCAL SUPPORT AND LOCAL NEED
Mrs. MEEK. All right. That leads to my second question. What happens when you have local affiliates who are very well conducted and very well run—I happen to have one in Miami—and the needs of the community are overwhelming, but they aren't able to raise the money that they used to raise?
When I was in the Senate years ago, my Neighborhood Housing Service was able to raise a lot of money from the banks and from the people in the community. That well is running dry now. So what does your corporation do when you find those kinds of situations? What kind of disposition do you make, if you do make any?
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Mr. KNIGHT. Well, philosophically, we have never felt that we should be in a position of being the continuing funder of an organization, that if it is not locally supported, then there is a real question there. But we recognize that from time to time the economy has changed, the state law has changed, circumstances change and organizations run into rough spots.
And so we do assist organizations through those rough spots. But it usually means we sit down with the organization and try and analyze what had happened before, what is happening now, what can the future hold. As you know, the last time I think you and I were together in your state was announcing the effort following Hurricane Andrew to reach the many people who did not have insurance and were struggling and to put funds in there.
And that was, I think, very successful in reaching people who otherwise probably would have lost their homes. Actually, a lot of people ended up purchasing homes out of that. But times have changed since then, and so we would work with an organization to analyze what is going on now and what are the services needed, what is the need in the community.
These are frail organizations. As the Chairman knows, the typical budget—the median budget is only about $440,000. So if you have a $50,000 or $100,000 contributor drop out one year, that is trouble big time. And so we recognize that, and we do work with organizations through those rough spots.
Mrs. MEEK. All right. Thank you. Thank you, Mr. Chairman.
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HOUSE THAT CONGRESS BUILT
Mr. LEWIS. Thank you, Ms. Meek. I wanted to follow up just briefly on Mr. Wicker's comment relative to our bill together. It might be interesting for all of us to know that as of this moment there are 173 members of Congress who have committed to participate in the House that Congress Built across the country out of 435. We are making very rapid progress. At this table, there is—I can only find one exception, and I think it is probably because in our rush to move forward, I haven't informed that particular individual about this program. But the committee is participating very actively as well. I am pleased with that and look forward to continued expansion in the Congress. Let us see. Let me call on Mr. Frelinghuysen.
Mr. FRELINGHUYSEN. I think Mr. Mollohan was here first, if you don't mind.
Mr. LEWIS. I am not going to call on Mr. Mollohan because that is my exception.
Mr. FRELINGHUYSEN. Mr. Mollohan, I figured that you were here earlier. Could you give me just a brief overview as to your success in New Jersey?
NEIGHBORHOOD REINVESTMENT CORPORATION IN NEW JERSEY
Mr. KNIGHT. New Jersey is tough and has been tough for us. We have worked with the state for a number of years, particularly on the multifamily side, to assist in a number of communities. But in terms of active organizations in New Jersey, I regret to say at this time we are down to two. We are working to locate other organizations and work with them.
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Mr. FRELINGHUYSEN. I am not happy to hear about it because my general question was, you know, where have you had successes and where have you not had success. We have Christmas in April. We have a fairly active Habitat. I am working on one. They are still trying to get it through the planning board in my town—get all those neighbors to approve, Mr. Chairman.
Mr. KNIGHT. Not atypical of your state.
Mr. FRELINGHUYSEN. We are not alone, with some really serious housing problems—a lot of people in need—I think it is incumbent that I use whatever you are suggesting to me. It is somewhat of a hammer to get better New Jersey participation where the state government needs to be active. And even in our own corporate world, I mean, many of the main players nationally in terms of insurance have some sort of a New Jersey headquarters or base. And, you know, it would be pretty appalling if they weren't participating in some way. I don't know whether you can add anything more to what you said but—
Mr. KNIGHT. Well, I am sure Margaret Kelly can as our Director of Field Operations. Why don't you stand up, Margaret?
NEW ORGANIZATIONS IN NEW JERSEY
Ms. KELLY. Well, let me just add that we are not yet—have not yet been enormously successful in northern New Jersey, although we are doing a significant outreach there now, and there are some very interesting prospects.
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In addition to the two organizations we currently have, we are adding two new affiliates; one in Elizabeth and one in Orange. And, interestingly, Fleet Bank has indicated to us that they are willing to join hands with us in New Jersey—anyplace in their service area. So that gives us an additional leverage that we didn't have a year ago. So we are more optimistic than perhaps——
Mr. FRELINGHUYSEN. Well, things are occurring—just to make sure that the rest of my colleagues don't think we are a backwater. There is a lot of good work being done in terms of providing low-income housing and assistance in New Jersey. A lot of it is church-based.
And I am thrilled by some of the things that have occurred in our largest city, Newark, where they really have grown neighborhoods where at one point there was incredible blight and desolation. So to have you not there in some presence does irritate me, and I will be happy to work with your staff to see that you are given whatever access you need and hopefully cooperation. Thank you.
Mr. KNIGHT. Well, New Communities is a terrific organization, and I will take you up on your offer. Father Linder and I have talked, and it is a question of whether we can bring value added. And, frankly, I am not sure that we have much to teach them, and they have a lot to teach us and others. But there are certainly many parts of your state where I think we can bring value added, and that is what we are working on to achieve.
Mr. FRELINGHUYSEN. Well, I will be happy to work with your staff in——
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Mr. KNIGHT. Terrific. I will take you up on that.
Mr. FRELINGHUYSEN [continuing]. Identifying areas where your reception will be more warmly taken.
Mr. KNIGHT. I will take you up on that offer.
Mr. FRELINGHUYSEN. Thank you. Thank you, Mr. Chairman.
Ms. WIDENER. It might be important for you to know that a lot of the network dollars are still at work in New Jersey from the time that we were very intensively involved. NHSA opened an office in Newark, and we led a $200 million drive to get special social investment dollars into multifamily housing and received a $12.5 million social investment from Prudential, $5 million of which went into Newark.
And we even put staff in to do hands-on work to develop that. We are still working with those families, and as recently as last week, we think we are in legal documents for a new $5 million commitment from Prudential which will help us to continue to work with families in the state.
So I don't want you to think there hasn't been a presence and there isn't a significant presence. It is just that the need is so great that when the state pulls back, it makes it very hard for us to continue with the fervor that we did in the past. And when we did the $200 million of activity, the state was the partner with NHSA, providing the operating funds for us to raise that money and package those loans.
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Mr. FRELINGHUYSEN. Thank you for giving me the heads up; appreciate it. Thank you, Mr. Chairman.
EXAMPLES OF LOCAL CONTRIBUTIONS
Mr. LEWIS. Thank you, Mr. Frelinghuysen. I might mention, Mr. Frelinghuysen, that by way of participation, the Town of Apple Valley was kind enough in our most recent venture out there expanding that House that Congress Built, they involved themselves to the extent of waiving local permit fees to allow their contribution to be understood up front. In the meantime, I understand that in Newark the Housing Authority has made tremendous strides in terms of their meeting the challenge of local needs, and we ought to recognize that for the record.
Mr. FRELINGHUYSEN. Indeed. Thank you for doing that.
Mr. LEWIS. Mr. Mollohan.
Mr. MOLLOHAN. Thank you, Mr. Chairman. I sincerely appreciate the opportunity to even be here today, but I also appreciate your extending the invitation to me in this forum, which gives me an opportunity to publicly accept your invitation. I would be very pleased to participate in the program.
Mr. WICKER. There may be no housing needs in West Virginia.
Mr. MOLLOHAN. Well, the Neighborhood Reinvestment Corporation is doing a great job in addressing some of those, which we greatly appreciate, and I want to congratulate Mr. Knight on your accomplishments during this last year. I know that is why the Subcommittee has, as the members have expressed, a lot of support for your programs and your efforts. We certainly appreciate it in West Virginia.
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NRC TECHNICAL ASSISTANCE
Representing mostly what we consider the rural country, in addition to your supplying capital need, you all supply a lot of good technical advice and support and hands-on help. I would like for you to address how you are going to continue that or increase it to complement the capital availability that you have described here and that exists in this coming year, particularly in rural areas? But generally do you have initiatives to expand your ability to provide technical assistance to communities?
Mr. KNIGHT. Yes. I think that providing technical assistance is one of the critical components to making capital work. So we will continue to do that and—
Mr. MOLLOHAN. Is that part of a strategic plan for this year?
Mr. KNIGHT. Absolutely.
Mr. MOLLOHAN. Describe it a little bit for us, if you will.
TECHNICAL ASSISTANCE IN RURAL COMMUNITIES
Mr. KNIGHT. In most situations, as we were talking about, an organization seeks assistance, we put out a catalog in the spring that asks organizations to tell us their needs, including their technical assistance needs, in addition to capital and secondary market needs.
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One of the things that we found most effective in the rural communities, because they are different in some ways than heavily urban communities, is peer assistance. And so several years back, we organized a rural alliance among all the rural Neighbor-Works organizations. They get together, and this year we will pull all of them together.
As you know, in your state there are so many small organizations that are served through the statewide group. We also hold a separate training statewide in your state, and in a couple of other states where this is the case, to provide information. Out of those meetings we follow up with particular consultants or assistance that the local group identifies and needs. I understand with your leadership there is finally control of that one large building—the white monster on——
Mr. MOLLOHAN. You found that in Fairmont?
Mr. KNIGHT. Yes, in Fairmont.
Mr. MOLLOHAN. Yes. We are moving in the right direction on this program.
Mr. KNIGHT. It has been a long, long, slow——
Mr. MOLLOHAN. Well, it has but I think that organization has really gotten a good base built, both financial and technical base. And if we step out in the direction of the original mission, I feel good about it, and I think they are really poised to move forward. The rural NeighborWorks alliance program—update us on the progress a little bit more on that.
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Mr. KNIGHT. Doing very well. We capitalized a peer-to-peer lending fund, and I am pleased to report that the Fannie Mae Foundation has put in $250,000 into that fund. And there are several other requests out to foundations for like sums of money.
They, in Mr. Wicker's tradition, had the learning experience of one of their early loans go in default, and out of that I think they became much stronger at evaluating requests because peer-to-peer lending can be very effective when people hold each other's feet to the fire. When this first loan, fortunately, it was very small, went under, and it cost them all money it sharpened their underwriting and their evaluation process. And it is going very well. I expect by this time next year that maybe they may have grown from 14 or 15 groups to over 20 groups.
HOME OWNERSHIP PILOT PROGRAM
Mr. MOLLOHAN. And, finally, Mr. Chairman, you are requesting $25 million for the home-ownership pilot program——
Mr. KNIGHT. Yes.
Mr. MOLLOHAN [continuing]. And you are estimating that that will generate about 10,000 new ownerships?
Mr. KNIGHT. We believe that is correct.
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Mr. MOLLOHAN. Can you discuss that a little bit in terms of how it might benefit rural areas?
Mr. KNIGHT. Well, as I mentioned earlier, one of the exciting learnings out of the first campaign was this ability to reach families below $15,000. And lower incomes tend to be frequent in rural areas. Small towns tend to have folks at lower incomes, so we think that these learnings will be enormously valuable going forward in rural areas.
The funds, if the Committee is so disposed, and I acknowledge your difficult budget balancing question, would be principally used for the most difficult pieces; on one side, the financial side, are second mortgages and downpayment closing assistance, and on the other side loan counselors.
And this is where we are very excited with some of the recent breakthroughs in rural areas such as Great Falls. The executive director of Great Falls recently began to reach out to one of the rural clusters. They cluster their counties in Montana in seven rural clusters.
And it has gone so well that the state is now asking them to expand from the one cluster to all seven clusters. Having access to the downpayment assistance fund and a loan counselor in each of those will make all the difference in the world because the lending capital is there, but increasingly it is only accessible over a phone line or computer lines.
DEFINITION OF THE PILOT PROGRAM
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Mr. MOLLOHAN. Well, let me ask you a question. In what sense is this a pilot program?
Mr. KNIGHT. I think it is a pilot—anytime you have——
Mr. MOLLOHAN. You are standing it up. You are just starting to stand it up?
Mr. KNIGHT. You are just starting to——
Mr. MOLLOHAN. A pilot program to me suggests that you are going around, and you are going to identify—kind of prototyping areas so that you get an experience in different circumstances that allow you if it is successful in the next year to expand the program into a full-blown program. Is that fair? Is that your intention, and, if so, what areas are you identifying to conduct your pilots?
Mr. KNIGHT. Pilot is a tough word in terms of whether it is a brand new pilot or——
Mr. MOLLOHAN. Well, you chose it here so——
Mr. KNIGHT. Yes. There will be some brand new things. They will come out of the network. They will teach us lessons, and we will spread those. I can't identify them now because they are going to be brand new. But we are going to take some things that we are just seeing glimpses of that we think will work, like the home-ownership center that I discussed earlier. We think that will work.
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We don't really know so we are going to try that in a number of places. We don't really know whether the systems that have been built to reach the very low-income people can be thickened enough to be adopted and taken over by other organizations and other people. We view ourselves as sort of a large pilot. We don't see meeting the needs of the entire United States in terms of home ownership, but we do see demonstrating projects and ideas that can be taken over and used more widely.
Let me give you an example from the first campaign. We devised with Freddie and Fannie on a mortgage product. It was cutting edge in 1993. It is commonplace today. We think that is a terrific way to pilot activities out into the broader world, and we think by concentrating on 10,000 families over a two-year period, there will be a lot of those kinds of things.
GOALS OF NEW PILOT
Ms. KELLY. George, can I just jump in in response to—out of order? I think what is really wonderful about this pilot is in the last five years in the campaign we had the opportunity to build infrastructure in our network. What we now have is an infrastructure that is established and is sound and gives us a chance to take this to various markets, to various locales, to test things like automated underwriting, which is going to be the next scale that our network needs to reach, and to give us a chance to see one-stop shopping at home-ownership centers.
We now currently have only two home-ownership centers. Part of our goal is to make sure we have 25 home-ownership centers. So it is giving us a chance to really use the momentum that we built in the first five years to really test some of the strategies much more broadly in the range of markets. So in that sense, I think we do view it as a pilot program.
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Mr. MOLLOHAN. Thank you, Mr. Chairman.
Mr. LEWIS. Mr. Price.
ROLE OF THE SECONDARY MARKET
Mr. PRICE. Thank you, Mr. Chairman. Welcome, Mr. Knight; glad to have you and your colleagues here. First, I want to thank you for your assistance last year. I know you worked with my staff in drafting what ultimately became the Secondary Market Demonstration Program that we added to the HOME budget. Your input was very valuable on that, and we do appreciate your help. And we will look forward to hearing your views on how we are going with the implementation of that program once it moves forward within HUD.
Of course, you have lots of experience in promoting the growth of a national secondary loan market through your Neighborhood Housing Services of America, as you call it. I wonder if you could briefly describe exactly how that secondary market operation works, perhaps with particular reference to your level of activity and your funding needs?
Mr. KNIGHT. Let me start and then I would be remiss if I didn't have the president of the secondary market describe it. It is premised on the NeighborWorks network making loans to families tailored to their ability to pay, so that these loans are unconventional in the sense that this family has not been able to get credit elsewhere.
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They have credit extended to them on terms that are figured backward, if you will. If they can afford to pay $75 a month, and you figure backward to four percent or seven percent or whatever, and the terms are set locally, the underwriting is all local.
Given that, the secondary market, because it is serving this unusual population and was premised on Neighborhood Reinvestment's covering the administrative costs, seeks private sector capital to invest in NHSA notes. And that is, if you will, stripped to its bones, the essence of the secondary market. Mary Lee.
Ms. WIDENER. Adding the detail on the types of dollars, the key to all of this is the willingness of social investors to invest at the magnitude needed to convince the network that we are going to be there. And so large numbers such as the $100 million that you heard from Allstate are becoming important. World Savings represented by Dan Dixon, our chairman here, has already exceeded an investment of $100 million into the secondary market program.
So the first point is adequate levels of social investment funds. But to draw those funds down, we have to have reserves. Our board requires a minimum of eight percent in reserve funds to back those social investments, and then in addition to that, loan loss reserves and adequate operating capital to meet the servicing requirements of a growing portfolio.
Mr. PRICE. And that is where the public funds come in?
Ms. WIDENER. Yes. And that is where the public funds come in.
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NEIGHBORHOOD REINVESTMENT CORPORATION CAPACITY
Mr. PRICE. What level of activity in terms of the numbers of loans purchased have you been able to engage in, and are you operating at capacity as far as you are concerned?
Ms. WIDENER. I don't see us operating at our capacity. We try to stay out ahead of our capacity in terms of staff and infrastructure. But we are now averaging $36 million a year, and last year was at $37.5 million. We are anticipating reaching $42.5 million this year. And we see the direction of the network rising—the activity rising at such a level that we are preparing our board of directors and trustees to support a $50 million to $60 million a year activity level.
And we don't see the resources available from the Neighborhood Reinvestment Corporation on the public fund side in adequate amounts to support that. So we are working very hard to supplement those funds through the Affordable Housing Program of the Federal Home Loan Banks, which is an important additional resource to the community development field.
But that source of funds, I really should alert all of you because I think you would want to know, is uncertain because the nature of what we do is considered revolving loan fund-type activity. And the finance board is considering whether or not they want the Affordable Housing Program to continue to support revolving loan fund-type activity.
So we see ourselves with a major challenge this year to convince them that it has been a good thing in the past, and we hope that they will continue because in order for us to reach $50 million and $60 million levels, you know, the subsidy has to come from somewhere.
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LOAN PERFORMANCE
Mr. PRICE. What kind of data do you have on the performance of these loans?
Ms. WIDENER. Oh, lots.
Mr. PRICE. Can you quickly generalize?
Mr. KNIGHT. Yes. On the seconds, the loans must be repurchased by the local—by the originating organization if they go delinquent for 90 days. And last year, that substitution rate was 2.3 percent, which means that 2.3 percent of all of the seconds that they hold went 90 days delinquent and went back. On the firsts, I think it has been much, much lower than that, and I——
Ms. WIDENER. I would say the average—our delinquency on the total portfolio is running at about three percent. And I am sorry I didn't break out, you know, where that is exactly, but we——
Mr. KNIGHT. With multifamily being the highest.
Ms. WIDENER. Right.
Mr. KNIGHT. That is the major contributor to the delinquency.
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Mr. PRICE. Well, I know our time is limited here. I wonder if you could just quickly indicate the lessons we are learning from this and how widely applicable they might be? I assume that what you are doing with this program is not only providing direct access to loans for low-income buyers directly, but also providing a demonstration that this can work on a broader scale.
Mr. KNIGHT. We believe so.
REASONS FOR LOW DEFAULT
Mr. PRICE. How do you account for the successes that you have enjoyed in terms of the low default rates and so forth, and also what is the potential of this kind of program to be picked up by other agencies and other organizations?
Ms. WIDENER. You know, I really would like all of the supports that back that low delinquency rate with NHSA to be fully recognized, meaning that in every local community there is the NeighborWorks organization. There is the Neighborhood Reinvestment Corporation that does the training and technical assistance, monitoring, oversight. There is the strong volunteer board made up of residents and lenders and local government officials——
Mr. PRICE. Counseling programs in most places?
Ms. WIDENER. Counseling programs and the governance. There is huge infrastructure that requires private support, as well as public support, to keep those families in those homes. Because if the loans were just left to normal, conventional patterns, the families wouldn't have the support, and the delinquency rates would be higher.
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So I really don't want to mislead anyone that this represents lending that the private sector could have done, and it all would have been fine. There are a lot of supports there, and we see those supports as essential. But that activity strengthens the whole neighborhood and then lets the conventional lending that could flourish flourish in ways that couldn't happen otherwise.
Mr. PRICE. Thank you. Thank you, Mr. Chairman.
Mr. LEWIS. Thank you very much, Mr. Price.
Mr. KNIGHT. We would be delighted to share with you any and all information that we have and assist in whatever way.
Mr. PRICE. Good. I am particularly interested in where we go from here, having demonstrated the feasibility of this kind of program, what its possible applications are with other agencies, other areas of activity.
Mr. LEWIS. I certainly wouldn't want this moment to go by without our emphasizing a very special element of all of this; that is the special sacrifices that families seem to be willing to commit themselves to when it comes to individual homeownership. Infrastructure is very, very important, but there is a spirit here that is pretty special.
Ms. WIDENER. Absolutely. You are absolutely right. And I think that spirit is nourished because they know their neighbors are with them. You know, they are given the psychological support to make the investment and take the chance. And I think we fully recognize that for almost every family—I mean, they are throwing the dice for their life savings.
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I mean, they get one shot, and to take that one chance in a neighborhood that isn't perfect—far less than perfect—is taking a big chance. So their neighbors have to be there. These programs have to be there to support them, and that, I think, helps them to have the enormous commitment and make the enormous sacrifices they do have to make. It is a sacrifice. You are absolutely right.
Mr. LEWIS. Mr. Mollohan, I wanted you to be aware of the fact that not everything is perfect at the table, and that our information sources, you know, ebb and flow. We are attempting to communicate to all of our colleagues. I do intend to have a similar discussion with Mr. Walsh's staff that we will follow through on after this meeting. But, in the meantime—Mr. Walsh?
Mr. MOLLOHAN. Well, misery loves company, Mr. Chairman, so I appreciate your bringing Mr. Walsh into this.
Mr. LEWIS. He doesn't know what I am talking about, but that is fine.
Mr. MOLLOHAN. That is all right.
Mr. LEWIS. Mr. Walsh.
Mr. WALSH. I was preparing my questions. I am afraid I missed something very important.
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Mr. MOLLOHAN. Be very careful here today.
Mr. WALSH. Would you restate——
Mr. LEWIS. That is all right. Please proceed.
SUCCESS OF NEIGHBORHOOD REINVESTMENT CORPORATION
Mr. WALSH. All right. Well, I won't commit to anything at this point. And I just agree with all of my colleagues in congratulating you all for the fine job and important job that you are doing for your testimony and for the program that I, as a former city councilman—district councilman representing a certain quadrant of the city—had a very close working relationship with Syracuse Model Neighborhood Corporation, Syracuse Neighborhood Housing Services, and witnessed and participated in the work that they did, and it is essential.
The key to any neighborhood's intrinsic strength is the percent of homeownership. The higher the percent of homeownership, the stronger the neighborhood. It is an absolute golden rule. And what those programs do—and I love the way you summed it up, Ms. Widener—you know, people are—when you buy a house, you stretch as far as you can, and you roll the dice, and you want to make it as secure and as sound a decision as you can make it for your family.
And to roll the dice in a neighborhood that is not perfect is a good way to say it, but to know that they have the support of those organizations—they have their own neighbors who are essential to organizing these organizations. I really admire what you do.
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And the statistics, looking at the profile of the people that you work with, reminded me of something. First of all, 61 percent are minorities. You know, that is so important because for so many years minorities just haven't had that opportunity because of varying cultural factors, and so that is essential. Ninety-five percent first-time homebuyers. That is your market, and you are meeting the market.
The thing that struck me was 37 percent are paying less or only marginally more for homeownership than they paid for rent. That is what I remember about the programs, and I remember there was a huge housing development that was going in within a mile of where Syracuse Neighborhood Housing Services was doing its work.
And they—we were qualifying people for homeownership who had lower incomes than people who were qualifying for subsidized housing. And it just always struck me how important it is that we reach out, working with banks and insurance companies, to do this sort of work. You know, my city is very important to me, and the more homeowners we can provide, the better. I am sure you don't like to hear all of this, but I just thought I would say it anyway.
Ms. WIDENER. We love hearing it.
Mr. LEWIS. They love hearing it.
NEIGHBORHOOD REINVESTMENT CORPORATION'S OBSTACLES
Mr. WALSH. Just a couple of questions. And you were just in Syracuse, and you organized a tour. And I had staff come up, and they said it was a good opportunity for them. What is your biggest obstacle to this sort of work in cities across the country? And apparently you do it in rural areas too. I am more familiar with what you do in the cities. What is the biggest obstacle?
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Mr. KNIGHT. Our biggest obstacle—Ms. Meek pointed out earlier—is just that we have 220 staff and limited resources, and it is tough to get to all the places we would like to get to. The biggest obstacle I think for the local organization is also, frankly, the funds for the downpayment assistance, the second mortgage money, and to find strong staff people. Your city has been blessed in stable leadership with Tom Francis and his crew for a long——
Mr. WALSH. Tom was there when I was a city councilman.
Mr. KNIGHT. I think he founded the city but——
Mr. WALSH. He is taking good care of it, whether he founded it or not.
Mr. KNIGHT. That is a real blessing for it. Because this is a long-term effort, you have got to hang in and stick at it and go at it because you don't always get the critical issues dealt with in the first year or two. Sometimes it takes building up to them. So I think that those are the principal limitations at this point.
FUNDING THE HOME OWNERSHIP PILOT
Mr. WALSH. Addressing that, I saw there was an increase requested by the President for your budget of is it 10 million?
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Mr. KNIGHT. 10,000 new homeowners. The dollars would be 25 million.
Mr. WALSH. Okay. So the——
Mr. KNIGHT. Spread over two years. Yes.
Mr. WALSH. Okay. And how would those funds be put to use?
Mr. KNIGHT. Well, we would put 92 percent of them out as grants to existing or new organizations that we were working with. And we would use the rest to provide technical assistance to have a handful of people be able to make sure those dollars were used well.
Mr. WALSH. The banks that you work with——
Mr. KNIGHT. A few of those dollars would go to NHSA reserves but——
Ms. WIDENER. Absolutely.
Mr. WALSH. Okay. The banks that you work with, are there banks in certain parts of the country, in certain cities who are more creative and willing to work with you than others, and are there programs that you have developed in those cities that could be used in models in other cities?
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BANK PARTICIPATION
Mr. KNIGHT. I would have to say wherever the banking, which right now is everywhere—wherever the banking structures are stable, where, you know, you don't have banks in financial trouble, they are willing and able partners and excited to work with us. The degrees of creativity that they will go to is just amazing.
Mary earlier mentioned Fleet. Fleet is not atypical of an institution that was initially operating a small area, now a large geographical area. They are an investor in NHSA. They are a contributor to local budgets, and they added a new wrinkle last year.
They have extended lines of credit—$100,000 lines of credit to individual organizations to enable them to make the second off the line of credit, season it for a number of months, and then sell the second to NHSA, where it is backed by their buying a security.
This was an incredibly complex deal to put together with 21 organizations and a bank that was in the process of acquiring other banks. They have operated for—it was announced in August, six months, and they recently indicated it is going so well for them that they are willing to double their commitments.
So on the private side, I can't tell you how wonderful the partnership is, and folks are really willing to do those kinds of things. It is a question of taking the time to structure it, to make it work, to make it happen in a very responsible manner.
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One of our heritages in many places that we have to overcome is the sense of giveaway and not pay back, and you have got to really come in and work with folks and say, no, these are funds that are available to this community to use for all time. Use them wisely. Lend them, capture them back, reuse them, reinvest them.
OPERATING BUDGET FUNDING
Ms. WIDENER. Another major obstacle I would like the record to show very clearly for the network is certainty of operating budget funds. They are very hard to raise, and the Neighborhood Reinvestment grand funds don't go right into operating budget. As you well know, that has been a principle over the years. The operating budgets are raised locally.
And so we have worked to see what we could do at a national level to help bring certainty to that; working to see whether or not there could be any kind of pattern of fees that they might get in relation to activity. But basically the operating budget issue is a very hard issue.
Mr. WALSH. I don't know what the prohibition would be, but would CDBG funds be available?
Mr. KNIGHT. It frequently is used that way. Private funds are often used that way. Typically, the budgets are put together between private contributions, increasingly earned income through the fees or if they own property, and then public funds.
FHA
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Mr. WALSH. My last question is one of the things that you see when you take a tour like we had last week is a boarded-up FHA foreclosure. How do you relate with FHA, and how do their policies and procedures affect what you do?
Mr. KNIGHT. We work at the national level, but then we work also locally with FHA wherever there is foreclosed property and try and get ahold of them, recapture them, pull them back into the community. Valuation of foreclosed property with whoever owns foreclosed property is always a challenge.
Valuation of foreclosed property is almost inevitably in the eye of the owner higher than in the eye of the buyer. That is not new economic ground. But that is the nub of the question often in acquiring it. And then when you are working with a large organization, imeliness is a major issue.
I would say thank you for extending your city to us last week. It was very exciting, Mr. Chairman. They created what I would describe as a homegrown homeownership center, and they were reporting their results. And for the first just 18 months, they have worked with 173 first-time buyers. Nineteen banks are lendering. And the average income was $24,000. It is sort of interesting. They are tracking the real estate commissions, and it was $520,000, and attorney fees for closing at $130,000. So it was a very impressive presentation of how everybody wins.
Mr. WALSH. We have had a very depressed housing market——
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Mr. KNIGHT. Yes, you have.
Mr. WALSH [continuing]. In the Northeast; in particular, in upstate New York. It is starting to change now, but with rates low, property value is low. It is time to strike because as soon as those people make that investment, they are going to start to get a return on it. Thank you very much.
Mr. KNIGHT. I have not seen South Salina for probably six or seven years, and it has really made considerable progress.
Mr. WALSH. Yes.
Mr. LEWIS. Thank you, Mr. Walsh. Mr. Hobson.
NEIGHBORHOOD REINVESTMENT CORPORATION AND SMALL COMMUNITIES
Mr. HOBSON. I just have three questions. I am an old real estate guy so it is nice to see your program doing well. Homeownership is, valuable in every community. Do you have any criteria on the size of the towns? Because the largest town I have in my district, Springfield, is about 65–70,000. And I don't think (the Neighborhood Reinvestment Corp.) program is there.
Mr. KNIGHT. There isn't that I can recall in your area. No, we have no criteria in size of towns. They range from very rural spaces to lots of middle-size towns, to the larger towns.
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Mr. HOBSON. Because the housing stock is going down in a community like Springfield, and we need a program like that. So I would be interested in knowing how to get it going there; that is, when you get the time. I have two other questions, and one of them the Chairman says——
Mr. LEWIS. I am interested in hearing him respond to that.
Mr. KNIGHT. There was for many years an affiliate in Springfield. They ran into——
Mr. HOBSON. They had some problems.
Mr. KNIGHT. They ran into very hard times and went out of existence. And so we would be delighted to work with you in looking at Springfield. I have some very fond memories. At the time, I was one of the most junior members of the organization and spent many terrific nights in Springfield as a field service officer and really enjoyed it.
Mr. HOBSON. I am glad to hear somebody did.
Mr. KNIGHT. It is terrific.
Mr. HOBSON. Good. Well, it didn't have a very good history there at the time, and, I think, with what you are doing now, it could have a better history.
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Mr. KNIGHT. I would hope so.
Mr. HOBSON. Because our housing stock is in need of some help, and this would help, especially in older communities. Probably a lot like Syracuse in the way that it is an old industrial base. And, we sit near some large, major centers like Dayton and Columbus who tend to have all the things, and so some people will migrate out, and what is left is very difficult to deal with. So, I would like to see you come back in and try again.
Mr. KNIGHT. It was a very difficult situation. They had tremendous support from both the city and the residents and the lenders, and there was, as I recall, two unfortunate hires in a row.
Mr. HOBSON. Right.
Mr. KNIGHT. And we——
Mr. HOBSON. Well, I am going through that with another program right now.
Mr. KNIGHT. We have learned some things on that front since then but——
NEIGHBORHOOD REINVESTMENT CORPORATION RENT
Mr. HOBSON. Well, I think it would be a good place to come back, and we would like to work with you. The other thing is I would like to talk about rent for your facilities. It is a question we have been asking for a couple of years to try to get agencies' office rents in line. Mr. Lewis seems to think that you guys might have a positive statement. Do you want to make a statement about the rent for your facilities?
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Mr. KNIGHT. Well, Roy can get the historical numbers. I believe five years ago it was about $1.6 million for the year, and I believe if you look this year, it is about $1.77 million, including extensive renovations over the last year in our office space. I think we have held our rent quite flat over time.
Mr. HOBSON. Who is your landlord?
Mr. KNIGHT. Well, we have many landlords because we have nine district offices scattered throughout the country and——
Mr. HOBSON. Do you rent in the private sector? Is it with the GSA?
Mr. KNIGHT. No. It is almost all the private sector. We are in a lot of B quality space across the country, and it serves us quite well, although we got evicted in Boston. I can't remember what the——
Mr. HOBSON. Not for nonpayment of rent?
Mr. KNIGHT. No. We weren't holding our rental costs down that way, although that would be tempting at times.
Mr. DAVIS. A few years ago, recognizing rent costs were going up, we decided, at least in our Washington office, to extend our lease at a very good rate. And we consolidated some of our spaces here, which reduce our rental about $100,000 a year.
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Mr. HOBSON. Good.
Mr. KNIGHT. I underlined the two relevant dates, from '93 to '98. Obviously, if we added staff next year, our rental costs would go up.
Mr. HOBSON. Well, one of the messages that we want to send to agencies—and, obviously, some people have gotten it here—is that you can negotiate on rent, and you should negotiate on rent. Some of these rents have been atrocious. Obviously, you have done a better job, and we want to congratulate you and hope that other agencies are getting the message out there that this is the kind of thing that the committee is going to evaluate.
Mr. KNIGHT. Well, if we could get a cut on reduced negotiating skills, maybe I could lend Roy to some folks that have much bigger budgets and raise some funds.
Mr. HOBSON. Congratulations. That is good foresight too.
Mr. LEWIS. I think it should be said that we do encourage looking at the marketplace. Mr. Hobson has been very much in the middle of this, but, Roy, the B location sometimes serves just as well and recognizing that the more dollars that are shipped across the street and go to the people we are trying to assist in those communities, the better.
Mr. KNIGHT. We are half a block off Metro Center.
Mr. HOBSON. Yes. Well, we found some rents that are just atrocious at some of these agencies, and nobody looked at the problem. The money should be going back in the program, not in the rent.
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Mr. KNIGHT. Absolutely.
YEAR 2000 PREPARATION
Mr. HOBSON. And not necessarily to landlords in high rent areas where nobody cares. And so I think that is an important message to send. The other question I started asking agencies is about the year 2000 computer hardware programs, do you anticipate a problem? And if you do, how are you going to address it, and how much is it going to cost you? Because that is going to be a big problem for a lot of agencies, and I am starting to ask this so that agencies start thinking about it. It usually takes a couple of years for a message to begin to sink into these agencies, but hopefully you will be out front on this matter.
Mr. KNIGHT. Well, I believe we are. I wonder if you have been talking with Acting FDIC Chairman Hove, who is our Audit Committee chairman. Our Audit Committee has been very focused on this for the last couple of years. We, I don't believe, have any problem, although we are going to complete an extensive testing program this spring. All of our software is contemporary software. We had to go through several years back a complete redo of our financial system. We bought a package that is on the market. We use principally industry product, Microsoft Word Access, Solomon software——
Mr. HOBSON. But a lot of those programs that were commercially available have problems that somebody has got to look at.
Mr. KNIGHT. We understand and we are going to do a testing program of all of our software. We have recently—we had been in the Stone Ages. We upgraded starting about a year and a half ago, and all of our software is quite, quite new. So we are checking. We are being careful. Our Audit Committee has required it, and I will give the Committee the results of the test.
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Mr. HOBSON. I think we need to know the results because you can expect us to be asking this question again.
Mr. DAVIS. I just want to add, George, that when we upgraded the software, we did get certification from the manufacturers that it did meet the 2000 criteria.
Mr. LEWIS. The new millennia standard.
Mr. DAVIS. We are going to do some testing this fall to make sure—I mean, this spring to make sure.
Mr. HOBSON. Okay. Will you let us know——
Mr. KNIGHT. Yes, absolutely. We will send the Committee the report as soon as we receive it and our committee looks it over.
Mr. LEWIS. George, the expression of interest on the part of the Committee of your work is a compliment, not to be taken otherwise. We have a number of questions for the record. It will allow us to get to some of those questions that you were interested in making sure on the record, Mary Lee. Knowing where the dollars come from and making sure they get out there to where people are being served is most important to us.
I would hope that as you respond to those questions, Mr. Knight, that we will look specifically at those areas that we discussed last year that relate to critical mass, to make sure, assuming that we are able to meet some of the challenges of your budget request, that we are able to multiply those dollars in a similar leveraged fashion that have been demonstrated by your past activities. But from there, I do have questions for the record. I will submit them and hope that you will respond in writing.
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Mr. KNIGHT. Thank you. We certainly will. I should acknowledge that while we were discussing, one of the members of our board of directors, Chairman D'Amours, came in the room, and I want to acknowledge his stewardship of the corporation from a board point of view.
Mr. LEWIS. The reason we are moving this along is because he is up next.
Mr. KNIGHT. I don't want to stand in the way of a board member.
Mr. LEWIS. It was good to be with you. Thank you very much.
Mr. KNIGHT. You could ask him about our training. He recently participated in our training in Atlanta.
Mr. LEWIS. We will let him respond in his time, but he has got to use it carefully. Thank you for being with us.
Mr. KNIGHT. Thank you.
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Tuesday, February 24, 1998.
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NATIONAL CREDIT UNION ADMINISTRATION
WITNESSES
NORMAN E. D'AMOURS, CHAIRMAN, THE NATIONAL CREDIT UNION ADMINISTRATION
STEVE AUSTIN, DIRECTOR, DIVISION OF SUPERVISION, OFFICE OF EXAMINATION AND INSURANCE
HERBERT S. YOLLES, PRESIDENT, CENTRAL LIQUIDITY FACILITY
JAMES J. ENGEL, DEPUTY GENERAL COUNSEL
WILLIAM C. POLING, BUDGET OFFICER
Opening Statements
Mr. LEWIS. It is my pleasure today to recognize Mr. Norm D'Amours, Chairman of the National Credit Union Administration. I am also pleased to welcome colleagues from beautiful downtown Redlands, among them Maurice Calderon who—you know, I don't have constituents often, Maurice, but this is a living, breathing constituent, very important. A dear friend from my district, he is the Senior Vice President of the Arrowhead Credit Union in San Bernardino, California. He is accompanied by—I haven't seen Larry. There is Larry. Accompanied by Larry Sharp and Marie Conzo.
Ms. ALONZO. Alonzo.
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Mr. LEWIS. Alonzo.
Ms. ALONZO. Yes.
Mr. LEWIS. Somebody printed that in. I didn't. It looked like an H.
Ms. ALONZO. I have been called a lot of things.
Mr. LEWIS. I would like to extend my very best wishes to all of you and appreciate your being with us today. It is a very important time of our committee and to have you with us is special to me.
Mr. D'Amours, the budget request for the NCUA consists of a limitation of new loans of up to $6 million and a limitation on administrative expenses of $177,000. The limitation on administrative expenses is a reduction of 26 million and is due in large part to streamlining the Central Liquidity Fund, the CLF. This is the second year that administrative costs have decreased at CLF. We would like to thank you and your staff for those efforts.
Today there are several issues the Subcommittee plans to explore with you, including the Community Development Revolving Loan Program, the maximum CLF loan authority and a field of membership questions, one of which could very well be before the court today, I understand.
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As you know, Mr. D'Amours, you may summarize your testimony. We will, however, include it in entirety in the record. And the membership, I know, has questions for you. So please proceed.
Mr. STOKES. Mr. Chairman, I would just like to take a moment and explain to your constituents from San Bernardino County how fortunate they are to have a chairman of your stature and esteem, a person for whom all of us on the Subcommittee enjoy serving under his leadership. And it is just an honor to have you here with us today. And you should be very, very proud of this gentleman because those of us who serve with him in this body are extremely proud to serve with him.
Mr. LEWIS. Thank you, Louis.
Mr. STOKES. Thank you. I mean that.
Mr. LEWIS. Now all of you will understand why I was so disappointed that Mr. Stokes has indicated he is not going to be standing for re-election next year. There are more reasons than just one.
Mr. STOKES. But I also want to take a moment, Mr. Chairman, to welcome back before us one of our former colleagues, Mr. Norm D'Amours, with whom I have served. During the ten-year period that he served here, I served with him all that time, and he has done an outstanding job in the capacity in which he is now serving. It is always a pleasure to welcome him back to our committee.
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Mr. D'AMOURS. Thank you, Congressman.
Mr. STOKES. Mr. Chairman.
Mr. D'Amours' Opening Statement
Mr. D'AMOURS. Chairman Lewis and Ranking Member Stokes and members of this committee, I thank you for the opportunity to appear here before you, and I will briefly summarize my testimony, a good part of which you gave in your introduction, Mr. Chairman.
Mr. LEWIS. You don't have to mention it. We wouldn't want to put it on the record, but you should at least let people know that we have even discussed these questions in the gym.
Mr. D'AMOURS. That is true.
Mr. LEWIS. It wasn't lobbying. It was just light discussion.
Mr. D'AMOURS. If I may, I will avoid that. I would like to say it is a pleasure appearing before you, Mr. Chairman, because you have been truly a stalwart of the credit union issues and credit unionism. And I appreciate that very much. You have been a supporter of NCUA, of the industry and have been very gracious in your dealing with us in your official capacity.
And if I may, I would just like to say this is the last time I am going to appear before Mr. Stokes. And he is one of—I know everybody in this committee will agree—one of the class acts in this venerable body. And we are going to miss having him on this committee, working with him. And I would just like to take this opportunity, Mr. Ranking Member Stokes, to say it has been good working with you.
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Mr. STOKES. Thank you very much.
Mr. D'AMOURS. I am pleased to be here today to present the National Credit Union Administration's request for funding limits, as you have said, Mr. Chairman, on the NCUA Central Liquidity Facility. Appearing with me today are Herb Yolles, the President of the Central Liquidity Facility; Jim Engel, our Deputy General Counsel; Steve Austin, Director of Supervision in our Office of Examination and Insurance; and William Poling to my far right, our Budget Officer.
CENTRAL LIQUIDITY FACILITY (CLF)
And as you know, the Central Liquidity Facility is a liquidity source for credit unions. And it is funded by members and may borrow from the Federal Financing Bank, although no such borrowing has occurred in the past year. And as you also know, Mr. Chairman, NCUA is not requesting an appropriation for the CLF, merely a limit on the CLF's borrowing authority. The loan limit has remained at $600 million for the past 18 years. The budget submitted by the OMB requests a $600 million limit on borrowing and a $177,000 limit on administrative expenditures for Fiscal Year 1999.
And I am pleased to report, as you have just said, that we continue to streamline the CLF at NCUA, and that has resulted in cost savings for credit unions. Our Fiscal Year 1997 expenses were $174,000, significantly below the budget limitation you gave us then of $203,000. And our Fiscal Year 1996 expenses are $346,000. So the savings are in relative terms significant. Between Fiscal Years 1993 and 1998 our CLF expenses declined 76 percent, from $767,000 to $177,000. In 1997 all of the CLF's net income was returned to member credit unions in the form of capital stock dividends.
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COMMUNITY DEVELOPMENT REVOLVING LOAN FUND
On another subject that you mentioned, Mr. Chairman, I would like to thank you and this subcommittee, the members of this subcommittee, for their efforts in providing an additional $1 million for the Community Development Revolving Loan Fund in Fiscal Year 1998. As you know, the Fund makes loans to low-income credit unions. Since 1987, when the NCUA began administering the fund, we have revolved our $8 million appropriation into 125 loans totaling $16.6 million. In 1997 alone we approved 12 loans to ten credit unions for a total of $2.2 million. As of January 31, 1998, our pending applications total $1.7 million. We appreciate this subcommittee's support of our efforts to provide assistance to these low-income credit unions.
NATIONAL CREDIT UNION SHARE INSURANCE FUND
Finally, I would like to briefly summarize the current condition of credit unions and the National Credit Union Share Insurance Fund, the NCUSIF. Overall, the credit union system continues to be in excellent health. Once again, credit unions had a banner year in 1997. Their assets and their capital are up to record levels and the number of problem credit unions remains very low.
The credit union insurance fund also remains strong. For the third consecutive year and the fourth time in its history, the National Credit Union Share Insurance Fund returned a dividend to credit unions on their deposit in the fund.
Mr. Chairman, that concludes a summary of my printed testimony. I thank you for allowing me to testify. And I will be pleased to try to answer any questions.
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CLF PURPOSE AND BORROWING AUTHORITY
Mr. LEWIS. Thank you, Mr. D'Amours. Your entire statement, as I indicated, will be included in the record. And we appreciate your summary. Would you, for the record, please explain the concept of liquidity in relationship to the assets of credit unions and how the $600 million borrowing limitation was determined.
Mr. D'AMOURS. Well, originally, Mr. Chairman, back in 1981 when the limit was imposed, the $600 million amounted to about one percent of credit union assets. If that proportion were maintained, it would require a limitation today of approximately $3.2 billion.
And of course, as you know, the fund works mostly through the corporate credit union system so that it provides many benefits, one of which is it gives us an early warning of any possible problems or liquidity needs or drains occurring in any sector of the country. And it is a backup liquidity source only. We don't—we haven't used it at all in the past year, but there have been periods where significant amounts of liquidity were needed, particularly 1995 when we had the failure of a corporate credit union.
It is like an insurance policy. It is important to have a significant liquidity source backup in the event of any credit union problems, but as I have said earlier, credit unions are healthier now than at any time in their history and no such problems are anticipated. But it is still good to have a backup, a source of liquidity both to serve as an early warning to the NCUA and to provide a very quick means of distributing liquidity where it might be needed, especially when you consider the corporate credit union system has total assets of about $51 billion. So this fund is necessary. It is needed.
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Mr. LEWIS. You are anticipating and answering some of my other questions, but we will get them on the record at any rate. When did the borrowing limitation last change?
Mr. D'AMOURS. It has never changed.
Mr. LEWIS. It has not changed.
Mr. D'AMOURS. It has never changed.
Mr. LEWIS. Is the limitation adequate in light of the tremendous growth of the credit union system over the last 17 years?
Mr. D'AMOURS. Well, again, credit unions are healthier now than they have been at any time in their history, but I see it as an insurance fund, in a sense, a backup liquidity fund. And as I just said, there are 37 corporate credit unions which are affiliated with the CLF, and many of those have assets exceeding $1 billion. And the total of all 37 has assets of $51 billion.
Mr. Chairman, the very nature of corporate credit unions as wholesale financial institutions makes them subject to potential rapid swings in liquidity. A regional economic downturn, even of a short duration, could severely impact one of the larger corporate credit unions, which could result in a demand of more than $600 million from the CLF.
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PAST UTILIZATION OF CLF
Mr. LEWIS. You have discussed briefly the expansion of the credit unions in terms of their assets. To what extent has the borrowing authority been utilized in the past?
Mr. D'AMOURS. I think very little, but I think I would let the President of the CLF answer that question. Mr. Yolles.
Mr. YOLLES. Thank you. Mr. Chairman, member credit unions of the CLF purchase stock as a condition of membership. And most of our lending activity is made from the proceeds of those stock purchases. So borrowing activity from the CLF has been very minimal in recent years. In prior years there was some borrowing, but it didn't approach the $600 million limitation. But as a cautionary note, I would tell you that we have never experienced the type of systemic liquidity problem that was envisioned when the CLF was created. And if we were to experience that type of a problem, the $600 million would go very quickly and probably would interfere with the ability of the CLF to function.
Mr. LEWIS. Has the fund been tapped in the last year?
Mr. YOLLES. Our last lending was in 1995, 1994 and 1995, as the Chairman mentioned, due to the failure of one of the corporate credit unions. Credit union liquidity right now is very high. Credit union capital levels are at all-time record highs. So quite predictably the CLF, being the backup liquidity source, is not doing any lending right now.
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Mr. LEWIS. Okay, for the record, what type of problem do you envision that would result in the CLF needing to borrow more than $600 million for new loans?
Mr. D'AMOURS. I think, Mr. Chairman, as I have just said, a regional economic downturn could have severe impact on, say, a single large corporate credit union. And many of these credit unions are at or over a billion dollars in total and the system is $51 billion. So under that—although we don't anticipate that and although credit unions are one of the healthiest financial institution sectors in the country, in terms of its backup insurance liquidity, such an economic regional downturn, even of a very short duration, could result in more—in a need for liquidity that would exceed the $600 million limit. And as I said and as you pointed out, Mr. Chairman, that limit has not been changed since 1981.
NEED FOR NEW BORROWING LIMITS
Mr. LEWIS. Right. These questions are to try to touch the edges of the caution that you suggest. You indicate that we don't anticipate any need for the CLF to borrow more than $600 million for new loans. Nonetheless, in the current economy do you anticipate this extra need for caution?
Mr. D'AMOURS. Not because of anything that I can identify in our current economy. The last—I think one has to properly view the Central Liquidity Facility as it was intended as a backup liquidity source. Corporate—I mean credit union capital today overall is 11.7 percent.
Mr. LEWIS. Relative to assets?
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Mr. D'AMOURS. Yes, relative to assets. That is a very high level for a financial intermediary. That is a very high level of capital, which is available in case of any kind of a systemic problem. This is only a backup system.
On the other hand, it would seem that if one is willing to have insurance, a backup insurance policy as it were, that insurance level should be—should somehow be commensurate in size to a possible problem that might occur. And given the size of the corporate credit union assets, $51 billion that belong to the CLF, and the fact that this number has not been changed since 1981, one could wonder whether or not some proportionality should be restored.
Mr. LEWIS. Mr. Chairman, moving quickly, as I am inclined to, then should Congress consider increasing the borrowing limitation?
Mr. D'AMOURS. Well, we—the OMB has requested a limitation of $600 million, and we——
Mr. LEWIS. I know that, with interest.
Mr. D'AMOURS. Pardon?
Mr. LEWIS. I know.
Mr. D'AMOURS. Yes, and of course we are constrained by that fact. On the other hand, having been a member of this body, I know that this committee in Congress can act irrespective of authorizations or authorization requests, but I can only lay out the issues as I see them. I would not want to run afoul of our relationship with the OMB.
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Mr. LEWIS. On the record or off the record? Certainly not on the record.
Mr. D'AMOURS. See you in the gym, Mr. Chairman.
CLF AUTHORIZATION
Mr. LEWIS. That is appropriate. When does the authorization of the Central Liquidity Fund expire?
Mr. YOLLES. Well, the limitation that we are talking about on new loans is an annual appropriations limit—
Mr. LEWIS. Correct.
Mr. YOLLES [continuing]. Which expires at the end of the government's fiscal year. Absent that, the authorization for the CLF to operate is continuous.
Mr. LEWIS. You have got an ongoing authorization for operation with a limitation as a result of language that puts a limitation on the annual appropriations bill.
Do you know whether the authorization committee intends to have hearings regarding reauthorization?
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Mr. YOLLES. I am not aware of any.
Mr. D'AMOURS. I am not aware of the answer to that question either. The person who might be is engaged in conversation with somebody else.
Mr. LEWIS. We were asking if you have any information that would indicate that the authorization committee is going to have hearings regarding reauthorization.
Mr. ENGEL. My understanding is—Mr. Loftus was just pointing out that the authorization is permanent. It is that the limitation is not.
Mr. LEWIS. Well, but from time to time authorization or reauthorization can be subject to public hearing of the authorizing committee, and I am curious as to whether you know if any such authorization has been scheduled.
Mr. ENGEL. We have no plans that we know of.
Mr. LEWIS. Mr. Stokes.
CREDIT UNION PRESENCE IN LOW-INCOME AREAS
Mr. STOKES. Thank you, Mr. Chairman. Chairman D'Amours, let me refer back to part of your testimony where you made some reference to low-income credit unions.
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Mr. D'AMOURS. Yes, sir.
Mr. STOKES. I would be particularly interested in you sharing with us something about the role that credit unions play in providing financial services in low-income or intercity areas, those type of areas that are poorly served by banks and other financial institutions.
Mr. D'AMOURS. Well, I would say, Congressman Stokes, that the credit unions play an excellent role in filling that need. In fact, it is very common for credit unions to either move into through branching or to start up in charter form in areas that banks have abandoned. We see it over and over again where a bank will—a bank or a bank branch will abandon or leave an inner city or an isolated rural area and soon following in its wake is a credit union branch or a new start-up credit union.
Credit unions were created, as you very well know, Congressman, to fill unmet needs and to provide American consumers with a choice to belong to a financial institution that they can participate in as members rather than as customers. And they have met that need magnificently, I think, since their founding. And they continue to do so, and especially they are active in inner cities in part with help that this committee and its chairman have given us in adding to the revolving loan fund authorization.
We have created at NCUA an office of community development credit unions which focuses full time on these kinds of issues. And they are the ones who distribute the revolving loan funds that Congress provided us and that this committee, thanks to Chairman Lewis and the members, have increased in the past two years by $1 million.
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COMMUNITY DEVELOPMENT CREDIT UNION REVOLVING LOAN FUND
Mr. STOKES. Let me just follow up on that area in terms of the Community Development Credit Union Revolving Loan Fund. What size and type of loans are made under that fund?
Mr. D'AMOURS. Well, any number of sizes and types. They tend to be relatively small loans and also they consist sometimes of technical assistance grants to the credit union to allow them to improve their technical operations. So they are either loans or technical assistance grants. They tend to be relatively small, but always badly needed. And there is an enormous demand for both technical assistance and for lending at this time.
Mr. STOKES. What type of credit unions generally benefit from that type of loan?
Mr. D'AMOURS. Community development small credit unions and most community development credit unions, Congressman Stokes. And that means credit unions over half of whose membership fall below 80 percent of the national poverty standards.
SUPREME COURT RULING ON CREDIT UNION MEMBERSHIP
Mr. STOKES. Now, currently, there is a Supreme Court case involving the NCUA policy which would limit the range of members eligible to affiliate with a single credit union, is that correct?
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Mr. D'AMOURS. That is correct. And I understand that we were thinking the Supreme Court might have released that decision today, but they did not. That doesn't mean they won't tomorrow. Mr. Chairman, you referred to that, but they did not today. And we don't know, of course, and we are hoping that the Supreme Court will do what we think is the right thing and allow our current NCUA field of membership policies to continue. If they don't, we will have to turn to the Congress, but the key to the restriction that the bankers have been trying to impose upon NCUA and the credit union system would prevent them from effectively serving smaller groups of people who have no other access to traditional banking services.
To operate a credit union effectively you need at least 500 members. And many people in small businesses today—in fact most small businesses today have many fewer than 500 people. So that would stop all of these people, deprive all of these people of the opportunity of forming a credit union and joining a credit union. They couldn't form one because they are too small, they don't have the sufficient mass, the sufficient size to support a credit union, and they couldn't join one because the restriction on our field of membership policies that bankers are trying to impose would make that an illegal act.
Mr. STOKES. And, I suppose the fact remains that their needs still would not be met by any financial institutions in that community?
Mr. D'AMOURS. Well, they may or may not be. The point is that credit unions have traditionally served people whom the more traditional banking sector has not sought to serve. And that would be closing down an avenue for many people to empower themselves by joining a credit union and becoming part of the American financial mainstream. Whether or not the members of any given occupation smaller than 500 employees, for instance, have access to banking services is a question that would have to be determined by other considerations of time, place, circumstance and the like.
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But the fact is that most Americans like the freedom of choice that they have to join a bank or a credit union or whatever other financial service provider they seek to deal with. This would deprive hundreds, millions of Americans of that choice.
NCUA PERSONNEL
Mr. STOKES. I was looking at your personnel. You have, what, about 101 employees, permanent employees?
Mr. D'AMOURS. No, we have——
Mr. STOKES. The number of your permanent——
Mr. D'AMOURS. At NCUA, no, we have nearly 1000, 900 and some odd employees.
Mr. STOKES. Okay, and——
Mr. D'AMOURS. I am talking about the NCUA, the entire agency.
Mr. STOKES. NCUA, okay.
Mr. D'AMOURS. We have less than 200 here in Washington, D.C., and the others scattered amongst six regions nationally.
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Mr. STOKES. Okay, and so it amounts to a total of about how many?
Mr. D'AMOURS. Nine hundred and I don't know what——
Mr. AUSTIN. FY '97 was 954. Our new FY '98 budget has 1006 in it.
Mr. STOKES. And let me ask you this, Mr. Chairman. In terms of considering what many of the credit unions mean to women, minorities, low-income people, how does your employment record reflect in terms of women and minorities?
Mr. D'AMOURS. Not as well as we would like it to, Mr. Stokes.
Mr. STOKES. Can you, for the record, supply us with a table of what the breakdown is in terms of your employment?
Mr. D'AMOURS. I would be pleased to do that. I don't have those numbers with me, but I would pleased to get you that information when I get back, as soon as I get back to the office. I will provide it to the staff.
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NCUA YOUTH PROGRAMS
Mr. STOKES. Okay. Mr. Chairman, before I yield back I just want to tell a little story. I spoke this past year to a credit union convention out in Cleveland. For part of the program, they brought some youngsters in there for a program they have set up in the high schools, the elementary schools too. And they brought some young people up on stage who introduced themselves. And I asked one youngster, I said what do you do? He said ''I am Chairman of the Board.'' I asked another ''What do you do?'' ''I am Treasurer.'' I asked another one, said ''What do you do, young lady?'' She said, ''I am a portfolio manager.'' And it went on from there. I am telling you to show that seeing these young people who are learning the whole process of finance and investment, was something really encouraging. And I think it is just something I wanted to put on the record because I think they are doing a great job to teach our young people that.
Mr. LEWIS. It is just an ongoing service of their local credit union.
Mr. D'AMOURS. And several credit unions, Mr. Chairman and members of the Committee, several credit unions are engaged in similar type activities. That is not an isolated incident that he witnessed.
Mr. STOKES. Thank you, Mr. Chairman.
LEGISLATION FOR CREDIT UNION MEMBERSHIP
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Mr. LEWIS. Thank you, Mr. Stokes. Mr. D'Amours, I wanted to mention in following up on Mr. Stokes' question that related to some of the what if around here, there is a bill, as I understand it, in the process that has some 150 co-sponsors that would address itself to any reauthorization concerns that you might have depending upon not only what happens with this committee's work but also with the courts. I presume your membership understands that going through the legislative process can be a complex process, that is you go to an authorizing committee like the Banking Committee. In spite of the fact that the Chairman on this side seems to be very positively inclined towards some of your concerns, there is another body and we have to go by way of the President's desk. And that question raised—some of those questions raised by OMB are very pertinent to what that authorization might include, so it is—this could be a very important year for credit unions.
Mr. D'AMOURS. Yes, sir. I don't know if the Chairman's referring to H.R. 1151, of which the Chairman is a co-sponsor and Mr. Stokes is——
Mr. LEWIS. Is a cosponsor.
Mr. D'AMOURS [continuing]. Is a co-sponsor. But, yes, we are aware that this is a big year and that depending on what the Supreme Court does we may be back very soon.
Mr. LEWIS. We look forward to working with you.
Mr. Hobson.
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CREDIT UNION START-UPS VS. MERGERS AND ACQUISITIONS
Mr. HOBSON. I have a couple questions I would like to ask. Please forgive me. I am from a state where we had a lot of small savings and loans, and I happened to be in the legislature when they had solvency problems. Since then the savings and loans have changed their way of doing business.
I like the small credit union. Can you tell me how many new start up credit unions you have versus mergers or acquisitions? What happened in my state was one institution became dominant and went bad and it killed all the little ones. And I am worried about that and I am worried about changing who we serve and how we serve. I am worried about the credit union changing what has made it so good and how it has helped a lot of people that can't get help elsewhere. That is what I want to preserve.
Mr. D'AMOURS. Congressman Hobson, I understand. I was—you were in the legislature when the S&L crisis occurred. I was in Congress. I just left Congress——
Mr. HOBSON. We solved ours at the time without any federal help, by the way.
Mr. D'AMOURS. I was on the Banking Committee when part of it was created, so I am extremely sensitive to that very fact and I understand and I am very sensitive to your question and to its implications. We had in 1997 ten new charters. We had 12 new charters in 1996. There was a—we had in 1997 11,238 credit unions, in 1996 11,328. There was a fallout. That fallout is happening all over the financial sector because there is consolidation occurring. Sometimes credit unions, smaller credit unions, although not since this recent injunction that we are operating under, would be merged voluntarily into larger credit unions to take advantage of better services. But I understand what you are saying.
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Mr. HOBSON. Now when you say better services, let me stop you right there.
Mr. D'AMOURS. Yes, sir.
QUALITY OF CREDIT UNION SERVICES
Mr. HOBSON. All the banks went through this deal and said consumers receive better services and cheaper services when they merged. And I will differ with you. My bills have gone up for services since all the banks merged. The difficulty in the small towns that I represent decreased services since all the mergers occurred. Little local banks take care of their people, in my opinion, better than the big, huge organizations where everybody becomes a number and becomes impersonal. I like the local community aspects. I don't like the big organizations. So if that gives you some idea from where I am coming.
Mr. D'AMOURS. Congressman, it does. And I have got to tell you that I am coming from the same place. I think anybody who has worked with credit unions will tell you that I have gotten myself in a little bit of trouble for insisting and stressing the importance of preserving smaller credit unions and stressing the original function and missions of credit unions. So I could not agree with you more. And I think the safest path to credit unions' future is that they remain focused on the fundamentals. But I would like to point out one thing that sometimes, if I may, Congressman——
Mr. HOBSON. Sure, that is fine.
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Mr. D'AMOURS [continuing]. Sometimes people miss. Even the largest credit unions, given the way credit unions operate cooperatively, unlike banks, amongst themselves, even the largest credit union serving relatively more affluent members is somehow participating in the effort of providing liquidity so that the person in the inner city or the isolated rural area who doesn't have access to bank or traditional financial services has access to that liquidity.
Credit unions, unlike banks, are cooperatives, Congressman. That is a act that sometimes people overlook.
Mr. HOBSON. See, I think credit unions serve a market in many respects today that banks don't want to deal with.
Mr. D'AMOURS. Yes, sir.
Mr. HOBSON. And I think the banks are worried that credit unions are expanding into other areas which creates competition with them. But you have got a whole population that needs you, and I just don't want to see them abandoned and I don't want to see what happened in the savings and loan industry or the bank industry where suddenly there are no locally owned banks.
Mr. D'AMOURS. Yes, sir.
Mr. HOBSON. I can already see it happening in my community. With all due respect to the communities around me, they are not in my district, but already the Dayton, Ohio, banks are coming over and the Springfield banks are being—you know, some of them are being bought or merged. They aren't bought. I guess they are merged. And suddenly over a period of time, the local people lose out. Suddenly, there isn't enough mass in Springfield to service so you have got to go to Dayton or you have got to go to Columbus, which is 50 miles away or 40 miles away.
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CREDIT UNION MISSION
But I am concerned because this industry has grown so well and done so well by servicing the people that you have been serving. I hope credit unions don't lose the mission for ordinary people. I don't know if I want to use this word but country club credit unions. That is not what they were designed to be. These were designed to help ordinary citizens who can't get the help from their local institutions, from the banking institutions, in a cooperative way.
And I am preaching to you a little bit, but I want you to know where I am coming from on this, because I am very concerned. I can see the trend happening as the bigger organizations begin to take over and branch out into these smaller communities. That is exactly what happened with the banks when they came into my town. There is one locally owned bank in the community I live anymore. It happens to be making more money than the rest of them, but you can get an answer there. I just want to preach to you for a minute on that.
Mr. LEWIS. Then you have two other questions.
Mr. HOBSON. I have two other questions, very quickly, one on your rent. Do you have a figure on—you say you have 200 employees in D.C.?
Mr. D'AMOURS. Approximately in the D.C. central office. Some of those work in a regional office that also——
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NCUA RENT
Mr. HOBSON. Do you know what your annual rental figure is? Because I couldn't break it out from what you had.
Mr. D'AMOURS. Well, we own the building.
Mr. HOBSON. You own the building?
Mr. D'AMOURS. The credit union community bought the building. There is no tax money involved. There is no appropriated money involved. It was bought before I got there, so our costs are absorbed by the credit union community that we regulate. And I don't know——
Mr. HOBSON. That is all right.
Mr. D'AMOURS [continuing]. Our yearly advertised cost——
Mr. HOBSON. I couldn't figure out——
Mr. D'AMOURS [continuing]. Would be right off the top of my head.
Mr. HOBSON. Well, I couldn't figure out from looking through the numbers how it was done.
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Mr. LEWIS. Actually, it would be helpful if you would help us break that out so that we know whether your credit union community is paying a relatively fair rate compared to the rest of the rate.
Mr. HOBSON. You don't have to do it now, but if you can get it back to us.
Mr. POLING. Appreciation on the building is $840,000 a year. Now also the building takes in $35,000 a month retail income and roughly $24,000 parking income a month.
Mr. HOBSON. Off of——
Mr. POLING. Offsetting the payment to the insurance fund for the note on the building, which we pay based on U.S. security overnight rates.
Mr. HOBSON. So you have funded the building through a loan from the——
Mr. POLING. Insurance fund.
Mr. HOBSON [continuing]. From the insurance fund?
Mr. POLING. Which we are paying back based on an interest level of U.S. securities overnight.
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Mr. LEWIS. That is a pretty good deal. I wish I could get that. It sounds like a pretty good deal, but would you follow up for the record on the question of the relative rent per square foot?
Mr. D'AMOURS. We will, Mr. Chairman. We will.
[The information follows:]
COST OF NCUA BUILDING, 1775 DUKE STREET, ALEXANDRIA, VA
COST PER SQUARE FOOT AT PURCHASE
Year purchased: 1993.
Purchase price: $36.6 million.
Square feet: 167,848.
Cost per square foot: $217.82.
CURRENT COST OF OCCUPANCY
Square feet (non-retail): 146,800.
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Annual Budget (less depreciation): $2.4 million.
Cost per square foot: $16.
Mr. HOBSON. And is that kind of loan allowed? I mean, it must be.
Mr. D'AMOURS. It sure is.
Mr. HOBSON. It is surprising to me that you can make that kind of loan.
Mr. YOLLES. Roughly 50 percent of our operation is devoted to the management of the insurance fund. And the loan is matched at the lost investment yield of the insurance fund. Whatever the insurance fund's portfolio is making, that is the interest that is paid on the loan. So it is a wash for the insurance fund and it is a good deal for credit unions because that was the cheapest source of financing we could obtain.
YEAR 2000 PREPARATION
Mr. HOBSON. Okay, the last question is on the year 2000 problem that everybody is facing, have you guys looked at that? Because you are going to have some real computer problems, I would imagine.
Mr. D'AMOURS. We have, Mr. Chairman. We have. Most of our equipment was purchased in the—most of our hardware was purchased just over the past few years, so it is—we have no real problems there, most of the same with our software. We are doing a lot of work with our constituencies, of course, with credit unions that we regulate and to assure that they are, as we are, making every possible effort to test and to become compliant within acceptable time frames.
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Mr. HOBSON. Do you see any big dollar costs to you or your—what about your membership?
Mr. D'AMOURS. Well, it is—I don't think anybody can quantify that, Congressman. It is a matter of testing. It is a matter of credit unions doing their own—doing work on their own hardware and software programs and then working with their vendors to see that the vendors that they are dealing with are also compliant. And the critical part is early testing to see that when you run everything through the system it comes out the way it is supposed to. And we are giving them time lines to complete that testing.
Mr. HOBSON. Well, I am going to say what is your authority to say to somebody who says well, you know, I don't want to do this if it is going to cost me a lot of money, I will just wait it out till the end?
ENSURING MEMBERSHIP YEAR 2000 COMPLIANCE
Mr. D'AMOURS. We have cease and desist orders, everything at our disposal. We could take them over. We could do anything that——
Mr. HOBSON. Do you have a technical staff that can say to—I mean there is a lot of consultants. What worries me if people go out to hire consultants and some guy says yeah, this is fine, go ahead and then all of a sudden you wake up the next morning and say well, that consultant wasn't very good.
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Let me tell you why. I went through the computerization in the mortgage banking business many years ago to the point where we didn't tell the chief, the owner of the company, that the computer system wasn't working. He would take everybody down and show everybody how it was running great. We had people down there still doing it by hand because nobody trusted it. This is back in the '60s. Nobody trusted the computer systems to be right, and they weren't right. And we had all these New York guys come in and tell us how to set it up and it didn't work.
Now I know everybody is much more sophisticated today, but also the mistakes are bigger today than they were then. And I worry about, you know, the smaller guy who says well, I am going to put this off, I really can't afford to make improvements this year, we are not going to mess with it.
Mr. D'AMOURS. We would not allow that to happen. We are in touch with these people, large and small, and we are requiring them to meet time lines. We are going into their credit unions to see that they are doing so. In fact, we have been successful to the extent that we are hearing an awful lot of complaints about our being overbearing in this regard.
Mr. HOBSON. Good, that means that you are working on it.
Mr. LEWIS. Mr. Chairman, let me suggest that Mr. Hobson is asking this series of questions of all the people coming before us for no small reason. Hardware is important, but software is critical.
Mr. D'AMOURS. Yes.
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Mr. LEWIS. And when I look at my own office during this last month, there were not quite seven days that we were closed down because the consultant couldn't quite figure out why our software wasn't working. And as we approach the year 2000, I mean, I can just see it happening. Probably the IRS will be straightened out by then. You can count on that, but otherwise I can see the whole roof falling in. And, you know, literally all of us——
Mr. HOBSON. Maybe we will get rid of them by then.
Mr. LEWIS. All of us have to be on top of this. And that is why Mr. Hobson is emphasizing it the way he is.
Mr. D'AMOURS. I understand. And I would like to assure the members of this committee and Congressman Hobson we share your concern very much. It worries the blazes out of me, quite frankly. And I enjoy it when I run into credit union people who say they are also scared, too. It is the ones who are confident that I feel concerned about.
NCUA AFFIRMATIVE ACTION HIRING PRACTICES
Mr. LEWIS. Norm, I must say to you that I was not totally satisfied with your response to Mr. Stokes' question. Those questions that relate to the whole subject of affirmative action these days has a different kind of shade over it within many a circle, but it doesn't have that kind of shade in this office. And I would have anticipated an immediate response with numbers, data, otherwise regarding what is happening relative to affirmative action within your organization. It is an important priority in this committee, and I am interested in looking very closely at that for the record.
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Mr. D'AMOURS. Well, I have to presume this committee is aware of the fact that we are under—we are working with the OPM on this matter and under strict orders from OPM to do all of our hiring through them because of some irregularities that occurred in the past, that were discovered in the past year. We are highly sensitive to the question, and I could furnish this committee with numbers of who we employ and what their gender, ethnic, racial characteristics might be, if that is what you are suggesting. We are very sensitive to the matter. And quite frankly, I think that we, the Agency, could be and should be doing much better, should be at a better place now. And we are hoping we will get to a better place in the future.
Mr. LEWIS. It is kind of under the thesis if Uncle Sam can't do it, who can. And we have raised these questions over a number of years and it is not a question that is going to disappear in the short or the long term.
Mr. D'AMOURS. Well, I can tell you, Congressman Lewis and Congressman Stokes, that ever since I have been there we have been working very hard to try to have a work force that is reflective of society at large. We are not nearly there, but we are making efforts to get there.
Mr. STOKES. I would appreciate, Mr. Chairman, if you would just yield to me for a moment.
Mr. LEWIS. Surely.
Mr. STOKES. I appreciate the Chairman making that inquiry to this matter. And I know the Chairman feels as strongly as I do about this and has made it clear to every agency appearing before us. But what happens to us, Mr. D'Amours, is that when an agency like the Neighborhood Reinvestment Corporation, who just appeared before us, appears here and the people they bring with them reflect sensitivity to these type of concerns and it shows without them saying a word that they are committed to this type of an organization. And then when your organization comes in and we see no reflection whatsoever of it, it doesn't look good to members of Congress sitting here providing federal funds for agencies to employ on a equal employment basis.
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OPM AND RECENT HIRING PRACTICE
Mr. D'AMOURS. I understand that, Mr. Stokes, and it is certainly somewhat embarrassing to me to sit here and hear you say that and to know that what you are saying is true. I happen to be on the Board of Directors for Neighborhood Reinvestment Corporation, and there is an enormous difference in the way that agency is populated and the way our agency is populated. We have recently been accused of excessively seeking to make—to take the corrective actions that would improve that situation. That is one of the reasons some people believe that we got in trouble and are under the Office of Personnel Management supervision right now.
Mr. STOKES. What does that mean, excessively?
Mr. D'AMOURS. Well, some people would say this matter—this whole matter is under investigation by the Office of Special Counsel. We are working with the Office of Personnel Management to rectify what some people saw as an excessive amount of zeal in trying to too quickly correct the situation that you have just identified. But I would suggest if the Congress wants—well, that is all I will say right now. I would be glad to get into it more if you would like. But that is the—I am recounting very recent history. It is something that occurred. And I am—without trying to be conclusive. I don't want to draw conclusions. This matter is under investigation. But I am telling you that the point you identified is a very important one.
I would like to ask this Congress and this committee or anybody who can participate that maybe somebody should look at the entire—the big picture to see whether there might be in law or statute or regulation certain things that make it difficult to move expeditiously into a work force that is more reflective of the diversity in America today. There are laws on the books that make it difficult to move in this direction, preferences that have been around for years and they have big lobbies behind them and the like, federal regulations on removing people, for instance, and the like. It can take years to move sometimes where in the private sector you could move much more quickly.
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It is a very complicated issue, Congressman Stokes and Chairman Lewis, and it is one that I am particularly very, very sensitive to. But to state the problem is not to solve the problem, and the solution to the problem is not as easy as it sometimes sounds. And as I said, our agency has come under great scrutiny recently because of what some people see as an excessive amount of zeal in attempting to remedy the situation that you say you see before you.
COMMITMENT TO AFFIRMATIVE ACTION
Mr. LEWIS. I think the points that you make are apparent to those of us who are struggling with this difficulty. At the same time, there is little doubt that, as you know, in this place chairmanships come and go, but our interest in this subject is not likely to wane. In the meantime, I am encouraged by the fact that there has been movement, particularly in terms of opportunity for women within your institution and other institutions like your own.
The issue of affirmative action in my own state has become a very controversial issue, and yet I feel very, very strongly that there is plenty of evidence that an awful lot of women in our society, while they are getting positions, are not necessarily being paid for the positions they carry forward. And in turn, there are difficulties in turnover processes, job guarantees and otherwise that are long established. But as you can tell, at least insofar as this committee is concerned, the issue is not one that is going to go away, and we intend to continue to pursue it over time.
NCUA WORKFORCE DIVERSITY
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Mr. D'AMOURS. I would hope that it wouldn't go away, Chairman Lewis. And I can't give you big numbers right now, and sometimes individual cases don't prove a point, but I would like to say that over the past two or three years there are people in positions of great authority at the NCUA, people who add racial and gender diversity who were not there just three or four years ago. I think we are making strides, but to do the job overall is very difficult and takes time.
Mr. LEWIS. We appreciate your candor as well as your sensitivity to this matter.
Mr. D'AMOURS. Thank you.
Mr. LEWIS. And a member of our committee who may or may not from time to time have her voice heard on the part of small people in our society, those who are climbing the ladder, Mrs. Meek.
Mrs. MEEK. Thank you, Mr. Chairman. And thank you, Mr. D'Amours. I would first of all like to associate myself very strongly with the remarks of Mr. Stokes and our Chairman. I am not quite as diplomatic as they are. I would like to be, and I am learning, but it is very obvious to me that, in spite of what you have said in your testimony regarding the gender and the racial situation in your agency, that it doesn't really take a long time to determine your progress when you look back behind this table at your staff that is already working with you.
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WOMEN AT NCUA
I don't see any women here represented in your decisionmaking. I assume the people up here at the table are more or less in your top managerial positions or they are aspiring to be there. And I am sure it wouldn't be so difficult to reach back and hire one of those women or promote them. They are already there. I don't think you are going to have to look for them because you do have a record of them, don't you? You have them in your organization. It would be very easy to train them and to put them in a managerial position without beating a dead horse, and I assume it is a little dead at the point, I will move to my next question hoping that you will fulfill everything that you promised the Chairman. And I am sure you will in terms of the managerial piece which you can do something about. You may not be able to do very much about the general population, but you can about the management in your agency.
My question is I find some paradoxical things in your presentation on Community Development Revolving Loan Fund.
Mr. D'AMOURS. Yes, ma'am.
COMMUNITY DEVELOPMENT LOAN FUND
Mrs. MEEK. It would appear to me that the very people that you really should serve or help to serve, you can't because of the limitations in the CDRL Loan Fund. This loan fund is set aside to assist low-income credit unions as well as you have other needs, and here you are constituted to help those people. And the banks aren't doing anything. I know, because I am out there. They aren't doing that much. You are pretty much, sort of, organized through this fund to help those groups. The problem out there is capitalization in the rural and the urban areas where we have low-income people. Yet in the very program that could help them through your agency you only have an $8 million appropriation limit. So to me that is prohibitive.
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You only have 125 loans, and the need is so very, very big. And I am just wondering when you ask for $1.7 million you have some pending applications. My question is how can you meet the need, the great need out there, with the limited amount of monies you have relegated in the Community Development Revolving Loan Fund?
Mr. D'AMOURS. We can't. And we certainly could make use of a great deal more, Congresswoman Meek, but these are monies that are given to us by Congress, and——
Mrs. MEEK. Excuse me, I don't want to cut you off.
Mr. D'AMOURS. We are limited in—we are limited to these amounts of money.
Mrs. MEEK. But don't they give you that from your budget request?
Mr. D'AMOURS. Well——
Mrs. MEEK. Someone had to ask for this money or you wouldn't have gotten a dime.
OFFICE OF MANAGEMENT AND BUDGET (OMB) FUNDING LIMITS
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Mr. D'AMOURS. Yes, as a matter of fact, we have been limited to this amount. And the only reason we have $8 million that has been appropriated by Congress is because this subcommittee in the past two years has added a million dollars in each of the past two years to the original $600—I am sorry, to the original $6 million appropriation. So all I can tell you is that if this Congress wanted to give us more, we could make use of it. But we are limited by the OMB positions in these matters and by Congressional appropriations.
Mrs. MEEK. Let us see if I can rephrase my question. What I am trying to say is that a budget request comes from your agency regardless of how long you have been there. You have been there three years.
Mr. D'AMOURS. No, it comes from OMB, Congresswoman.
Mrs. MEEK. So you don't make a request to OMB for your budget? How do they know what your agency needs?
Mr. D'AMOURS. We make a request to OMB, but they decide what the——
Mrs. MEEK. I understand that.
Mr. D'AMOURS [continuing]. Authorization is going to be. It is not our decision.
Mrs. MEEK. And I want to go back now. What comes first, the chicken or the egg?
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Mr. D'AMOURS. Okay.
Mrs. MEEK. What comes first is your request. You send your budget to OMB, am I correct?
Mr. D'AMOURS. Well, I think that is basically the way it works.
Mrs. MEEK. All right, so then someone within your agency, yourself included, would have had to take some kind of affirmation toward a request for this fund before it went to OMB. Now OMB may have said this is too much or we don't agree, but at least they would have had a frame of reference.
Mr. D'AMOURS. OMB——
Mrs. MEEK. If I may finish.
Mr. D'AMOURS. Oh, I am sorry.
Mrs. MEEK. I understand what their function is very well. It is very delimiting and it doesn't always give the agency what it wants, but I am saying to you that the sensitivity that you are talking about should be shown in the amount of monies that you have been able to get wherever you get it for this loan fund. The bottom line of what I am saying is I certainly would like to see your agency look into this problem of the Community Development Revolving Loan Fund. It is a problem. You have very little money in it and you are only serving 125 loans. But on the other end, when your people come to me, and they come to me by the thousands because they are in all the money, and they want me to fight the banks. Well, the banks aren't doing anything so I am not with them. I am trying to be with you, but I don't see where I can leap forward with this big quantum leap unless I see some commitment on the part of the credit unions to help this audience or this group that we all serve. And I am not the only one that serves that group.
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Mr. D'AMOURS. Congresswoman, I have been fighting the battle you just outlined for a number of years and have gotten into some dutch for doing so, quite frankly. But the question that you are asking about the——
Mrs. MEEK. How do you get in so much dutch?
OMB AUTHORIZATION LIMITS
Mr. D'AMOURS. Because for some reason there is resistance in some quarters to make maximum effort along these lines. But credit unions do a wonderful job in getting into these areas to help people and to help to start and nurture low-income or community development credit unions as we call them. But the question you are identifying is what we are allowed to do through the Revolving Loan Fund. And we have had our disagreements with OMB about that when we meet with them, but we are bound to carry out the Administration—their policies when it comes to the authorization process or even to some extent the appropriations process. This committee has the authority and has in the past few years, under the leadership of Chairman Lewis, has in fact added to that amount of money by a million dollars each year. But this is all based on an original bill passed by Congress several years ago.
Mrs. MEEK. Would you—and this is my last stab at this. Would you mind for my information and for the record providing me with the rationale behind your budget request for the last five years.
Mr. D'AMOURS. Yes, ma'am, I will.
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Mrs. MEEK. Particularly the one that deals with community development.
Mr. D'AMOURS. I will be happy to provide that, Congresswoman.
[The information follows:]
NCUA has not requested any money from OMB for the Revolving Loan fund for the last five years. The program has only been authorized for the last three years, and during that time it became clear to us through informal discussions that OMB would not support appropriations for the program. We were, however, pleased to work with the VA–HUD Subcommittee and its Chairman and Ranking Member in order to secure some funding for the program in the last two years.
Mrs. MEEK. Thank you.
Mr. D'AMOURS. Thank you.
Mr. LEWIS. It will be included in the record.
Mr. Frelinghuysen.
ETHNIC REPRESENTATION OF ALL CREDIT UNIONS
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Mr. FRELINGHUYSEN. Thank you, Mr. Chairman. Mr. D'Amours, good morning. It still is morning. It may feel like the afternoon to you, I don't know. I have had a relationship with credit unions going back to elective office in the mid 1970s and I have always viewed them as sort of bastions of democracy in terms of providing access to money that other banks, other financial institutions wouldn't provide, a very positive view. And I find it somewhat troubling that—if credit unions represent the best of democracy—the composition of your board is in question. What does the landscape look like in terms of credit union leadership of the 11,000 credit unions nationwide? What is the composition there?
Mr. D'AMOURS. You mean——
Mr. FRELINGHUYSEN. In other words, putting aside what you are referring to, and you haven't gone into it a great——
Mr. D'AMOURS. You mean by income?
Mr. FRELINGHUYSEN. No, in terms of women, minorities, racial composition, ethnic background. One of the things that is a positive view for me is that in my own back yard there appear to be a number of individuals of all different backgrounds who are active in credit unions. What does the overall nationwide picture look like?
Mr. D'AMOURS. I don't have any standards by which to measure that except four years of experience, Congressman. And I would think that the makeup and membership of credit unions across America is reflective——
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Mr. FRELINGHUYSEN. You think or you know? I mean, I think it is a fair question.
Mr. D'AMOURS. I have seen. I can tell you what I have seen. I don't know that I can—I have any numbers or that the credit union community sitting behind me has any numbers that can quantify by ethnic or gender——
Mr. FRELINGHUYSEN. When you go——
Mr. D'AMOURS [continuing]. The membership of what their membership is. But I can tell you that I have been across the length and breadth of this country and been to hundreds of credit unions in the past few years and I think that they are very reflective of the diversity one sees in America.
Mr. FRELINGHUYSEN. If they are reflective, I think it would be——
Mr. D'AMOURS. Now are you referring to credit union membership, Congressman?
Mr. FRELINGHUYSEN. No, I am talking about credit union leadership, the individual credit unions.
Mr. D'AMOURS. I am sorry. I thought you were talking about——
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Mr. FRELINGHUYSEN. Oh, I know the credit union composition in my back yard is extremely diverse with shareholders. I am just wondering—I think it would be a very good idea to have a handle on what the composition of the leadership of the various credit unions—very much in line with what Mr. Stokes and Chairman Lewis are talking about, because I think if you have a positive story to sell this is a good way to sell it.
Mr. D'AMOURS. I want to apologize, Congressman. I thought you were talking about the membership of credit unions across America. I have absolutely no way of getting to what the leadership profile——
Mr. FRELINGHUYSEN. I would strongly suggest that some time might be spent in getting an idea as to——
Mr. D'AMOURS. I think that question—we could certainly work with you in that regard, Congressman, but I think that might be a question better addressed to the trade groups and to the industry.
ETHNIC COMPOSITION OF ALL CREDIT UNION LEADERSHIP
Mr. FRELINGHUYSEN. You don't need to work with me. I just think the committee might be interested in knowing what the general composition is of the leadership of the 11,000 credit unions in the nation. I assume there would be a very positive story to tell.
Mr. D'AMOURS. I would guess, again, without having any hard scientific evidence, that the leadership of individual credit unions is reflective of the membership. The leadership of the credit union movement is another matter. And I think that is a question that you would best address to those people who do that rather than to the agency.
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Mr. LEWIS. Mr. D'Amours, I believe that Mr. Frelinghuysen is trying to be helpful. We were asking you some difficult questions earlier that were somewhat sensitive relative to the mix reflected in this room, and we talked about difficulties, job guarantees, et cetera, et cetera. But frankly, I think if there were a way of providing some data that reflects what is going on out there, where the credit unions really are, it is a much different picture. And frankly, you might very well find yourself being a model picture rather than a negative picture.
Mr. D'AMOURS. I hope so.
Mr. LEWIS. And I am not sure how you could help us——
Mr. FRELINGHUYSEN. It is probably a better model than most bank boards.
Mr. LEWIS. That is right. And frankly, that is a piece of the story that probably ought to be told. And I know that you just don't automatically have that available, but it is an item that would be worthy of somebody focusing on a little bit.
Mr. D'AMOURS. Yes, well, again, from what I have observed I think that that is what it would show in terms of the credit union, individual credit unions, but we have—I don't think we keep any such statistics. But I will be glad to get you anything I can.
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Mr. FRELINGHUYSEN. I am not suggesting we need to invent a new bureaucracy, but I do know that there are equal opportunity responsibilities of every organization in the U.S., and I would assume that there must be some data that is out there.
Mr. LEWIS. They could probably give you the data.
Mr. D'AMOURS. Well, credit unions elect their leadership, so one has to assume that you are going to naturally have a reflection of the membership of a credit union on the board.
Mr. FRELINGHUYSEN. I am all for assumptions. I am all for guessing, but I would just love to have a better handle on it. We don't need to resolve it at this moment.
[The information follows:]
Credit Union National Association was kind enough to supply the following data.
A few other questions if I could, Mr. Chairman.
Mr. LEWIS. Sure.
PROBLEM CREDIT UNIONS
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Mr. FRELINGHUYSEN. Relative to the issue in your statement of the number of problem credit unions, the figure—that is page 4 of your remarks. The number of problem credit unions remains low, up slightly to 330 from 298 at year end 1996. Can you comment a little more on the problem credit unions and specifically how your administration addresses those problems? I don't need a treatise, but I was just wondering if you could tell me if there are problem credit unions. And obviously on a day where image is everything, how do you actually address those problem credit unions?
Mr. D'AMOURS. Well, everything from going in to working with the credit union leadership and board to sending them letters requiring them to perform certain tasks. We can do conservatorships where we actually would take over the credit union and try to restore it to health and return it to the membership. Smaller credit unions we try to spend more time working with them to help. We have any number of regulatory tools that allow us to deal with these, and we think we are.
Mr. FRELINGHUYSEN. So it is fair to say that of the 330 problem credit unions, that somebody is working with those credit unions right now?
Mr. D'AMOURS. Absolutely, absolutely. And again, I would like to point out that even though 330 sounds like a relatively large number, it only represents one percent, less than one percent of the——
Mr. FRELINGHUYSEN. I understand that. But the bottom line of credit unions is——
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Mr. D'AMOURS. We are doing it.
Mr. FRELINGHUYSEN [continuing]. Protection of individual shareholders. With all due respect to the number, there are some people there who, you know, who might not have their own personal interests protected. And relative to that, how are individual shareholders protected if there is a problem of management in a specific credit unions?
Mr. D'AMOURS. Well, we have—beyond what I have just said, let me turn it over to Mr. Yolles, who works specifically in this area. He might be able to give you the kind of detail you are looking for.
FIXING PROBLEM CREDIT UNIONS
Mr. YOLLES. Congressman, in each of NCUA's six regional offices we have a group of specialists who are known as problem case officers. These are our most experienced senior field examiners. Every one of these troubled credit unions, code four or five, is assigned to a problem case officer. And these credit unions receive from us what we call intense supervision. Each credit union works out with their problem case officer a resolution plan that calls for a workout of whatever the problem is within 24 months. And these credit unions receive throughout this period close if not full-time supervision from an assigned problem case officer. This is one of the reasons we have such a low number of troubled institutions today.
Mr. FRELINGHUYSEN. So all those shareholders are protected absolutely as you go through that process?
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Mr. YOLLES. They are protected and they are given our fullest, undivided attention by our most qualified personnel.
Mr. FRELINGHUYSEN. And my last question, Mr. Chairman. How many of the problem credit unions are low income?
Mr. YOLLES. I don't have a number for you, but I can tell you we have looked at the statistics and the percentage of troubled low-income credit unions mirrors their relative proportion of all credit unions. They do not make up a higher percentage than they make up of the total.
Mr. LEWIS. Perhaps you could elucidate your response for the record.
[The information follows:]
Mr. FRELINGHUYSEN. Thank you, Mr. Chairman.
Mr. LEWIS. Thank you, Mr. Frelinghuysen. Ms. Kaptur. If you saw a vacancy of some of those who are participating by way of the audience, it is largely because I believe the luncheon has begun and people are departing not because we are still here but because I guess they want to eat. Ms. Kaptur.
Ms. KAPTUR. Thank you, Mr. Chairman, very much. I am sorry I wasn't able to be here for Chairman D'Amours' testimony, but I was flying in. And I have read it and have had the opportunity to hear some of the other questioning. And I can remember when Norm and I served on the Banking Committee together. And I have watched your career with great interest and I have a deep, deep, deep interest and dedication to the credit union movement of this country and the world, in fact. So I am interested in your testimony and do have several questions.
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DECLINE IN EXPENSES
I want to congratulate you for trying to move this industry into the 21st Century and am really amazed at the expense figures listed on pages 1 and 2 of your testimony indicating a decline from $767,000 to $177,000. I can't think of too many agencies that come before us that actually have a decline in their expenses.
Could you explain how that has been achieved, please.
Mr. D'AMOURS. Well, frankly, we have achieved it by cutting back on bodies on bureaucratic overlay. We are doing the job with fewer people. And as a matter of fact, you are looking at the—in the person of Mr. Yolles, at the staff of—I don't remember what it was when I got to the agency four years ago, but I think we had four people, am I not correct, doing the job that now Mr. Yolles is doing by himself as he works in the Office of Examination and Insurance. So that has been a good saving there. We have given nothing up in that process. The job is being done as well as it was back then.
Ms. KAPTUR. That is quite a remarkable drop. Have you shifted some of these functions to other personnel or are you more computerized or what exactly has accounted for——
Mr. D'AMOURS. Mr. Yolles is the President of the agency. I think he better be the one to answer that.
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CLF STAFFING REQUIREMENTS
Mr. YOLLES. Congresswoman, the CLF is a backup liquidity source. It is a contingency plan for credit union liquidity needs. Credit union liquidity is very high right now, so the CLF is very inactive. That is the Central Liquidity Facility, excuse me. We have scaled back the staffing requirements and the operating expenses of the CLF in accordance with that level of activity. Now that does not mean we don't stand ready to serve credit unions if called upon, but the NCUA board that serves as the board of the Central Liquidity Facility has made these adjustments over the years. In fact, only part of my salary goes through the Central Liquidity Facility. As the Chairman alluded to a minute ago, I also serve as our director of risk management dealing with troubled credit unions. So right now we are kind of down to rock bottom as far as the minimal operating requirements to keep the Central Liquidity Facility in place and ready to be activated if it is needed.
Ms. KAPTUR. But this in no way diminishes your ability to examine, to audit, to——
Mr. YOLLES. No, the functions that you are mentioning are part of NCUA's overall operating budget, which does not come before this committee. It is not an appropriation. And that is a much larger figure.
Ms. KAPTUR. All right, I thank you for that clarification. Let me ask—I remember when we used to serve on the Banking Committee, Norm, we used to get these great charts that would show us in terms of numbers of financial institutions, assets of financial institutions, and their safety and soundness and their fault rates of their depositors. Serving on this committee, we don't get that sort of helpful information, and so I have to ask these questions.
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BANK CUSTOMER DISSATISFACTION
It seems to me when we served on banking there were over 30,000 credit unions in this country. The contraction in all of our financial institutions has been meteoric, and based on a recent survey I just did in my Congressional district where thousands of constituents are responding, I think there is a great future for credit unions because the banks I have I can't believe—I can believe, that is why I ask the question on my survey, but the banks in this country, I think, are going to have a rude awakening with public disdain of their practices.
So I am very interested in how credit unions operate in this world where this is a lot of dissatisfaction on the part of consumers. And but I am curious about the numbers of credit unions now compared to other financial institutions. You do list an asset figure in here about $350 billion. Does that still represent about one to two percent of all financial assets in the United States?
Mr. D'AMOURS. About two percent, Congresswoman.
SOUNDNESS
Ms. KAPTUR. About two percent. And how does your safety and soundness compare to the banks? It used to really be sterling and we used to get these charts that showed how much better you were in terms of the default, in terms of actual capitalization. How does that compare now?
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Mr. D'AMOURS. I think it continues—I don't have those numbers with me now, but I think it compares extremely favorably to—for instance, our delinquency rate is one percent. There is only one percent charge offs. It is very low. By all standards, credit unions are extremely safe and sound. The capital is higher by quite a bit than it is in banking. Asset bearing capital is, after all, the first buttress against problems. Liquidity is high. By all standards I think we are doing extremely well.
Ms. KAPTUR. If you could provide some comparative information for the record, I would be very, very interested in that. I like to use it in my speeches and I like to keep tabs on it.
[The information follows:]
Mr. D'AMOURS. Well, one measure that I was just reminded of, Congresswoman, is that you are familiar with the Camel Coding System, of course.
Ms. KAPTUR. Yes.
Mr. D'AMOURS. It pervades the financial intermediation sector. Ninety three percent of all of the assets of credit unions are in code one and two credit unions, which is an outstanding record.
Ms. KAPTUR. That type of information, I think, would be important to put on record in this committee. And I certainly——
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Mr. D'AMOURS. It is, ma'am. I will ask my staff to contact you to see exactly what it is you are looking for. We will furnish it to you and to the Committee at the first available time.
Mr. LEWIS. If you put it in the record, I might suggest that maybe next year bring some special charts for Ms. Kaptur, because she remembers these things and it is very helpful to you. It helps you. It doesn't hurt you.
STATE-CHARTERED VS. FEDERALLY-CHARTERED CREDIT UNIONS
Ms. KAPTUR. Yes, you have got to get it in your mind, because of what is happening out there in the industry. I also wanted to ask you on the state-chartered versus federally-chartered credit unions, the figure of 11,000 plus would be federally chartered?
Mr. D'AMOURS. No, that is a combination. There are about 11,200 credit unions. Out of that 11,000, roughly it breaks down to 7000 federal and 4000 state charters.
TRUST AND CERTIFICATE OF DEPOSIT SERVICE
Ms. KAPTUR. Oh, all right. Let us see, why does the law prohibit credit unions from offering certificates of deposit and serving as a trust——
Mr. D'AMOURS. Trust office?
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Ms. KAPTUR. Yes, why is that?
Mr. D'AMOURS. Well, the laws strictly—I almost got into this in my conversation with Congressman Hobson. One of the factors that is overlooked in this dialogue that bankers raise about our ability to compete with—the credit unions' ability, rather, to compete with them is that the credit unions are strictly limited on several fronts on the power side. Commercial lending, for instance, and on the investment side they are limited virtually to insured financial institutions. Credit unions, Congress decided years ago, were going to have very limited powers on the both investment and lending side. And that is just the way it is. If somebody wanted to suggest changing that and expanding those powers here or there, of course, our agency, the agency that I chair, would be delighted to work with you.
Ms. KAPTUR. I will tell you what, I am very interested. And I want to tell you an experience I just had personally, and I still haven't had my questions answered and I am as angry as my constituents are, because I hold certificates of deposit at several local financial institutions. And I went in the other day to withdraw some money that had been accruing. I hadn't been back there for quite a long while. I said well, I will take some interest out. They said you can only take $263 out. I said $263? I said, how is that possible? I said what happened to all the other interest over the last several years. They said oh, that is rolled into your principal. I said wait a minute. I said what do you mean. I said I never had a CD that the interest rolled into the principal and I can't have access down to the principal of the interest that had accrued. I said where is what I signed, where is this? Well, they have been looking. It is three weeks now. I am calling tomorrow. They still can't find what I signed that caused this to happen. I have never heard of that. And I am so angry.
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Then what happened with our trust account as a family with all these mergers, now the trust account is owned by some place that I don't want to own our trust account. And I thought I want to put this in my church credit union. I am so angry. I can't do it. I can't move my CD and I can't move my trust to a credit union. So I am hot to trot on this one. And I know I am not the only citizen of our country that feels that way. And I said this to the bankers who are presidents of these institutions in my community, who are all absentee and, by the way, have their headquarters in Mr. Stokes' district, which is two and a half hours away.
But I share with Mr. Hobson the Buckeye, Ohio, love of small places, and I don't like this absentee banking that is going on at all. And I want to grab a taste of credit unions. And therefore I am very interested in that.
Mr. D'AMOURS. I would just like to say I don't know what the contractual terms of your certificate of deposit is, but the credit unions could help you on that side. They can't help you on the trust side, however, but on the CD side they—depending on the terms of the contract of your deposit, the credit union can take certificates of deposit. They can't do the trust part of it.
Ms. KAPTUR. Okay, my local credit unions tell me they don't have power to do that, so they may just not know, but——
CREDIT UNION SHARE CERTIFICATES
Mr. D'AMOURS. I would suggest you might want to ask that question again. I don't know why they—what would prevent them from doing that on the certificate of deposit side.
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Mr. ENGEL. If I may clarify, in the normal terminology, a certificate of deposit are what banks utilize. Credit unions use what is called share certificates. And normally a credit union can offer a share certificate, and it is up to the board of directors to determine what the dividend rate and what the terms are going to be. And the difference is that, of course, dividends can't be guaranteed as in the case of a CD that a bank issues because when you buy a CD the bank is borrowing money from you. When you purchase a share certificate in the credit union, you are investing in the shares of the credit union and you earn dividends. My understanding is it is really up to the credit union to determine whether or not to allow you to withdraw dividends periodically or whether they will be paid to you on a monthly basis or you could have them rolled in. But that is dependent upon the individual credit union's policy on how they want to establish and instruct their share certificate program. They may have several different types.
Ms. KAPTUR. I thank you for that, and I appreciate the Committee's forbearance. I just wanted to get some of that on the record because I think that the banks in this country are due for a long review.
AUTHORIZING LIMITATIONS
Mr. LEWIS. The record should note that the gentle lady has raised a number of authorizing questions that the Committee, while we are often asked to, can't really move forward very extensively on. We can put language in a bill that will last for a year, but it doesn't last much longer than that.
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Ms. KAPTUR. That is why I appreciate the Chairman's forbearance on those questions. I have a hunch some of that commentary will make its way out of this room.
COMMUNITY DEVELOPMENT REVOLVING LOAN FUND (CDRLF) AUTHORIZATION
I wanted to—I will end with these questions, because they relate to the community development credit unions. And I know that in the Revolving Loan Fund—and I want to especially thank Chairman Lewis for working with us last year to assure that there was proper capitalization in that fund. I am concerned that the authorization for this lapses in 1998. And this is a particular interest of my district, of myself, and it has been since I was first elected to Congress. And I am wondering how you see this loan fund, either you personally or any staff member that has accompanied you, Mr. Chairman, changing if that authorization is not renewed. Will this threaten this Community Development Revolving Loan Fund in any way or the services you offer?
Mr. D'AMOURS. We have turned over, as I said in my testimony, we have turned over the original $6 million and then the $2 million that you added several times to the tune of some $20 million. I forget exactly——
Mr. LEWIS. $16.6 million.
Mr. D'AMOURS. $16 million in lending. We would continue to generate income from these loans and that fund would continue to operate unless or until it is abolished. It would take some act abolishing it, not simply not reauthorizing it.
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Ms. KAPTUR. Could you tell me how many credit unions have been authorized in the CDCU area prior to last year and then over the last year how many might have been added? Do you have those figures with you?
Mr. D'AMOURS. I don't have them with me, and I wish I did because if I had them with me that would mean that I would be accompanied by Joyce Jackson, who runs our office of community development credit unions, who is an African-American woman and might help me a little bit by sitting up here with me today. But Joyce has those numbers and she is the one in charge of that program.
Ms. KAPTUR. I would very much appreciate——
NUMBER OF CREDIT UNIONS IN CDRLF AREAS
Mr. D'AMOURS. Well, one of my staff just pointed out that at year end there were 346 low-income designated credit unions in '96, up from 263 in 1995. And their members include, consist of 820,000 people.
Ms. KAPTUR. And what would you expect that to be at the current date? Is the trend line still upward?
Mr. D'AMOURS. The trend line is upward. It is not growing rapidly, but the trend line, yes, ma'am, the trend line is upward.
ABILITY TO PROVIDE TECHNICAL ASSISTANCE
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Ms. KAPTUR. What will happen with your ability to render technical assistance off the interest from that fund in years hence? Do you see that being capped? Do you see that being increased as a result of the earnings?
Mr. D'AMOURS. We are—yes, we are limited. It would take legislation. We are limited to the interest we earn from the funds to provide technical assistance.
Ms. KAPTUR. I would be very interested in seeing how much that is, please.
Mr. D'AMOURS. Yes, Congresswoman, we would be glad to.
Ms. KAPTUR. And what the trend has been since the mid '90s.
Mr. D'AMOURS. Yes, we will get that. I will talk to Joyce as soon as I get back and we will make sure we get it added to the record.
[The information follows:]
CDRLF TECHNICAL ASSISTANCE PROGRAM
The income generated from the repayment of loans is used to make technical assistance grants for improving the operations of small credit unions. The CDRLP began making technical assistance grants in 1993. To date, the program has made grants totaling $693,000.
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During 1996, the CDRLP received 99 technical assistance requests totaling $593,865, but due to availability of income, could only approve 78 requests totaling $151,846—or 25.6% of the amount requested.
During 1997, the CDRLP received 94 requests totaling $566,123, but could only approve 73 requests totaling $215,461—or 38.1% of the amount requested.
For 1998, the CDRLP expects small credit unions to need even more assistance in addressing Y2K compliance issues. The CDRLP projects $250,000 in income for use in the 1998 technical assistance program.
Ms. KAPTUR. All right, I thank you very much. I thank the members of the committee. It is always a pleasure to hear from this agency.
CDRLF DEFAULT RATE
Mr. LEWIS. Thank you, Ms. Kaptur. Mr. Stokes, a couple of questions following up, if I could, on the line that Ms. Kaptur was following. Could you give us now or for the record what is the default rate of the Revolving Loan Fund that is resultant from the Capital Revolving Loan Program?
Mr. D'AMOURS. The last time I had looked, we had no defaults. I don't know if that has changed, but the last time we checked that—one of my staff is saying that we had one default. All right, the last time I looked we had none. Apparently we have since——
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Mr. LEWIS. You have had one default, but before that there were none?
Mr. D'AMOURS. Zero, zero defaults.
Mr. LEWIS. What is the amount of the loss to the fund? Can you tell me that?
Mr. D'AMOURS. $40,000.
Mr. LEWIS. $40,000. Does that mean that the rest of the loans have been repaid? The answer is yes.
Mr. D'AMOURS. That means they are—yes, they are repaying the loans.
CDRLF VS. COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS
Mr. LEWIS. Could you compare and contrast the Revolving Loan Fund with the Community Development Financial Institution's program, CDFI?
Mr. D'AMOURS. I could and I will, Mr. Chairman, but I can't do it unless one of my staff has the numbers right here. I don't think we are prepared to do that now. But I will be glad to get that.
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Mr. LEWIS. I do want you to know that in asking that question I am halfway inclined to getting you into trouble, so you probably ought to know that that is the case.
Mr. D'AMOURS. We will do our best.
Mr. LEWIS. I am curious, are there differences in the clientele that is served by these two programs, that is CDFI versus that which is the Community Development Revolving Loan Program?
Mr. D'AMOURS. Well, there are different requirements in the two. There are different requirements. We serve much smaller credit unions than they do and they have matching fund requirements, as you well know.
Mr. LEWIS. I guess the point I want to highlight is that you are serving a clientele there that is a borrower that normally has less access to credit and yet you have a loan design pattern in which the default rate is as close to zip as we can get. And yet as of this moment we are suggesting maybe favoring CDFI versus this loan program. And the difference is in terms of the requirements on the borrowers is very significant.
[The information follows:]
"The Official Committee record contains additional material here."
Ms. KAPTUR. Mr. Chairman, if the gentleman would be kind enough to yield.
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Mr. LEWIS. Happy to yield.
CREDIT UNION AND CDFI REDUNDANCY
Ms. KAPTUR. I would love to give you the testimony that I rendered before the Banking Committee on CDFI back before it was originally established. And there was quite a strong section in there regarding the use of the credit union mechanism, particularly community development credit unions rather than reinventing the wheel when we already had wheels functioning out here that merely needed larger tires. And it has always interested me—and this happens on almost every administration that comes in. They always try to create a new set of financial institutions. I guess it is part of posterity, but the point is you can make a lot of mistakes. And when you have a story to tell, and I really think there is a story to tell here that works, it is part of our responsibility to make sure that we tell that story.
Mr. LEWIS. And frankly, Mr. D'Amours, I believe it is in no small part your responsibility to help us in telling that story for the requirements of CDFI ofttimes on these relatively small borrowers are very onerous. It cuts off credit lines that might otherwise be available except for those requirements. The question is relative to are there really differences in the clientele served by these two programs that ought to be on our record. And if you could help us with that so that we can maybe deliver in another form the same testimony that Ms. Kaptur would be delivering to the Banking Committee if they were listening to our testimony.
ADMINISTRATION'S REQUEST FOR CDRLF
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I would like to place one more question on the record that you may not want to respond to here, but you certainly can if you wish, but otherwise for the record. The question is why didn't the President request any appropriations for this loan program?
Mr. D'AMOURS. Which program, the revolving——
Mr. LEWIS. The Community Development Revolving Loan Program.
Mr. D'AMOURS. There is no authorization until——
Mr. LEWIS. Well, let me ask the question one more——
Mr. D'AMOURS. Which doesn't answer——
Mr. LEWIS. Let me ask the question one more time. Why didn't the President request authorization or funding for it?
Mr. D'AMOURS. It is—I am very limited in my ability to influence the OMB or other people, but I would like to say that I completely agree with the statement that Ms. Kaptur just made. And again, I wish Joyce Jackson were here with us, because she has worked specifically along the lines you have just suggested, Congresswoman Kaptur. And it is—you are absolutely correct. We are reinventing the wheel here, and there is a mechanism in place to do it. We have communicated that, Chairman Lewis, to people, and I just wish I had Joyce here because she could give you much more detail.
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Mr. LEWIS. Well, certainly feel free to have Joyce expand on this for the record, but I also mention for the record that the funding requests for HUD across the board are all unauthorized, you know, and that is kind of our problem. Our whole program sits unauthorized. So in the meantime we are trying to serve people. And you are a mechanism that has delivered a service, a credit line, that is very important and yet we are kind of washing right over that by creating a new wheel. And I appreciate your questions very much, Ms. Kaptur.
Ms. KAPTUR. Mr. Chairman, I appreciate your questions. And I apologize for leaving, because I am vitally interested in this topic, however I have to. I am ranking member on Agriculture, and Joe Skeen is waiting.
Mr. LEWIS. All right, thank you, Ms. Kaptur. Mr. Stokes, do you have additional questions?
DIRECTOR OF THE OFFICE OF COMMUNITY DEVELOPMENT CREDIT UNIONS
Mr. STOKES. Just one or two more, Mr. Chairman. Mr. D'Amours, you mentioned Joyce several times. What is her position at the agency?
Mr. D'AMOURS. She is the Director of our Office of Community Development Credit Unions.
Mr. STOKES. Okay, what level of——
Mr. D'AMOURS. I appointed her to that three years ago. She is an SSP. She is one of our top——
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Mr. LEWIS. Political——
Mr. D'AMOURS. Political appointee—no, she is not political. She is SSP. That is career executive service.
Mr. STOKES. Comparable to SES?
Mr. D'AMOURS. Yes.
Mr. STOKES. Her level is what?
Mr. D'AMOURS. Her job, Director.
Mr. STOKES. Her level.
Mr. D'AMOURS. One, SSP–1.
Mr. STOKES. Okay.
Mr. D'AMOURS. Yes.
Mr. STOKES. I thought we ought to put that on the record since you mentioned you wished that she was here.
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Mr. D'AMOURS. Yes, sir.
Mr. STOKES. It should be good, in light of our previous conversation, that she is——
Mr. D'AMOURS. Next year she will be.
Mr. STOKES. I am sure of that. Unfortunately, I won't be here.
Mr. D'AMOURS. Unfortunately you won't be.
Mr. STOKES. The Chairman will be here.
Mr. LEWIS. May or may not be. You never can tell.
Mr. D'AMOURS. I devoutly hope so.
Mr. LEWIS. I don't intend to stay too much longer than Mr. Stokes, I can tell you.
Mr. STOKES. You have got to get to 30 here first.
Mr. LEWIS. I said not too much longer.
REQUESTS FOR TECHNICAL ASSISTANCE
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Mr. STOKES. Let me ask you one other question. Are you able to accommodate all of the requests for technical assistance that you receive from community development credit unions?
Mr. D'AMOURS. I understand we are not, Congressman.
Mr. STOKES. Can you give us some idea what level of resources would be needed to take care of at least the highest priority requests?
Mr. D'AMOURS. I would be glad to get that.
Mr. STOKES. Would you get us that for the record?
Mr. D'AMOURS. Yes, sir, I would be happy to.
[The information follows:]
AMOUNT NEEDED TO FILL ALL TECHNICAL ASSISTANCE REQUESTS
The CDRLP would minimally need $20 million in income producing assets to fully fund (100%) the 1997 technical assistance request level.
CDRLF TECHNICAL ASSISTANCE
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Mr. STOKES. It might be good, too, in light of that to put on the record the technical assistance that is provided through the Revolving Loan Fund. How much is being furnished this year? And if you will tell us in general terms who are the recipients and what is the level of technical assistance that is provided by the NCUA staff or others. So if you would put all of that on the record, I would appreciate it.
Mr. D'AMOURS. We have all of that and we will get it for you, sir.
[The information follows:]
"The Official Committee record contains additional material here."
Mr. STOKES. Okay, good.
Mr. LEWIS. Thank you very much.
Mr. D'AMOURS. I thank you, Congressman Stokes.
Mr. STOKES. Thank you, Mr. Chairman.
Mr. LEWIS. Chairman D'Amours, we appreciate your being with us today. The questioning took lines that we don't always follow when you are before us, but I would be very interested in your elaborating on the record if you find it to be beneficial following the court's action, if we do hear from the court in the next several days, if there is any reason for you to want to add something to the record, it will be open for that purpose.
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Mr. D'AMOURS. I appreciate that, and I thank you for it, Congressman Lewis—Chairman Lewis.
Mr. LEWIS. Mr. Stokes, thank you.
Mr. STOKES. Thank you.
Mr. LEWIS. We thank you very much.
"The Official Committee record contains additional material here."
Wednesday, February 25, 1998.
U.S. CONSUMER PRODUCT SAFETY COMMISSION
WITNESSES
ANN BROWN, CHAIRMAN
HON. THOMAS H. MOORE, COMMISSIONER
MARY SHEILA GALL, VICE CHAIRMAN
Mr. WICKER [presiding]. Our first hearing this afternoon is with the Consumer Product Safety Commission. The Commission's budget request for fiscal year 1999 is $46,500,000, which is an increase of only $1.5 million compared to the fiscal year 1998 appropriation.
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We'd like to welcome the chair of the Commission, Ms. Ann Brown, as well as the other members of the Commission, Ms. Mary Sheila Gall and Mr. Thomas Moore.
I am Roger Wicker from the 1st District of Mississippi, and I have been given permission to ask questions out of order. Certainly, our witnesses will be asked to give their introductory statements, but I am to preside over the House at around 3:00 this afternoon, and I wanted to ask a few questions, if I might, Madam Chair, about the furniture flammability issue.
Ms. BROWN. Yes, sir. You will promise me to read my statement. You'll read it at some point. You'll make a promise?
Mr. WICKER. Your statement will be given every——
Ms. BROWN. Okay.
Mr. WICKER [continuing]. Attention.
Ms. BROWN. Thank you.
Mr. WICKER. And certainly, I believe you will be given an opportunity to——
Ms. BROWN. Oh, that's fine.
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Mr. WICKER [continuing]. Offer the statement.
Ms. BROWN. I was just being light.
UPHOLSTERED FURNITURE PROJECT
Mr. WICKER. Yes. In my district, a substantial part of the population is engaged in the manufacture of upholstered furniture. As a matter of fact, several years ago my state became first in the nation in the manufacture of upholstered furniture. I think North Carolina may still have the lead on us in the case goods.
But as far as upholstery, we are very proud of our accomplishments there—opportunity, good jobs, and a sense of pride that our quality products are shipped all over the world. I am concerned, as you know, about the Commission's furniture flammability initiative, and I hope we can make sure it is reasonable and does not jeopardize jobs or our accomplishments in northeast Mississippi.
At last year's hearing, we discussed the Commission's investigation of the UFAL voluntary program to reduce upholstered furniture fires. Mr. Medford, who is here today——
Ms. BROWN. Yes.
Mr. WICKER [continuing]. Noted at the hearing that the Commission was poised to finish its work on upholstered furniture. He stated that the first issue to be resolved would be whether to grant the petition on smoldering ignition.
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Now, I understand that there are three aspects of furniture flammability—large flames, small flames, and smoldering ignition, which is——
Ms. BROWN. Cigarettes.
Mr. WICKER [continuing]. Primarily cigarettes.
Ms. BROWN. Right.
UFAC PROGRAM
Mr. WICKER. With regard to smoldering ignition, Mr. Medford had this to say. ''The decision the Commission will make next with respect to these two issues is whether to grant the petition on smoldering ignition, which would depend entirely on the degree to which the voluntary program is working and being conformed with by the manufacturers.''
Since that time, the Commission staff has compiled a great deal of information about the UFAC Program. Reading over the transcript of a recent Commission briefing here, there appears to be a consensus on two points, and I have the transcript of the Commission briefing here, Madam Chair.
Number one, the effectiveness of the voluntary UFAC Program. I quote—''The UFAC Program has done basically what the Commission has asked it to do.'' The UFAC Program has gone above and beyond the targets set by the Commission for the previous years. For example, 92 percent of individual cigarettes placed on UFAC-complying chairs did not ignite the chairs, again exceeding the targets of the Commission.
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And number two, compliance by the industry with their voluntary UFAC Program. Again, ''Results support the industry claim that about 90 percent of the dollar value of currently manufactured furniture conforms to UFAC's test criteria.''
Based on that briefing, and on Mr. Medford's statement last year that the decision would be based entirely on the degree to which the voluntary program is working and being conformed, why is the Commission still focusing on the issue of the smoldering ignition?
Ms. BROWN. There are actually two parts to the furniture flammability work that we're doing, and let me express to you that so far the staff has not made a recommendation to the Commission. We are not at that stage yet. So we are open-minded in the work that we are doing.
But we are pursuing the work, and the UFAC Program has been very helpful in reducing the number of deaths and injuries related to upholstered furniture due to cigarette ignition, and that's what you're talking about—during cigarette ignitions. That has been rather successful.
There still, however, are a large number of people who are killed each year in cigarette-ignited fires. In fact, it is 500 people in 1995, the last year that we had any statistics. But our project is focusing not on cigarette ignition but is focusing on small open flame fires, which is another area of the upholstered furniture fires. And those are fires from lighters, matches, and candles.
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So you have UFAC being very successful in the cigarette-ignited fires, although there still are 500 deaths a year. We really want to reduce the deaths and injuries, the whole total, from the small open flame. And it turns out that we've made a very pleasant discovery that reducing the deaths and injuries from the small open flames will also help us reduce the toll from the remaining cigarette-ignited fires.
Mr. WICKER. All right. Is it correct that we've made tremendous progress in both of these areas over the past 15 years?
Ms. BROWN. We've made special progress in cigarette-ignited fires, although as I say, there are still 500 deaths—last year of our counting, 1995, the last year that statistics are available—which is still a large number.
Mr. WICKER. Is it your understanding that these statistics are correct; that, indeed, 500 deaths ocurred from cigarette smoldering ignition in 1995——
Ms. BROWN. Right. Cigarette-ignited fires.
Mr. WICKER [continuing]. But that is down——
Ms. BROWN. Absolutely.
Mr. WICKER [continuing]. From 1,300 deaths——
Ms. BROWN. Correct.
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Mr. WICKER [continuing]. Per year in 1980, a substantial——
Ms. BROWN. Substantial reduction, as I said to you.
Mr. WICKER. Right. So in the absence of a regulation by the Commission, and with the use of voluntary industry efforts, we've made excellent progress.
Ms. BROWN. In cigarette-ignited fires.
Mr. WICKER. Now, am I correct that there were 80 deaths from open flame in 1995?
Ms. BROWN. Is that small open flames?
Mr. WICKER. Small——
Mr. MEDFORD. Yes. That was small open flames, in the neighborhood of 80 to 90.
Mr. WICKER. Now, of course the Commission has abandoned, for the moment, any effort to——
Ms. BROWN. The larger——
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Mr. WICKER [continuing]. Address large open flame.
Ms. BROWN. Correct.
Mr. MEDFORD. That's right.
Mr. WICKER. So we're talking about cigarette lighters and matches.
Ms. BROWN. Cigarette lighters, candles, and——
Mr. WICKER. Candles, cigarette lighters, and matches. And so in that area, certainly, one death is too many. But the number has been reduced from 170 deaths for small open flame—no, I want to correct myself. My information says small and large. Let me turn to my trusty assistant. Is it both?
If you can't tell me now, maybe you can get that to me.
Ms. BROWN. I can get that.
Mr. WICKER. But I have that small and large flames resulted in 170 deaths for the entire year of 1980.
Ms. BROWN. Right.
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Mr. WICKER. And it's only 80 deaths——
Ms. BROWN. Ron, do you have that, or should we get that?
Mr. MEDFORD. That's about correct.
Mr. WICKER. Okay.
Mr. MEDFORD. We'll correct the record.
Mr. WICKER. Small and large.
Mr. MEDFORD. My number is 200 for 1980, the number that I have here.
Mr. WICKER. Okay.
Mr. MEDFORD. But we can correct it for the record.
[The information follows:]
"The Official Committee record contains additional material here."
Mr. WICKER. That's even more of a dramatic decrease then.
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Small and large. I wonder if there's a way we can quantify just the small open flames.
Ms. BROWN. We can certainly get it.
Mr. WICKER. That would certainly be helpful to us.
Ms. BROWN. We'll try to get that.
Mr. WICKER. It would be a help to me, because we don't have that.
I don't mean to monopolize, but with the indulgence of my fellow subcommittee members, could I proceed with a question or two more? Mr. Stokes?
Mr. STOKES. Yes. Please do, yes.
Mr. WICKER. I appreciate the indulgence.
Initially, small open flame was to be considered separately from the smoldering ignition.
Ms. BROWN. Cigarette ignition, right. Yes.
Mr. WICKER. And now that has been merged.
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Ms. BROWN. No.
Mr. WICKER. It has not?
Ms. BROWN. No.
Mr. WICKER. Okay. Would you correct——
Ms. BROWN. What has happened——
Mr. WICKER [continuing]. My——
FOCUS ON SMALL OPEN FLAME IGNITIONS
Ms. BROWN. Yes, I would. It has not been merged. We are still dealing with small open flame. It turns out that the staff tells us that what would be done for small open flame would have the pleasant coincidence also of reducing the number of cigarette-ignited fires. It is still directed for small open flame ignitions.
But what they have found that they think might work and that we have seen in the briefing package would reduce the number of cigarette-ignited fires. But that would not mean that the two have been merged. It just happens to be one of the pleasant things that the staff——
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Mr. WICKER. Would you explain how that works, how making a piece of furniture resistant to——
Ms. BROWN. Yes.
Mr. WICKER [continuing]. A small open flame reduces the——
Ms. BROWN. I will.
Mr. WICKER [continuing]. Deaths from cigarette ignition?
Ms. BROWN. I will. I just wanted also to mention one thing—that upholstered furniture is still, the leading cause of fire deaths among all products. So although there has been this great reduction, we still do have upholstered furniture as the leading cause of fire deaths among all consumer products.
Ron, will you explain how this——
Mr. MEDFORD. Yes. The regulation that the Commission is considering would be one in which you actually regulate and have a test for open flame. There would be no test for cigarettes. There would be no requirements for cigarettes.
But in doing the cost-benefit analysis, you consider what benefits and what costs are associated with such a rule. And what we found out is that the way the companies would likely comply with an open flame requirement would be with a fire retardant back treatment of the fabric.
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And that treatment provides protection in two ways. It provides protection from cigarettes and from open flame, with no intent on the staff's part at this point to require any test for cigarettes. It's simply a benefit that is derived from the small open flame standard.
Mr. WICKER. And it is not true that these two issues were merged simply to get a better cost-benefit analysis?
Mr. MEDFORD. Not at all, no.
Mr. WICKER. You deny that?
Mr. MEDFORD. Yes, absolutely. Absolutely. It's just a benefit, like any other benefit that we would count or any other cost that we would count. It is derived because it has that benefit based on the tests that we've done.
Mr. WICKER. All right. Now, you say a treatment to the back of the material is what the staff is looking at.
Mr. MEDFORD. Well, that is sort of the principal way that we believe companies would comply. It is a performance test, and companies would be able to do whatever they decide to meet the tests that we would require for open flame.
Based on the experience in the UK, what we have found out is that the use of FR-treated back coating is the principal way in which that benefit is derived, and that's what we would expect to happen in the United States.
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Mr. WICKER. All right. Madam Chair, my understanding is that perhaps as early as next week the Commission will vote on whether to authorize a five-month study of the toxicity——
Ms. BROWN. Correct.
Mr. WICKER [continuing]. Of this chemical that Mr. Medford spoke about that prevents ignition of——
Ms. BROWN. It would be any number of chemicals.
Mr. MEDFORD. Any number of chemicals.
Ms. BROWN. In other words, it's not just one chemical. The industry would have a choice of what they could use. So the toxicity studies that we will be doing and the hearings will be on any number of chemicals.
FIVE-MONTH TOXICITY STUDY
Mr. WICKER. Is a five-month study adequate to determine the toxicity of chemicals that could be harmful, not only to the workers in the plants that manufacture the furniture but also to——
Ms. BROWN. People who use the furniture.
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Mr. WICKER [continuing]. The consumers?
Ms. BROWN. Of course.
Mr. WICKER. Is that going to be——
Ms. BROWN. We were assured by the staff that five months would be adequate, because they have done a certain amount of work on this already. If it were not adequate, they certainly could come back to us.
Mr. WICKER. Well, if I could just say in conclusion that progress has been made.
Ms. BROWN. Yes.
Mr. WICKER. Lives have been saved in dramatic numbers through voluntary programs. There are other ways to save more lives. We have a pilot project involving smoke detectors in my own congressional district in Benton County. Since our pilot project went into effect, the number of deaths caused by fires in Benton County, MS has been reduced to zero through very inexpensive means.
And I would just say to the members of the Subcommittee, and to the members of the Commission, that before we take action which may be harmful because of this chemical placed on the fabric, and which will certainly increase the price of the product and drive people out of a job, I that we will consider the entire picture, including other means, such as smoke detectors and the voluntary program, as alternatives to a huge new government regulation.
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VISIT TO MANUFACTURERS PLANNED
Ms. BROWN. Congressman, I want you to be assured that we are taking all this into account very seriously. One thing that we're doing is we're going to be visiting—members of our staff are going to be visiting Tupelo during the spring recess. We are very cognizant of any problems to businesses. My father was a small business man. We are certainly are aware of any kind of repercussions.
And we have been extremely supportive of smoke detectors. We have been part of several programs, of giveaways, of making sure that not only do people have them but they are working smoke detectors.
We feel that we need to both prevent residential fires, and once a fire is started to get people out of the home. So we look at this as a two-pronged approach.
But you can rest assured that we have—that I have an open mind in this, and I find your questions are provocative and interesting and thought-provoking for me, and that we have no—we are going to wait and see what the staff says and what our five-month investigation and what that shows us before we make any decisions.
Mr. WICKER. Well, we look forward to having you and the entire staff and the Commission perhaps in Tupelo. Do you like catfish? [Laughter.]
Ms. BROWN. Do I like catfish? Congressman, it just became my favorite food. [Laughter.]
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Mr. WICKER. Mr. Chairman, the Subcommittee has been very indulgent in letting me leap ahead with questions, and I do thank you.
Mr. HOBSON [presiding]. Okay.
Mr. WICKER. And I ask that I be excused.
Mr. HOBSON. You may be excused. I know you have other meetings.
Welcome, Ms. Brown and——
Ms. BROWN. Thank you.
Mr. HOBSON [continuing]. Ms. Gall and Mr. Moore. I understand you have a statement, and if you would like to make your statement we'll put it in the record as——
Ms. BROWN. Good. And I will make it very briefly.
Mr. HOBSON. Yes. It's nice to have you here.
Statement of Ann Brown, Chairman, U.S. Consumer Product Safety Commission
Ms. BROWN. Thank you, Congressman.
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I'm Ann Brown, as you know, Chairman of the U.S. Consumer Product Safety Commission. With me are Vice Chairman, Mary Sheila Gall and Commissioner Thomas Moore, and members of the Commission staff. And I'm very pleased to have this opportunity to testify in support of our FY99 appropriation request.
This is our fifth appearance before you, and I can tell you I was a bit more apprehensive in my first appearance back in April 1994. I had been Chairman only a few weeks; I didn't know what to expect. But you've treated me kindly, been very generous to me every year, and I appreciate your support.
BIKE HELMET SAFETY STANDARD
I want to begin by telling you briefly about two recent accomplishments of CPSC's brand of common sense government that can make a real difference in people's lives. Earlier this month the Commission voted unanimously to issue the first uniform federal safety standard that all bike helmets sold in the United States must meet.
This carries out the Congressional mandate in the Child Safety Protection Act. Each year over 900 people, including more than 200 children, are killed in bicycle-related incidents, and 60 percent of these involve a head injury. In addition, more than half a million people are treated annually in hospital emergency rooms for bicycle-related injuries. And research shows that helmets can reduce the rate of injury by as much as 85 percent.
This new standard will reassure consumers that every bike helmet for sale in every store will provide the same excellent head protection. And just as important, the new standard will reduce the confusion of consumers confronted by an alphabet soup of standards and standard labeling.
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I just brought this, not because I rode my bike here, but I did want to show you the new bike helmet for children. There are special requirements for children's soft temporal lobes, which is around here. The new bike helmet protects the children's developing head by giving more protection to children from ages one to five. And all of the helmets—another new thing—will have much strengthened chin straps, so that in case there is a crash the helmets will not roll off. So this will be excellent protection.
VENT PIPE RECALL
I'm also especially pleased to tell you that virtually the entire furnace and boiler industry has joined with CPSC to announce a program to correct, free of charge to consumers, about 250,000 high-temperature plastic vent pipes. I'll show you what these are in case you're not familiar with your furnace. These are pipes that connect to your furnace and your boiler.
The problem with these, they pose a deadly carbon monoxide threat to consumers because they crack. The nationwide replacement program will be paid for entirely by the participating companies. And, Mr. Chairman, this project also demonstrates the increasingly complex technical nature of the issues facing the Commission in consumer product cases and our growing need for more resources to address them.
And I just want to commend our staff for reaching a successful conclusion on this with a limited budget and for doing a creative job of getting the work done.
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This was the first time in the history of the agency that a mediator was used to bring together all segments of an industry to implement a program for the benefit of consumers nationwide. And you may have seen it—I don't know if you saw the Today show this morning, but this—about the high-temperature plastic vent pipes was featured on the Today show.
This is another example of how we use smart, common sense government to achieve a solution that will save lives without resorting to costly litigation or regulation.
Next Hearing Segment(2)